The encyclopedia · Strategy & Leadership · Operational decision · 2014-2016
Australia's Emissions Reduction Fund bought abatement by reverse auction
Australia's ERF ran reverse auctions for emissions cuts; the first round bought 47 million tonnes at A$13.95 each.
Clean Energy Regulator · Australia's Department of the Environment
the move
After scrapping a carbon tax, Australia's Direct Action plan needed a way to cut emissions without setting a price that industry and voters rejected.
The 2014 Emissions Reduction Fund legislated a reverse auction: the Clean Energy Regulator invited projects and bought the lowest-cost tonnes of carbon abatement within a fixed budget.
In the first auction the government spent A$660 million of its A$2.55 billion fund to buy about 47 million tonnes of abatement, at an average A$13.95 per tonne.
The auction bought the low end of the marginal abatement cost curve, with more than half the tonnage coming from vegetation and carbon farming.
why it works
- Bidders with cheap abatement reveal their true cost, so the buyer pays the lowest price available.
- The budget cap keeps the government's cost under its control, unlike an open-ended price or subsidy.
- Buying abatement from a mix of projects broadens the pool beyond the heavy industrial sectors that resisted a carbon price.
- Because the state pays, the mechanism avoids a polluter-pays mandate that had proved politically unworkable in Australia.
what transfers
When the government is the buyer, a reverse auction reveals the true cost of the outcome instead of the state guessing it.
what came after
A second auction later bought about 45 million tonnes at A$12.25 a tonne, taking total purchases to roughly 93 million tonnes; the fund's reliance on land-sector abatement drew criticism that it delayed real cuts in the most carbon-intensive industries.
references
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