Australia risks paying more than three times the cost of carbon cuts under its Emissions Reduction Fund (ERF), as industry seeks to maximise profits aided by poor market transparency, analysts Reputex said Wednesday.

The government plans to use the A$2.55 billion ($2 bln) fund to buy emission cuts from polluters at the lowest possible cost, as a means to meet its target of cutting greenhouse gas emissions to 5% below 2000 levels by 2020.

Through regular government auctions, the first due on Apr. 15, companies will bid for government contracts to cut emissions, but are likely to ask for inflated prices, Reputex said in a report released Wednesday.

It estimated around 45 million Australian Carbon Credit Units (ACCUs) would likely be offered to the government in the April auction, and said project owners were likely to ask for over A$800 million, more than three times the actual abatement cost of around A$250 million.

“Many projects, such as large waste sector bidders have negative marginal abatement costs, but rather than sell that abatement cheaply, companies will look to exploit their cost advantage to maximise their returns,” the report said.

“In some cases, companies may inflate their bid-price by 15 times the cost of creating the emissions reductions, and potentially much higher.”

The government’s refusal to publish detailed pricing information increased the chances of seeing bloated prices, it added.

The Clean Energy Regulator, the agency operating the ERF, has said it will not reveal how much it pays for carbon cuts from individual project types, only the average price across all projects.

“With only one bid per project, over a single round, with no information as to other bids available, proponents are provided with a clear incentive to overstate their bid, rather than be locked into a low price contract,” Reputex said.

By Stian Reklev – stian@carbon-pulse.com