$5 billion ERF scheme can only ever be a support player in Australia’s climate policy Media Release

Nov 11, 2015 - 12:01am

A policy brief released by The Climate Institute today clearly shows the $5 billion taxpayer-funded Emissions Reduction Fund (ERF) is only capable of playing a supporting role in Australia’s climate policy framework.

“Our analysis makes clear that, on its own, the taxpayer-funded ERF is not only incapable of meeting Australia’s commitment to the globally agreed goal of limiting climate change to less than 2°C above pre-industrial temperatures,” said The Climate Institute CEO, John Connor. “It also can’t realistically achieve the government’s inadequate 2030 emissions reductions target of a 26-28 per cent reduction below 2005 levels. In fact, the current settings for its built-in ‘safeguard mechanism’ will allow emissions to rise.”

With the government set to announce the results of its second ERF auction on Thursday, Connor noted some ERF strengths, but highlighted the significant inadequacies of using the fund as the centerpiece, pr primary mechanism within the government’s carbon pollution reduction policy.

Using the price per tonne achieved in the first auction, the Institute finds that from 2015 to 2030, with the currently announced total budget of almost $5 billion, the ERF would only be able to purchase 355 million tonnes of emissions reductions. This represents:

  • 3 per cent of Australia’s projected 2015-2030 emissions;
  • 7.5 per cent of Australia’s fair share of the 2°C limit, and
  • 14 per cent of the reductions required for the government to achieve its 2030 target.

Connor said the government shouldn’t be buying its way to a modern, smart and clean Australian economy.

“Though there are other international instances where government funds are used to purchase emissions reductions, the difference is that these are not core policy tools – they mostly support a carbon price or other policy mechanisms,” he said. “The role of the ERF should be similar and taxpayer funds should not be used to help major polluters reduce their emissions unless absolutely no other mechanism would be as effective.”

As a similar approach, Connor pointed to the World Bank using its Pilot Auction Facility for projects at risk from depressed international prices. He noted it was structured as a price support mechanism, with the World Bank an advocate for carbon pricing at source as ‘necessary’ and a ‘foundation’ of climate policy.

“The ERF does not provide incentives to reduce emissions across the economy and is fundamentally limited in its ability to decarbonise the economy,” he said. “Additionally, the ERF is subject to the vagaries of the annual budget process: $5 billion is a lot of money in a budget struggling to shrug off deficits and future governments may find it too tempting a pot to steer clear of.”

With such limitations, he said attention was now turning to the need for broader measures to achieve climate targets, with focus shifting to the transformations needed to take Australia’s emissions to net zero or below. Central to this should be measures to replace our aging and inefficient coal generators with clean energy.

Connor welcomed recent government policy moves on HFCs (primarily used as refrigerants) and vehicle emissions standards, as well as plans for a national energy productivity plan too often deferred by both major political parties.

“The bottom line is that while the ERF can provide important support to other policies, it is to them we will need to turn while ensuring the ERF is appropriately targeted and continues to be professionally run,” he concluded. “To use the Prime Minister’s language, the ERF can have a role as a buttress but not a pillar.”

For more information
Brinsley Marlay | Media Manager | bmarlay@climateinstitute.org.au | 02 8239 6299

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