Australian CO2 plan hints at offset market but adds loopholes for emitters

Published 07:37 on September 2, 2015  /  Last updated at 08:39 on September 2, 2015  /  Asia Pacific, Australia, Kyoto Mechanisms  /  No Comments

Australia on Wednesday released a new draft of its ‘safeguard mechanism’ that takes a small step towards creating an offset market, including the potential use of UN-issued carbon credits, but includes so many loopholes for big emitters that experts say CO2 output from covered companies could increase as much as 20%.

Australia on Wednesday released a new draft of its ‘safeguard mechanism’ that takes a small step towards creating an offset market, including the potential use of UN-issued carbon credits, but includes so many loopholes for big emitters that experts say CO2 output from covered companies could increase as much as 20%.

The proposed rules, which will be out for public consultation until Sep. 21, aim to ensure that emission reductions achieved under the ERF won’t be offset by increases elsewhere in the economy.

The mechanism would establish from July 2016 emission baselines for around 140 companies that emit 100,000 tonnes of CO2 or more per year, and make-good provisions for any firm emitting above that baseline.

One option would be to buy Australian Carbon Credit Units (ACCUs) generated under the ERF, which potentially could increase demand for domestic offsets and incentivise more projects.

And unlike in the previous draft of the mechanism, released in March, Australia on Wednesday opened the door to allowing emitters to use UN-issued offsets to comply with their obligations.

“The role of high quality international units in the safeguard mechanism will be reviewed between 2017 and 2018 to align with the broader review of the Emissions Reduction Fund, subject to accounting rules to be agreed as a result of the (UNFCCC) meeting in Paris in December 2015 and the credibility of the system for purchasing international units,” the draft said.

The previous version did not mention international units.

The Investor Group on Climate Change welcomed the possibility of using foreign offsets.

“International units provide an important price signal and deliver business the flexibility it needs to manage long term carbon price risk,” said CEO Emma Herd.

But despite clearer language on a market option, observers stopped short of concluding that the current version of the safeguard mechanism would lead to an offset market in Australia.

“It adds some more detail, especially on the use of international credits. But in terms of ‘a market’ it has gone backwards due to the jump in the number of rules that companies can use to avoid any compliance obligation,” Hugh Grossman, managing director with analysts Reputex, said.

“Realistically, given the disconnect to the 2030 target the broader expectation is that the shelf life for this policy will be very short,” he told Carbon Pulse.

RISING EMISSIONS

The new safeguard mechanism draft failed to address any of the criticisms directed at the March version.

The emission baseline for existing facilities will still be set at the highest annual level the installations recorded over 2009-2014, while new or expanding power plants, mines and resources projects will be accommodated.

Resources projects such as mines and natural gas will be allowed to adjust their baselines upwards twice by 2025 if the CO2 content of their product increases, compared to only once in the previous draft.

“The design of the new scheme indicates a significant disconnect between emissions growth and the government’s new post-2020 emissions target,” Reputex said, referring to Prime Minister Tony Abbott’s recent pledge to cut GHG emissions 26-28% below 2005 levels by 2030.

“We project emissions covered by the safeguard scheme will grow by around 20% through to 2030, which will put the new emissions target well out of the picture.”

Reputex estimated only 30 of the 140 covered companies would be affected by the mechanism because emitters are unlikely to surpass the high baselines.

The Climate Institute said the regulation would put the responsibility of meeting Australia’s 2030 target in taxpayer hands, while failing to remove regulatory uncertainty that has held back investments in the power sector for nearly a decade.

“The emissions limits are still riddled with loopholes and will allow major emitters like power companies to actually increase their pollution levels. This proposed safeguards policy is more a pollution trampoline than a safety net,” said CEO John Connor.

“Critically, this policy does not provide a credible long-term framework for investment in cleaning up and modernising our economy. It explicitly lets the industry from the last century off the hook and will only frustrate the billions of dollars of new investment needed in clean technology and innovation.”

By Stian Reklev – stian@carbon-pulse.com

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