There is more than one way to skin a cat

The draft report of the Climate Change Authority is as much about trying to inform the direction of Direct Action as it is about making recommendations about Australia's national emission target.

Predictably, the Authority's finding the current target of minus five percent on 2000 levels is "inadequate" has been viewed in the context of the Coalition's plan to repeal the carbon scheme and that its amorphous Direct Action scheme will have trouble even reaching that level.

On the flip side, the Coalition's plan to abolish the Authority seems at first to make its recommendations somewhat academic. 

But that would be a short-sighted reading of it. It does a disservice to its chair Bernie Fraser, a pragmatic and canny political operator.

For a start, the CCA finds falling demand for power, reduced land clearing, changes to the economy and Australia's surplus under the first period of the Kyoto Protocol to reach the current 5 percent 2020 target. Was a result, it is going to be easier to hit the target with Direct Action than previously thought - the big swing factor will be what happens to energy demand.

More importantly, the CCA report shows there is more than one way to skin a cat when it comes to reducing emissions. The CCA board - like a number of other experts in the field - are trying to work out how to make something serviceable out of Direct Action.

Bear in mind that the United States is on track to achieve its target of reducing emissions by 17 percent, not with a direct price on carbon but through regulation and rapid expansion of its unconventional gas industry.

With clear awareness the days of the carbon price scheme and the Authority are numbered, the CCA has laid down markers and provided guidebook to the Coalition for reducing emissions without an explicit price on carbon.

Only last week, environment minister Hunt released an issues paper calling for submissions in relation to, among other things, "the likely sources of low cost, large scale abatement to come forward under the Emissions Reduction Fund".

"The ERF will provide incentives for companies to reduce their emissions," Mr Hunt said on releasing an issues paper.

In releasing its draft report, the CCA has obliged by providing advice on possible likely sources of low cost, large scale abatement. And it has gone out of its way to be positive about the Coalition's plan and deliberately refers to "price incentives' rather than  a carbon price.

According to the draft report, the scenarios in it are "largely based on the current legislative arrangements in the Clean Energy Act 2011 (Cth)"

But, the carbon price can be seen as a broad proxy for "incentive"- based measures, the CCA says. 

"The results show the potential scale and source of emission reductions available in Australia at different marginal costs," the report said. 

"Depending on the policy design, the Government’s Direct Action Plan may mobilise many of the same opportunities."

Store that away - it's not often you will hear climate change specialists speaking in such terms about the Coalition's plans. But the truth is that Direct Action will mobilise many of the same opportunities as a direct price on carbon; the problem is more that it is likely to do so at a much higher cost.

However, on the upside, direct contracts with polluters - envisaged under Direct Action - may provide more investment certainty to invest in low-emission technology than a carbon price scheme. While a carbon scheme is intended to provide a price signal to invest, uncertainty around future price path and the current low price act as a disincentive to investment.

As a result, the CCA has gone out of its way to provide pointers to the Coalition as to how it could target Direct Action through investment in low-emissions technology and also regulation.

"Other policies, including the Direct Action Plan ...could create price incentives to reduce emissions. Such policies may mobilise similar emission reductions opportunities to those identified in the modelling.

"There may also be a number of differences depending on the detailed policy design. "

The CCA has focused particularly on investment in low-emissions technology in the energy sector, where about half of the least-cost domestic opportunities to reach Australia’s minimum 5 per cent emissions reduction target could be found.  Energy efficiency measures come in for special mention but the CCA makes pointed reference to the need to ensure measures are "cost effective". 

"Incentives for emissions reductions could be established at different levels of government, using a wide range of policy tools. The type of emissions reductions and the rate at which they are realised will be affected by the relative costs of low-emissions technologies."

The CCA also - strategically- identifies the importance of the Renewable Energy Target.

"Pitt & Sherry (2013a) estimates that about 40 per cent of the reduction in emissions from the NEM in the year to 2013 was due to lower electricity demand, and 60 per cent due to the uptake of lower emissions electricity generation. AEMO’s (2013a) forecasts note the effect of the RET in lowering the emissions intensity of electricity supply."

In the transport sector - which is not currently covered by the carbon scheme and accounts for 15 percent of emissions - "sustainable biofuels, vehicle electrification and mode shift " could be deployed.

"Fleet-average fuel economy or carbon dioxide emissions standards for light vehicles have been adopted in many major markets, including the European Union, the United States, Canada, China, Japan and South Korea. Such standards warrant further investigation for Australia. "

Similarly, in direct combustion, beyond efficiency improvements, the main opportunity to reduce emissions could be to substitute alternative lower emission energy sources, such as biofuels.

And almost half of the estimated emissions reductions in the industrial processes sector in 2020 and 2030 could be delivered by nitrous oxide conversion catalysts for nitric acid production. The other significant emissions reduction opportunity is in the destruction and replacement of synthetic greenhouse gases.

But the problem in all of this is the growth of Australia's fossil fuel exports.

"The main challenge to reducing fugitive sector emissions  is strong growth in LNG and coal production, which could outstrip improvements in emissions intensity. "

Agriculture emissions are also projected to grow in the period to 2030 in all scenarios modelled, driven primarily by strong growth in demand for Australia’s agricultural exports.

Then of course, there is the big problem of how to increase the national target about minus five percent under Direct Action. A major factor behind the CCA's recommendations is the fall in the international price on carbon and the ability to increase the national target by purchasing overseas abatement with relatively little further cost.

"While there are extensive emissions reductions opportunities available in the domestic economy, the modelling also shows that international emissions reductions can help Australia meet its targets in a cost-effective way. There are many options for securing emissions reductions from other countries."

While the Coalition has been adamant it will reach the five percent target exclusively through domestic abatement, it has been silent on what will occur if it increases the target, which Mr Hunt has indicated may occur in 2015. Indeed, in some discussions Mr Hunt as even hinted the Coalition may look to purchasing international abatement if the target is increased.

And the CCA has picked up on these hints in its report and goes into detail about how to ensure the integrity of international carbon permits.

"In the Authority’s view, the Government should consider allowing the use of international emissions reductions to go beyond its minimum 5 per cent commitment, paying careful attention to the environmental integrity of the emissions reductions allowed,". Moreover, the Government could consider using genuine international emissions reductions to complement domestic efforts to achieve Australia’s minimum 5 per cent commitment. "

It seems unlikely - given Tony Abbott's strong views against international abatement - this would occur in the short term.

But the CCA is playing the long game, despite its limited short-term future.