Headline buried in climate policy detail

The proposed Coalition policies and investment initiatives seem to be targeting popular programs such as the circular economy or saving the wildlife. However, the real headline buried in budget papers is a 35 per cent reduction in climate policy spending from 2022-23 to 2025-26. Now that the initial dust has settled, a revisit of the Federal budget papers paints a more realistic picture of what’s to come in the Morrison government is re-elected.

Koalas and the Great Barrier Reef:

Koala conservation and protection: $53.0 million over 5 years from 2021-22 and $2.5 million ongoing. 

Strengthening the Great Barrier Reef: additional $1.0 billion over 9 years from 2021-22. 

The Budget contains a $100 million investment over three years into ‘future proofing Australia’s unique landscapes, animals and plants’, although koalas and the Great Barrier Reef have each been singled out.

Koalas are listed as vulnerable on the IUCN Red List and labelled endangered by the Australian Government. Meanwhile, the Great Barrier Reef is already impacted by ocean acidification, sea-level rise (3mm per year since 1991), temperature warming, and coral bleaching. Koalas play a vital role in forest ecosystems, as they cause leaves to drop, providing sustenance for insect species. The Great Barrier Reef houses thousands of marine species and acts as a significant carbon sink. Despite these indirect benefits to humanity, the decision to single-out koalas and the Great Barrier Reef are budget ‘sweeteners’ for a different reason. 

These investments strongly appeal to what environmental economists call non-use values. As Australians, the mere knowledge that money is committed to the survival of koalas and the Great Barrier Reef sits comfortably with us and resonates with our national identity. The Great Barrier Reef and Koalas also provide direct-use values in the form of recreation. While it may be an uncomfortable truth, humans are more inclined to support the protection of species and ecosystems that we feel a connection to, are aesthetically attractive and provide us with these direct-use benefits. 

Building Australia’s Circular Waste Economy:

With State Governments taking a lead on circular economy plans, it is positive to see the Federal Government’s $60.4 million investment over four years into advanced recycling solutions under the Recycling Modernisation Fund. There is a further $18.2 million over 5 years from 2021-22 going towards the ‘ReMade in Australia’ brand and certification scheme, helping consumers “buy quality, locally-recycled products”. 

Climate:

Disappointingly, there is no overt reference to climate-related financial risk in the Federal Budget, despite the growing momentum across the global accounting profession. 

The Government has remained consistent with its ‘technology, not taxes’ approach to emissions reductions, increasing investment in Patent Box, the tax concession to low emissions technology innovations. 

There is a commitment to low-emissions energy, namely hydrogen, although continued evidence of a gas-led transition. Furthermore, the Budget is also rather cryptic in the source of its investments into “affordable and reliable power”.

The Future Drought Fund is an essential response to recent and ongoing events, although the Government should be acknowledging the relationship of increased flood intensity with climate change. Having this full investment form part of a wider climate change adaptation plan would be more effective and relevant.

There is also $2.5 billion going towards the Emissions Reduction Fund (ERF) through to 2025-26. The ERF is Australia’s Direct Action approach to emissions reductions, which uses a reverse auction process to achieve emissions reduction at what the Government claims is the least cost’. Some issues with the ERF are as follows:

At the time of the LNP’s long-term emissions reduction plan, vegetation accounted for 69.5% of CO2 equivalent abated through this scheme. Many of these reductions are cases in which the government has paid individuals or businesses with land-clearing proposals to not go ahead with the project. Who is to prove the landowner truthfully intended to go ahead with the clearing? 

The incentives of participation are too weak for most polluters to get involved, instead, signalling them to free ride. 

The ERF strictly concerns carbon offsets, when our priority should be the development of signals and incentives to reduce emissions at the source, which is ultimately addressed by a price on carbon. 

Climate spending:

Perhaps the biggest shock from the Budget, at least from the ESG perspective, was the decline in forecasted climate spending from $2.0 billion in 2022-23 to $1.3 billion in 2025-26. With Australia’s current climate policy, it is brave to propose a 35% reduction in climate spending even if the affordability of green technologies is to significantly improve. Considering the mounting pressure to increase our 2030 medium-term target and last year’s commitment to net-zero emissions by 2050, it is surprising (although, not that surprising) to see climate spending moving in this direction. 

Market-based solutions:

While government approach to climate remains uninspired, it is encouraging to see a commitment to the Biodiversity Stewardship Trading Platform for farmers, which is going to transition into a voluntary biodiversity stewardship market. This is a timely initiative for the accounting profession, as the Task force on Nature-related Financial Disclosures (TNFD) recently released the beta version of its framework. The TNFD framework is a voluntary initiative to disclose business impact on biodiversity loss. Eventually, it is expected to be a focus of the International Sustainability Standards Board (ISSB).

Overall, the outlined initiatives and investments seem to miss the broader opportunity to build a plan for a more sustainable economic future, including the provision of support for SMEs to green their supply chains and negotiate the ESG impact.