The Emissions Reduction Fund (ERF) is Australia’s main mechanism to cut greenhouse gas emissions, but even with the announced new funding of A$200 million ($141m) a year from 2018 it is only likely to achieve 14% of the required carbon cuts by 2030, a Climate Institute report said on Wednesday.
The report came a day before the government announces the result of the second ERF auction, where market observers expect 50-80 million tonnes of CO2e cuts to be contracted.
But while the auction result will likely be cast by the government as proof of how well the ERF is working, it will not put Australia in a position to meet its target of cutting GHGs 26-28% below 2005 levels by 2030, according to the report.
“Recent government announcements suggest the ERF’s total budget to 2030 is $4.95 billion. If this is spent at the same price per tonne as in the ERF’s first auction, the ERF will be able to purchase 355 million tonnes of emission reductions,” it said.
That is 14% of the cuts required to meet the target, and only 7.5% of what the Climate Institute says would be Australia’s fair share of meeting the global 2C target.
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Prime Minister Malcolm Turnbull has announced that the country’s climate policy will be reviewed in 2017. The report recommended that this should start sooner and consider new measures such as broad carbon pricing and other energy efficiency drivers.
“Priority should also be given to the regulated replacement of ageing coal stations – the largest single source of domestic emissions – with clean energy to modernise our pollution-intensive power sector,” it said.
The report said that while the ERF has some strengths, notably the ability to reach certain sectors such as land use that are hard to cover by other regulations, the scheme also has some glaring weaknesses, including inadequate funding.
“The ERF’s reliance on federal funding allocates responsibility for reducing emissions to the taxpayer, rather than the polluting entity itself. This sets up a perverse incentive for companies either to not reduce emissions until they are paid to do so, or to seek government funding for emission reductions they would have made anyway,” it said.
“By its nature, the ERF targets projects, not sectors or the broader economy. While some aggregation of projects is possible, the ERF does not send a broad-based investment signal to investors and companies to decarbonise their activities. For example, the ERF would not be an effective policy for the power sector,” it said.
It added that the safeguard mechanism could be an effective companion to the fund, but only if baselines were set much tighter than current levels, which allow emissions to increase.
“The bottom line is that while the ERF can provide important support to other policies, it is to them we will need to turn while ensuring the ERF is appropriately targeted and continues to be professionally run. To use the Prime Minister’s language, the ERF can have a role as a buttress but not a pillar,” Climate Institute CEO John Connor said.
By Stian Reklev – stian@carbon-pulse.com
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