A sweeping new review of the Emissions Reduction Fund will examine all aspects of the scheme, including the role of the behind-the-scenes secondary market for carbon credits.
The Climate Change Authority released a discussion paper on the review today, and will submit its final report in December.
The timing means that by the end of the year, governments will have the Australian Energy Market Commission's findings on designing a Clean Energy Target (due October), the report of the federal review of climate policies (November), as well as the Authority's ERF recommendations.
The review asks fundamental questions about the ERF, including whether some emissions reductions currently purchased through auction contracts could more efficiently be secured through regulatory controls.
Secondary market must be transparent and liquid
The paper also canvasses views on the operation of the secondary market in Australian carbon credits, which is used mainly by project developers to buy credits from other developers so they can meet ERF contract delivery deadlines.
Some companies covered by the Safeguard Mechanism might also soon start using the secondary market to buy credits to keep facility emissions below baseline levels.
"For a secondary market to function well, it should be transparent and liquid," the paper says. "The Authority is interested in stakeholders' views on whether this is occurring."
The paper also asks whether the ERF is delivering additional abatement to business-as-usual and seeks views on the need for changes to ensure that additionality isn't undermined.
"Additionality is a key element in the environmental integrity of offset schemes and necessarily involves judgement and trade-offs," the paper says.
"If an additionality test is set too rigidly, the scheme may miss out on some abatement that is genuinely additional."
"If the additionality test is too lax, then the ERF will not receive value for money and the Government may need to take alternative action to find the emissions reductions it needs."
The Authority also asks:
- whether there are any concerns about market concentration in the ERF, which is dominated by a handful of large carbon project developers;
- why some ERF methods have a low uptake;
- whether the ERF is effectively encouraging the aggregation of small-scale abatement activities into packages that can be the basis for securing a contract;
- whether the Clean Energy Regulator should have the right to see contracts struck between project developers (including aggregators) and landowners or other entities;
- whether there is too much focus on buying least-cost abatement, without taking into account other potential co-benefits;
- whether the government should allow carbon credits to be exported, or imported units to be used to meet ERF contract requirements;
- what should be done to ensure Australian carbon units will be eligible in future international markets;
- whether landowners receive sufficient information about requirements to protect vegetation for the number of years specified under ERF rules; and
- whether there are barriers to Indigenous participation in the ERF.
Submissions in response to the Authority's discussion paper are due by September 29.
