Emissions Reduction Fund

A 9-12 month ‘demand gap’ likely in Australia as uncertainty grows

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

Finance Minister Mathias Cormann, speaking to The Australian on Monday, stated that the budget allocation for the government’s Emissions Reduction Fund (ERF) would not be extended beyond the initial $2.55 billion commitment made in 2014-15, of which $1.2bn has been contracted over two auctions.

The office for the Environment Minister has confirmed that the government will not top-up funding for the ERF at the 2016-17 Federal Budget on May 10, with a spokesperson for Environment Minister Greg Hunt telling Fairfax that a decision on further allocations for ERF II will be made “over the next 18 months”.

While the government is “relaxed” about the future availability of funds, the lack of transparency over forthcoming allocations is likely to cast doubt over the government’s long-term support of the ERF, while increasing concern that Australia will again enter a period of climate policy limbo.

As we noted in our December Analyst Update, with $1.3 billion remaining in the first tranche of the government’s ERF, we continue to assume that auctions three (April 27-28) and four (final quarter of CY16) will be the final rounds of the ERF, with the final auction likely to take place in November 2016.

The first tranche of the ERF is therefore likely to conclude at the end of the 2016 calendar year, leaving the market with no effective policy to incentivise emissions reductions or curb emissions growth.

While the government’s Safeguard Mechanism will commence on 1 July of this year, as currently designed, no companies are expected to be liable to the scheme, with emissions baselines set at “the high point” of historical emissions, meaning covered facilities will not be accountable for most emissions increases.

The government has announced a review of its Direct Action Plan policy in June 2017, which will report five months later, in November 2017. Any new policy is therefore unlikely to be implemented before 2018-19, in around three years’ time.

ERF II funding timeline will create a demand gap

The earliest point for the government to consider a new round of funding for the ERF will be the 2017-18 Federal Budget, in May 2017, with any allocation to be formally made in July 2017, upon the commencement of the 2017-18 fiscal year.

We believe that consideration of funding for ERF II is more likely to be wound into the government’s Direct Action Plan policy review process, to report in around 18 months (November 2017), which would be in line with the government’s reported timeline to consider ERF II funding allocations.

This would imply a minimum 9 month funding gap for the ERF (November 2016 to July 2017), with a more likely scenario that funding may not be decided until November 2017 (when the review reports), creating a 12 month gap in climate policy.

Given that the ERF is currently the only source of demand for high emitting companies and carbon farming proponents

Restricted Access

This is a subscriber report. Please login to access this content.

Tour our EnergyIQ platform

RepuTex research insights and market data is published via our EnergyIQ platform.

Click below to learn more about our services.

Sign up for regular insights

LATEST UPDATES

  • Carbon Markets

    RECORDING: ACCU prices to remain under $100/t to 2035, landfill gas extension to materially flatten uplift

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    In May, DCCEEW published a new draft landfill gas method outlining updated rules for crediting […]

    Research Insights, Webinars | July 1st, 2025
  • Carbon Markets Outlook

    OUTLOOK: Australian carbon price, supply & demand outlook (ACCUs/SMCs) June 2025

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Our latest Carbon Market Outlook (CMO) for the Australian carbon market has now been published. […]

    Market Outlooks, Research Insights | June 30th, 2025
  • Carbon Markets

    UPDATE: ACCU prices remain tightly rangebound, Default Prescribed Unit Price set for FY25 compliance costs

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    ACCU spot prices remained tightly rangebound last week, with our Generic ACCU (Market Close) assessment […]

    Research Insights | June 30th, 2025
  • Carbon Markets

    NOTICE: RepuTex ACCU price benchmark recognised as “Default Prescribed Unit Price” by Australian Government

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    RepuTex’s ACCU price benchmark has been recognised as the “Default Prescribed Unit Price” (DPUP) by […]

    Notices, Research Insights | June 27th, 2025
  • Carbon Markets

    UPDATE: OTC forward market activity rebounds to 8-month high, update on IFLM method development

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Market activity remained stable last week, with ACCU spot prices continuing to trade within a […]

    Research Insights | June 23rd, 2025
  • Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone