policy

CFI Summit 2014: Minister Greg Hunt

True to faithful form, the Minister for the Environment, the Hon Greg Hunt MP, fronted the CMI Emissions Reduction Summit and Marketplace in Melbourne 5-6 May 2014. Whatever you might say, the Minister turns up!

Did the Minister have anything new to say? Not really.

The Minister gave his pitch on innovation with incentives to transform our economy, rather than the carbon price approach.

The Minister attempted to put his approach in an historical perspective. In the 1850s London was threatened by typhoid and cholera. Later, around 1900, city streets were clogged by horse manure. Later still, in the 1980s, the ozone hole threatened turn Australia into a barbecue. Technology and innovation overcame these problems. And so the Emissions Reduction Fund aims to catalyse technology and innovation to reduce emissions.

The Minister then summarised his approach thus: we will keep the CFI, keep the Clean Energy Regulator and keep NGERS (the national carbon accounting system). He will add $2.5b of incentives, stir and the pick up the pipeline of the cheapest abatement. As for big business, the Minister said that safeguards (read penalties) will apply to 130 emitters from 2015 but that no revenue had been budgeted (doesn’t sound too tough).

One telling question was asked: given the ERF is not an effective market scheme, how can it be scaled up for the longer term task? With no backward steps, the Minister asserted that the ERF is a market system that can be scaled. We will look in 2015 at the targets for beyond 2020. Staying on the front foot, he noted EU Emissions Trading Scheme had not worked with reductions only coming from economic collapse.

This is true enough, but if the absolute measure of the EU ETS is meeting targets, then it has 100% succeeded. And we know from recent price hikes in Australia, that pricing electricity results in emissions drops.

The Minister turns up.

Jeremy

Green Paper: cracks of light?

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:

The Australian Government's Emission Reduction Fund Green Paper

The Australian Government's Emission Reduction Fund Green Paper

  • 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?

CFI credits to date: the land sector has contributed only 6% of credits. Source: Clean Energy Regulator and Carbon Market Institute

CFI credits to date: the land sector has contributed only 6% of credits. Source: Clean Energy Regulator and Carbon Market Institute

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.

More to say but see it at The Conversation, Climate Spectator and Renew Economy. Our Direct Action page is updated. Submissions close 21 February 2014.

The future is uncertain, but not certainly bright.

Jeremy

MYEFO

Tucked into our santa sacks was the Government’s half year financial outlook, MYEFO.

Unfortunately, it was a litany of cuts to the carbon price and related programs as energy and climate policies took a heavy pounding.

Summary of MYEFO climate funding changes

Summary of MYEFO climate funding changes

The Indigenous Carbon Farming Fund did not escape – the program will be closed by 30 June 2014. All other land sectors programs, including the Biodiversity Fund, will also close. I’ve updated our funding page to reflect these official changes. I’ve also tallied all the relevant funding changes in this document.

This is not an unexpected result and many still have grants to check out opportunities on their land. Indications to date are that existing grants will run for their contract period. Keep at it.

Still, the extent of cuts certainly leans in one direction and takes wind out of the sails. Investment in land sector abatement is still soft and no new encouragement is offered.

Tucked away are a couple of curly ones. At this stage, no funding has been allocated to the Emissions Reduction Fund, although the Green Army to plant trees was funded. It also shows the extent of revenue lost if the carbon price is abolished – estimated to be $13 billion over the forward estimates.

Fortunately most of the fruit from the Clean Energy Future package is out there. For the moment, Aboriginal carbon farmers will have to use what we’ve got. Will be watching the budget with interest.

Jeremy

Coalition's Plan to Tackle Climate Change

At last week's meeting with the Carbon Market Institute, The Hon Greg Hunt MP released the Coalition's Plan to Tackle Climate Change

At last some flesh on the terms of reference for the Emissions Reduction Fund!

The paper makes a case for removal of the carbon price and replacement with a more modest Direct Action policy: the carbon price is the "wrong market mechanism" for this problem because electricity is an "inelastic good". Electricity Bill take note! But it seems to me electricity use might be relatively inelastic, but how electricity is sourced need not be. Electricity emissions are falling.

A more expansive paper is welcome ahead of future green and white papers, but there are some worrying signals. 

The paper accounts that the task of meeting a 5% reduction target by 2020 has reduced from 750 million tonnes to 440 million tonnes, but no reason is given why the ERF will be more effective than the carbon price at reducing emissions. Given past similar programs like the Greenhouse Gas Abatement Program were not that effective, it would be good to see some stronger reasons.

To ensure environmental integrity, the paper notes projects must be additional to "business-as-usual". It would be useful to clarify whether this is shorthand for the current additionality test - which ensures that projects which are "common practice" are excluded - or a softening of the test to be more inclusive of more kinds of projects. "Business-as-usual" might mean reductions below current emissions, when in fact "business-as-usual" emissions are falling anyway. Other comments about "keen to unlock abatement opportunities across the Australian economy" suggest it could be a softening which would undermine the integrity of the CFI.

The paper also talks about buying "lowest cost abatement" and "buying up the abatement cost curve". While this is good for the budget bottom line, it might not be the best approach for encouraging abatement across different sectors. We certainly know that energy efficiency projects could be cost negative and that Aboriginal land projects have a few capacity and remoteness humps to get over to deliver.

Keeping the CFI is a good thing. But there are few cracks of light in this paper for Aboriginal carbon farmers. If you want abatement on remote lands and Aboriginal people in jobs, we will need some enablers.

Our submission will be tackling some of these issues.  Still thinking.

Jeremy

Emissions Reduction Fund: Terms of Reference

I didn't have to wait long - here are the Terms of Reference for the Emissions Reduction Fund!  We all have until 18 November 2013 to send in our pearls of wisdom.

I can see why they used 'Terms of Reference'  - a few terms - yes, details - no! A green paper will follow in December with a white paper of firm proposals not released until 2014.

What are we to make of this?

It's a bit cheeky really. For those following the debates this year, we received more information on the Coalition's plans in speeches leading up to the election than we did in the 'Terms of Reference'. For example, the Coalition flagged reducing the permanence requirement to 25 years - now the word 'permanence' does not even appear in the terms of reference. And where the Coalition was definitely going to use the CFI as the vehicle for the Direct Action juggernaut - that seems no longer certain.

Noises like 'low cost, large scale' abatement are not encouraging for niches like the Aboriginal carbon sector which has higher costs for governance and remoteness, not to mention the high upfront costs of land projects in general. 

Three years after releasing the Direct Action Plan, the Government now seems to be on a fishing trip for good ideas for how to do it. So it's a chance for everyone to make their case to shape the policy rather than react to it... but with only a few weeks between the submission date and the scheduled release of the green paper, you suspect a lot of the paper is written, with a few holes waiting for bright ideas.

I've updated the Direct Action page to reflect submission dates etc and will keep doing so as details come to hand. 

Jeremy

Energy Futures 2013: Coalition backs CFI

One of the benefits of having an office in Melbourne is being able to attend a broader range of talks than Alice Springs.

For example, I’m pretty sure Greg Hunt has not done a presentation in Alice but tonight I attended his talk at Melbourne Energy Institute’s Energy Futures 2013 seminar series.

Before I could even take a seat, we were treated to a quiet protest of people who turned their back on podium under the slogan “don’t turn your back on the future”.

Greg Hunt outlined his version of embracing the future: agreement on the science and sharing of the targets, but a carbon purchasing fund instead of a carbon price to get there.

If elected, the emissions reduction fund would be based around the existing Carbon Farming Initiative – the Coalition would keep the CFI, the Clean Energy Regulator to administer it and the measurement system (NGERs) for methodologies, but would broaden the CFI to include industry activities as well as the land sector. Encouragingly, Hunt also emphasised the potential of the land sector to contribute abatement outlined in Garnaut’s reports.

This is good news for the CFI. It looks like it’s here to stay.

However, there were hints of uncertainty for the land sector in Greg Hunt’s presentation. The emissions reduction fund budget is $300m, $500m and $750m in the first three years – a huge reduction on current spending across all mitigation policies. This is worrying against Hunt’s comments that the emissions reduction fund is “overallocated for what we need”. Hunt also said that energy efficiency will be early major winner.

When one of the panelists, Michael Brear, was introduced as an engineer from The University of Melbourne, Greg Hunt responded “I like engineers!” Without hesitation Michael said “I like some politicians!”

We all laughed. But if the Coalition is elected, we need to see the details of support for emissions reduction in the land sector, including existing projects.

If I got to ask a question, this is what it would be: You said you support the CFI. Part of the CFI includes provisions designed to make it easier for native title holders. The Coalition put up amendments to weaken these provisions which were voted down. Will you support Indigenous land projects and will you again introduce legislation to weaken the native title provisions?

Jeremy