Climate change policy explained – #1 Federal ‘Emissions Reduction Fund’

The emissions reduction fund has resulted in carbon emission reductions (at April 17′) of 189 million tonnes of carbon. [1]

“The objective of the Emissions Reduction Fund is to help achieve Australia’s 2020 emissions reduction target of five per cent below 2000 levels by 2020 and 26-28 per cent below 2005 emissions by 2030.” [2]

Key terms

Abatement – Reduction in emissions
ACCU – Australian carbon credit unit
tCO2-e – Metric tonnes of carbon dioxide or carbon dioxide equivalent
ERF – Emissions reduction fund

Overview

The federal government through the Clean Energy Regulator (CER), allowed business owners, farmers and landholders to apply for and receive ACCU’s for every tonne of carbon or greenhouse gas equivalent reduced or captured compared to business as usual over a 7-15 year projection. These ACCU’s could then be sold to the Government, from a fund of $2.55 billion, in a reverse auction. Whereby the Government purchases back some portion of the credits from credit holders.

Example: M.Bagz, owner of Big Food Distributor(BFD)

Mr Bagz wants to replace his cool room fans with a new type of fan that reduces the power consumption of each fan by 20%. Over his 10 warehouses – each with 30 fans of 5 KW – this gives a reduction of 3 MWh per day. Assuming a 1-1 ration of MWh generated to tonnes of carbon produced – on top of the electricity savings – Big Food may be eligible to receive 7000 credits over the 7 year projection period.

 

As of April 17′ 435 projects had secured abatement contracts to deliver 189 Mt CO2-e at an average credit cost of $11.83 / tCO2-e.  [1]

Results of the fund

The estimate abatement for the fund in 2015 was 92 Mt CO2-e [3] and the actual abatement so far has been 189 Mt CO2-e. From this perspective, the fund has over achieved by 97 Mt.

This has supported the 2020 emissions reduction target of 5% on 2000 levels, an actual emissions target of 656 Mt CO2-e for the year 2020. A 2016 report projects 2020 emissions to be 559 Mt CO2-e [4],  97 Mt lower than this target.

The fund operates on a 7-15 year horizon, so 189 Mt of reductions are brought forward, inflating the present day reductions which are yet to be realised. Assuming the best case scenario of 7 years, the 189 Mt reflects a 27 Mt abatement each year, or 20% of the total 2020 actual yearly abatement task.

In terms of the 2030 target, the 2016 projection for 2030 is 592 Mt CO2-e, a 13 Mt or 2% reduction on 2005 levels. This reflects an overall increase in emissions between 2020-2030 of 40 Mt or 7%. To reach the 2030 target of 25% below 2005 levels – 450 Mt CO2-e – the 2016 emissions update report estimates a further cumulative abatement of approximately 1000 Mt CO2-e required between the years 2021-2030, reflecting a 100 Mt reduction for each year. [4]

Conclusion

Realistically the ERF has not contributed to a 2030 target, rather being absorbed by the 2020 target. Even if it had, it would have little impact in the scope of the abatement task at hand.

Consider also, a cap-and-trade system often realises it’s largest gains early on, at the cheapest price. Repeating the project ongoing would see fewer reductions at greater cost. To be effectual ongoing, the emission reductions would need to come from farther and farther into the future and brought into present-day savings. This works counter intuitive to the goal of preventing catastrophic climate change.

The ERF has indeed over achieved and that’s terrific, it was successful within the context it was deployed. It is an important, though small contribution to the emission reduction target. It’s true, Australia has a strong record of reaching it’s emissions targets. But by their own estimates, are falling well short of the 2030 targets.

The climate council of Australia says for Australia to come in line with the relative global requirements to keep global temperature increases below 2 deg, we would need to reduce emissions by 60% on 2005 levels by 2030. [5]

I guess the elephant in the room is, you simply can not find 25% reductions across industries only contributing a total of about 30% emissions. To look remotely serious about this project, there must be proportionately attributed attention paid to the big emitters; it’s simply a matter of fact.

Let’s take a very brief view of the potential for emissions reductions in the economy.

Image 1 [4]

Immediately we need to flag the contribution of energy production. How we generate our energy; for electricity, for production and transportation make up 65% of emissions.

So a 25% emissions reduction target, is actually a 40% renewable energy target – this couldn’t be more clear. By replacing our fossil fuel generation and transport – we would blow past our 25% target towards the 50%-60% range.

 

 

Image 2 [6]

  1. goo.gl/b7jpf1 (Emissions fund overview. 2017)
  2. goo.gl/K6FBvV (About the emissions fund. 2017)
  3. goo.gl/ojbeNj  (Abatement task tracking to 2020. 2015)
  4. goo.gl/Awr2Pj (2016 emissions projections)
  5. goo.gl/pNKasi (Climate council – emissions targets explained)
  6. goo.gl/iMbLbm (Garnaut climate change review chpt 7)

Also published on Medium.

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