Gaming carbon

Updated 3/2018: Corrected Kyoto ACCU interpretation.

Later this year Environment Minister Hunt will be jetting off to Paris for the 21st annual United Nations climate change conference (“COP 21”; I can recommend this cute little hotel Greg, right behind the Élysée, only $1200 per night…). Parties will again be discussing post-Kyoto carbon emission reduction commitments, and there is evidence that some important players might be prepared to accelerate their previous glacial pace (like Pine Island … err, sorry). But we already know Hunt’s brief: obfuscate as best you can to minimise the domestic damage, while delivering essentially nothing.

Harsh? I offer as evidence his centrepiece policy, “Direct Action”, also know as the Emissions Reduction Fund:

The objective of the Emissions Reduction Fund is to help achieve Australia’s 2020 emissions reduction target of five per cent below 2000 levels by 2020. The Government has provided $2.55 billion to establish the Emissions Reduction Fund, with further funding to be considered in future budgets.”

The idea is that, instead of taxing carbon polluters — or, rather, pricing their emissions through a capped trading market — the government simply purchases emission reductions from them directly, using your tax dollars. In my view that approach is so utterly economically illiterate that you can’t help but dismiss its sincerity.

Economics is the study of avarice, and it’s defining characteristic is the counter-intuitive response. Suppose it looks obvious that some action should produce a particular effect. In economics, initially maybe it does, but in the second, third and fourth instances folks will find clever and unexpected ways to win off what you do, which is to say they will game it.

When you impose a tax or a trading price on pollution — even one that’s 100% compensated so that it surely “can’t work” — people are going to find ways to avoid it. The smart thing is that’s exactly what you wanted. You wanted them to avoid the cost by avoiding the emissions, and to do that in whatever cunning ways they can dream up; ways you maybe can’t even guess at, but which minimise their cost and maximise their gain. Effectively you second-guessed them, or gamed them. You got exactly the emission reduction you wanted at minimum cost to the players, and because that’s pretty much everyone, you minimised the overall economic cost.

Much the same applies if you offer to pay people money to stop polluting, except that the tables are nastily reversed. Folks are going to game you instead. That, unfortunately, is already apparent in some responses to the very first tranche of Minister Hunt’s “Direct Action” pollution purchase. (Note that I imply no criticism of the players here; they’re merely responding as we all do, and as economic theory would predict.)


Direct Action tranche #1

Minister Hunt announced the results of the first $660M of his $2.2B “carbon purchase” back in April. So how’d it go? Did we close down some maximally polluting brown coal-fired electricity generating units … or maybe retire some part of the belching truck transport fleet? Err, no, none at all of the first, and a femptoscopic proportion of the second.

The actual results looked like this:


First note that while the headline “reduction” is about 47 Mt, it’s deliberately ambiguous whether that’s an aggregate reduction or a reduction in the annual emission rate. It has been portrayed and interpreted as the latter, but it definitely is not.

A continuing annual reduction of 47 Mt would be a very useful dent in our current emission rate of about 550 Mt/yr, but that’s not what we are paying for. What we’re buying are “Kyoto Australian Carbon Credit Units”, defined as one tonne of CO₂-equivalent emission avoided before the end of 2020. That’s one tonne avoided, not one tonne per year avoided. By design the scheme does not produce continuing reductions, though there may be continuing effects in certain cases.

Also note that over 80% of your money went in just two areas: reducing methane emissions and preventing land clearing. Both of those are laudable enough, but neither is where our most difficult and intractable carbon pollution action lies.



Methane emissions from rubbish dumps, piggery waste and similar facilities are substantial short-term contributors to global warming. Methane (CH₄) oxidises naturally to CO₂ in the atmosphere, with an average lifetime of about 10 years. While it’s there it’s a seriously efficient greenhouse gas, explaining its high CO₂-equivalent weighting (about x25) in greenhouse gas accounting. So there’s definitely benefit in collecting and deliberately oxidising (burning!) it before release, which is how the majority of methane reduction projects work. But it’s a very short term benefit — the resulting carbon dioxide is still released, and a substantial fraction of that will still be in the atmosphere in thousands of years (yes, thousands…¹).


Land clearing

Land use change through permanent land clearing has been a very substantial contributor to Australia’s greenhouse gas emissions, so preventing more clearing is important. The serious question for public policy is whether we should control clearing by regulation — as many states already do — or by actively paying people not to clear. What appears to have happened in this case² is that some canny graziers, mostly in far western NSW, who’d already established the existence of land clearing entitlements under an earlier carbon abatement scheme, effectively agreed to forgo those for the very tidy sum of about $300M. That’s nice work if you can get it. The rummaging noise you can now hear is landholders around the country searching the drawer for old clearing permits to sell to Mr Hunt in the next carbon auction, and of course hassling their solicitor to see if they can generate a few more.

Nothing physical appears to have happened as a result of spending this $300M of your money; it was a paper transaction. We will simply never know if cash-strapped, drought-affected landholders in the far west would ever have cleared that marginal mulga scrub³. At least they’ve committing to protecting it for around 100 years, although it’s fair to ask who will enforce that decades down the track, and with what penalties (none appear to be legislated).

"Ashwood Farms" emission reduction project

Ashwood Native Forest Protection Project“,
one of nearly 50 land clearing avoidance projects you “purchased” in the first tranche

So, Mr Hunt, was this $300M really a serious effort to reduce the highest per capita carbon pollution rate in the world, or was it a National Party boondoggle?


References and notes

  1. Archer, David, et al. “Atmospheric lifetime of fossil fuel carbon dioxide.” Annual Review of Earth and Planetary Sciences 37.1 (2009). Archer says that around a third to a fifth of current emissions will still be in the atmosphere in 10,000 years. Yep, that long. Given the level of awareness of global warming, it’s extraordinary that so few people grasp how challenging the carbon pollution problem really is.
  2. The details are secret.
  3. Calling it native forest is a stretch. The proper technical term for most would be woodland.