Carbon Market Institute: ERF safeguard mechanism will assume greater importance

The Carbon Market Institute welcomes the release of the Government’s Emissions Reduction Fund white paper, noting the success of the Government’s climate change policy will be assessed against its ability to meet current and future emissions reduction targets.

CMI chief executive Peter Castellas says, if passed by Parliament, the proposed $2.55 billion allocated to the ERF will be important in the short term in making a contribution to meet Australia’s current 5 per cent reduction target in the period to 2020. “However limiting emissions growth in the period 2020-2030 also needs to be considered as a central part of the initial policy framework and, as such, the final design of safeguard mechanism will assume great importance,” he says.

“The ERF can do some of the heavy lifting of emissions reductions in the next few years, but if the ERF is to continue as the primary basis for reducing emissions beyond 2020, the call on the Government budget may increase to very high and unsustainable levels,” says Castellas.

Castellas says that using the safeguard mechanism will be necessary to defray the ongoing, indefinite public cost of funding emissions reduction and become the primary means to manage emissions growth across the economy.

“Through the safeguard mechanism, a key feature of the Government’s approach to reduce emissions should allow for the Government to adjust allocated baselines over time to below historical levels, or business as usual, to more effectively limit emissions growth and meet future emissions targets,” says Castellas.

“The allocated baselines could be set by an independent authority once Australia’s targets for the post-2020 period are set in Paris in 2015, and business given adequate time to prepare for the future compliance against those baselines.”

“Importantly, there needs to be a legislated make-good provision, or penalty for the 130 companies liable under the mechanism that exceed their allocated baseline, which should be in the form of purchasing eligible units – either Australian Carbon Credit Units, international units or a combination of both,” he says.

“The final design of the ERF and safeguard mechanism should therefore allow for a secondary market to evolve, facilitating trading between entities participating in the ERF and/or covered under the safeguard mechanism and enabling those companies to meet compliance at least cost.”

Castellas says that as the ERF funding reduces and the allocated safeguard mechanism baselines become more stringent, it could transfer to a more efficient market-based scheme where the cost to the economy to meet our targets will progressively move from the public to the private sector.

“Setting declining baselines will also increase the incentive to limit emissions growth and to invest in low carbon technologies or processes and is consistent with driving sustained decarbonisation of major emitting sectors,” he says.

“Through the consultation period for the safeguard mechanism, there is an opportunity to ensure the initial scheme is designed so it is an enduring mechanism that provides long-term policy certainty and a market-based approach to meet emissions reduction targets at least cost to the economy.”

“Business needs policy certainty regarding future compliance obligations to ensure they are not competitively disadvantaged in the period 2020-2030, as the emissions reduction task intensifies,” Castellas says.

The white paper clarified several key design features of the ERF that will be central to ensuring public funds will be directed to projects that are real, additional and verifiable.

CMI supports that all projects bidding into the ERF are covered under an approved methodology and that the basic framework and governance for the issuance of an Australian Carbon Credit Unit has been retained.

“Improvements to the existing Carbon Farming Initiative, including streamlining the methodology development and approval process and establishing the Emissions Reduction Assurance Committee are welcomed,” says Castellas.

“In expanding the range of methodologies it will be important that the new methods are aligned with the actual abatement pipeline of potential bidders. The technical working groups are a good start but it should also be recognised that there is a wealth of expertise in the domestic market that could be efficiently engaged on new methodology development and effective verification to ensure projects funded under new methods are truly additional.”

CMI recognises that now that the white paper has been produced, there is an increased need for market education and outreach from the Government to help companies understand the opportunities under the ERF. There is also a significant role for industry to engage in the implementation phase of the ERF and the final design of the safeguard mechanism before legislation is debated in Parliament.

CMI is pleased to convene many of the key architects and administrators of the ERF at the Australian Emissions Reduction Summit in Melbourne at the MCG on 5-6 May.

This is a unique opportunity to gain first hand insights into how the ERF will operate and the opportunities and risks for business. The event will involve:

  • The Minister for the Environment giving one of his first public speeches and Q&A session following the release of the white paper.
  • An expert panel discussing the design and implementation and ERF bidding process including - The Chair of the Clean Energy Regulator, Chloe Munro; the Chair of the ERF Expert Reference Group, Danny Price; a leader of the Department of the Environment Emissions Reduction Fund Taskforce, Trevor Power and the Chair, Domestic Offsets Integrity Committee, Andrew McIntosh.
  • Workshops run by the Clean Energy Regulator covering important aspects of the application process to bid into the ERF and the possible audit and assurance framework.
  • Workshops run by Norton Rose Fulbright on transitioning from Carbon Farming Initiative to the ERF and by EY on strategies to develop/fast track methodology approvals and optimise funding under the ERF.

See http://www.carbonmarketinstitute.org/events/emissions_reduction_summit_and_marketplace_2014

The Carbon Market Institute is an independent membership-based not-for-profit organisation. Our aim is to assist Australian businesses in meeting the challenges and opportunities associated with market-based approaches to emissions reduction and the transition to a low carbon economy.

As the peak body for carbon market participants, CMI has established an important role in the evolution of the carbon market in Australia. The Institute facilitates the networks, knowledge exchange and commercial interaction amongst key government policy makers and regulators, industry, financiers and investors, professional services companies and technology solution providers.

CMI membership represents a broad range of professionals, organisations and industry. Our members include leading professional service providers, NGERs reporting entities, secondary market participants, offset providers, academia and international organisations. Individuals within the CMI membership base are some of the most respected Australian carbon market innovators and leaders.

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