The Emissions Reduction Fund: Overview

Department of the Environment, 2014

The Emissions Reduction Fund provides positive incentives to businesses across the economy to reduce emissions. Its aim is to reduce emissions at lowest cost and contribute towards Australia’s 2020 emissions reduction target of five per cent below 2000 levels by 2020.

The Emissions Reduction Fund will operate alongside existing programmes that are already working to offset Australia’s emissions growth, such as the Renewable Energy Target and energy efficiency standards on appliances, equipment and buildings.

The Government has provided $2.55 billion to establish the Emissions Reduction Fund in the 2014-15 Budget. The full level of funding will be available to be committed under contract from the commencement of the Emissions Reduction Fund. Payment will be made as emissions reductions are verified.

How does the Emissions Reduction Fund work?

The Emissions Reduction Fund has three elements: crediting emissions reductions, purchasing emissions reductions, and safeguarding emissions reductions.

What activities are eligible for funding?

Businesses have identified a range of activities that the Emissions Reduction Fund could unlock. These include:

  • upgrading commercial buildings
  • improving energy efficiency of industrial facilities and houses
  • reducing electricity generator emissions
  • capturing landfill gas
  • reducing waste coal mine gas
  • reforesting and revegetating marginal lands
  • improving Australia’s agricultural soils
  • upgrading vehicles and improving transport logistics, and
  • managing fires in savanna grasslands.

Businesses, community organisations, local councils, state governments and other members of the community who meet the eligibility requirements can undertake activities like these in accordance with approved emissions reduction methods under the Emissions Reduction Fund. They can then sell the resulting emissions reductions to the Clean Energy Regulator, acting on behalf of the Government.

When will the Emissions Reduction Fund start?

The crediting and purchasing elements of the Emissions Reduction Fund will start following the repeal of the carbon tax and the passage of implementing legislation. The safeguard mechanism will start on 1 July 2015. All elements will be administered by the Clean Energy Regulator.

How will businesses receive funding?

The Regulator will hold auctions to purchase emissions reductions at the lowest available cost.

Auctions will be conducted with cost as the only criterion. Other project attributes such as project risk and commercial readiness will be assessed when businesses register to participate in Emissions Reduction Fund auctions.

Participants will submit a bid—specifying a price per tonne of emissions reductions—with the lowest-cost projects being selected. Participants will not be able to see what other companies are bidding as bids will be ‘sealed’, or secret.

Successful participants will be paid the price that they bid (often called a ‘pay-as-bid’ auction). The Government will enter into contracts with successful bidders, which will guarantee payment for the future delivery of emissions reductions over the life of the contract.

The Regulator will publish average price information following each auction to help businesses forward plan future projects. The Regulator may also publish the benchmark price prior to the first auction. The benchmark price is the maximum price that the Government will pay for emissions reductions. Only bids below the benchmark price will be considered. The benchmark price may differ for each auction.

How will Carbon Farming Initiative projects be treated?  

The Emissions Reduction Fund will build on the Carbon Farming Initiative. The automatic transition of projects registered under the Carbon Farming Initiative to the Emissions Reduction Fund will ensure that land managers are well-placed to bid for funding.

A separate fact sheet that provides more detail on arrangements for projects transitioning from the Carbon Farming Initiative is available at www.environment.gov.au.

More information

Details about the Emissions Reduction Fund are available at:

www.environment.gov.au/emissions-reduction-fund.

Note: While the Commonwealth has made reasonable efforts to ensure the accuracy, correctness or completeness of the material, the Commonwealth does not guarantee, and accepts no liability whatsoever arising from or connected to, the accuracy, reliability, currency or completeness of this material. Any references to the potential costs or benefits of undertaking an activity in accordance with an emissions reduction method are estimates only. This material is not a substitute for independent professional advice and entities should obtain professional advice suitable to their particular circumstances.