Reducing Australia's Emissions

REDUCING AUSTRALIA’S EMISSIONS

The Government is firmly committed to reducing Australia’s greenhouse gas emissions to 5percent below 2000 levels by 2020. The Government will meet this target through measures that reduce emissions and support economic growth; for environmental policy to be successful over the longer term, the two goals of reducing emissions and ensuring economic growth must be pursued together. The Government’s approach is built on science and the need to develop global efforts to reduce emissions.

The centerpiece of the Government’s approach is the Emissions Reduction Fund. It embodies the principles of lowest-cost, real and additional emissions reductions, and streamlined administration. The Government allocated $2.55billion in the 2014-15 Budget for the purchase of credited emissions reductions. The Emissions Reduction Fund has three elements:

· crediting emissions reductions that have been certified by the Clean Energy Regulator, and based on methods approved by an independent assurance body

· purchasing of credited reductions by the Regulator through auctions where the lowest bids from proponents are bought first and payment under the contract is tied to delivery of reductions

· safeguarding of public money spent on reductions by setting emissions baselines for large facilities. This arrangement will be determined in close consultation with affected parties and will begin around a year after the crediting and purchasing arrangements are in place.

The Emissions Reduction Fund implements a long-term framework for stable and sustainable climate change policy.

The Government is taking direct, practical and scalable action to meet its commitments to reduce carbon emissions. The Government will set the elements and funding of the Emissions Reduction Fund and draw on complementary measures, such as energy efficiency measures, to reduce Australia’s emissions to meet the 2020 target. In the same way that the Government increased funding for the Emission Reduction Fund by $1billion in the 2014–15 budget (on top of its election commitment of $1.55billion), it will adjust the various elements of its climate policy settings, as required, to ensure that its 2020 target is met.

The Government will review the operation of the Emissions Reduction Fund and progress towards achieving the 2020 target at the end of 2015. As shown in the attached graphs, compared with other countries’ commitments, Australia’s 2020 target represents a fair contribution to the global abatement effort. Estimates of the amount of abatement required to meet the 2020 target have fallen in recent years, and changes in the economy may further alter the task to 2020. Taking this information into account, the Government will take a methodical approach to ensuring our targets are met through an adaptable set of climate policies. Looking beyond 2020, the Government will scale its approach as required to fulfil any commitments it makes to reducing emissions as part of international negotiations in 2015.

The Government’s approach supports innovation and transformation in business and communities. The purchasing element of the Emissions Reduction Fund will help businesses and governments in Australia identify the gamut of emissions reduction possibilities and their costs across the economy. The Emissions Reduction Fund offers strong incentives to seek out actions that are in the interests of business as they reduce costs and in the interests of the environment as they reduce emissions.

The Government’s approach is to work positively with affected parties rather than impose costly change on them. The Emissions Reduction Fund is targeted at achieving specific domestic emissions reductions. It does not put a tax on all emissions across the economy, and so does not impose unnecessary costs that can erode business competitiveness or require a complex system of compensation.

In many cases, the actions taken to reduce emissions also deliver valuable co-benefits to businesses and the community. Adopting technologies that are more energy efficient can reduce the energy costs of businesses and households. Projects in the land sector can reduce salinity and erosion, improve water quality and protect biodiversity. Savanna fire management and revegetation can also provide valued employment opportunities in Indigenous communities. This ‘win–win’ approach to climate change has a direct benefit to both the environment and the community.

The Emissions Reduction Fund—how it works

The Emissions Reduction Fund is the centrepiece of the Government’s policy suite to reduce emissions. The Government has committed $2.55 billion to the Emissions Reduction Fund to invest directly in Australian businesses that reduce their emissions. This is a big commitment to the environment and to Australian business. This commitment will establish the Emissions Reduction Fund and, in line with a step-by-step approach, the Government stands ready to commit further funding in future budgets if required.

Business and the community will put forward projects for the Emissions Reduction Fund. These projects will then be ranked in a competitive process to ensure that the lowest cost projects are taken forward first. The Government will contract directly to fund projects that will lead to real emissions reductions.

Crediting

Businesses use legislated methods to estimate emissions reductions. These methods will ensure that emissions reductions are genuine—that they are both real and additional to business as usual operations.

An Emissions Reduction Assurance Committee of independent experts and established by legislation will oversee the development of methods which will credit real emissions reductions.

Methods are being developed in consultation with the businesses that will use them. Methods will expand over time and cover activities such as:

• upgrading commercial buildings

• improving energy efficiency of industrial facilities and housing

• reducing electricity generator emissions

• capturing landfill gas

• reducing coal mine waste gas

• reforesting and revegetating marginal lands

• improving Australia’s agricultural soils

• upgrading vehicles and improving transport logistics

• managing fires in savanna grasslands.

Once reported and verified, the credited emissions reductions will create a property right, an Australian Carbon Credit Unit. Businesses will be able to sell Australian Carbon Credit Units to the Government, the voluntary market or to other buyers. The use of Australian Carbon Credit Units will enable market participants to identify real, verified emissions reductions, and facilitate the exchange of credits between parties.

Purchasing

The Emissions Reduction Fund will purchase only the lowest cost emission reductions so that Australia’s emissions target can be met at the lowest cost possible. The Emissions Reduction Fund will do this by using competitive auctions where businesses can compete for contracts to undertake emissions reduction projects.

These auctions will create competitive pressures and are commonly used in Australia and overseas to purchase other types of goods and services. For example, auctions are used to purchase water entitlements and manage water resources. The Clean Energy Regulator will run four auctions a year and publish information after each auction to assist participants to consider future project proposals.

Once successful at auction, a project proponent will enter into a contract for the delivery of the emission reductions to the Clean Energy Regulator. These contracts will include standard commercial provisions to manage the implementation of projects and ensure the delivery of emissions reductions.

Proponents will be required to pass due diligence checks before registering a project and participating in an auction. The contract will include provisions such that if a proponent is unable to deliver the full quantity of Australian Carbon Credit Units from their project, they will be required to deliver Australian Carbon Credit Units acquired in the secondary market. In the event of default, the Clean Energy Regulator will be able to pursue liquidated damages to acquire Australian Carbon Credit Units not delivered by the contractor.

Safeguarding emissions reductions

To protect public value and deal with the risk of significant increases in emissions above business as usual, facilities with emissions greater than 100,000 tonnes a year will be subject to emissions baselines based on business as usual emissions (estimated at 130 companies covering 52percent of emissions). In this way, the safeguard mechanism will ensure that emissions reductions purchased by the Emissions Reduction Fund are not overtaken by a rise in emissions elsewhere in the economy.

The safeguard mechanism will apply around a year after the crediting and purchasing elements of the Emissions Reduction Fund are in place. Its final features will be determined in consultation with business, including the treatment of new investments, expansions and actions required from businesses if baselines exceeded.

Clean Energy Regulator

All elements of the Emissions Reduction Fund will be administered by the Clean Energy Regulator. The Clean Energy Regulator is well-established and has the required expertise to perform these functions, as it currently administers the Carbon Farming Initiative and the National Greenhouse and Energy Reporting Scheme, both of which are the building blocks for the Emissions Reduction Fund.

Looking to the future

The Government will continually monitor the implementation of the Emissions Reduction Fund and progress towards Australia’s 5percent target. The Government has set the first review of the Emissions Reduction Fund to be at the end of 2015 so that any improvements that can be made as a result of early lessons learnt during implementation can be quickly integrated.

More information

Details about the Emissions Reduction Fund are available at

www.environment.gov.au/emissions-reduction-fund.

Steps to participate in the Emissions Reduction Fund—

A business perspective

Step 1—Register project

Proponents will register their emissions reduction projects with the Clean Energy Regulator. Proponents can also register to participate in a forthcoming auction.

Step 2—Estimate emissions reductions and submit bid

Project proponents will use an approved method to estimate the likely emissions from their proposed projects.

Proponents of approved projects can submit a bid into an auction to sell emissions reductions on the basis of price per tonne of carbon dioxide equivalent (tCO2-e).

Step 3—Enter into a contract

Successful bidders will enter into contracts in which the Government agrees to purchase emissions reductions from their projects.

Contracts will include provisions to ‘make-good’ to ensure the delivery of emissions reductions. It is not a grants programme.

Step 4—Report and receive payment

Proponents will undertake their projects and report their emissions reductions to the Clean Energy Regulator. The Regulator will verify reports and issue credits to the proponent.

Proponents will receive payment from the Regulator for credits at the contract price.

Comparison of GLOBAL emissionS reduction targets

Countries’ 2020 targets relative to 2005 levels[1]

Percentage change in emissions under countries’ targets relative to business as usual levels at 2020

Source: Analysis by Department of the Environment and Department of Foreign Affairs and Trade incorporating the following data:

· For Annex 1 countries, historic emissions sourced from UNFCCC reporting. Other countries historic emissions sourced from World Resources Institute CAIT.

· 2020 business as usual emissions sourced from Treasury and DIICSRTE modelling 2013.

· Targets for China and India are normally described as an emissions intensity reduction target. This has been converted to an absolute target using growth assumptions from Treasury modelling and OECD GDP estimates.

TRACKING TOWARDS THE 5% EMISSIONS REDUCTION TARGET—AUSTRALIA’S TASK TO 2020

Source: Department of the Environment, Australia’s Abatement Task and 2013 Emissions Projections, 2013, adjusted for updated data in Australia’s National Inventory Report 2012, 2014.

Notes: The Kyoto Protocol allows countries that overachieve in meeting their Kyoto target in the first commitment period to credit that overachievement against the target for the second commitment period by ‘carrying over’ surplus Kyoto units. Since the release of Australia’s Abatement Task and 2013 Emissions Projections, the ‘carry over’ surplus estimate has been revised upwards from 121 MtCO2-e to 131 MtCO2-e, which reduces the overall challenge to 421 MtCO2-e. Emissions are presented using the Intergovernmental Panel on Climate Change’s Fourth Assessment Report global warming potentials.

This fact sheet should be attributed as ‘Reducing Australia’s emissions, Commonwealth of Australia, 2014’, published 24 October 2014.

Note: While the Commonwealth has made reasonable efforts to ensure the accuracy, correctness or completeness of the material, the Commonwealth does not guarantee, and accepts no liability whatsoever arising from or connected to, the accuracy, reliability, currency or completeness of this material. This material is not a substitute for independent professional advice and entities should obtain professional advice suitable to their particular circumstance.

[1] The use of the 2005 base year is intended for comparative purposes only and does not necessarily represent countries’ positions on their target commitments.