On April 24, 2014, the Australian government released a white paper
outlining how the government plans to change the country’s approach to its greenhouse gas (GHG) reduction efforts. Currently, Australia imposes or assesses a carbon tax, which will transform into a cap-and-trade system by 2015 absent further governmental action. Political opposition to the carbon tax has led the new government to propose the creation of the Emissions Reduction Fund (ERF), a government-backed fund designed to incentivize private sector emission reduction projects. Last Thursday, the government expanded the size of the ERF from AU $1.5 billion to AU $2.6 billion. The hope is that the ERF will better serve the country’s goal of reducing GHG emissions five percent below 2000 baseline emissions by 2020.
The ERF creates a reverse auction system, whereby the government purchases GHG abatement projects proposed by private parties following a vetting process. Project proponents will use a government-approved method to estimate the likely emissions from their proposed projects. The project must then be approved by a “Clean Energy Regulator” prior to auction. Proponents of approved projects can submit a bid to the auction to sell emissions reductions on the basis of price per ton of CO2 equivalent. The government will then enter into a five-year contract with the winning project proponent whereby the government agrees to pay credits to the proponent following the verification of emission reductions from the project by the Clean Energy Regulator. The price of the credits will be set in the contract between the government and the project proponent.
The government’s white paper provides several examples of the types of projects that will qualify for ERF funds, including:
- upgrading commercial buildings;
- improving energy efficiency of industrial facilities and houses;
- reducing electricity generator emissions;
- capturing landfill gas;
- reducing waste coal mine gas;
- reforesting and revegetating marginal lands;
- improving Australia’s agricultural soils;
- upgrading vehicles and improving transport logistics; and
- managing fires in savanna grasslands.
In order to receive government approval, proposed projects must be “additional.” The concept of additionality requires project proponents to ask the question, “would the project have happened anyway?” If the answer is yes, the project is not additional.
If approved by the legislative branch, the first auction will commence on July 1, 2014, with a budget of AU $300 million, growing to AU $500 million and then AU $750 million over the next three years. The government hopes that the ERF will operate in conjunction with other carbon reduction programs, such as Australia’s Renewable Energy Target Scheme
, which requires that 20 percent of Australia’s electricity come from renewable sources by 2020.
Critics of the proposed revisions to the ERF have voiced concerns that the five-year contracts for emission reduction projects are too short to achieve significant decreases in GHG emissions and that 15-year contracts are more appropriate for securing lasting benefits. Another concern is that the government’s plan only applies an absolute emissions cap on sources that emit more than 100,000 tons of CO2 per year. This cap, referred to as the “Safeguard Mechanism” in the government’s white paper, covers approximately 130 sources of GHG emissions and applies beginning in July 2015. Another concern voiced by opposition parties is that the government’s proposal also fails to impose any clear penalties for noncompliance subject to the absolute cap.
If the current government succeeds in repealing Australia’s carbon tax, California and the EU will lose a potential market for linkage with their own emission trading systems. The current plan is for Australia and the EU to link their carbon markets once the carbon tax converts to a cap-and-trade system in July 2015. California and Australia previously agreed to share information about their carbon reduction programs in the hopes of linking any cap-and-trade systems, but no formal agreements related to these efforts have been signed. The proposal now goes to the Australian Senate.
Posted by Matthew Dobbins
at 5/2/2014 10:39 AM