MARKET UPDATE: Re-thinking the Direct Action Plan

A new study from market analysts, RepuTex, indicates that Australia’s 5 per cent emissions reduction target may be within reach for the government’s Direct Action Plan, with amendments proposed by independent Senator Nick Xenophon to potentially have a considerable impact on the scheme’s effectiveness.

We forecast cumulative abatement from the ERF may grow from 67 Mt CO2-e to 183 Mt CO2-e by 2020 – an increase of more than 2.5 times base case levels – should proposed amendments be incorporated into the scheme, such as contract periods aligned with the target timeframe and the design of a more effective reverse auction market mechanism.

Maximising the abatement potential of the ERF would lead to a smaller shortfall of 272 Mt against Australia’s abatement challenge (down from 354 Mt). This may be addressed via the implementation of an effective emissions safeguard scheme in July 2015, which is forecast to deliver between 196-316 Mt of additional greenhouse gas emissions abatement.

Following the repeal of the CPM and the likelihood that Clive Palmer’s ETS is unlikely to be implemented in time to play a major role in meeting Australia’s 5 per cent emissions reduction target, the improved performance of the government’s scheme may prompt a re-thinking of the role of the Direct Action Plan as a short-term gateway to a longer term climate solution.

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