May 10, 2022



ERF scheme an environmental fig leaf

A discussion paper - An Environmental Fig Leaf? Restoring integrity to the Emissions Reduction Fund - by Polly Hemming, Alia Armistead and Sumithri Venketasubramanian has been released by the Australia Institute.  

In a far-reaching report the authors argue that Australia’s climate policies are inadequate and that an urgent assessment of effective climate policy is required by the next Australian Government.  

The report executive summary says: Specifically, a comprehensive and fully independent review is needed of the $4.5 billion Emissions Reduction Fund (ERF), Australia’s only legislated climate policy. 

The ERF claims to incentivise emissions reductions across the Australian economy. It also forms the basis of Australia’s ‘carbon market’.The scheme awards Australian Carbon Credit Units (ACCUs) to projects carrying out abatement (emissions reduction) activities across the economy, which can be sold to the government or private sector.  

The ERF was never designed to carry the full weight of Australia’s climate policy. As a result of being placed under such pressure, it is unsurprising that – despite its name – the scheme has not only failed to reduced emissions, but its foundations have begun to crumble. 

This pressure will only intensify as emissions from fossil fuel production increase in Australia, and the ERF is pushed to deliver increasingly more ‘abatement’ to offset this growth.  

It has been suggested that up to 80 per cent of the 108 million ACCUs issued to abatement projects under the ERF since 2012 have no integrity. Concerns have also been raised regarding the independent government bodies tasked with method development and regulation of ACCUs, casting doubt over the integrity of every component of the ERF. 

To date, these concerns have not been addressed by the Australian Government. This may be because there is limited appetite to acknowledge flaws in the only mechanism to meet Australia’s climate targets.  

It may also be that integrity issues are being overlooked as part of the Clean Energy Regulator’s concerted efforts to increase the number of carbon credits available to the private sector. 

The ERF features to varying degrees in the climate policies of both the major parties in Australia. The private sector is also relying heavily on carbon credits, including ACCUs, to meet its climate commitments. However, it its current state, and under the current governance arrangements, the risks to government and industry participating in or subsuming responsibility for the ERF as part of a net zero emissions strategy are significant. 

There are two main outcomes when carbon credits with no integrity are purchased by the government or the private sector. Purchased by government, the outcome is that hundreds of millions of dollars of public money are wasted, and Australia is no closer to meeting its climate targets.  

Beyond the biophysical risks associated with climate change if emissions are not curbed, Australia will come under even more scrutiny by the international community to demonstrate that it is acting on climate change.  

Purchased by the private sector, and subsequently used to‘offset’ emissions, means that emissions are not in fact being offset,increasing private sector costs of production and enabling polluting activities to continue.  

Domestic and international attention is increasingly turning to the veracity of net zero claims being made by industry and the overreliance on offsets by the private sector. Net zero claims underpinned by‘hot air’ carbon offsets, regardless of whether they were made in good faith,will not be seen favourably by shareholders, consumers or regulators. 

Indeed, the Chair of the ACCC has recently supported the need for stronger regulation of carbon offsets and carbon neutral claims to prevent ‘greenwashing’ as a competitive strategy. Furthermore, traditional owners, landholders and conservation advocates, who have been relying on the ERF to deliver environmental outcomes and support their livelihoods, have now been placed at risk by a scheme that has promised to deliver benefits beyond carbon abatement. 

In short, if ACCUs cannot deliver the carbon abatementt hey have promised, they will likely be unable to deliver the ‘co-benefits’sought by others.  

The ERF could have a valuable role to play in Australia’s climate policy and net zero future. However, for this role to be credible, the scheme requires a comprehensive assessment of its interaction with other climate policies, along with a review of its governance and the integrity of its methods.  

Not doing so risks the ERF being a “con, an environmental fig leaf to cover a determination to do nothing”, as Malcolm Turnbull once warned.  

The paper provides an overview of the evolution of the ERF from a system designed to provide for a small percentage of Australia’s emissions reductions into the country’s only legislated climate policy and the problems this has created.  

Given the centrality of carbon credits to Australia’s climate policy, and growing criticism regarding the efficacy of the scheme, it then recommends a review of the ERF and its governance to ensure these issues are resolved.  

The shape and depth of such a review may depend on the extent to which governments see the ERF’s role in future climate policy. While a robust review would assess the success of the ERF to date and ask the fundamental question, ‘is the ERF an effective mechanism to reduce emissions?’,there are three broad areas for review that should be addressed in the short term collectively or separately:  

• The extent of the ERF’s interaction with other climate policies (including the Safeguard Mechanism, which already imposes limits on the emissions of Australia’s biggest polluters).

• The governance and administration of the ERF.

• The integrity of the individual ERF ‘methods’.

This review should be fully independent, free from any vested interests in any related industries that may stand to benefit from the ERF, carbon farming or the trade of carbon credits.  

Until such a review is carried out, the ERF will not be regarded as a sound climate policy by Australians or the international community. 

Without a thorough review, the next government will notbe able to restore confidence in Australia’s carbon credits scheme or carbon market. Australia’s reputation as a climate laggard will continue.