The Clean Energy Regulator and Federal energy minister Angus Taylor have both blamed the timing of the Federal election for the poor performance of the latest Emissions Reduction Fund Auction, that saw a massive collapse in the amount of emissions reductions purchased by the government.
The Clean Energy Regulator announced that it had awarded contracts to just three projects, securing just 59,000 tonnes over ten years, despite offering the highest average price at $14.17 per tonne seen in an auction to date. All three projects awarded are vegetation regeneration projects on agricultural properties.
Based on the most recent projection from the Department of Environment and Energy, Australia’s abatement task through to 2030 stands at 695 million tonnes, meaning the latest auction results will contribute just 0.0085% of the emissions reductions needed to meet the 2030 target.
To put the results in context, the volume of emissions reductions secured is roughly equivalent to the average amount of greenhouse gas emissions released by Loy Yang Power Station in a single day, and will be overwhelmed by the decision by AGL to extend the life of the Liddell power station.
When pressed on the performance of the Emissions Reduction Fund auction, energy minister Angus Taylor pointed to the close timing of the auction with the federal election, suggesting that Labor’s plans to abolish the Emissions Reduction Fund scared off potential projects.
“The ninth Emissions Reduction Fund auction marked an important milestone for the government. The Emissions Reduction Fund has successfully contracted 192 million tonnes of abatement and registered 780 projects,” Taylor said.
“This auction cycle ran over the election period – Labor took a policy of abolishing the ERF to the election, which constrained project development and auction registration.”
The application window for projects to participate in the auction closed on 11 June, close to the 18 May election, but several weeks after the result of the election was known. Taylor and the Clean Energy Regulator have both said that the timing impacted on the availability of projects, but those working with the industry have suggested the problems are more fundamental, including the Clean Energy Regulator’s unwillingness to consider projects requiring a purchase above $15 per tonne.
Chair and CEO of the Clean Energy Regulator, David Parker, told RenewEconomy, that the purpose of the Emissions Reduction Fund was to focus on low-cost, long term abatement, rather than purchasing whatever abatement happens to be on offer.
“I have a statutory duty to purchase the greatest amount of abatement at the lowest cost. I interpret this to mean that I have to buy up the long run supply curve. So price will rise over time – and price did rise at this auction. But it is not my job to buy up the short-run supply curve. I won’t chase small amounts of abatement at high prices when supply has been temporarily suppressed. The election period was in the middle of the auction process and it looks like this reduced quantities that were bid into the auction,” Parker said.
The Emissions Reduction Fund is the centrepiece of the Coalition’s climate policy and measures to achieve Australia’s targets under the Paris Agreement. It has been widely labelled inadequate to achieve the targets, particularly with emissions rising across other sectors of the economy.
Ahead of the 2019 election, the Coalition allocated an additional $2 billion in funds to the Emissions Reduction Fund, rebadging the funds as the Climate Solutions Fund, but for the scheme to work, emissions reduction projects need to be forthcoming. The results of the ninth auction would suggest the well of emissions abatement projects may be drying up.
The Regulator confirmed that it had received offers from projects that sought an auction price of “well above” the imposed price cap of $15 per tonne, stating that it believed these projects did not represent value for money.
So poor was the result, that it barely registers on a chart comparing the outcomes of earlier auctions.
The results of the ninth emissions reduction fund auction were released late on Thursday, with the total value of the contracts awarded worth just $840,000.
To put that into context, the first three auctions each contracted for more than $500 million in emissions reductions, netting a total of almost 150 million tonnes of abatement.
Labor’s climate change spokesperson Mark Butler said that the auction result further confirmed suspicions that the Emissions Reduction Fund served as a fig leaf, over the failure of the Coalition to reduce Australia’s greenhouse gas emissions.
“Combined, the three projects have only promised to cut emissions by 59,000 tonnes over a decade or just 0.06 per cent of the 100m-tonne cut Scott Morrison claimed his rebadged Abbott climate policy would deliver,” Butler said.
“All Scott Morrison is doing with this policy is pouring $2 billion worth of taxpayers’ money down the drain and appeasing the hard-right of his party room by avoiding real action on climate.”
“As Malcolm Turnbull said, the ERF was never anything but a fiscally irresponsible fig leaf designed to cover a determination to do nothing,” Butler added.
CEO of the Carbon Markets Institute, which represents many of the companies participating in the Emissions Reduction Fund said that the result was surprising despite the policy uncertainty created by the election, and that it represented an opportunity for the government to “reboot” is set of climate change policies.
“This auction will see the additional investment of $840,000 into climate action, with most of this going into regional communities, but it highlights the need for a reboot of Australia’s climate policies of the Government,” Connor said.
“This is a surprisingly small result even with the uncertainty around ERF methodologies and expectations of change of government and policy preceding the Auction,” said Connor.
“However, as the government moves to enhance the ERF and unlock supply, they should also take this opportunity to better leverage market mechanisms through their climate policy more broadly. They can do so by strengthening post 2020 carbon emission baselines for business covered under the Safeguard Mechanism which legislates obligations of large emitters to measure, report and manage their emissions,” Connor added.
Many have pointed to the price cap as a key limiting factor, suggesting that the supply of cheap abatement may have been exhausted, and that the Clean Energy Regulator may need to re-examine whether it will need to accept high-priced projects to secure abatement contracts.
Abatement prices have risen steadily across the emissions reduction auctions, as might be expected, with the lower cost projects winning contracts in earlier auctions. Prices have nudged towards $15 per tonne, at the same time as the amount of abatement purchased has fallen dramatically.
The outcome suggests that the Climate Solutions Fund, and its $2 billion in additional funding, may face significant difficulties in being able to secure the emissions reductions required to meet the 26% emissions reduction target the Government has committed to under Paris.
The Government has already come under heavy criticism for failing to demonstrate that it has sufficient policies in place to meet the targets, while also refusing to consider the introduction of any new policies to reduce emissions.
The result further underlines criticisms of the government and its lack of a plan to reduce emissions across the Australian economy and to decarbonise the energy sector.
Under the Coalition, emissions have been steadily rising, and this task will become only become more difficult, particularly with today’s announcement from AGL that it has bowed to pressure to extended the operating life of the Liddell power station.