The government’s ability to allocate budget resources to the Emissions Reduction Fund and regulate, rather than legislate, its proposed emissions reduction scheme remains a significant ‘ace in the hole’ for the Coalition as it seeks to meet its July 2014 implementation timeline, while facing a hostile Senate.
In our Carbon Market Update for May, we examine the ability of the government to implement its Emissions Reduction Fund via regulation rather than legislation, and forecast what form a regulated scheme may take on commencement, along with the implications for market participants.
Given the continued operation of the CPM true up through to February 2015, analysis indicates that few businesses from the land use sector will bid into the ERF under $22, with these firms likely to bid high or bypass the ERF early auction rounds in favour of selling offsets to CPM liable entities.
Low participation from the land sector in FY15 may inversely provide an opportunity for early movers outside of the CFI, such as high emitting industries, to secure higher priced contracts in place of CFI participants while supply is low.
As the countdown to July 1 ticks under two months, it now appears that ‘ready or not, the ERF is coming’ to the Australian market.
