(Source: RepuTex)
MEDIA RELEASE
Emissions Reduction Fund to be Undersupplied: RepuTex
Shortfall of over 300 million tonnes against 5 per cent emissions target
MELBOURNE, June 12, 2014 – A new report from market analysts, RepuTex, indicates that the proposed Emissions Reduction Fund (ERF) will be undersupplied when it commences in July, with the government facing a shortfall of over 300 million tonnes to meet its 5 per cent emissions reduction target by 2020.
The report is the first to forecast industry participation in the Emissions Reduction Fund following the release of the government’s draft legislation and the Federal Budget, with analysis also projecting the likely price of abatement to be paid by the government to companies that reduce emissions.
Analysis indicates that by 2020 the Emissions Reduction Fund is forecast to purchase between 30 and 120 million Australian Carbon Credit Units (ACCUs), leaving a shortfall of over 300 million tonnes in order to meet Australia’s 5 per cent emissions reduction target – equivalent to over 70 per cent of the government’s total abatement challenge.
Two thirds of all credits purchased by the ERF are expected to come from high emitting companies, with the balance supplied by existing proponents operating under the Carbon Farming Initiative.
According to RepuTex, industry participation in the scheme will be highly dependent on the price of abatement purchased by the government. The benchmark price – the maximum price that can be successful at an auction – will be set by the Clean Energy Regulator prior to the first auction, and will be keenly observed by the market.
“The benchmark price set by the Regulator will be critical in determining the success of the Emissions Reduction Fund as it will directly affect companies’ investment decisions to reduce emissions” said RepuTex Executive Director, Hugh Grossman.
“Should the Regulator set a high benchmark price of $20-30 we forecast that the market will respond favourably, with up to 11 million Australian Carbon Credit Units (ACCUs) purchased in year one. This could fall to just 3 million ACCUs should the Regulator elect to cap prices at only $10″ said Mr Grossman.
The Australian market requires an average of 70 million tonnes of abatement each year from 2015 to 2020 in order to meet its cumulative abatement challenge of 421 million tonnes, equivalent to a 5 per cent reduction in emissions from 2000 levels.
While high benchmark prices may encourage greater industry participation, RepuTex analysis indicates that the Australian abatement market will continue to be undersupplied, leaving a shortfall of over 300 million tonnes against Australia’s Kyoto obligations.
“While high benchmark prices could result in around four times the amount of abatement from industry compared to a low price scenario, the ERF alone is likely to fall short of purchasing enough emissions abatement to meet Australia’s Kyoto obligations” said Mr Grossman.
“Even buoyed by a very high benchmark price we forecast that the ERF would purchase less than 120 million tonnes of greenhouse gas emissions abatement by 2020, equivalent to only 28 per cent of Australia’s abatement challenge. This leaves a considerable shortfall for the government to overcome in the final design of its scheme” said Mr Grossman.
The final design of the Coalition’s climate policy is expected to be completed by March 2015 when the government releases the details of its proposed safeguard mechanism, which will introduce baselines and flexible penalties for facilities, to commence on 1 July 2015.
This component of the scheme has been separated from the main ERF legislation, which is expected to be tabled in Parliament over the next fortnight as the government seeks to meet its July 2014 start date.
According to RepuTex, the ongoing design of the Direct Action Plan will buy the government time to address any environmental shortcomings.
“The government has flexibility in how it will ultimately deal with this shortfall, including the ability to set more stringent baselines, to introduce an emissions cap or top-up its ERF funding in subsequent years” said Mr Grossman.
“How key independents such as Senators Madigan and Xenophon, along with the Palmer United Party work with the government on the final design of the scheme will ultimately determine the success of the Direct Action Plan in meeting Australia’s 5 per cent target”
“While some doubt remains over the design of the safeguard mechanism, at this point it appears that the government will have the power to implement its Emissions Reduction Fund in July” he said.
RepuTex is Australia’s largest provider of energy and emissions market analysis, representing over 150 customers across the Australian power, energy, metals, mining, land-use and financials sectors.
The full report, “ERF Prices: Powering Up or Powering Down?” is available via the RepuTex website at www.reputex.com
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RepuTex spokespeople are available for comment. Please contact RepuTex Melbourne on +61 3 9600 0990.
ABOUT REPUTEX
RepuTex is the leading provider of research, pricing and advisory services for the Australian emissions markets.
With customers at over 150 of the nation’s largest Power, Energy, Metals, Mining, Trading and Government firms, RepuTex is the largest firm of its kind operating in the local market. We provide in-depth, forward looking policy, supply-demand and pricing information on Australia’s energy and environmental markets, including the National Electricity Market, Renewable Energy Target, Carbon Price Mechanism, Direct Action Plan-Emissions Reduction Fund, and the Carbon Farming Initiative.
Established in Melbourne in 1999, RepuTex has offices in Melbourne and Hong Kong. Our services are underpinned by Australia’s largest team of carbon analysts, with backgrounds in energy and commodities markets, policy, economic modelling and global environmental markets.
For more information, please refer to our website, at www.reputex.com
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