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Undermined by Adverse Selection: Australia's Direct Action Abatement Subsidies

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  • Paul J. Burke

Abstract

This paper examines economic challenges faced by Australia’s Direct Action abatement subsidy scheme. Introduced in 2014, the scheme operates by reverse auction, funding projects voluntarily proposed by the private sector. Because the government cannot know true project counterfactuals, the lowest auction bids are likely to often be non-additional “anyway” projects. The scheme is hence likely to exhibit a systematic skew toward low-quality abatement. The paper presents a model of the adverse selection problem and describes the early experience with Direct Action. A discussion of a way forward is also provided.
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  • Paul J. Burke, 2016. "Undermined by Adverse Selection: Australia's Direct Action Abatement Subsidies," Economic Papers, The Economic Society of Australia, vol. 35(3), pages 216-229, September.
    • Handle: RePEc:bla:econpa:v:35:y:2016:i:3:p:216-229
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    4. John F. Raffensperger, 2020. "A price on warming with a supply chain directed market," Papers 2003.05114, arXiv.org, revised Mar 2021.
    5. Sam Hartmann & Sebastian Thomas, 2020. "Applying Blockchain to the Australian Carbon Market," Economic Papers, The Economic Society of Australia, vol. 39(2), pages 133-151, June.
    6. Cheung, Grace & Davies, Peter J., 2017. "In the transformation of energy systems: what is holding Australia back?," Energy Policy, Elsevier, vol. 109(C), pages 96-108.
    7. Lundberg, Liv & Persson, U. Martin & Alpizar, Francisco & Lindgren, Kristian, 2018. "Context Matters: Exploring the Cost-effectiveness of Fixed Payments and Procurement Auctions for PES," Ecological Economics, Elsevier, vol. 146(C), pages 347-358.
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    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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