The federal government will pay up to $1 billion to farmers to grow more native trees and burn off grasses as part of the second auction from the $2.5 billion Emissions Reduction Fund. Source: Australian Financial Review
Carbon farming projects, like regeneration and savannah burning, are expected to dominate the auction, but big industry players such as Qantas and Woolworths are also set to make a bid for the first time.
They are bidding for contracts from the Clean Energy Regulator where they will be paid to reduce carbon emissions that would otherwise have been released into the atmosphere.
The strong interest is expected to drive down the cost of the carbon abatement contracts.
Cobar farmer David Snelson is a seventh-generation sheep grazier but he’s decided to turn his hand to carbon farming to earn some extra money through what seems like a never-ending drought.
On his 10,000 hectare property, Yarrawonga, in western NSW, Mr Snelson will dedicate about half his farm to re-generation of native trees – and be paid for it by taxpayers.
He’s had to reduce the number of sheep on his property from about 4000 to 3000 and commit to not clearing half his property but Mr Snelson is hoping it will be enough to keep him in the black and keep his farm in family ownership.
“It’s off-set revenue I have lost from the drought. If I can make a bit of money and keep my property that’s great, if it’s also helping to reduce the nation’s carbon footprint that’s a bonus,” Mr Snelson said.
Mr Snelson is one of 389 projects bidding for the second auction of the $2.5 billion Emissions Reduction Fund, which opened recently.
More than $1 billion is expected to be awarded when the results of the auction are released – once again raising the prospect the federal government may be forced to top-up the fund before next year’s election.
In the first auction, 43 companies were awarded contracts worth $660 million to eliminate 47 million tonnes of carbon, with an average price of just under $14 a tonne.
But critics say the Emissions Reduction Fund is a waste of money and it would be better to have an emissions trading scheme to put a price on carbon to force companies to reduce their emissions.
Climate Friendly manager Josh Harris, a project developer who is working on 50 smaller carbon projects from Cape York in North Queensland to western NSW, said he expected the land sector to dominate the carbon market in the auction.
Of the 389 projects registered for the auction, about 75% are from the land sector, including re-forestation projects and savannah burning by traditional owners to avoid wildfires.
Only 10% are from the larger industrial sector and the rest are from landfills and other projects, Mr Harris said.
“The land sector is still dominating the sector, mostly farmers and Aboriginal groups. There is a few legacy landfill projects still in there but mostly it’s the land sector,” Mr Harris said.
Carbon farmers can reduce hundreds of thousands of tonnes of carbon – sometimes even millions of tonnes – during the course of the 10-year contracts.
They are independently audited every year to keep track of the regeneration of the properties. Kinchela landowner John Cliveden Bull is aiming to prevent about 20,000 tonnes of carbon emissions each year.
He said he hoped carbon farming would also help reduce the need for government drought funding in the regions.
“This money allows farmers to keep spending in local communities therefore providing jobs for local people,” he said.
Mr Harris said the stronger interest in the second auction could drive down the price of carbon abatement as projects lower the costs to secure a contract.
“The main change between the first and second auction is there is more interest this time. There’s been a 50% increase in projects bidding from 250 the first time to 389 now,” he said.
“With more supply coming into the market it will generally make it more competitive.”
Grattan Institute’s energy program director Tony Wood said the Emissions Reduction Fund was better than nothing and given the leadership change to Malcolm Turnbull could be used a stepping stone to something better like an emissions trading scheme.
“It’s better than not having it and it could be an effective pathway to where we need to be. It could be re-engineered to be moved to a baseline and credit scheme,” he said.
Melbourne-based consultancy RepuTex has also predicted forest regeneration, savannah burning and coal mine waste activities will be the big winners from this week’s auction.
But the presence of a few big players will most likely drive down the cost of abatement below the $13.95 a tonne from the first auction.
“While industry accounts for only a small number of projects registered, the size of those projects means that we anticipate they will supply a few relatively large volume of credits, particularly from coal mine waste gas and industrial energy efficiency projects,” RepuTex said in a report.
“Competition from industry will work in favour of the government, potentially lowering the average price of abatement from auction one.”
Federal Environment Minister Greg Hunt has refused to say when the Turnbull government will top up the Emissions Reduction Fund. But he views it as the centrepiece of the Coalition’s Direct Action scheme, allowing them to purchase carbon abatement at the lowest possible price.
Mr Hunt announced businesses that boost their energy efficiency will be eligible for contracts in future auctions.
