Australia buys 45.5mt of CO2e cuts at average of A$12.25/t in second ERF auction

Published 04:07 on November 12, 2015  /  Last updated at 11:21 on November 12, 2015  /  Asia Pacific, Australia  /  No Comments

Australia has contracted the purchase of 45.45 million tonnes of CO2e abatement at an average price of A$12.25 ($8.75) per tonne from 131 projects in its second ERF auction, the Clean Energy Regulator announced Thursday.

Australia has contracted the purchase of 45.45 million tonnes of CO2e abatement at an average price of A$12.25 ($8.75) per tonne from 131 projects in its second ERF auction, the Clean Energy Regulator announced Thursday.

The A$557 million auction takes government spending under the ERF from the first two auctions past A$1.2 billion, around half the Fund’s total budget, buying 92.5 million tonnes of emission cuts.

The price in the second auction was slightly lower than the A$13.95 paid in the first, and was in line with market expectations of A$11-13, but volumes fell just short of the expected 50-80 million tonnes.

“Participation at this auction has shown that Australian landholders, businesses and entrepreneurs can see real opportunities in carbon abatement projects that will contribute to Australia’s emissions reduction targets,” the Clean Energy Regulator said in a statement.

“Participants are willing to offer abatement at competitive prices which has allowed us, the Clean Energy Regulator, to meet the Emissions Reduction Fund objective of purchasing lowest cost abatement,” said Chloe Munro, chair of the Regulator.

CASH DRAIN

With the ERF quickly running out of cash, observers questioned how much the fund can contribute to emission reductions in the future.

“The government has now used up almost half of its overall budget allocation. This means that if future auction rounds are similar, we would only end up getting two more auctions in before the money runs out. We would then potentially have a policy gap until 2020, unless the 2017 review beefed up the safeguard mechanism,” said Elisa de Wit, a climate market expert with lawfirm Norton Rose Fulbright.

The second auction leaves 268 projects registered that have not yet successfully won contracts with the Regulator.

“The department of environment is also working hard on developing new project methodologies, so the opportunities for participation will continue to expand. The question is how long will the money last, and once it is gone where will the demand come from?,” de Wit said.

LAND USE

As anticipated, land use projects dominated the winning bids, accounting for 80% of the contracted volume, according to analysts Reputex, most of it from savanna burning and vegetation projects.

Developer Corporate Carbon was the biggest winner, according to the results published by the Clean Energy Regulator. The company had 14 successful bids which are intended to generate a total of 15.2 million tonnes of CO2e cuts, worth around A$185 million if they all sold at the auction’s average price.

Its three biggest projects were forest regeneration projects, each expected to deliver 2.5 million tonnes in cuts.

Devine Agribusiness Carbon won contracts to generate 3.7 million tonnes in cuts from 17 projects, while Country Carbon will deliver 3 million tonnes from 19 projects.

Meanwhile, industrial projects received 12% of funding from the auction, including contracts for Wesfarmers, Energy Australia and Adelaide Brighton Cement.

TRICKLE

Like in the first auction, many of the projects will deliver the emission cuts over a 7-10 year period. This means not all will contribute to Australia’s 2020 target, which was the initial ambition of the fund.

“An average of 5 million tonnes to be delivered each year through to 2022. In line with our earlier projections, we continue to anticipate that the ERF will deliver around 120 million tonnes of abatement prior to 2020. While more abatement will be contracted, this will be supplied after 2020,” Reputex said.

Some observers also noted that the ERF continued to prove it would be insufficient for Australia to meet its 2030 emission target.

“By 2030, this represents just two per cent of Australia doing its bit towards the bipartisan and internationally agreed goal of limiting global warming to less than 2°C above pre-industrial temperatures,” said John Connor, CEO of the Climate Institute.

“While there may well be important projects getting taxpayer backing from the ERF’s two auctions, now is the time to focus on the policies that will help modernise and clean up Australia’s economy,” he said.

The Institute on Wednesday released a report estimating that even with additional funding, the ERF would only achieve 14% of the cuts needed to meet the 2030 target of cutting GHGs 26-28% from 2005 levels by 2030.

Reputex believes Australia will not meet the 2030 target without new policies.

“While the ERF has again been successful in contracting abatement, the policy has not curbed Australia’s net emissions growth. Accounting for the ERF, we continue to forecast a 15 per cent increase in national emissions through to 2030,” managing director Hugh Grossman said.

COAL POWER AT 3-YR HIGH

The release of the ERF results coincided with the October issue of Cedex, a monthly index of emissions from Australia’s electricity sector.

The report, published by consultancy Pitt & Sherry, showed that coal-fired generation has reached a three-year high in Australia, with carbon output rising accordingly.

Coal now accounts for 75.6% of Australia’s electricity, compared to 72.4% when the Coalition government repealed the carbon pricing mechanism in July 2014.

Updated with details and comments throughout.

By Stian Reklev – stian@carbon-pulse.com

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