Chapter 8
THE GREENHOUSE CHALLENGE (Part a)
Proper evaluation of the Program's effectiveness must be based on
a clear assessment of the extent to which the participating companies
actually reduce their emissions below the levels they would reach without
the Program. [1]
Introduction
8.1 The Greenhouse Challenge Program was first announced in 1995 as a
joint government-industry initiative for working toward the reduction
of greenhouse gas emissions by industry. [2]
The Program is a key plank of the Government's strategy for demonstrating
Australia's early response to the challenge of global warming. [3]
`Early action' policies and programs are broadly aimed at capturing the
potential for reductions in emissions through voluntary and cost-neutral
steps. They are likely to remain a dominant feature of the Government's
greenhouse policy in the absence of binding domestic or international
targets. [4]
8.2 This chapter critically evaluates the effectiveness of the Greenhouse
Challenge Program as a major Government policy for meeting Australia's
Kyoto target. The Committee believes that integrated and strategically
managed programs for industry emissions abatement are a critical component
of the Commonwealth's overall response to global warming.
8.3 A number of industry witnesses argued that the Greenhouse Challenge
should be the basis of national greenhouse policies. Its voluntary approach
was clearly preferred to more binding measures by most industry members.
The Pulp and Paper Manufacturers Federation of Australia (PPMFA) expressed
a typical view:
The PPMFA considers that an expanded program of voluntary agreements
should form the foundation of Australia's national greenhouse response.
In our view there are many potential `no regrets' and `low regrets'
measures that have yet to be fully exploited. This should be done before
other measures of a more mandatory nature are considered. [5]
8.4 The weight of evidence presented to the Committee suggests, however,
that the Greenhouse Challenge principle of `no regrets' will severely
constrain the capacity of the Government to achieve significant emissions
abatement over the longer term. Indeed, there is also some question as
to whether the Greenhouse Challenge has achieved significant emissions
reductions over and above what would have been achieved through a business
as usual approach with normal productivity and efficiency improvements.
The level of emissions reduction that it is likely to be required of Australia
in meeting our Kyoto commitments, and potentially more stringent commitments
beyond 2012, points to the need for a more comprehensive approach.
8.5 Senator Robert Hill, Minister for Environment and Heritage, has stated
that: `The Kyoto outcome has given Australia the breathing space required
to make the structural changes in our economy'. [6]
The Greenhouse Challenge Program is potentially a key mechanism for engaging
industry on the political, social and economic implications of climate
change. The Committee believes that the Program has so far failed to exercise
a clear strategic role in influencing industry toward an acceptance of
the environmental drivers of the `new economy'. The Committee holds that
this needs to be an essential aspect of Australia's practical industry
programs, if Australia's economic standing in a global economy is to be
preserved over the longer term.
8.6 The Committee is of the view that the Greenhouse Challenge Program
can be a useful vehicle for raising industry awareness of climate change
and expertise in emissions accounting and emissions abatement. These features
of the Program could potentially contribute to preparing industry for
the introduction of an emissions-trading system, either internationally
or domestically. The Committee concludes that the Program should be viewed
as a transitional strategy until a more comprehensive framework for industry
emissions abatement beyond `no regrets' is implemented.
8.7 This chapter also assesses a number of concerns raised with the Committee
about the current administrative framework of the Greenhouse Challenge
Program, the effectiveness of the Program in delivering additional emissions
reduction and the extent to which the Government's relations with industry
under the Program are accountable and transparent.
The Scope of the Greenhouse Challenge Program
8.8 The Greenhouse Challenge Program was first initiated in 1995 under
the Keating Labor Government's Greenhouse 21C package. Cooperative agreements
with industry were expected to yield in the order of 15 Mt CO2-e by 2000
and include inventories of baseline greenhouse gas emissions, energy and
greenhouse gas audits, specific greenhouse action plans and regular objective
assessment and reporting.
8.9 In 1997 the Coalition Government continued support for the Program
and allocated $27.1m over five years to promote industry involvement in
the Greenhouse Challenge Program, [7] (the budget
for 1999 to 2000 was $6.431m). [8] It has widespread
support among participating businesses. The main focus of the Program's
activities has been to build capacity for the accurate measurement and
reporting of emissions, and to encourage industry to improve its efficiency
in energy use and processing. It has also promoted other greenhouse gas
emissions strategies, for example, the use of carbon sinks.
8.10 The Greenhouse Challenge Program targets 55 per cent of Australia's
total emissions and aims to cover most sectors of industry. Program members
currently account for 47 per cent of emissions from the resource, mining,
manufacturing, transport and services sectors and approximately 90 per
cent of emissions from the electricity generation sector. [9]
8.11 The Program aims to register 500 organisations by the end of 2000
and 1,000 by 2005. So far, the Australian Greenhouse Office (AGO) has
concluded 366 agreements and a further 238 businesses have indicated their
`intent to sign' formal agreements. [10]
8.12 The Greenhouse Challenge Program has deliberately targeted large
emitters first and, more recently, developed specific strategies to harness
the potential for small- to medium-sized businesses to contribute to emissions
reduction. This segment of the market could prove more difficult to capture
than big business. There are a very large number of small and medium-sized
businesses in Australia with an uncertain capacity to make significant
savings. [11] Notwithstanding this, a commitment
by all parts of industry to sustained reductions in greenhouse gas emissions
could play a significant role in meeting Australia's commitments under
the Kyoto Protocol.
8.13 The Greenhouse Challenge Program operates on the principle that
market-based solutions offer the maximum scope for achieving Australia's
greenhouse objectives at the least cost to the economy as a whole. The
Program reflects the Government's view that Australia's policy response
to global warming should not undermine the competitiveness of our domestic
industries. The Prime Minister has consistently argued that Australia's
interests:
… lie both in protecting Australian jobs and Australian industry
whilst ensuring that Australia plays her part in the world-wide effort
needed to reduce greenhouse gas emissions… we are not prepared
to see Australian jobs sacrificed and efficient Australian industries,
particularly in the resources sector robbed of their hard-earned, competitive
advantage. [12]
8.14 This is the basis of the AGO's promotion of `no regrets' strategies,
which are designed to avoid imposing unnecessary costs on Australian industry,
whilst still allowing the Government to achieve its international policy
objectives. First advanced by the Labor Government in 1990, the `no regrets'
policy stated that Australia would not undertake emissions abatement without
comparable action by other countries. Australia would only commit to actions
which delivered benefits in addition to greenhouse gas abatement. [13]
8.15 The Coalition Government has since broadly applied `no regrets'
principles to domestic abatement programs, such as the Greenhouse Challenge.
A key objective of the Program implies that progress in emissions abatement
is conditional on protecting industry interests:
A successful program will mean that Australia is developing sustainable
strategies that respond effectively to climate change, while enhancing
Australian industry competitiveness. [14]
8.16 The Greenhouse Challenge Program does not require a business to
adopt any strategy or set of practices aimed at emissions reduction which
might impact on its profitability over the short or longer term. Industry
currently enjoys a maximum degree of control and flexibility in deciding
how and when it will reduce its emissions. This flexibility allows companies
to make adjustments to suit their individual business circumstances. The
Program allows companies to determine what actions they consider `no-regrets'
(or cost-effective) without any independent measure of what actions may
be economic. In the Committee's view, this approach complicates any assessment
of the Program because it effectively blurs the distinction between reductions
which may have resulted from normal business efficiency measures and those
which are attributable to the Program.
8.17 Australia won concessions from the international community at the
1997 Kyoto Conference by arguing that, unlike most other developed countries,
Australia's economy was heavily reliant on energy-intensive industries.
However, a consensus may now be emerging among developed nations that
the economic impact of introducing emissions controls may not be as great
as originally thought. [15] This is largely
due to the increasing availability of new, efficient and cost-effective
energy technologies and the creation of new forms of wealth through the
information economy.
8.18 In an address to a US forum on climate change in April 2000, Senator
Robert Hill, stated that:
We need to challenge the mind-set which says that it is necessary to
sacrifice economic competitiveness to achieve a better environmental
outcome. In fact, the contrary is the case. Strong economics is not
only compatible with better environmental outcomes; it can in fact better
ensure environmental improvement. The US experience, which is similar
to Australia's, is that improved economic performance and growth has
given industries the capacity to invest in new technologies which deliver
better environmental outcomes. [16]
8.19 Coupled with 1998 National Greenhouse Gas Inventory (NGGI) data
indicating Australia's relatively poor performance in emissions abatement,
these developments renew pressure on Australia to make a credible contribution
to the global effort to mitigating the impact of human activity on the
climate.
8.20 More recently, Senator Hill hinted at the prospect of Australia
being isolated by international trends in climate change policy:
The recent US experience that you don't have to sacrifice economic
growth to gain savings in greenhouse gas emissions could become another
factor which ultimately paves the way for US ratification of the Kyoto
Protocol.
The ability of developed nations to decouple their economic growth
from emissions growth will have major implications when the international
negotiations begin to determine the first round of post-Kyoto Protocol
reduction commitments. Nations which have achieved this decoupling will
be well placed to meet these further commitments. Nations which continue
in the ways of the past will inevitably face an even tougher, more costly
task. It seems sensible that Australia should take precautionary action
now to ensure it does not fall into this latter category. [17]
8.21 Australia's national approach of primarily `no regrets' has allowed
the Government to place primary emphasis on the interests of Australian
industry in its negotiations in the international arena. It does not automatically
follow that, when applied at the level of individual businesses, a `no-regrets'
approach is capable of delivering the best outcome for Australia as a
whole. In evidence to the Committee, AGO representatives acknowledged
the limitations of voluntary action:
[The] Government did not believe, and neither did industry at that
point, that a target that came out of Kyoto could necessarily be met
by voluntary action alone… we now have a range of activities that
include voluntary action and regulatory action, where it makes sense,
and mandated targets for example in renewable energy. [18]
and
A key matter for on-going attention is whether the current package
of policies and measures will in fact lead to the required net reduction
in emissions by 2008 to 2012. [19]
8.22 The Australian Government is engaged in a balancing act. The current
policy framework seeks to avoid unnecessary costs in adjustment, whilst
recognising the potentially significant costs to future generations of
not taking serious action until we are compelled to do so. Senator Hill
has indicated his support for the `precautionary principle' in managing
climate change, `which dictates that we act now to reduce our impact',
describing it as `nothing more than the sort of commonsense approach that
Australians take to a range of everyday issues'. [20]
8.23 Pacific Power was one of many contributors to the Committee's inquiry
who emphasised the critical role of Government in putting in place the
policy frameworks for managing a fundamental shift to new paradigms of
economic production:
… it is important that… there are policy initiatives in place
that facilitate a gradual transition from the present industrial base
to that of the future. [21]
8.24 The central question posed by the Committee in this chapter is whether
Australia's current approach of `no regrets' greenhouse emissions abatement
fully captures the potential for industry to support Australia's long
term interests in a sustainable economy, a healthy environment and the
preservation of our basic living conditions.
How Should the Greenhouse Challenge Program be Evaluated?
8.25 According to the National Greenhouse Strategy (NGS), the engagement
of industry through partnership arrangements is an essential component
of the Government's practical response to managing Australia's emissions
profile. [22] As international pressure increases
for Australia to demonstrate credible emissions savings, enhancing the
capacity of industry to contribute to Australia's national greenhouse
goals is a matter of urgency.
8.26 It is against this background that the effectiveness of the Greenhouse
Challenge Program, as an instrument of national policy, must be assessed.
It is the Committee's view that the primary purpose of evaluating the
Program should be to determine its success in harnessing the capacity
of industry to make a significant contribution to our national
emissions abatement target. This means that emissions by Australian industry
need to reduce over time relative to the levels that would have occurred
without policy controls. [23] In assessing
the performance of the Greenhouse Challenge Program against this benchmark
the Committee has considered whether:
- a substantiated, significant reduction in the levels of emissions
by industry has been achieved as a direct result of the Program;
- the Program's market incentives and `no regrets' approach have been
effective as inducements to emissions abatement;
- the Program demonstrates the broadest possible level of participation
by business and the deepest possible commitment to emissions reduction;
and
- the role of the Program in the overall mix of policies and programs
implemented by Government is adequate to the task of reducing our national
emissions over the longer term.
8.27 The Greenhouse Challenge Program offers a range of incentives which
directly and indirectly benefit business competitiveness. Improvements
in energy efficiency and consequent reductions in energy costs are obvious
benefits of participating in the Program. The Program also provides significant
public relations benefits, with Government endorsement of participants'
actions and publicly funded advertisements promoting emission abatement
activities. Beyond this, the Greenhouse Challenge Program has a potentially
significant role to play in facilitating the transfer of expertise between
businesses and fostering innovative and flexible approaches to reducing
greenhouse gas emissions. For the Government, the Program should also
be a key mechanism for deepening industry understanding of the evolving
science of climate change and for initiating broad-based discussion on
strategies for managing the implications of global warming.
8.28 As a voluntary program, the Greenhouse Challenge Program relies
critically on winning the confidence of industry and the broader public
in the integrity of the Program and its processes. If the public is to
be assured that the Program is making the most effective use of its resources,
the Program must aim for a high degree of transparency in all aspects
of its management. This chapter will give attention to the AGO's mechanisms
for ensuring that the claims made by industry accurately reflect its achievements.
8.29 At the most basic level, the Program needs to demonstrate that it
has the capacity to accurately and reliably measure the performance of
individual participants. The Government has an important role to play
in setting the standards by which the Program's results will be measured,
and ensuring that sufficient scientific and technical expertise exists
to support the implementation of those standards.
8.30 Measuring the results of the Program is only one, albeit critical,
aspect of the Program's activities. Of equal significance for the integrity
of the Program are the mechanisms for ensuring that individual participants
of the Greenhouse Challenge Program are held to account, if it becomes
apparent that they have not made credible efforts to comply with
agreed standards. Ensuring that the Program adheres to basic principles
of accountability also supports the interests of industry as it considers
the design of a future emissions trading system.
8.31 This chapter will examine:
- how the results of the Program are verified;
- whether members are held to account for their performance; and
- whether the Program's operations are sufficiently transparent.
8.32 Two independent evaluations of the Greenhouse Challenge Program
have been commissioned by the AGO. The first report was prepared by George
Wilkenfeld and Associates with Economic and Energy Analysis (`the Wilkenfeld
Report') in 1996. The most recent report commissioned by the AGO was completed
in 1999 by the `Greenhouse Challenge Evaluation Steering Group', chaired
by Professor Stuart Harris (`the Harris Report'). [24]
The findings and recommendations of those evaluations are incorporated
into the main discussion of this chapter.
Voluntary Features of the Greenhouse Challenge Program
8.33 The Greenhouse Challenge Program was welcomed by most parts of industry
because it gave recognition to the capacity of business to determine how
and when it would make emissions savings. The Program offers business
a range of market-related incentives to join (for example, reduced energy
costs and `green credentials') whilst placing the onus on business to
demonstrate that more interventionist instruments are unnecessary. A number
of industry representatives emphasised the practical advantages of the
Government's voluntary approach. The following comments were typical:
- Minerals Council of Australia:
Members who participate in the Program are… best placed to identify
and implement policies and measures to abate greenhouse gases appropriate
to their business. [25]
- Woodside Energy Ltd:
… voluntary partnership programs can deliver the required abatement
outcomes in a flexible and cooperative atmosphere. [26]
and
- Southern Pacific Petroleum:
The absence of bureaucratic and regulatory boundaries has enabled a
far higher rate of participation and far greater reduction in greenhouse
gas emissions (~20 Mt CO2-e /yr) than would have been achieved in a
mandatory framework. [27]
8.34 There are two essential components to industry's practical involvement
in the Greenhouse Challenge Program. Participants in the Program are firstly
required to set a target for emissions abatement and secondly, to meet
that target within an agreed timeframe. Only the first component appears
to be enforced, with the second seemingly subject to on going revision.
8.35 The following discussion explores whether the flexibilities afforded
Greenhouse Challenge participants, in meeting their targets, genuinely
promote greater emissions abatement than might be the case under a regime
with mandatory performance criteria. The discussion will also address
whether the voluntary nature of the Program has lessened standards of
accountability in the use of public money.
How It Works
8.36 A key feature of the Greenhouse Challenge Program is the emphasis
placed on voluntary Cooperative Agreements. A Cooperative Agreement is
the practical vehicle for capturing the potential of a company to reduce
emissions.
Cooperative Agreements
8.37 On becoming a member of the Greenhouse Challenge Program, a company
or industry association commits to the development of a Cooperative Agreement
which sets out the company's plan and preferred approach to reducing its
level of greenhouse gas emissions within a given timeframe. In the case
of an industry association, a Cooperative Agreement would outline strategies
for achieving a net reduction in emissions by association members as a
whole.
8.38 The typical elements of a Cooperative Agreement are:
- an emissions inventory;
- an assessment of opportunities for abating greenhouse gas emissions;
- the development of specific greenhouse action plans; and
- a commitment to regular monitoring and reporting of performance against
action plans and provision for performance verification. [28]
Setting targets
8.39 In the Committee's view, it is important to assess the value of
emissions savings achieved by industry in relation to Australia's overall
greenhouse gas reduction objectives. The NGGI figures released in 1998
indicate that total greenhouse gas emissions increased by 16.9 per cent
between 1990 and 1998, from 389.8 Mt to 455.9 Mt. Australia has already
exceeded the 421 Mt level which would enable it to meet our international
commitment of 108 per cent of 1990 levels (excluding estimates for land
clearing which will affect Australia's 1990 baseline). [29]
8.40 Although the first seven Cooperative Agreements under the Greenhouse
Challenge Program were concluded in June 1996, it is unlikely that emissions
savings as a result of these and subsequent agreements would have had
any significant impact on national emissions levels to 1998. [30]
If it is assumed that the achievements of the Program and all other abatement
programs will come to bear in the NGGI figures for 2000, Australia would
need to achieve an annual net decrease of at least 34.9 million tonnes
from 1998 figures to reach an average annual target of 421 million tonnes
(Mt) for the commitment period of 2004 to 2008. [31]
In evidence given to the Committee before the release of the 1998 Inventory
figures, the AGO explained that:
The `without measures' scenario - that is, no measures - was going
to bring us to 140 per cent above the 1990 baseline by 2010. So the
measures that were in place through the National Greenhouse Response
Strategy, which was the forerunner of the NGS, and the measures that
were announced by the Commonwealth in 1997, brought that down to an
estimate of 118 per cent. We have revised that estimate slightly to
allow a bit more range because of greater than expected growth…
. [32]
8.41 These figures have led the Committee to question whether the level
of savings expected from industry under the Greenhouse Challenge Program
will allow Australia to meet its international obligations.
8.42 In 1997, the Prime Minister, Mr Howard, indicated his expectations
for the Greenhouse Challenge Program by announcing that `participants
have committed themselves to reduce their forecast growth in emissions
by about 22 Mt of carbon dioxide equivalent by the year 2000'. [33]
8.43 The 1999 Harris Report states that participants of the Greenhouse
Challenge Program `have exceeded the 22 Mt CO2-e of abatement expectation
for 2000'. [34] The Report continues:
For end-users, abatement actions undertaken under action plans are
expected to achieve 23.5 Mt CO2-e of abatement in 2000. More specifically,
without the [Greenhouse] Challenge, annual emissions would have grown
between 1995 and 2000 (assuming static efficiency) by 25.6 Mt CO2-e
(without abatement actions) or 20.8 per cent. They are, in fact, expected
to grow by only 2.1 Mt CO2-e (with abatement actions) or 1.6 per cent.
[35]
8.44 In its submission to the Committee the AGO noted that:
Initially, the sole performance indicator for the Program was emissions
savings, with an initial estimate of achieving 15 Mt of greenhouse gas
abatement annually by 2000. [36]
8.45 Given that independent verification of most Greenhouse Challenge
Agreements is still to be completed, these figures appear to be derived
from estimates provided by Program participants themselves. Whilst the
Committee does not necessarily call into question that savings in emissions
have been made by companies, it cannot accept as given that the figures
presented are in fact accurate. To date, the Greenhouse Challenge Program
appears to have primarily relied on members to abide by the spirit of
the Program in recording their achievements. Recently verification has
been completed of 31 participants, but the results have not yet been made
public.
8.46 The voluntary nature of the Cooperative Agreements means that individual
industry members or associations are able to determine their own target
for emissions abatement. Currently, this target does not need to be expressed
in terms that would make its relationship to Australia's overall abatement
objective clear. The Wilkenfeld Report noted that New Zealand has implemented
such a measure:
The Australian Greenhouse Challenge Program appears to be considerably
more rigorous than the US approach, but less structured than New Zealand
(where industry emissions are linked to a national reduction target).
[37]
8.47 The Committee believes that, if companies are to be granted the
flexibility to determine their own targets, these should be related to
the level of savings that particular sectors of industry or, industry
as a whole, could be expected to make toward Australia's national objectives.
Recommendation 84
The Committee recommends that the Greenhouse Challenge Program:
- establish benchmarks for emissions abatement by sectors of activity;
- assess participants in relation to relevant benchmarks; and
- assess participants in relation to Australia's overall target.
Recommendation 85
The Committee recommends that the Australian Greenhouse Office develop
its capacity to verify and compare the emissions output of individual
enterprises to sectoral benchmarks and make these sectoral benchmarks
publicly available.
Forecasting future emissions
8.48 Each Greenhouse Challenge participant is required to monitor its
level of emissions relative to either a 1990 or 1995 baseline. The baseline
is calculated by developing an inventory of the volume and type of emissions
a company most probably generated in 1990 or 1995. [38]
This baseline forms the basis for setting the company's target for reducing
emissions and verifying the extent to which progress is being made under
the Greenhouse Challenge Program. Companies are responsible for assessing
their own baselines and for setting targets for emissions abatement.
8.49 There are two main methodologies which companies can use to forecast
future emissions. The first rests on an assumption that a business would
not increase its efficiency in energy usage up to the target date without
the intervention of targeted programs to achieve this effect. This is
known as the `frozen' or `static' efficiency assumption' (FE) and
appears to be the mostly commonly used methodology by companies participating
in the Greenhouse Challenge Program. [39]
8.50 The Committee heard a number of criticisms of this approach centring
on the fact that businesses regularly introduce new technologies and management
systems as part of normal business development which, over time, generally
yield efficiencies in the order of between 1 and 1.5 per cent. [40]
In explaining to the Committee the assumptions underlying its economic
modelling, ABARE drew a distinction between the normal trajectory of technical
change and `induced technological change' brought about by specific policy
measures:
Induced technical change needs to be seen separately from technical
change that is happening in the economy anyway, regardless of what governments
do. Our assumption is that there will be about a 1.1 per cent improvement
in energy efficiency overall for the economy, over time, between now
and 2010. That assumes that the Government is not actually undertaking
any specific action to address climate change. [41]
8.51 By assuming that the only changes in the emissions profile of a
company are brought about by measures prompted by the Greenhouse Challenge
Program, the level of abatement in emissions attributable to the Program
is likely to be at least equal to the normal trend-line of business development,
ie 1 to 1.5 per cent.
8.52 The 1996 evaluation of the Greenhouse Challenge Program by George
Wilkenfeld and Associates points out that that the FE approach `is an
entirely artificial concept and does not reflect what would have been
likely to occur even in the absence of the GCP'. [42]
This is because the frozen efficiency approach discounts energy efficiencies
achieved as a matter of course in the life of a business. In this scenario,
emissions savings can be wholly attributed to the Program without explicitly
acknowledging what might have been achieved without specific greenhouse
gas measures.
8.53 In evidence to the Committee, the Australia Institute argued against
the use of the FE method in forecasting emissions:
The use of the frozen efficiency assumption by the participating companies,
endorsed by the Greenhouse Challenge Office, has a built in bias. It
exaggerates the emissions reductions that are reported by the companies
and therefore the Program. [43]
8.54 It is likely that in forecasting future emissions, a number of companies
may have underestimated average rates of improvement in business efficiency
for their industry and may also have overestimated the level of emissions
likely to be produced under normal business conditions.
Business as usual
8.55 The second methodology for forecasting emissions is referred to
as the `business as usual' (BAU) scenario. Under this approach the calculation
of the forecast incorporates improvements that would occur as a result
of normal business development and in the absence of the Greenhouse
Challenge Program. Forecasts calculated using the BAU approach would most
probably reveal significant differences in progress when compared to achievements
calculated using a frozen efficiency methodology. This is because companies
are currently able to claim that BAU improvements to the operations of
their business are the result of Program strategies for emissions abatement.
8.56 The 1996 Wilkenfeld Report stated that:
Nearly all the projects nominated by the companies as greenhouse reduction
measures have been under consideration for some time (several years
in some cases), and represent major energy-efficiency, productivity
and/or worker safety gains of the kind the companies pursue routinely
as part of their core business. [44]
8.57 After reviewing the actions companies were intending to undertake
to reduce emissions, the Report concluded that `about 83 per cent of the
emissions reduction would most likely be realised in a business as usual
scenario'. [45] The Australia Institute has
commented that this means that `only 17 per cent of emissions reductions
claimed by companies were a result of that Program and 83 per cent of
the claimed reductions would have happened anyway.' [46]
The 1999 Harris Report acknowledged that `some of the actions reported
under the Greenhouse Challenge Program would have occurred in any event';
and concedes that `precise quantification of abatement against business
as usual is problematic due to data and methodological difficulties'.
[47]
8.58 In evidence to the Committee, a number of company representatives
indicated that many investments in energy efficiency were not primarily
driven by greenhouse gas considerations. According to Pacific Power this
was because `the Greenhouse Challenge is largely limited to no regrets
actions that may have been economic in any case'. Normandy Mining Ltd
similarly argued that `reducing greenhouse gases is often good business
in its own right as it means reducing energy usage and hence costs'. [48]
8.59 Orica explained that a particular project to convert its Botany
chemical from liquid feedstock to ethane was part of a broader strategy
of positioning the company for the future:
Would we have done this in any case? The answer is that we probably
would have done this. Orica takes the view that greenhouse gas abatement,
of which the Greenhouse Challenge is a part, is part of a much wider
debate around sustainability in the chemical industry. If we are to
have an industry that is sustainable going out into the future, we clearly
recognise that we have to think about new ways of doing things. [49]
8.60 In a similar vein, Wesfarmers CSBP Limited explained that:
Our new ammonia plant does not exist because it is more greenhouse
efficient. It exists because the old one was inefficient and there is
a large market there for ammonia in Western Australia. Having decided
to build an ammonia plan, we then set out to build one that had a co-generation
facility so it was greenhouse efficient and cost-efficient… . We
are certainly not claiming that our ammonia plant was constructed, designed
and built for greenhouse gas reduction. But when we decided to do it,
we decided to make it as efficient as we could. [50]
8.61 These testimonies highlight the practical difficulties of reliably
distinguishing between those actions which would have occurred in the
absence of the Greenhouse Challenge Program and those which can be attributed
to the Program. [51]
8.62 The 1999 Harris Report notes however that, `measured against a business
as usual scenario, the forecast of 10 Mt CO2-e of abatement… seems
achievable'. [52] This estimate assumes that
only 35 per cent of the total estimated savings resulting from the Greenhouse
Challenge Program can be counted towards reducing national BAU emissions
growth. [53]
8.63 A number of industry representatives asserted that there was little
point in trying to identify the specific contribution of the Program in
achieving an abatement target:
Personally, I do not think it is a very profitable debate to try to
dissect how much would have happened anyway. The point is that it has
happened and it should be encouraged to continue to happen. [54]
… there is no doubt that it (emissions reduction) has been done
and been advanced under the Greenhouse Challenge Program. And what is
wrong with people getting credit for doing good things? It is good for
their shareholders and it is good for the country. [55]
8.64 However, a number of witnesses argued that a net reduction in emissions
is, in itself, an insufficient measure of the effectiveness of the Greenhouse
Challenge Program. The impact of the Program would be more accurately
captured by assessing the difference the Program has made to the
volume of greenhouse gases emitted by a company or association since joining
the Program. The Australia Institute expressed the view of many critics
of the Program that:
Proper evaluation of the Program's effectiveness must be based on a
clear assessment of the extent to which the participating companies
actually reduce their emissions below the levels they would reach
without the Program. [56]
8.65 Greenpeace Australia similarly argued that:
The primary objective of all greenhouse policy has to be to deliver
substantial, real and timely reductions in greenhouse gas emissions.
This has to be the primary criterion for judging the performance of
these programs. [57]
8.66 The Committee considers that the AGO has a clear obligation to demonstrate
that public money is being used to full benefit. If a Greenhouse Challenge
participant cannot demonstrate progress in saving emissions beyond BAU
projections, then the Committee questions whether the resources and benefits
of the Program should accrue to it.
Recommendation 86
The Committee recommends that the Greenhouse Challenge Program require
participants to develop their emissions forecasts using business as usual
methodologies.
Transparency
The verification process
8.67 Each Greenhouse Challenge participant must agree to independent
verification of their progress in emissions reduction. Both Government
and industry recognise that the credibility of the Program depends to
a significant extent on whether the claims made by industry in reducing
greenhouse gas emissions can be verified by independent, formal processes.
The Australia Institute expressed a common view put to the Committee that
`independent opinion is essential if the public is to have confidence
that tax payers' funds are being spent effectively'. [58]
8.68 The verification guidelines developed by the AGO attempt to find
a pathway between ensuring transparency in reporting and heeding the concerns
of industry about releasing information it may regard as confidential.
Verification guidelines developed by the AGO state:
Independent verification will be conducted in a manner that preserves
the high standard of commercial-in-confidence which the Greenhouse Challenge
Program has maintained in respect to its participants… . Verifiers
must be prepared to sign a confidentiality agreement with the Challenger
that is to be verified, if requested. [59]
8.69 The AGO clearly recognises the important role of verification reporting
in building public confidence. The draft guidelines subtly warn companies
to match their public assertions with sufficient evidence of performance:
If reported publicly, independent verification of greenhouse achievements
may help to strengthen the public trust and acceptance of a corporation's
environmental commitment… many Greenhouse Challenge enterprises
will confidently look forward to independent verification confirming
the serious nature of their commitment and may wish to make these results
public. [60]
8.70 The Guidelines indicate that companies selected for verification
will be required to make public a report on whether the reported inventory,
baseline and actions were accurate within an acceptable range. [61]
They also foreshadow the need for a more detailed in-confidence report
recording the actual results of the verification process. [62]
These guidelines point to the minimum level of public reporting the AGO
appears to believe is necessary to demonstrate the integrity of Greenhouse
Challenge members and of the Program itself. The Committee is not convinced,
however, that the current boundaries drawn between public and private
reporting are justified or support the longer term interests of the Program.
Recommendation 87
The Committee recommends that all companies be required to verify
assessments of Greenhouse Challenge Program emissions savings and to publicly
disclose details.
The integrity of the Greenhouse Challenge Program verification processes
8.71 According to the Australia Institute, the policy of self-assessment
provides companies with an incentive `to overstate their `business as
usual' emissions, and therefore to exaggerate the cuts due to the Program'.
The Australia Institute contends that this has led to the Program being
`plagued with systematic overstatement of emissions reductions'. [63]
8.72 The AGO appears to have gone some way to ensuring that the Greenhouse
Challenge Program does not rely exclusively on results reported by its
members. The AGO's Guidelines for Greenhouse Challenge Independent
Verification, produced in March 2000, provide details on how emissions
savings by Program participants will be verified. [64]
8.73 At the time of the writing of the Harris Report in 1999, only pilot
evaluations had been completed of the first four companies to have joined
the Greenhouse Challenge Program: BHP, Shell, CRA and ICI. [65]
The Report determined that `verification revealed that the reported data
and the processes for identifying emissions and collecting data were robust'.
[66]
8.74 The confident results of the initial evaluation of the Greenhouse
Challenge Program do not, however, appear to have been sustained. In Senate
Estimates Committee Hearings conducted on 3 May 2000, the AGO revealed
that 76 Program participants had submitted progress reports and that of
these a number had amended their reports to reduce the amount of emissions
they had originally forecast:
When we are receiving progress reports, companies are in fact adjusting
their action plans. Some are adjusting them down. Some are just adjusting
the nature of their actions. But it is correct that we have had nine
implement all of their actions in the years they said they were going
to. 4 have met their forecasts in other ways. 62 have in fact amended
their action plans to reduce the amount of emissions they had originally
forecast they would reduce and so forth. So there have been some reductions
in the amount they originally forecast, which is normal. [67]
8.75 The AGO stated that, of 76 participants, only `8 have met their
original forecasts'. [68]
8.76 These results are disappointing, but do not technically breach the
terms of a Cooperative Agreement. The Verification Guidelines suggest
that there a number of options available to Greenhouse Challenge members
that do not achieve their targets for emissions reduction:
In the event that there are any identified material deficiencies the
Challenger shall agree with the AGO remedial action. This can include
amending the progress report… . [69]
8.77 The guidelines further indicate that `participants are also able
to withdraw from the Program without penalty'. [70]
8.78 The Committee acknowledges that there is a need to build expertise
in estimating and verifying industry emissions, and that this will come
from experience. It is, however, a matter of concern to the Committee
that information on revisions made by companies to their Cooperative Agreements
is not easily accessible to the public.
8.79 The AGO has recently contracted Det Norske Veritas (DNV) to manage
the verification of another 31 Greenhouse Challenge participants. [71]
According to its website, DNV is an independent Norwegian `foundation'
specialising in certification and quality assurance services.
8.80 An October 2000 media release from the Minister for Industry, Science
and Resources, Senator Minchin, reported that 31 Greenhouse Challenge
members were independently verified in 2000. The release stated that `the
verification process cleared all but 5 of the firms taking part and the
Greenhouse Office is now working with 5 companies to correct some minor
reporting errors'. [72]
8.81 However, no information about the performance of the verified members
has been released. The Committee is concerned that these verification
results are not open to scrutiny and that such secrecy only perpetuates
the problems involved in accurately assessing the effectiveness of the
Greenhouse Challenge Program in stimulating emissions reduction. [73]
Recommendation 88
The Committee recommends that any changes to the level of forecast
emissions savings by Greenhouse Challenge Program members made after the
signing of Cooperative Agreements be publicly disclosed.
Have enough resources been allocated to verification?
8.82 The importance of verification to the overall credibility of the
Greenhouse Challenge Program cannot be overstated.
8.83 The AGO has clearly applied risk management principles to verification,
recognising that, as the Program increases its membership, the total cost
of verification will escalate. According to the Draft Verification Guidelines:
Based on the experience of the pilots, a likely cost of between $8,000-$20,000
per single GCIV is indicated.
… annual expenditure of approximately 5-10 per cent of Program
resources might provide for some 15-30 independent verifications to
be conducted per annum. In FY1999-2000 this would cover around 10-20
per cent of those organisations that should have one or more progress
reports submitted during this period. A similar level of funding in
subsequent years would still allow a reduced but acceptable number of
verifications. [74]
8.84 It is likely that an increase in the number of small and medium-sized
businesses would require the Government to significantly increase its
allocation of resources to verification. However, a sufficient number
of verifications need to be carried out to support the claims of the Program.
The Committee doubts whether a 10 per cent to 20 per cent selection of
members would ensure the Greenhouse Challenge Program is regarded as credible.
8.85 A question also arises whether the costs of verification should
in fact be borne by Government, when there are such significant benefits
of Greenhouse Challenge membership for industry.
Recommendation 89
The Committee recommends that verification be funded by industry,
while remaining independent of industry.
Footnotes
[1] The Australia Institute, Submission 79d,
p 2298.
[2] The Australian Greenhouse Office, Submission
169, p 1690.
[3] It contributes to the major priority of
the National Greenhouse Strategy of `limiting greenhouse emissions',
Australian Greenhouse Office, The National Greenhouse Strategy: Strategic
Framework for Advancing Australia's Greenhouse Response, 1998; and
see The Australian Greenhouse Office, Submission 169, p 1680.
[4] This definition is taken from a US report
by the President's Council On Sustainable Development Climate Task Force,
http://www.whitehouse.gov/PCSD/tforce/cctf/cprinc.html. It appears to
be a widely accepted explanation of `early action' policy and fairly describes
the approach taken by the AGO.
[5] Pulp and Paper Manufacturers Federation
of Australia, Submission 190, p 2006.
[6] Senator the Hon Robert Hill, Opening
Address to the Insurance Council of Australia's Canberra Conference,
10 August 2000, Department of Environment and Heritage, Media Release
and Speeches, http://www.environment.gov.au/minister/env/2000/sp10aug00.html
(13/08/00), p 3.
[7] Statement by the Prime Minister of Australia,
the Hon John Howard, Safeguarding the Future: Australia's response to climate change,
20 November 1997, http://www.greenhouse.gov.au/ago/safeguarding.html
(17/07/00), p 1.
[8] Email to the Committee from Linda Powell,
Executive Manager, Partnerships Group, Australian Greenhouse Office, 26
July 2000.
[9] Quoted from Greenhouse Challenge: Evaluation
Report 1999, p 19. See also, The National Greenhouse Strategy,
1998, p 34.
[10] Letter to the Committee from Linda Powell,
Executive Manager, Partnership Group, Australian Greenhouse Office, 23
August 2000.
[11] According to the Annual Report of the
Department of Employment, Workplace Relations and Small Business for 1998-99,
there are approximately 948,000 private sector non-agricultural small
businesses in Australia. These businesses produce more than one third
of Gross Domestic Product and account for about 40 per cent of total public
and private sector employment (p 38).
[12] Statement by the Prime Minister of Australia,
the Hon John Howard, Safeguarding the Future: Australia's response to climate change,
20 November 1997, http://www.greenhouse.gov.au/ago/safeguarding.html
(17/07/00).
[13] Australia and Greenhouse Policy - A
Chronology, Background Paper No.4 1997-98, Parliamentary Library Information
and Research Services, p 6.
[14] http://www.greenhouse.gov.au/challenge/.
[15] President Clinton's State of the Union
Address (27 January 2000), discounted industry concerns about the
economic impact of introducing emissions controls: `Many people still
believe you cannot cut greenhouse gas emissions without slowing economic
growth. In the Industrial Age that may well have been true. But in this
digital economy, it is not true anymore. New technologies make it possible
to cut harmful emissions and provide even more growth',
http://www.whitehouse.gov/Initiatives/Climate/main.html.
[16] Department of Environment and Heritage,
Hill Addresses Key Global Warming Forum', 26 April 2000, Media
Release, http://www.environment.gov.au/minister/env/2000/mr26apr00.html.
[17] Senator the Hon Robert Hill, Opening
Address to the Insurance Council of Australia's Canberra Conference,
10 August 2000, Department of Environment and Heritage, Media Release
and Speeches, http://www.environment.gov.au/minister/env/2000/sp10aug00.html
(13/08/00), p 3.
[18] Proof Committee Hansard, Canberra,
9 March 2000, p 17.
[19] Proof Committee Hansard, Canberra,
9 March 2000, p 4.
[20] Department of Environment and Heritage,
`Opening Address by Senator Robert Hill to the Insurance Council of Australia's Canberra Conference',
10 August 2000, p 2, http://www.environment.gov.au/minister/env/2000/sp10aug00.html.
[21] Pacific Power, Submission 98, p 803.
[22] National Greenhouse Strategy, 1998, p
34.
[23] The original objective of the Greenhouse
Challenge Program was to `capture the capacity of industry to abate its
greenhouse emissions.' The Wilkenfeld evaluation of the Greenhouse Challenge
Program in 1996 noted that `capture in this context can be taken
to imply two meanings: to prompt actions that may not otherwise
have occurred, and to document actions, whether or not they would
have occurred.' This Committee has placed a clear emphasis on determining
the extent to which actions have been undertaken as a result of Government
policy and more specifically, the Greenhouse Challenge Program.
[24] The membership of the Greenhouse Challenge
Evaluation Steering Group was drawn from senior levels of the Australian
Greenhouse Office, the Department of Industry, Science and Resources,
Agriculture, Fisheries and Forestry - Australia, the Australian Industry
Greenhouse Network, the Australian Petroleum Production & Exploration
Association and the Cement Industry Federation. Professor Stuart Harris
is appointed at the Research School of Pacific and Asian Studies at the
Australian National University, (from the Greenhouse Challenge Evaluation
Report, p 81).
[25] Cooperative Agreement, A Report on
the Greenhouse Challenge 1998-99, Tabled document, 10 March 2000,
Canberra, p 2.
[26] Woodside Energy Ltd , Submission 129,
p 1289.
[27] Southern Pacific Petroleum, Submission
172, p 1751.
[28] See Guidelines for the Cooperative Agreements Program,
p 2, http://www.greenhouse.gov.au/challenge/guidelines.html.
[29] Australian Greenhouse Office, NGGI,
p A-3.
[30] Australian Greenhouse Office, National
Greenhouse Gas Inventory: Analysis of Trends and Greenhouse Indicators
1990-1988, `It is difficult to detect any effects of the National
Greenhouse Response Strategy (NGRS), the National Greenhouse Strategy
(NGS) or of programs such as the Greenhouse Challenge from these indicators
alone. The NGRS was adopted in December 1992, and its successor the NGS
in December 1998, so one or the other was in place for about two thirds
of the period covered by this analysis (July 1990 to June 1998). The Greenhouse
Challenge Program was in operation for less than half of the period' (pp
59-60).
[31] These figures are approximate only as
Australia's baseline in terms of actual tonnes of emissions is yet to
be firmly established, largely due to the uncertainty of emissions from
the land use change and forestry sector, in particular land clearing (see
chapter 7).
[32] Proof Committee Hansard, Canberra,
9 March 2000, p 8. (While the changes from 1990 to 1994 were relatively
small, total emissions have increased significantly between 1994 and 1998,
NGGI, p A-3).
[33] Statement by the Prime Minister of Australia,
the Hon John Howard, Safeguarding the Future: Australia's response to climate change,
20 November 1997, http://www.greenhouse.gov.au/ago/safeguarding.html
(17/07/00).
[34] Note that this estimate is taken from
the report by Professor Stuart Harris, Greenhouse Challenge: Evaluation
Report, 1999, p 3. This figure is higher than the 21 Mt CO2-e indicated
in The National Greenhouse Strategy, 1998, p 34.
[35] Greenhouse Challenge: Evaluation Report,
1999, p 37.
[36] Australian Greenhouse Office, Submission
169, p 1690.
[37] George Wilkenfeld and Associates, 1996,
p 12 (emphasis added).
[38] `The inventory is the `fixed point' and
the baseline is the trend from which emission abatement performance is
assessed… ' from the Greenhouse Challenge Independent Verification
Program: Verification and Reporting Guidelines, March 2000, p 8.
[39] `A static efficiency measure of emission
abatement is used by most participants', Greenhouse Challenge, Evaluation
Report, 1999, p 23; and Ms Gwen Andrews, Chief Executive Officer,
AGO, told the Committee that: `The Program was always based on a static
efficiency baseline…', Official Committee Hansard, Canberra,
3 May 2000, p 4.
[40] `As energy efficiency is improving most
of the time - large-scale economic models typically assume a rate of improvement
of 1 per cent to 1.5 per cent per annum', The Australia Institute, Submission
79d, p 2300.
[41] Official Committee Hansard, Canberra,
16 August 2000, p 893.
[42] Wilkenfeld Report, 1996, p 27.
[43] Dr Clive Hamilton, Proof Committee
Hansard, Canberra, 10 March, p 56.
[44] Wilkenfeld Report, 1996, p 20.
[45] Wilkenfeld Report, 1996, p 28.
[46] Dr Clive Hamilton, Submission 79d, p 2303.
[47] Greenhouse Challenge, Evaluation Report,
1999, p 46.
[48] Proof Committee Hansard, Perth,
17 April 2000, p 475.
[49] Proof Committee Hansard, Canberra,
10 March 2000, p 99.
[50] Proof Committee Hansard, Perth,
17 April 2000, p 520.
[51] Greenhouse Challenge, Evaluation Report,
1999, p 23.
[52] Greenhouse Challenge, Evaluation Report,
1999, p 46.
[53] Great Southern Energy, Submission 150,
p 1559.
[54] Australian Aluminium Council, Proof
Committee Hansard, Canberra, 10 March 2000, p 51.
[55] Minerals Council of Australia, Proof
Committee Hansard, Canberra, 10 March 2000, p 72.
[56] The Australia Institute, Submission 79d,
p 2298.
[57] Proof Committee Hansard, Canberra,
23 June 2000, p 752.
[58] The Australia Institute, Submission 79d,
p 2300.
[59] Greenhouse Challenge Independent Verification
Program: Verification and Reporting Guidelines, March 2000, pp 4,
15.
[60] Greenhouse Challenge Independent Verification
Program, 2nd Discussion Paper (Draft), April 1999, p 30.
[61] `within 10% of the aggregate emissions
of the firm', Greenhouse Challenge Independent Verification Program,
p 3.
[62] Greenhouse Challenge Independent Verification
Program: Verification and Reporting Guidelines, March 2000, p
15.
[63] Dr Clive Hamilton, Proof Committee
Hansard, Canberra, 10 March 2000, p 56.
[64] The guidelines are intended to be used
by independent verifiers to determine the accuracy of the self-reporting
of baselines, emissions inventories and abatement progress under the Challenge.
Greenhouse Challenge Independent Verification Program: Verification
and Reporting Guidelines, 6 March 2000.
[65] ICI is now known as Orica Pty, Ltd.
[66] Greenhouse Challenge, Evaluation Report,
1999, p 61.
[67] Mr John McBride, Director Greenhouse Challenge,
AGO, Senate ECITA Estimates Committee Hearings, Official Committee
Hansard, Canberra, 3 May 2000, p 2.
[68] Mr John McBride, Director Greenhouse Challenge,
AGO, Senate ECITA Estimates Committee Hearings, Official Committee
Hansard, Canberra, 3 May 2000, p 2.
[69] Greenhouse Challenge Independent Verification
Program, 2nd Discussion Paper (Draft), April 1999, p 16.
[70] Guidelines for the Cooperative Agreements Program,
http://www.greenhouse.gov.au/challenge/guidelines.html.
[71] DNV has been given responsibility for
managing 17 auditors selected by the AGO (Official Committee Hansard,
Canberra, 25 June 2000, p 625). See also http://www.dnv.com/dnvabout/.
[72] Senator the Hon Nick Minchin, Media Release,
Greenhouse Challenge Delivers Credibility, 11 October 2000.
[73] Senator the Hon Nick Minchin, Media Release,
Greenhouse Challenge Delivers Credibility, 11 October 2000.
[74] Greenhouse Challenge Independent Verification
Program, 2nd Discussion Paper (Draft), April 1999, p 30.
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