The Minister for the Environment, the Hon Greg Hunt MP, released the long awaited Green Paper on implementing the Emissions Reduction Fund (ERF) on 20 December 2013.
The paper centres around three design principles:
- lowest cost emissions reductions
- genuine emissions reductions
- streamlined administration.
To seek the lowest cost emissions reductions, the Government has signaled its intention to allow a ‘menu of emissions reduction projects’ expanding from the land sector and landfill into energy efficiency and industrial facilities. To achieve this expansion, the ‘positive list’ of allowed activities may go and additionality, or which projects go ahead only because of the credits they receive, may be handled in methodologies, or the rules for activity types.
For industry type activities, this means additionality is all about the baseline or the starting point from which improvement is measured. At this stage we don’t have colours on the mast but just options: absolute baselines considering overall emissions of a facility, and/or emissions intensity baselines which look at the efficiency of a facility. There are three devils and a dingo in calculating emissions intensity baselines.
Activities will be credited through auctions run by the Clean Energy Regulator (CER). Decisions will be based on price and prequalification by projects on eligibility etc. To choose projects, the CER will set a secret ‘benchmark price’ with only bids below that price to be considered. Am I the only one worried about the CER making value judgments on which projects to fund according to a secret price which will surely leak out? I am uneasy about the regulator choosing which projects it regulates according to secret parameters. I thought the whole point of markets was transparency – how can you have a market if no one knows the price?
Reputex thinks all this might make it a bit tough for the land sector and Bloomberg New Energy Finance thinks 5 year contracts will make the scheme unfinanceable. And it’s a real concern given only 6 per cent of CFI credits currently come from the land sector – the vast majority are from landfill – projects which are essentially bolted on to existing operations. Very few genuinely new projects have been incubated and this is the challenge to deliver abatement well into the future.
Still, like always, there might be some cracks of light for Aboriginal projects: simplifying methods by using the national accounts might make methodology development simpler for rangelands and new savanna methodologies. Risk based verification might reduce the costs of implementing projects. A ‘make good’ provision for industrial projects might create a secondary market for land credits where business projects fail and need to buy credits from steady land projects. A permanence condition of 25 years might ease the minds of traditional landholders (although query the environmental integrity).
But my favourite is aggregation. At present, the land requirements for CFI projects are relatively strict and landowners, rightly, are cautious about signing away their land or carbon rights. This makes aggregation of larger sequestration projects difficult. A simpler consent approach, similar to consent required for interest holders now, may make it a lot easier to bundle a whole of projects into a super project – this might be the way to make an irresistible case to the Government to get behind what would otherwise be a lot of smaller fragmented projects. Given there is a proposal for minimum size bids into the ERF, this might be essential.
The next steps will not be easy with legislation definitely required to implement this platform. However, if things get tricky, the Government could simply expand the scope of the CFI by regulation – leaving the complex stuff of baselines etc to methodologies.
The future is uncertain, but not certainly bright.