Over 75% of volume in Australia’s first ERF auction from old projects -regulator

Published 04:58 on May 26, 2015  /  Last updated at 07:05 on May 26, 2015  / Stian Reklev /  Asia Pacific, Australia

Australia bought 47 million tonnes of CO2e cuts in the first Emissions Reduction Fund (ERF) auction in April, but less than a quarter of it was from new projects, fuelling doubts over the fund’s additionality.

Australia bought 47 million tonnes of CO2e cuts in the first Emissions Reduction Fund (ERF) auction in April, but less than a quarter of it was from new projects, fuelling doubts over the fund’s additionality.

Last month, the government announced it had paid A$660 million ($517 mln) to buy 47.3 million tonnes of CO2e reductions from 144 projects in the first ERF auction.

Environment Minister Greg Hunt hailed the auction as a major success despite critics suggesting Australia would not meet its 5% reduction target by 2020 with current available funds at those prices.

On Tuesday, the opposition Labor party’s climate change spokesman Mark Butler released a statement citing the Clean Energy Regulator, saying most of the projects that successfully bid in the first auction were already operating.

“In stunning evidence to Senate Estimates, the Clean Energy Regulator has admitted 107 of the 144 projects recently awarded contracts under the Emissions Reduction Fund were pre-existing,” Butler’s statement said.

“This means around three quarters of pollution reduction Greg Hunt claimed to have purchased in the first round of the ERF was already happening,” Butler said.

According to Butler, only 10 million of the 47.3 million tonnes of cuts were from new projects.

“That is largely in line with our expectations – that the majority of projects funded were pre-existing under the former CFI scheme, which raises concerns over the additionality of emissions reductions contracted,” said Hugh Grossman, executive director at market analysts Reputex.

The CFI, the Carbon Farming Initiative, was launched in association with Australia’s 2012 carbon pricing mechanism, and generated offsets that big emitters could use towards their compliance.

“It was always understood that these projects would transition across to the ERF, but obviously the buyer of credits from these projects changed from liable entities to the government once the carbon pricing mechanism was repealed,” said Elisa de Wit, a climate policy expert with lawfirm Norton Rose Fulbright.

“The taxpayer is footing the bill for carbon pollution reduction activities that were happening anyway,” Labor’s Butler said.

“Minister Hunt was so brazenly deceptive when announcing the results of the first auction. He now needs to explain why he’s allowing taxpayers to subsidise big polluters’ carbon abatement.”

Environment Minister Greg Hunt rejected Butler’s criticism.

“Labor is running a desperate campaign to trash a climate change policy that’s actually working. But in doing so, they are criticising the foundation of the only climate policy they had that actually worked,” he said in an emailed statement.

“Unlike most of Labor’s environmental policies, they actually got something right with the Carbon Farming Initiative and our policy has always been to adopt and extend this,” he said.

Meanwhile, the Clean Energy Regulator, which operates the ERF, on Tuesday announced it had approved two new methods for the scheme: one on reducing GHG emissions from fertilizer in irrigated cotton, and one streamlining earlier CFI methods on reforestation and afforestation.

But while the regulator continues to approve new methods, which over time will increase the share of new projects in each auction, questions remain over whether the ERF will take Australia to the 5% target given the budget restraints.

The fund spent over a quarter of its budget in the first auction, but bought only around 17% of the required cuts, and not all of it will be delivered in time.

“The bigger issue, in my mind, is the fact that the $660M has purchased a significant amount of abatement which will take place after 2020 – in other words not all of the 47 million tonnes will be able to be used to meet our 2020 target,” Norton Rose Fulbright’s de Wit said.

The first version of the story has been updated with quotes from Environment Minister Greg Hunt.

By Stian Reklev – stian@carbon-pulse.com