The Government’s plan to replace the carbon pricing mechanism with its Direct Action Plan took a step forward on 18 June 2014 with the introduction to Parliament of the Carbon Farming Initiative Amendment Bill 2014 (CFI Amendment Bill). If passed, the CFI Amendment Bill would implement the Emissions Reduction Fund (ERF), which would be used to purchase carbon abatement from proponents of eligible emissions avoidance and sequestration projects.
In this paper, we summarise the arrangements for the ERF as set out in the Emissions Reduction Fund White Paper (White Paper) released in April and implemented through the CFI Amendment Bill. We focus on the practical steps that a project proponent would need to follow to access funds under the ERF, outline the Government’s proposed safeguard mechanism that will apply to certain large emitters, and highlight the key differences between the ERF and the Carbon Farming Initiative (CFI) and transitional arrangements.
The Government intends to encourage reductions in greenhouse gas emissions by using the ERF to purchase carbon abatement through a reverse auction or other procurement process.
Under the auction process, proponents of eligible emissions avoidance and sequestration projects will be able to submit a bid to the Government specifying a price per tonne of carbon abatement achievable through their project. The Government will then select the lowest bids. Successful project proponents will enter into a carbon abatement contract with the Government, under which the Government will agree to pay to the project proponent its bid price for the carbon abatement it achieves over a certain number of years. Project proponents will be entitled to sell carbon abatement that is not purchased by the Government to others, for example into the voluntary carbon market.
The Government has confirmed that a total amount of $2.55 billion in initial funding is to be provided under the ERF, with further funding to be considered in future budgets.
The Government intends the ERF to begin following the repeal of the carbon pricing mechanism. It will be implemented by extending and modifying the current arrangements under the CFI, which has been operating since December 2011.
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