Can carbon abatement auctions work?

I have been a long time advocate of carbon abatement auctions as a cost effective tool for driving down emissions.  (I am guilty of exchanging emails with Greg Hunt on the subject some years ago.)  The sort of process I am advocating is one where:

  1. A level of government periodically runs a CO2 abatement contract auction (or some other competitive tendering process.).
  2. Successful bidders will be paid their bid price per tonne CO2 abatement for a specified period or tonnes CO2 abated.  (Number of years might be specified by the bidder or the government.)
  3. The amount auctioned at one time might be set in terms of tonnes CO2 abatement or dollars of expenditure.
  4. Acceptable bids would have to satisfy a number of criteria.  For example:
    • The reduction in emissions should be easy to measure in a way that avoids disputes.
    • The emission reduction should be permanent.  (Planting trees that may die and oxidize later as a result of climate change definitely doesn’t satisfy this criteria.)
  5. Some bids should definitely be excluded.  For example:
    • Bids that simply involve shutting things down.  (We don’t want people keeping dirty power stations running in the hope that the taxpayer will pay them something to shut down.)
    • Bids that simply involve bringing emissions in line with Australian (World?) best practice.
    • Climate action that is already being covered effectively by other schemes such as the RET.
  6. A logical way of paying for the scheme would be a levy on fossil carbon as it comes out of the ground or crosses into Australia over our borders.  However, it may be more cost effective to simply to add a climate action levy to an existing tax.

The potential attractions of this auction process include:

  1. Allows various levels of government to initiate auctions.  (Important if the federal government is hostile to climate action.)
  2. Competitive tendering and the certainty that comes with contracts will help minimise costs.
  3. Encourages people to compare costs per tonne CO2 abatement and think outside the square.
  4. Allows governments to narrow the options that will be considered for specific auctions.
  5. Reduces the present worth cost of reaching long term targets by concentrating the initial efforts  on actions with the lowest cost per tonne CO2 abatement.

NOTE: This post is not meant to be an endorsement of the LNP’s direct action policy nor the specific auction process proposed in this policy.

What is proposed in this post would be, at most, a relatively small part of the overall emission reduction program.


2 thoughts on “Can carbon abatement auctions work?”

  1. A logical way of paying for the scheme would be a levy on fossil carbon as it comes out of the ground or crosses into Australia over our borders. However, it may be more cost effective to simply to add a climate action levy to an existing tax.

    Is this then a carbon tax?

  2. Brian: Yep, it is a carbon tax and yep there is a sort of logic in paying for climate action for a tax on emissions. after all the RET has, in effect, been using a tax on dirty to subsidize clean for years. I guess I think it is time we grew up and accepted that governments need to generate revenue to pay for the things we want them to do.
    Simply taxing “out of the ground over the border” requires a lot less administration than the old carbon tax as long as we ignore the temptation to set up a complex system that calculates emissions for everything that comes over the border. The complications are not justified if what the tax is about is simply paying for climate action.

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