MANY pitched the recent federal election as a referendum on the carbon tax.
While the fate of the carbon tax may be unknown for some time, and ultimately be in the hands of several minor party Senators, the Coalition's Direct Action Plan is worth opening the lid on.
The first thing to note is that just as the previous Labour Government committed, the Coalition is aiming to reduce Australia's net greenhouse gas emissions by 5 per cent on 2000 levels by 2020.
So there is agreement about the need to address global warming but a key difference is how this will be achieved.
The Coalition will repeal the carbon pricing scheme which means the nation's largest emitters of greenhouse gases will no longer be required to pay a carbon price on their emissions or buy carbon credits to offset these emissions.
Instead, the Coalition will run a reverse auction scheme where the Government buys carbon credits with money from an Emissions Reduction Fund starting as of July 1, 2014.
While some policies and regulations are on their way out, carbon credits will still be generated through the Carbon Farming Initiative.
So what does this mean in practice?
First, the amount of money available to buy carbon credits will shrink.
The current scheme had the potential to buy up to $300 million a year in domestic offsets in the first couple of years, rising to at least $1 billion a year once Australia ended the fixed price period of the scheme.
In contrast, the Direct Action Plan will provide $2.55b in its first four years to buy carbon offsets. One key difference is that while the current scheme relies on large emitters to make a decision to buy carbon credit units (or not), the Direct Action Plan will require government to buy permits up to a specified total amount each year.
Second, the rules for approving new CFI methodologies appear set to be revisited, making it easier for a broader range of methods to be approved.
The stringent conditions for approving methodologies has been the subject of debate since the CFI came into being, with 21 approved methodologies, eight not approved and four more in limbo and requiring more information before a decision is made.
Perhaps of greatest interest is the suggestion that the "permanence" test under the CFI will be changed.
At present, any project that aims to store carbon must demonstrate that provisions are in place to lock up the carbon for at least 100 years. This has been of concern to farmers who fear that food-producing land could be locked-up under trees for generations.
The 100-year permanence test has also meant that various activities that do sequester carbon, especially in the soil, but for shorter periods of time than 100 years, do not qualify under the CFI.
So how much can the permanence test change by?
The Direct Action Plan policy is not specific about this point but some commentators have suggested it could be reduced to as low as 25 to 30 years.
This means soil carbon could play a big role in emissions reduction if the Direct Action Plan takes effect.
The importance of it to Coalition policy is clear: it expects that more than 60pc of the emissions reduction to be delivered by 2020 will come from soil carbon at a price of $8-$10 a tonne CO2 equivalent.
Although there are no approved CFI methods for soil carbon, this is an area of significant research, with nearly $18 million in Federal funding allocated to soil carbon research from the Carbon Farming Futures Fund in the past two years.
Finally, it is worth reflecting on where the carbon credits have come from in the first year of the scheme. This gives us an idea of which methods are approved and for which the business case already stacks up.
And that is the destruction of methane from landfill gas, which accounted for 98pc of all Australian Carbon Credit Units issued in 2012-13.
While landfill gas projects make up some of the forecast emissions reduction mix under Direct Action Plan, it is expected to account for only 2-3pc of the carbon credits generated. So this will be a major change in emphasis.
While the action plan is the stated policy of the incoming Federal Government, the uncertainty about the final shape of the Senate means that it is no certainty to replace the current carbon pricing arrangements any time soon.
* Full report in Stock Journal, September 19 issue, 2013.
