Australia's new carbon price fails to attract big polluters

Australia said on Thursday its new climate policy will pay A$13.95 a tonne for carbon in an effort to cut emissions, a price seen as too low to attract big polluters but enough for the government to call its first funding auction a success.

The A$2.55 billion Emissions Reduction Fund was set up by Prime Minister Tony Abbott as a cheaper way to cut Australia’s carbon emissions by 5 per cent of 2000 levels by 2020, after he scrapped a controversial A$8 billion carbon tax in July 2014.

The fund’s first “reverse auction” was held last week and the government announced the results on Thursday, saying it would pay A$660 million to 43 contractors who plan to cut emissions by 47 million tonnes.

Australia aims to cut emissions by 236 million tonnes.

“This is a stunning result for Australia, a stunning result for the government and a stunning result for the environment,” Environment Minister Greg Hunt told reporters.

But clean energy analysts were disappointed with the first funding auction, saying the A$13.95 a tonne carbon price was too low to currently attract large polluters.

Those analysts had said larger firms would only be interested if the government paid more than A$18 a tonne. They had also questioned whether the scheme could cut the country’s carbon emissions by its existing target by 2020.

“The price was too low to create any real incentives for large scale investments, but they’ve just spent a quarter of the money to only get them 15 percent of the way to their bare minimum target,” Climate Institute Deputy CEO Erwin Jackson told Reuters.

Hugh Grossman, executive director of clean energy consultant RepuTex, said the first auction result was a strong start but “that price is unlikely to see high emitting companies rush to participate”.

The government agency running the auction, the Clean Energy Regulator, said most of those who received payouts were farmers growing trees or smaller businesses running alternative energy projects like landfill-to-energy conversion.

However the country’s biggest emitter of carbon, energy producer and retailer AGL Energy Ltd, won subsidies to cut 948,500 tonnes of emissions via landfill projects.

The government plans to hold funding auctions every quarter.

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