The Emissions Reduction Fund: Purchasing

Department of the Environment, 2014

The Emissions Reduction Fund will purchase emissions reductions through a reverse auction or other purchasing process for large projects.

Projects must be registered with the Clean Energy Regulator before they are able to be bid into an auction.

How do businesses receive funding under the Emissions Reduction Fund?

Businesses can receive funding by submitting their projects into a competitive auction run by the Regulator.

How do businesses participate in an auction?

Proponents will register their projects with the Regulator in order to participate in an auction. Proponents will submit a bid—specifying a price per tonne of emissions reductions—with the lowest­–cost projects being selected out of the auction. Proponents will not be able to see what other proponents are bidding as bids will be 'sealed' or secret.

Successful proponents will be paid the price that they bid (often called a 'pay-as-bid' auction). In submitting a bid proponents will agree to be bound by the terms of the contract if they are successful at an auction. The Government will enter into contracts with successful proponents, which will guarantee the price and payment for the future delivery of emissions reductions.

What are the rules for bidding at an auction?

The Regulator will publish rules for bidding at auctions, including that:

  • bids must relate to the whole project being undertaken
  • eligible bidders will only be allowed to submit one bid for each project per auction, with the exception that any unsold emissions reductions over the contract period can be bid into an auction at the end of the contract period
  • once a project has been successful at an auction, it cannot be re-bid into a later auction
  • if a project is not successful it can be re-bid into a subsequent auction, and
  • there will be a minimum bid size.

As a transitional measure, the minimum bid size will not apply to projects approved under existing Carbon Farming Initiative methodologies before 1 July 2015.

What is the most the Government will pay for emissions reductions?

To ensure value for money, the Regulator will apply a benchmark price—which is the maximum amount it will pay for emissions reductions. Only bids costing less than the benchmark price will be considered.

The Regulator will set the benchmark price for each auction, having regard to factors such as:

  • the overall objective of achieving low-cost emissions reductions
  • the observed cost per tonne of emissions reductions in projects previously bid at auction
  • the amount of funding allocated at previous auctions
  • emissions reductions required to meet the five per cent target.

What information will the Regulator provide about auctions?

The Regulator may publish the weighted average price awarded to successful projects after each auction.

The Regulator will also publish details of each contract it enters, including the name of the business running the project, the name of the project, the total amount of emissions reductions to be delivered, and the duration of the contract.

In addition to the information published after each purchasing process, the Regulator will publish annual (financial year) reports about purchases of eligible carbon credit units on its website. These reports will provide a summary of the total number of eligible carbon credit units that the Commonwealth has purchased and received, and units it is contracted for future delivery.

When will auctions be held?

Up to four auctions will be scheduled for the first year. The Regulator will maintain and publish an indicative forward schedule of auctions over the subsequent 12 months.

To ensure effective competition, each auction must have a minimum number of registered bidders and amount of emissions reductions. Once there are enough registered bidders, four weeks' notice will be given to allow participants to finalise and submit their bids.

How will large projects be treated?

The Regulator will be able to enter out-of-auction contracts for major projects which can deliver emissions reductions above 250,000 tonnes of CO2-e per year, on average, over the contract period.

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.