Is everything fine with the Emission Reduction Fund?

We just started a new year and most of us were in a summer holiday slumber when the news about the publication of the Review of Australian Carbon Credit Units (ACCUs) came. The Review was conducted by an eminent, independent panel, and found that by-and-large the ACCUs generated under the Emissions Reduction Fund (ERF) are credible, and have in fact resulted with reduction of emissions. In some ways this is a good outcome, as one can only imagine the disgrace and the international shame and ridicule Australia would have copped had the conclusions of the Review been something else.

Nevertheless, not everything is fine with the ERF, and this is evident in the report of the Review itself. In particular, Recommendation 9 of the Review states that ‘No new project registrations be allowed under the current avoided deforestation method’ and cites difficulties with establishing real intent to clear land, which then puts in question the additionality of the generated credits. The lack of additionality was long suspected, as discussed on this blog some time ago, and Recommendation 9 of the review just cements that suspicion. This was picked by some news reports. But, what was not picked up is the extent of the problem with credits generated under avoided deforestation method that have been granted so far. ACCUs granted under the label ‘vegetation’ (read ‘avoided deforestation’) make 75% of all ACCUs granted in NSW, 58% of all ACCUs granted in QLD, 41% of all ACCUs granted in WA, and 55% of all ACCUs granted nationally. So, there are lots of credits, in fact a majority of credits nationally and an absolute majority in some states, that are potentially, neigh likely, problematic when it comes to the additionality test as found by the Review itself.

While other parts of the ERF might have been sound, we now officially know that the ‘avoided deforestation’ method has not been fine. Unfortunately, a lot of credits were generated using this method in the past. It is good that the Review has called this out, and that no new projects under this method will be allowed in the future. But this doesn’t change the fact that a lot of taxpayers’ money have gone into the pockets of wealthy landowners without commensurate reduction in emissions. This is something that the Review could’ve and should’ve raised more prominently!

Author: Tiho Ancev

Tiho Ancev is a Professor of Agricultural and Resource Economics in the School of Economics, University of Sydney. His main research areas are agricultural, environmental, natural resource and energy economics. Tiho’s main contributions have been in water economics and policy, economics of energy, economics of air pollution and climate change policies, and economics of precision agriculture and agricultural input use. He has published widely on these topics in top international peer reviewed journals. Tiho has led and contributed to national and international research projects in these research areas. He is currently the Managing Editor-in-Chief of the Australian Journal of Agricultural and Resource Economics.