The Australian policy instruments to achieve this reduction are currently in transition.
3.5.1 The repealed carbon pricing mechanism
Until July 2014, the main instrument was the carbon pricing mechanism—a scheme that put a price on Australia's carbon emissions. It commenced on 1 July 2012 and applied to Australia's biggest carbon emitters (called ‘liable entities'). Under the mechanism, liable entities had to pay a price for the carbon emissions they produced each year.
This covered approximately 60% of Australia's carbon emissions, including those from electricity generation, stationary energy, landfills, wastewater and industrial processes, along with fugitive emissions. From 1 July 2014, the carbon pricing mechanism was repealed.
3.5.2 The Emissions Reduction Fund
The Australian Parliament passed legislation to establish the ERF, with the Carbon Farming Initiative Amendment Act 2014 receiving royal assent on 25 November 2014. With effect from 12 December 2014, the rules governing the CFI changed when it became integrated into the ERF. In February 2019 the ERF was partially rebrabded as the Climate Solutions Fund (CSF), however, as mentioned previously in this report, both ERF and CSF tend to be interchangeable, even on the government websites responsible for the programs, including the Clean Energy Regulator.
Key features of the ERF, as set out in the explanatory memorandum to the Act2 are as follows:
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Methodologies for crediting emissions reductions will be developed for activities, such as energy efficiency and land sector projects, as well as for large industrial facilities. To enable a wide range of businesses to participate in the ERF, a menu of methodologies will be available.
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The ERF has three elements: crediting emissions reductions, purchasing emissions reductions and safeguarding emissions reductions.
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The CER will purchase emissions reductions at the lowest available cost, generally through reverse auctions (see Box 3.2).
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Methodologies set out the rules for estimating emissions reductions from different activities. The methodologies ensure that emissions reductions are genuine—that they are both real and additional to ‘business as usual'.
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The Clean Energy Regulator (CER) will administer the ERF and issue ACCUs for emissions reductions that are estimated and audited using approved methodologies. The credits can then be purchased through the ERF or used under voluntary carbon offsetting programs.
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The CER will enter into contracts with successful bidders. The contracts will guarantee payment, at the auction bid price, for the future delivery of emissions reductions. Businesses will be able to use contracts to finalise project finance as necessary before projects are implemented. The contracts will be standardised, will provide commercial terms and conditions, and will provide for payment to be made on the delivery of emissions reductions.
3.5.3 The National Carbon Offset Standard
The Australian Government introduced the National Carbon Offset Standard on 1 July 2010. The standard provides national consistency and consumer confidence in the voluntary carbon market. The standard:
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provides guidance on what is a genuine voluntary carbon emissions offset
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sets minimum requirements for calculating, auditing and offsetting the carbon footprint of an organisation, product or event to voluntarily achieve ‘carbon neutrality'.
More details are available at the Department of Industry's website HERE
Box 3.2: What are reverse auctions? |
Reverse auctions are a common mechanism for the procurement of goods and services by private firms and government agencies. In a reverse auction, sellers offer a price (bids) for a contract. The lowest bid price typically wins the contract. This is the reverse of a conventional auction (such as in a saleyard), in which buyers offer a price (bid) and the highest bid price receives the product.These auctions are usually implemented electronically. The lowest bid seller wins the auction and enters into a contract with the buyer.There are various ways of setting up the auction, with different rules about the visibility of prices during bidding and the prices actually paid to bidders. Under the ERF, the CER will have significant discretion about the design and conduct of reverse auctions. Over time, the regulator will be able to adjust the conduct of auctions to reflect lessons learned. At the time this manual was prepared, the CER had provided only very broad guidance about the operation of the reverse auction:. The Emissions Reduction Fund will use simple, streamlined processes to allow the Government to purchase lowest cost abatement though competitive auctions. The purchasing process will follow these simple steps:
The price per tonne of abatement bid at an auction will determine whether the project is competitive at the bidding stage and whether it is successful in obtaining a contract with the Commonwealth.See the CER website for more information.
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