Income and Capital Growth from Carbon Abatement

Carbon farming in Australia depends upon legislation and Australia is committed to the Paris target of reducing emissions by 26% of 2005 levels by 2030. The existing policy is called the Emission Reduction Fund (ERF) and is financially supported by the governments $2 billion commitments to reducing Greenhouse gases.

Many of these contracts are fixed priced and are up to 10 years in duration providing certainly for participants.   

Prior to the establishment of the Emission Reduction Fund Australia had a carbon tax where ACCUs were traded with liable entities purchasing the abatement. Liable entities were required to pay a $23 a tonne carbon tax or purchase an ACCU from the market. 

In 2015 the carbon tax was repealed by the Abbott government and the market-based mechanism was replaced by a government purchasing system under the Emission Reduction Fund.  The Australian government committed $2.55bn to purchase emissions reductions. Eight auctions have been held so far, resulting in 477 projects securing carbon abatement contracts to deliver 193 million tonnes of abatement at an average price of A$12. Around $226 million remains in the fund to purchase further abatement (Department of Environment and Energy).

In this case the government acts as buyer of abatements (ACCUs).  Both the Coalition and the opposition are committed to carbon farming activities. The original legislation was enacted by the Labor party under Julia Gillard and all major political parties support it. The political disagreement is primarily about broader climate issues and who carries the cost of climate action.