Extract from ABC News
Secret documents detail a government regulator scrambling after then-energy minister Angus Taylor decided to effectively rip up decades-long contracts for carbon credits, gifting windfall profits of potentially billions of dollars to some private companies.
Key points:
- Companies were allowed to break contracts to take advantage of a soaring market for carbon credits
- That boosted the number of carbon credits: increasing supply lowered the price and made polluting cheaper
- The department knew about "sovereign risk" concerns caused by the rapid change
Revealed for the first time in documents obtained through the Freedom of Information (FOI) process, the government was warned the decision could:
- Kill any new carbon-farming projects for five years, with investment to "effectively cease"
- Strand $500 million in recently announced projects from Telstra, BHP and Woodside
- Flood the market with carbon credits until 2026, leading to low prices and removing incentives to start projects
- Introduce the spectre of "sovereign risk which would result in reduced demand" due to the scale of the intervention
Additionally, the process crushed time lines meant to promote good governance.
The documents also reveal the Clean Energy Regulator talked about creating "defensive talking points" and tweaked media messages so "we are not presuming the worst but look like this is going to be a well-managed transition".
The minister's decision crashed a previously booming market for carbon credits and made it cheaper for big polluters to continue business-as-usual practices rather than reduce their carbon emissions.
What is this about?
The world needs to stop emitting carbon pollution to prevent the worst impacts of climate change.
Groups from multi-national companies to local councils want to reduce carbon pollution to "net zero" – not emitting any carbon pollution overall.
There are two ways to get there.
The first is to change what you do, such as getting power from renewable-energy sources instead of burning fossil fuels such as coal and oil.
The second is to use "carbon credits" — the removal of carbon from the atmosphere — to weigh against pollution that cannot easily be prevented.
Essentially, carbon credits allow polluting companies to offset some of their carbon emissions rather than eliminate them.
Booming market
An Australian carbon credit unit (ACCU) represents one tonne of carbon emissions reduced or avoided.
A growing number of companies help farmers plant trees or avoid deforestation to create ACCUs.
Before 2020, projects had to sign up to a fixed contract with the Commonwealth to deliver carbon credits for $12 a tonne for a period of up to 10 years before they could sell on the open market.
Then, in March 2020, the Clean Energy Regulator created optional contracts where people who created ACCUs could sell them to the government's Emissions Reduction Fund, but did not have to.
The option to sell on the open market was hugely popular. Almost no-one wanted fixed contracts after optional contracts were created.
A lack of units and a surge in interest after the Morrison government signed up to a target of net zero carbon emissions by 2050 at the COP26 conference saw prices on the open, or spot, market hit $55.
That created an increasingly large gap between the $12 fixed price offered by the government and the price on the tradeable market.
Some companies discussed breaking their deal with the government, paying a penalty, and still coming out on top due to the soaring market price.
Mr Taylor's decision ripped up the old arrangements, allowing fixed contracts to sell on the market like optional ones (with the payment of an exit fee).
"These reforms will lead to more ACCUs becoming available to the market in an orderly and transparent way, which will help meet the increasing voluntary demand for domestic offsets," the then-energy minister said in his announcement on March 4.
After the Morrison government lost the election, Mr Taylor was promoted to Shadow Treasurer.
Contacted for comment, a spokesperson said in a statement: "The decision was made on the advice of the Clean Energy Regulator and the Department of Industry, Science, Energy and Resources."
Integrity 'rort' concerns
The change came just before serious allegations were raised about the integrity of Australia's carbon credits, with the former chair of the Emissions Reduction Assurance Committee, ANU law professor Andrew Macintosh, calling the market "a rort".
The new government announced a review, led by former chief scientist Ian Chubb and four experts, to probe the claims. The terms of reference for the inquiry say it will examine if "settings and legislative requirements are appropriate" in the overall carbon market.
A spokesperson for Energy Minister Chris Bowen said Australia needed a "strong and credible" carbon credits scheme.
"Our success depends on the scheme having integrity, which will drive business and public confidence in it," they said in a statement.
"All stakeholders will have an opportunity to contribute. The panel will meet with a wide range of individuals and groups, and invite public submissions, to inform its advice".
A report is due by the end of December.
Warnings raised
Before the announcement, key industry figures sounded alarm bells about the shift.
Raphael "Raf" Wood helped design and implement some of the architecture of Australia's decarbonisation, such as the renewable energy target, carbon pricing mechanism and the Emissions Reduction Fund.
As the managing director of consultants Market Advisory Group (MAG), he gave senior Department of Industry, Science, Energy and Resources staff his predictions.
"I spoke to Raf this afternoon. I think his overarching feedback is that investors are nervous about the government intervening in the market in a way that could impact on price," Alannah Petony, general manager of emissions reduction in the department, wrote to colleagues.
He was not alone in expressing these sorts of concerns.
John Connor from industry association the Climate Market Institute gave his view on the MAG analysis a week before the announcement.
"The biggest effect is on new project investments," he wrote to senior department staff.
"Simply, no new projects need to be developed until 2027.
He further listed $500 million in recent projects from Telstra, BHP, Woodside, several banks and wealthy family companies that would be "stranded" by the changes.
Killing off investment would also create future problems, he wrote. By 2028 an "undersupply problem will raise its head".
Warnings remain
Speaking after his emails were released through the FOI process, Mr Connor reiterated what he told the department.
"I hope we've all learned some lessons about better process. It's important.
"These are very big investment decisions. They do need lead times. They are sensitive to shocks."
The shift had had a "chilling effect" on investment, he added, even if the situation had not reached some of the "worst-case" scenarios put forward before the decision.
"I guess we were there ringing the bell that… they needed to be very considered about this.
"We were preferring that there'd be broader consultation. They didn't do that".
As an industry body, the Carbon Market Institute was concerned about the impact on getting investment to develop the carbon projects, which can take three to five years to get off the ground.
""You can't stuff around with this."
Regulator sidelined
But the Clean Energy Regulator, an independent statutory authority, appears to have been way behind in dealing with the government's massive intervention in a market it operates.
An email, marked "PROTECTED/CABINET", went around the regulator just before 2am on Tuesday, March 1.
The email between some of the regulator's staffers, whose names are redacted, wanted those who received it to "start preparing" once a senior staffer confirmed the "final agreement per ERC decision" (the ABC has not been able to confirm what the unnamed staffer meant, but ERC is a standard contraction of the powerful Expenditure Review Committee that examines spending proposals and advises cabinet on the budget).
It was a sign that a massive shift — a stroke-of-the-pen government decision changing the dynamics of a billion-dollar industry — was about to drop.
Days later, the regulator would be sending updated scripts for its call centre workers dealing with shocked customers.
Changes in train
With some input from the regulator, the government had been working on the changes for some time.
About a fortnight earlier, February 16, department deputy secretary Jo Evan was emailed by a staff member about the "transition from fixed-delivery contracts" set to be unleashed.
There was concern about the haste, because rushing a compulsory examination — called a regulation impact statement or RIS — could blow up in public.
Such a statement is required by the Office of Best Practice Regulation that sits in the Department of the Prime Minister and Cabinet. The aim is to make better policy by requiring the completion of a detailed cost-benefit analysis working out the impact of an action.
"If the public announcement is made prior to the second pass final assessment being concluded, the Office of Best Practice Regulation will be obliged to publicly release the draft RIS as 'insufficient'," the staffer wrote.
Emails show that after weeks of argy-bargy the process was sped up, slashing days off the usual turnaround to get it done in time – meaning it would avoid the public embarrassment.
The day before the announcement, an advisor in the Office of Best Practice Regulation gave it the thumbs up: "Just to skip to the chase, the RIS is adequate and will be compliant if the minister announces today".
An email went around the department celebrating.
More answers in 2042
There's still more we could know about this saga.
A separate application asked for correspondence between the department and the Clean Energy Regulator about the proposed changes to the Emissions Reduction Fund fixed delivery contracts for the two-week period from January 31 – when the key discussions would have been happening.
Applications are meant to be completed within a certain period, but after three separate extensions to the deadline, the department's Alannah Petony came back with a firm response: No.
Of the 10 documents, six were excluded because they would reveal a Cabinet deliberation or decision.
We were stopped from seeing the remaining four documents because they were "deliberative", they were created for a minister or agency and would reveal how decisions were made.
Documents relating to Cabinet decisions from this year will be released to the public in 2042.
How you know this
Freedom of Information applications give access to information about you, or topics you are interested in, held inside government departments or agencies. Search 'FOI' on the website of any department to find out more.
Generally, you can email your application. Costs may apply.
The Clean Energy Regulator charged the ABC $705 for access to the documents used in this report. The ABC appealed the charge, arguing that it is itself a federally funded organisation and that large budget cuts meant it should be spared the cost.
Despite the regulator having the discretion to waive costs, FOI authorised officer Jennifer Bradley declined to use it.
"The charge invoiced to you," she wrote, "represents a nominal amount only, and falls significantly short of the actual costs associated with the CER processing your request."
In its final decision, the regulator granted the ABC full access to three documents, partial access to 50 documents. It refused access to 12 documents.
No comments:
Post a Comment