Background

The Government established the Carbon Farming Initiative in September 2011 under which entities associated with the agricultural, forestry and legacy waste (landfill) emissions sectors of the economy could register projects and earn credits for every tonne of carbon abated. In November 2014, the Government expanded the Carbon Farming Initiative to form the $2.55 billion Emissions Reduction Fund (the fund)—allowing the registration of projects from all sectors of the economy and to purchase Australian Carbon Credit Units (primarily at auction) earned by projects to meet Australia’s greenhouse gas reduction targets. Projects already registered under the Carbon Farming Initiative transitioned automatically to the fund on its commencement on 13 December 2014.

The Department of the Environment and Energy (the department) is primarily responsible for the policy settings under which the initiative/fund operates and the development and approval of methods (which are applied by projects seeking registration under the fund). The Clean Energy Regulator (the regulator) is responsible for the administration of the fund, including:

• registering projects after undertaking assessments of project applicants and applications;
• verifying the carbon abatement claims of registered projects before issuing carbon credit units to project proponents; and
• purchasing credited and/or prospective carbon credit units from registered projects (through auctions).

As at 1 July 2016, the regulator has reported that it has registered over 600 projects, credited over 25 million carbon units and conducted three auctions (of which the first two were examined in this audit). The three auctions have resulted in contracts for the purchase of 143.3 million carbon credit units over the next 10-12 years from successful bidders at a cost of $1.7 billion (representing 68 per cent of the $2.55 billion fund).

The department reported in April 2016 that Australia is expected to surpass its 2020 cumulative abatement target by 78 million tonnes of carbon dioxide-equivalent, with the fund contributing an estimated 92 million tonnes.

Audit approach

The objective of the audit was to assess the effectiveness of the Clean Energy Regulator’s crediting and selection of carbon abatement to purchase under the Emissions Reduction Fund. To form a conclusion against this objective, the ANAO adopted the following high-level criteria:

• Did the regulator only register projects that met relevant legislative requirements?
• Did the regulator issue the correct quantity of carbon credit units to registered projects after verifying the claims from project proponents?
• Did the regulator design and implement the first and second auctions to purchase carbon credit units from eligible projects at least cost?
• Did the regulator appropriately manage the risks, operation and performance of the abatement crediting and purchasing components of the fund?

Conclusion

The Clean Energy Regulator has established sound arrangements to manage the crediting and selection of carbon abatement for purchase under the Emissions Reduction Fund. There are some aspects of the regulatory process that, nonetheless, require further attention—such as the level of documentation underpinning some areas of regulatory decision-making—to enable the regulator to better demonstrate the effectiveness of its regulatory activities.