The federal government’s Emissions Reduction Fund, which is the centrepiece of Direct Action, can be rorted by big business – so says a recent analysis.
Based on the analysis, big business will be able to inflate the cost of emissions reductions through a scheme called “bid shading.”
The RepuTex analysis states that as the government promises lowest-cost abatement, industry is poised to profit from the scheme. In fact, some companies can win abatement contracts even if they bid 15 times more than the cost of reducing their emissions.
The analysis also says that it is possible that the government may have to pay three times what it expected from the emissions abatement. This will be approximately $800 million for the credits to be sold, instead of just $250 million that it envisions.
In a separate report, it also indicated that the removal of the carbon price is causing emissions to increase. It also recommends that the Renewable Energy Target be left unchanged and be given policy certainty.
As the analysis notes, this could deliver a major part of the country’s 5 per cent carbon abatement target by 2020, without even requiring government payments to polluters.
Hugh Grossman, Executive Director of RepuTex, says that there would be a major discrepancy between the intended objectives of the ERF, against the method it will be applied in reality.
“The Clean Energy Regulator has advised companies that the best strategy for success at an Emissions Reduction Fund auction is to bid ‘the lowest price’ at which it is worth your while to undertake a project,” says Grossman best diet supplements.
“However, analysis indicates that companies are actively seeking to bid the highest clearing price so that they can generate greater returns. Business typically sells at the highest price, not at the lowest,” he adds.
There will be cases where bids will be 15 times higher than the cost of actually creating the emissions reductions. This will eventually lead to a considerable windfall for big businesses.
Grossman made reference to the waste sector, which has shown negative marginal abatement costs. But instead of selling that abatement cheaply, businesses will try to exploit their cost advantage to significantly increase their returns.
“In some cases, companies may inflate their bid-price by 15 times the cost of creating the emissions reductions, and potentially much higher,” says Grossman.
The initial ERF auction, which involved up to 45 million Australian carbon credit units, was held on April 15 to 16. According to RepuTex, the government may be hurting itself if it keeps the market guessing what the ceiling prices are, and its lack of market transparency.
“The underlying cost of a project is now irrelevant for companies. Regardless of the cost of a project, all companies will seek to bid the highest clearing price, which will float in line with supply volumes,” explains Grossman.
“This will create a false abatement cost curve, where low cost projects that would have been expected to be contracted first, will actually be bid far higher, making it impossible for the Regulator to purchase the lowest cost abatement first,” he warns.