Australia’s climate policies are inadequate in ambition and failing in their execution. An urgent assessment of effective climate policy is required by the next Australian Government. 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.

This 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.