The Emission Reduction Fund, what’s in it for road transport?

The current Coalition Federal Government set up the ERF, which is administered by Clean Energy Regulator (CER), to replace the Carbon Tax that was put in place by the previous Labor government. The intent of the ERF is to pay emitters of CO2 to reduce their emissions over a specified time period, typically seven years. The government plans to spend $2.55bn on carbon abatement schemes up to 2022. Companies register suitable carbon abatement projects with the CER and bid, in a “reverse auction”, for a tonne of CO2. I say, “reverse auction”, because companies with the lowest bid (not the highest, as is typical with a conventional auction) for a tonne of CO2 will “win” approval for their project. The program has many checks and audits in place to ensure that the CO2 reductions are realised and the government only pays for carbon abatement once it has been confirmed by the CER.

The Department of Energy and Resources held the first “reverse auction” in mid-April 2015, with the government paying an average price of $13.50 for a tonne of CO2. Looking in a little more detail at the results of this first auction, there were 140 carbon abatement contracts issued worth $660 million. That is 25 per cent of the government’s budget spent, for a total of 46 million tonnes of promised CO2 abatement.

The government now has 75 per cent of its budget left, but more than 85 per cent of its targeted 230 million tonnes of abatement yet to deliver (purchase), indicating that the price of an ERF tonne of CO2 will fall at future auctions. Of the 140 contracts issued, 139 were to companies/organisations who had schemes registered and operating under the previous Carbon Tax regime.

The one new player was a refrigerated road transport group who detailed in its contract submission plans to cut CO2 emissions by 10 per cent in its refrigeration businesses over a six-year period.

If successful, it will earn approximately $2m from the CER. Due to privacy provisions in the ERF scheme, full details of any company’s bid are confidential so we can only surmise on the specifics based on the limited amount of information that is released by the CER and company media releases. In this case it would appear that a significant portion of the planned CO2 abatement will come by moving refrigerated road freight to refrigerated rail freight.

I tasked the Truck Industry Council’s Chief Technical Officer, Mark Hammond, to calculate the potential ERF rebate that an operator might earn in the following scenario:

A Euro 4 (ADR80/02) EGR B-double prime mover, running 400,000km/year on interstate line haul and achieving 1.8km/litre, verses a Euro 5 (ADR80/03) SCR prime mover travelling the same distance but with an assumed annual fuel efficiency saving of seven per cent. The calculated rebate came back at a dismal $564.00/year, or $3,948.00 over a seven-year contract, based on a CO2 abatement of $13.50/tonne. By the time an operator factored in the costs to prepare and submit its ERF project application and it paid for the necessary CER carbon abatement audits, it would likely make nothing from the whole exercise.

So back to the question that I posed in the title of my column this month, the Emission Reduction Fund, what’s in it for Road Transport? Based on the above, it would appear not very much. If government is really serious about reducing the CO2 emissions from the road transport sector, they should consider changing our restrictive and increasingly out-dated vehicle dimensional regulations to allow our industry to take advantage of the great aerodynamic work that is being conducted here in Australia and around the world, as I have detailed previously. Further, governments must consider practical and meaningful financial incentives, such as those outlined in TIC’s National Truck Plan, which would truly entice transport operators to purchase new alternative powered and fuelled trucks as well as new more fuel efficient trucks, all of which will be safer and cleaner.

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