One possible way to achieve cross party and industry acceptance of coal-fired generation under the proposed Clean Energy Target (CET) is by requiring coal-fired generators to offset their emissions using carbon credits from Emission Reduction Fund (ERF) projects, says Carbon Market Institute CEO Peter Castellas.

“An economy-wide, market-based approached to emissions reduction, an explicit carbon price signal and internationally linked emissions markets is what we need to drive investment in new generation and efficiently transition to a net-zero emissions economy,” Castellas says.

“Currently Australia’s greenhouse gas emissions are on the way up. Ignoring the need for energy and climate policy to drive below-business-as-usual emissions to meet our Paris targets is not an option.”

If coal-fired generation is to continue as a core part of Australia’s energy mix in the medium-term, then carbon emissions from those facilities need to be offset so that Australia can reduce its absolute emissions across the economy in line with its Paris Agreement commitments, Castellas says.

“One way to achieve possible cross-party acceptance of coal-fired generation under the CET (or whatever version of this proposed policy the government lands on) is by requiring coal-fired generators to offset a portion of their emissions using Australian Carbon Credit Units (ACCUs) from ERF projects,” he says.

“The cost to offset emissions over the life of any new asset would be built into the capital cost of the plant through a carbon price (cost), which investors are now factoring in anyway.

“ERF credits can be fungible into the CET and tools like the World Bank’s Mitigation Action Assessment Protocol enable the conversion and fungibility of MWh to tCO2e (ACCUs) with rigor,” Castellas says.

In the same way that renewable energy generators will need to meet reliability obligations and invest in storage, coal-fired generators could be required to purchase a percentage of their emissions through carbon offsets.

“Under Finkel’s design, this could bring coal-fired generators under a CET benchmark threshold by reducing the generator’s emissions profile,” he says.

“This requirement to offset emissions would then address the key issue of reducing emissions as well as providing a much-needed private sector market for our domestic carbon offset industry. This requirement on coal-fired generation, along with an enhanced safeguard mechanism that has baselines that decline over time, will create a sustainable private market demand for credits generated under the ERF, obviating the need for significant ongoing public funding of ERF auctions.”

Castellas says offsets would likely be sourced from regional and rural Australia, where the majority of ERF land sector projects exist.

“The credits from forestry projects are effectively low-cost carbon capture and storage,” he says.

“For Australia to play its role in meeting global emissions reduction under Paris Agreement commitments, the Government must, through the climate policy review, define the long-term emissions reduction goal for Australian beyond 2030 that leads to a net-zero emissions economy by 2050.”