ERF - HOW It happened

Updated: 27 April 2017

MAIN POINTS:

  • The carbon price was repealed on 17 July 2014.
  • By expanding its coverage from the land sector to the whole economy, the CFI became the Emissions Reduction Fund on 12 December 2014.
  • The Australian government has committed $2.5 billion over 10 years to purchase credits through auctions.

 

The Australian Government's Direct Action Plan

The Australian Government's Direct Action Plan

THE DETAILS:

The Direct Action Plan was released in early 2010 after the Coalition voted against the emissions trading scheme in 2009.

The Plan aims to meet the bipartisan target of reducing Australia’s greenhouse gas emissions by 5 per cent by 2020.

The centrepiece is the $1.1 billion Emissions Reduction Fund. The Fund will support projects that reduce emissions across all sectors of the economy through competitive rounds.

The Plan also includes a Green Army to plant 20 million trees but the proposal for solar rebates for 1 million homes was not funded in the 2014 budget. The Direct Action Plan is being implemented by the Department of the Environment. 

CARBON PRICE

The carbon price was repealed on 17 July 2014.

Under the carbon price 351 large polluters needed to purchase credits from the government or CFI projects to cover their emissions. The compliance period for the 2013-14 financial year ended on 2 February 2015.

For example, in the first year, the carbon market was worth $6.6 billion and 97 per cent of CFI credits produced were sold to companies with a carbon bill.

The mid year financial outlook in December 2013, MYEFO, showed that removal of the carbon price would cost over $12 billion in lost revenue over 3 years:

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EMISSIONS REDUCTION FUND

While developing legislation to amend the CFI, the Government released a Green Paper and a White Paper on the design of the ERF. The White Paper policy focused on three design principles:

The Australian Government's Emissions Reduction Fund White Paper

The Australian Government's Emissions Reduction Fund White Paper

  • lowest cost emissions reductions
  • genuine emissions reductions
  • streamlined administration.

Legislation to expand the CFI into the ERF was passed on 30 November 2014 with the support of the Palmer United Party and independents in the Senate. The ERF aims to support 236 million tonnes of abatement by 2020 – the amount needed to meet the 5 per cent target without buying any credits from overseas – by reducing emissions from power stations, improving energy efficiency and storing carbon in forests and soil carbon.

To seek the lowest cost emissions reductions, the ERF expands coverage beyond the land sector and landfill to include energy efficiency and industrial facilities. Because these new projects are changing existing activities, the government will need to set baselines, or the point from where credits might be issued, in new methods. This is different to new projects, like planting a forest on cleared land, where the baseline is zero.

Projects will be funded through a ‘reverse auction’ process where project credits which offer the most value for money will be bought by the government. See ERF - auctions for more information.

The budget process has so far allocated $1.6 billion towards the ERF over 5 years. However, the government has made a political commitment of at least $2.5 billion over 10 years. The government expects to contract the abatement in the first 4 years with payments to flow over the 5-6 years following as contracts are paid on delivery of abatement. The profile of funding accelerates over the first 4 years:

By comparison, in the two years of the carbon price, about 5 million CFI credits from 123 projects were sold for around $100 million.