Federal Government’s acceptance of King Review proposals a win for the resurgence of carbon capture and storage.

Snapshot

  • Of the 26 recommendations put forward in the King Review, the Government has agreed or agreed-in-principle to 21 recommendations, and noted the remaining 5 recommendations.
  • The Government supports the review’s key recommendations, including the introduction of two new abatement categories under the Emissions Reduction Fund: the first for carbon capture and storage; and the second for large emitters who actively pursue abatement projects to reduce emissions below their Safeguard Mechanism baselines.

The Government is already implementing a number of the recommendations, while others need further consultation.

King Review

On Tuesday 19 May 2020, Angus Taylor, the Minister for Energy and Emissions Reduction, released the Government’s response to the 26 recommendations proposed by the 2019 King Review (the Responses).

The King Review, led by Greg King, was an expert panel tasked with reviewing the best ways to encourage investment in low cost abatement opportunities in Australia. With a particular focus on the industrial, manufacturing, transport and agriculture sectors as well as energy efficiency, the panel provided its recommendations in accordance with the following three themes.

1. Improving the Emissions Reduction Fund 

Since its inception in 2014, the Emissions Reduction Fund (ERF) has contracted more than 190 million tonnes of abatements at an average contract price of $12/tonne. At its core, the ERF has three components:

  1. the operation of an ‘Offset Certification Scheme’ that provides for certification of carbon offset projects and issuances of ‘Australian Carbon Credit Units’ (ACCUs) where participants earn ACCUs for emission reductions achieved through their registered abatement project;
  2. a ‘Purchasing Mechanism’ whereby market participants and the Clean Energy Regulator buys and sells ACCUs; and
  3. the ‘Safeguard Mechanism’, designed to ensure emissions do not increase above historic levels and obligating the largest emitters to give up ACCUs if they exceed a ‘baseline’ level.

The King Review focused heavily on making recommendations that could spark increased emissions reduction through the ERF. Key recommendations included:

  • developing new methods and streamlining approval processes to allow more participants to access and earn ACCUs via new methods such as carbon capture and storage (CCS) and carbon capture, utilisation and storage (CCUS) abatement projects;
  • reducing barriers of access to the award of ACCUs, such as allowing certain methods to be credited on a compressed timeline; and
  • improving the governance framework of the ERF to promote more efficient and effective operation of the fund.

Perhaps unsurprisingly against the backdrop of the ERF receiving a $2bn top up in February 2019 from the Morrison Government as part of the climate solutions package to help Australia reach its 2030 target under the Paris Agreement, the Responses were overwhelmingly in favour of the proposed recommendations to expand access for the ERF. The message seems clear that the proposed operation changes and establishment of more standardised governance frameworks are seen as key factors to encourage increased participation in the ERF. Notably, the Government also voiced its support for CCS and CCUS, advising that it has already initiated early-stage scoping for the introduction of CCS and CCUS abatement projects among industry.

2. Incentivising voluntary action on a broader scale

Significantly, the Government agreed that leveraging existing architecture of the ERF’s Safeguard Mechanism will likely accelerate the adoption of low emission technology by the country’s largest facilities and consequently, improve the productivity of these facilities in delivering genuine abatements.

The current Safeguard Mechanism applies to Australia’s largest emitters and is designed to avoid significant increases in emissions above usual business activities, rather than to actively reduce emissions. This is done by placing a baseline limit on applicable emitters, who must surrender ACCUs if they exceed their set baseline emission level.

The Response notes that the ‘below-baseline crediting arrangement’ would actively encourage these emitters, who historically have extremely low participation rates in ERF projects, to actively take on eligible abatement projects which reduce their emissions below their Safeguard Mechanism baseline in exchange for credits similar to ACCUs.

The Responses noted that many of the balance of the King Review’s recommendations surrounding the Clean Energy Regulator, knowledge sharing and energy efficiency in existing abatement activities are being addressed in a variety of existing Government policies and programs.

3. Unlocking technologies needed to reduce the economy’s emissions intensity

With reference to the national Technology Investment Roadmap, the Responses supported the recommendation of developing a goal-oriented technology co-investment program, noting that driving down the cost of transformative, high abatement potential technologies is a cornerstone of the Government’s emissions reduction agenda.

On the recommendation of expanding ARENA and CEFC’s remit to become technology-neutral, the Responses acknowledged that bodies such as ARENA and CEFC should provide support to the widest range of low emissions technologies but stopped short of agreeing to vary ARENA and CEFC’s operating frameworks.

To access the full list of Responses, click here.

The Federal Government’s Technology Investment Roadmap, released on Thursday 21 May 2020, is consistent with and echoes many of the themes set out in the Responses – a separate update will be provided about the implications of the Technology Investment Roadmap.

By Alison Dodd, Partner, Heidi Asten, Partner, Nick Baker, Partner and Frank Li, Solicitor.

Alison Dodd
Alison Dodd
Partner, Melbourne
+61 3 9288 1870
Heidi Asten
Heidi Asten
Partner, Melbourne
+61 3 9288 1710
Nick Baker
Nick Baker
Partner, Melbourne
+61 3 9288 1297