Designing the new Emissions Reduction Fund (ERF) in Direct Action

Although the carbon tax repeal has received more attention in the media, Energetics is of the view that the shaping of the ERF component of the Direct Action plan needs the greatest scrutiny and business input. 

In its media release yesterday, the government restated its commitment to achieving the 2020 national emissions reduction target of 5% on 2000 levels of greenhouse gases.  Carbon remains a risk management issue for business. 

The Terms of Reference for the Emissions Reduction Fund (ERF) are very broad, seeking industry and community views on various design considerations, including:

  • The design of a mechanism for handling emissions that exceed Business as Usual (BAU) baselines - no suggested definition of business as usual is provided.

  • The possible sources of abatement that will be eligible under the ERF.

  • How the Carbon Farming Initiative (CFI) and NGER Act might inform abatement projects.

  • Auctioning and governance arrangements.

  • Monitoring, verification and compliance requirements for abatement.

Submissions are due 18 November 2013 and Energetics can assist your business in the development of your submission. A Green Paper will be released for comment in December 2013, with White Paper and draft legislation available for comment early 2014.

It is understood that a separate Terms of Reference for the design of Direct Action will soon be released.

Be proactive.  Ensure that the views of your business are heard.

From our own consultation with clients, questions around the design of the Emissions Reduction Fund include:

Baselines:

  • Businesses report emissions under the current National Greenhouse and Energy Reporting scheme as a single entity, so how will a Direct Action baseline, drawn from the National Greenhouse and Energy Reporting (NGER) Act, account for different business activities?

  • The relationship between production and emissions levels is not always obvious. How would a baseline account for variations?

  • How does business growth and expansion effect the calculation of emissions reduction baselines?  How would a baseline be established for a new entrant? Will this be based on an industry average?

Additionality (demonstrating carbon emissions reductions beyond BAU):

  • Additionality criteria have the potential to be complex and, if not robust and defensible, could be “gamed”.

  • Assessment methodologies need to be developed that provide business with the confidence to allocate capital, time and resources to pursue emissions reduction projects.

  • Business is not clear about how a reverse auction would work under the Emissions Reduction Fund. Concern has been expressed that some energy efficiency activities might be regarded as business as usual and therefore not eligible.

Operational questions:

  • Will the Clean Energy Regulator be able to validate enough methodologies to allow the ERF to begin operation of 1 July 2014?

  • What measures will be in place to assist business to reduce emissions and improve efficiency in the interim?

You can read more on the feedback Energetics’ has obtained from our industry clients in our article “Gauging business’ understanding and response to Direct Action”.  You can also read our analysis of the questions that individual sectors should consider in the consultation period, “What are the issues for your industry in the design of Direct Action?”  For a wide range of information on Direct Action, go to our Direct Action Information Centre

To discuss these issues or to raise further questions about the possible form of the ERF, please contact one of our experts.

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Dr Peter Holt

Associate

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Dr Gordon Weiss

Associate

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Dr Mary Stewart

Executive Director and General Manager (Consulting)

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