Undermined by adverse selection: Australia’s Direct Action abatement subsidies

Vol: 
1605
Author name: 
Paul J. Burke
Journal title: 
Burke, P.J., 2016. Undermined by Adverse Selection: Australia's Direct Action Abatement Subsidies. Economic Papers: A journal of applied economics and policy, 35(3), pp.216-229.
Year: 
2016
Month: 
April
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.

Updated:  25 February 2016/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Team