One of the Morrison government’s major programs to combat climate change, the Emissions Reduction Fund, has wasted more than a billion dollars of public money on projects that don’t actually reduce net emissions, according to detailed new expert analysis.

Three-quarters of projects awarded lucrative carbon credits by the government yielded no environmental benefit, according to Professor Andrew Macintosh, one of Australia’s foremost experts on environmental law and policy and the director of research at the Australian National University law school. He described Australia’s carbon market as a “sham”.

“People are … getting credits for growing trees that are already there,” he says. “They are getting credits for growing forests in places that will never sustain permanent forests. And they are getting credits for operating electricity generators at large landfills that would have operated anyway.”

Macintosh is calling for the agency that administers the ERF, the Clean Energy Regulator (CER), to be broken up. He says there also needs to be immediate reform of the methodology under which carbon credits are issued, the repeal of hundreds of millions of dollars worth of “low integrity” credits already contracted, and an independent inquiry into the operation of the ERF, with power to compel witnesses.

Macintosh’s criticism is to be taken seriously. He has previously served as an associate member of the government’s Climate Change Authority, was a principal author of a government-commissioned review of the ERF in 2019, and was a commissioner on the 2020 Royal Commission into National Natural Disaster Arrangements, better known as the bushfire royal commission.

Most relevantly to this story, though, he was chair of a body called the emissions reduction assurance committee (ERAC) from 2013 to the start of 2020. The ERAC was set up as an independent statutory committee, charged with advising on the “integrity standards” applicable to projects funded  through the ERF. On the basis of detailed analysis conducted by Macintosh and his six-member team of economists and ecologists, those standards are low and declining. The government’s Emissions Reduction Fund, he says, amounts to a fraud against both the environment and taxpayers.

Macintosh concedes he is himself somewhat “implicated”. He says early mistakes in the design of the scheme left loopholes that were exploited by carbon traders and others. But when those mistakes were identified, the government resisted acknowledging them. It has recently become apparent, he says, that the resistance has gone “beyond a simple cover-up to what I suggest is more an overt distortion of the scheme to facilitate the issuance of credits for abatement that are either not real or not additional”.

Macintosh says the minister for Industry, Energy and Emissions Reduction, Angus Taylor, and the government are engaged in a greenwashing exercise, creating millions of carbon credits of dubious integrity that can then be sold to big carbon polluters, particularly fossil fuel companies, which can then be claimed as offsets against their emissions.

“The large polluters are under quite a lot of financial pressure,” says Macintosh. “All the banks are saying, ‘We won’t refinance you unless you can cover your potential carbon liabilities in the future.’ ”

In the face of rapidly increasing demand for credits, Macintosh says, the federal government “has made a decision to lower the integrity standards of those credits in order to increase supply”.

His analysis adds weight to questions being asked by others about the ERF, about the government body responsible for administering it, the CER, and about the key advisory committee that Macintosh formerly chaired, the ERAC.

The government has rejected the criticisms of the ERF, but on Thursday the Greens said they would push for an investigation by the federal auditor-general.

Central to Macintosh’s analysis is the functioning of Australian carbon credit units, or ACCUs, issued by the government through the ERF. They are payments for projects that either avoid emissions or sequester carbon dioxide – usually in trees, soil and geological formations. Each tonne of carbon dioxide or carbon dioxide equivalent avoided or stored is equal to one ACCU.

The CER buys back ACCUs, at an average price of $12 each, and regulates the sale of ACCUs through the Australian carbon market to large polluters who must meet mandatory emission liabilities and to corporations that want to voluntarily offset their emissions.

The Clean Energy Regulator has a total budget of $4.5 billion to spend on ACCUs. It has already spent $1 billion on purchasing ACCUs and has contracts to purchase a further $1.6 billion.

There are various methods by which ACCUs may be generated – 38 in all – but three project types account for 75 per cent of the ACCUs issued under the ERF.

The first is “avoided deforestation”, which simply means not cutting down trees. More than 20 million ACCUs have been issued under this part of the scheme, almost all to landholders in western and north-western New South Wales.

The second is called “human-induced regeneration” (HIR), and it, too, is conceptually simple. The idea was that where land had been cleared, landholders could destock it, and the native forests would grow. Some 28 million ACCUs have been issued for this method.

The third method involves proponents harvesting methane – a far more potent greenhouse gas than carbon dioxide – from large landfill sites and burning it to create electricity.

According to Macintosh and his team, there are major concerns with all three methods.

In the case of “avoided deforestation”, he says, the root of the problem lies in the fact that the NSW government issued huge numbers of permits allowing landholders to clear trees from a total of about five million hectares.

It was driven by a desire to placate farmers, and it was always expected the overwhelming majority of permits would be unused. Indeed, actual clearing rates averaged less than 3000 hectares a year before the ERF came into operation in 2014.

At that rate, it would have taken more than 1600 years to clear the permitted land.

Nonetheless, the ERF scheme proceeded on the assumption that all those permits could be acted on within 15 years.

Apart from the fact that most farmers had no such intention, says Macintosh, “you just couldn’t do it. There’s simply not enough bulldozers.”

Given the option of being paid for not clearing land they did not intend to clear anyway, farmers flocked to sign up with “aggregators” – businesses that bundled individual landholders and acted as go-betweens for them with the government and managed their projects.

Collectively, they have been awarded credits worth almost a quarter of a billion dollars for not cutting down vegetation that, in the great majority of cases, would not have been cut down anyway. This is clearly of huge benefit to the landholders – and aggregators, which take a cut of 25 or 30 per cent on the proceeds – but it is of little net benefit to the climate.

The second big category of credits is in so-called “HIR”.

According to Macintosh, the method was designed to encourage farms to stop clearing and to remove livestock from cleared land so it could regrow. “But really quickly certain players in the carbon market – the aggregators – noticed a loophole, and headed out into the dry, more desert-like range land areas, and located these projects out in places that have never been cleared,” he says. “Ninety-seven per cent of project areas are located in these areas of remnant vegetation.”

The contention of the proponents, aggregators and government is that livestock had inhibited the growth of vegetation, and “by removing them it would allow the trees to grow back”. But studies by several ecologists, as well as his team’s analysis of satellite data showing  tree cover, cast serious doubt on this. They concluded that livestock had little or no impact on tree cover. The land was sparse simply because rainfall was low.

During dry times, the cover of native mulga trees – the predominant species in most of the project areas – declined and when the rains came it increased. ACCUs were awarded for that regrowth, which would have occurred regardless.

“We analysed 119 projects in New South Wales and Queensland,” Macintosh says. “Roughly half of them experienced either no change in forest cover or a decrease in forest cover since they started. Yet those projects … received in the order of 8-8.5 million carbon credits.”

These finding are contested by the CER, which commissioned its own study. The regulator claims this study supports the abatement mechanism – and the hundreds of millions of dollars spent.

“Overall,” the study concluded, “the analysis presented here provides strong evidence that projects established under the HIR method have resulted in significant increases in WF [sparse woody and forest] cover in the arid and semi-arid regions of NSW and Queensland.”

However, it also found wide variations in outcomes, with some projects resulting in greater cover, and others less. It did not offer any firm conclusions about why.

“What in fact is driving these differences,” it said, “specifically the question of to what extent they are due to project location or management or simply errors in the land management data is an interesting question and may be a fruitful area for future investigation.”

Nonetheless, the regulator continues to register new projects, aiming to grow new forests simply by reducing grazing pressure.

“Now,” Macintosh says, “several projects are about to be registered – wait for it – south of Alice Springs. It’s laughable.”

Perhaps the most damning criticism of all, though, relates to the third major area of spending under the ERF: landfill gas projects.

The biggest 20 landfills in Australia receive more than half of all the waste that is buried. They harvest the methane generated by that rotting waste and burn it for electricity. They also have received some 20 million ACCUs, about 70 per cent of the total number of credits issued under the landfill gas method.

Macintosh does not dispute that these projects are making real savings in greenhouse emissions, which is a good thing. But awarding them ACCUs, and paying the operators a couple of hundred million dollars of taxpayer funds, does not result in any additional carbon savings, which is what the ERF is intended to achieve.

“Most of them had generators on them from before when the scheme started, which should tell people this was already economic,” Macintosh says. “Those large projects are fully financially viable without the carbon credits.”

In 2018, the integrity committee formally advised government that these projects should not receive any more credits beyond the current round. Late last year, however, Taylor extended this part of the market with another five years’ worth of credits.

The extension is against the spirit of the legislation. It will also come at a huge, further cost to taxpayers.

As reported by The Saturday Paper last week, Taylor’s decision to release ACCU holders from their contracts to sell them back to the government, and to sell instead into a secondary market, has seen a huge transfer of value from the public sector to private project developers, aggregators and traders.

The average price under the contracts was $12 per unit. The market price in January was more than $50. Given that difference, Oliver Yates, the former head of the government’s renewable energy agency, ARENA, calculated a transfer of $3.5 billion into private hands.

Taylor’s intervention saw the market price of ACCUs plunge by almost half. They have since rebounded a little, to just over $30, but even at that price the decision gave windfall gains to project operators and aggregators while making it cheaper for dirty industries to offset their emissions.

As noted in that story, the chair of the Climate Change Authority, Grant King, also is chair of Australia’s largest aggregator, a company called Green Collar, which operates biosequestration projects – that is, avoided deforestation and regeneration projects – over nearly 15 million hectares, primarily in association with family farmers. King is a former head of the Business Council of Australia and has a long history of senior roles with fossil fuel companies.

There is no suggestion King has acted improperly, but it does serve to highlight conflicts inherent in the structure of the CER.

“The Clean Energy Regulator needs to be broken up,” Macintosh says. “It currently makes the methods, staffs the integrity committee, enforces the methods and buys the ACCUs on behalf of the Australian government. It is conflicted and has too much power and its functions need to be distributed to other agencies.”

Conflicts are all the more likely given that the minister making the key appointments, Angus Taylor, has a clear intent to provide more ACCUs for big greenhouse gas polluters.

A report by The Australia Institute, released to The Saturday Paper this week, echoes Macintosh’s critique of the CER. “Its role in both development and administration has raised conflict of interest concerns and calls for an official audit,” it says.

The report focuses on a particularly contentious new method of awarding carbon credits for projects employing carbon capture and storage (CCS), a technology that has never been successfully applied, despite billions of dollars devoted to its development by this government.

Rather incongruously in the eyes of many, the first such project was jointly announced by Taylor and Kevin Gallagher, the chief executive of oil and gas company Santos, at last year’s climate change summit in Glasgow.

While critical of that particular development, the report is more concerned with the process by which the decision to approve CCS as a method of emissions abatement was reached. It leans heavily on documents obtained under freedom of information by the Australian Conservation Foundation, which suggest the process was engineered to a predetermined outcome.

Publicly, the CER undertook to engage with a wide variety of parties, independent scientists and researchers. In reality, it consulted almost exclusively with the fossil fuel industry and other big greenhouse emitters, including Chevron, Origin, Santos, Woodside, ExxonMobil, BHP, BP, Shell, the Australian Petroleum Production and Exploration Association, the Minerals Council of Australia, Glencore and many others of similar ilk.

“By contrast, the CER actively excluded participation by independent, non-industry parties,” the report says.

The institute was one of a number of civil society organisations excluded. When a reason for this rejection was provided, three months after the event, it was that ERF methods are overseen by the emissions reduction assurance committee – the notionally independent body formerly headed by Andrew Macintosh.

The report then detailed the histories of the current members of the ERAC.

The current chair, David Byers, is a former senior executive at the Minerals Council of Australia, BHP and the Australian Petroleum Production and Exploration Association. At the time of his ERAC appointment and during the initial development of the CCS method, he was also the chief executive of a CCS research group partnered with several oil and gas companies.

Another member is Brian Fisher, a former head of the Australian Bureau of Agricultural and Resource Economics. He is a frequent consultant to the fossil fuel industry, providing often-contentious modelling for proposed projects. Before the 2019 election, he produced allegedly independent costings of Labor’s climate policies, work later revealed to have been done in consultation with Angus Taylor’s office.

A third member is Margaret Thomson, chief executive of the Cement Industry Federation. Cement production is very emissions intensive, and the industry has pushed CCS as a solution to its emissions.

A fourth member is Allison Hortle, a petroleum hydrogeologist at the CSIRO, who also worked as a senior researcher for 14 years at the same industry-funded research group as Byers.

All were appointed by Taylor in the past two years. Again, The Saturday Paper is not suggesting any of these people have acted inappropriately. It is pointing out, however, that these are the people charged with ensuring the integrity of the government’s key program to combat climate change.

Much of that work relates to the polluting industries in which they are or have been employed – and little of the government’s spending has actually gone to projects that reduce emissions. 

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