Government short half a billion in revenue after 'pollution auction' fails
The Government has for the second time walked away empty-handed from a pollution auction , creating a revenue shortfall. Polluters purchase the rights to produce greenhouse gas at regular auctions. All bids are assessed collectively. Those making an offer below the Governments secret reserve price meant everyone walked away with nothing, according to the official results . At todays carbon price, the Government could have earned $512 million by selling the 8.95m carbon units on offer double the number usually on sale after the March auction also failed . Experts on the Emissions Trading Scheme (ETS) expected the unsuccessful result . Demand for carbon units soared in 2021 and 2022, with all eight auctions selling out including the 14m units held in reserve in case bids went above a particular price. The price to buy a carbon unit on the secondary market and the levies on petrol and other fossil fuels tumbled shortly after a Government decision to ignore its adviser the Climate Change Commission on the future of the ETS. Some climate experts say emitters and investors lost faith in the system because they buy units not just for the pollution created this year, but based on how scarce and expensive they think the carbon credits will be in future. Expert David Janett who provides ETS advice to forest owners said underwhelming sales in 2023 could be a course correction. Fewer carbon units sold means less greenhouse pollution will ultimately be created. So todays outcome was a great result for the environment, Janett said. Septembers auction will now have triple the number of units, just over 13m, for sale. Once again, that will increase the chance that a low-ball bid results in zero carbon credits sold. If any units remain unsold at the end of the year, they get wiped from the system. Nearly 18m representing almost 18m tonnes of emissions would get cancelled if all four auctions failed. The unsuccessful auctions will affect Government revenue, Finance Minister Grant Robertson said in a statement. Its uncertain what the final impact will be. After the carbon price crashed, Treasury estimated the auctions this year would collect roughly $800m less than expected. The auction proceeds are put into a dedicated fund to pay for carbon-cutting policies and support for vulnerable communities. The Government allocated $1.7 billion from the pot in this years Budget on schemes, such as home insulation grants and funding for cheaper public transport. If auctions provide little revenue this year, the Government could top up this fund as it did in Budget 2023, Robertson said. The ETS requires large producers of emissions including oil and gas extractors, coal importers, large factories and landfills, on behalf of consumers to purchase one carbon unit for every tonne of emissions produced. The system, which was reformed in 2020 , increases the price of petrol, natural gas and coal, encouraging families and businesses to opt for greener fuels such as electricity and wood. There is no publicly available record of who owns carbon units or purchased them at auction. You can read how the auctions work here . Our weekly email newsletter, by the Forever Project's Olivia Wannan, rounds up the latest climate events. Sign up here .