Heavy polluters to be $1.5bn winners in Abbott’s ERF, climate the loser

Australia’s energy, waste and metals sectors stand to benefit most from a windfall of more than $1.5 billion of emissions abatement contracts that are expected to auction over the first year and a half of the Abbott government’s Emissions Reduction Fund, a report has found.

New research by carbon market analysts RepuTex has predicted that more than 40 million tonnes of emissions abatement could be offered into the ERF at the first auction – the date for which was recently pushed out from March to mid-April – at bid prices between $5 and $40 per tonne.

According to RepuTex, more than $1.5 billion in funding – that is, more than half of the entire $2.55 billion ERF budget – will be available for contracting in the first 18 months of the new scheme, with $1.2 billion (or 47 per cent of the total budget) estimated to be made available in the first 12 months alone.

This meant that while the Fund – Tony Abbott’s highly criticised ‘spearhead’ climate policy – might be slow to start, heavy emitting companies could be drawn into it sooner than expected, keen to get access to the significant amount of funding available to early participants.

But the report warns that less than one-quarter of the abatement was likely to be successful, with up to 9 million tonnes of abatement predicted to be contracted for delivery over the next seven years – equivalent to only around 1 per cent of Australia’s annual greenhouse gas emissions.

“Industry will be very keen to capitalise on the high level of early funding to access a bigger win for attractively-priced bids,” said RepuTex executive director, Hugh Grossman.

Given this, he said, “we are likely to see industry move quickly to register projects and explore the ERF sooner than expected”

But the report also warns that the Clean Energy Regulator’s decision not to disclose a benchmark price for the auction – which would operate as a price ceiling – could generate extra uncertainty in the market.

“The benchmark price will be a major factor for the market, with the potential to either lift or deflate supply after the first auction, depending on whether the market views the price cap bullishly or is disappointed by the Regulator’s ambition” said Grossman.

CFI projects transitioning from the previous carbon scheme were expected to be the initial auction winners, said RepuTex, but the research suggested industry would ultimately supply the market with larger, cheaper volumes of carbon credits.

“CFI projects, notably in the Waste sector, will have a considerable advantage in auction one given their projects are largely underway, or pre-existing from the old scheme” said Grossman.

“Given the sizable amount of funding available in the first 12 months, however, we are likely to see industry crowd out CFI proponents – particularly the Energy and Metals sectors, led by aluminium and gas companies that have an existing pipeline of energy efficiency projects.”

Waste sector projects are forecast to be the most successful activities in early auction rounds, along with actions to reduce land-clearing, such as avoided deforestation. Energy efficiency projects are forecast to be the most popular activity for industry.