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Emission Reduction Fund first auction sends mixed messages


On the 15-16th of April the new Emission Reduction Fund (ERF) successfully completed the first round of auctions aimed at buying reduced emissions from large emitting companies throughout Australia. The auction process is open to all companies in an “opt-in” style approach, whereby companies can bid for contracts to reduce their emissions – with the winner being the lowest cost abatement.

By the end of the auction the government spent $660 million for the abatement 47 million tonnes of CO2 (accumulative over the next 10 years) or 5.4 million tonnes per annum. This figure, though relatively low compared to the target of 47 million per annum, was hailed as “exceptional” by Environment Minister Greg Hunt.

With the benefit of time, experts have taken a closer look as to which elements of the first auction were really “exceptional”. Inspection revealed that the reality was 2.5 of the 5.4 million tonnes per annum achieved in the first auction came from previous government initiatives (State and Federal) predating the Emission Reduction Fund. Also worth reflection is that 2.3 of the 5.4 million tonnes was achieved through purchase of deforestation rights – in other words, paying companies not to clear their land. This in particular has received criticism, as companies with marginal land that may not have even be suited to farming (due to issues like salinity) were benefitting from the ERF scheme.

All in all, the review of the first rounds of auctions hasn’t aged well as experts have been able to closely examine the results. With approximately a quarter of the entire fund ($2.55 billion) spent only 5.4 of a required 47 million tonnes of CO2 have been abated. The ERF has got off to a shaky start, so hopes for the future auctions will need to be heightened for the success of this scheme to occur and for Australia to be able to meet its 2020 obligation to reduce emissions by 5%.