The Emissions Reduction Fund - what it means for you
How Australian businesses and the community can benefit from the Emissions Reduction Fund
Updated April 2017
Is the Emissions Reduction Fund for your business?
If you are thinking about investing in new technology, upgrading equipment or changing business practices to improve the productivity or energy use of your business, you may be interested in the Emissions Reduction Fund.
The Emissions Reduction Fund creates a positive incentive for Australian businesses to adopt smarter practices to cut the amount of greenhouse gases they create.
An opportunity to reduce Australia’s greenhouse gas emissions
The Australian Government’s Emissions Reduction Fund presents new opportunities for Australian businesses to reduce their emissions, earn Australian carbon credit units for the reductions they achieve and earn money from selling those units.
Positive, direct action by the Australian Government, businesses and the community will allow us to meet our emissions reduction targets. The first five auctions have secured 189 million tonnes of emissions reductions at an average price of $11.83 per tonne.
We will achieve this through the Emissions Reduction Fund and its safeguard mechanism; support for the uptake of renewable energy and energy efficiency; vehicle emission standards; and measures to reduce ozone depleting greenhouse gases.
Opportunities for businesses
In addition to the direct benefits of participating in the Emissions Reduction Fund, businesses can gain a range of other advantages from reducing their emissions, such as lower electricity bills, improved productivity and enhanced social and environmental outcomes.
Many actions to reduce greenhouse gas emissions can also lower operating costs for businesses. The Emissions Reduction Fund gives businesses an extra incentive to reduce emissions further. Any business that makes ‘additional’ reductions may be eligible to participate (see Table below).
For example, businesses that install energy-efficient lighting or heating systems could reap the rewards of lower energy costs for years to come while also earning Australian carbon credit units.
Companies then have the opportunity to sell the Australian carbon credit units they earn to the Australian Government by participating in an auction. Revenue from the sale of emissions reductions, and savings on energy costs, can be put towards new technology or business innovations to give the company a competitive advantage.
What emissions reduction activities are eligible?
Businesses from across the economy can participate in the fund through a range of eligible project types.
Just over 430 emissions reduction projects are already contracted to deliver 189 million tonnes of emissions reductions under the fund, with projects ranging from flaring methane gas at landfills to increasing soil carbon and from increasing energy efficiency through equipment upgrades to regenerating native vegetation.
Projects are eligible to participate in fund if they are ‘additional’. This means they must be new, not required by law and not already receiving financial support as part of other nominated government programmes.
| Project type | Contracted emissions reductions (Mt CO2-e) |
Examples of eligible project activities |
|---|---|---|
| Energy efficiency |
4.6 |
|
| Vegetation | 122 |
|
| Savanna burning |
13.8 |
|
| Agriculture | 17.7 |
|
| Industrial fugitives |
5.3 |
|
| Transport | 1.2 |
|
| Waste | 24.3 |
|
Project Snapshot: Birkenhead additional wood firing project
Adelaide Brighton Cement understands the importance of corporate responsibility and the impact cement production has on the environment. To reduce greenhouse gas emissions, they are looking to alternative fuel options which are more efficient yet retain productivity.
Through the Birkenhead Additional Wood Firing Project, alternative fuels which are refuse derived but energy rich will replace gas as a source of thermal energy in the cement manufacturing process. By participating in the Emissions Reduction Fund and using refuse derived fuel, Adelaide Brighton Cement is reducing the volume of waste disposed of at landfill while reducing the company’s use of energy from non-renewable sources. The use of alternative raw materials also provides substantial reductions in greenhouse gas emissions from the cement manufacturing process.
Project Snapshot: Western Sydney Waste Diversion Project
The Western Sydney Waste Diversion Project involves the construction of a new Alternative Waste Treatment (AWT) facility that will use enclosed composting technology with the capacity to divert up to 100,000 tonnes of waste materials, located in Western Sydney, New South Wales. The project will process eligible mixed solid waste.
It will be received at the AWT Facility and specialist equipment used to clean and decontaminate the waste so that only organics suitable for composting remain. Any residual waste will be put into landfill.
Organics will be size reduced and dried using an aerated in-floor drying pad. The end product will be transferred to another site and further refined through a process called “open windrow composting”.
Emissions reductions will be delivered through the avoidance of landfill gas emissions by diverting the parts of garbage that decompose and create odour through the AWT facility.
Opportunities for the land sector
The land sector already makes a real contribution to Australia’s emissions reduction target and it has potential to reduce emissions even further. Landholders can receive incentives under the Emissions Reduction Fund to undertake activities that store carbon and/or reduce emissions. Under the first four Emissions Reduction Fund auctions, over 80 per cent of the contracted emissions reductions relate to land sector activities.
Many land sector emissions reduction activities deliver a range of other valuable benefits for landholders. For example, reforestation can reduce erosion and improve water quality, address salinity and provide habitat for native species. Some methods for reducing livestock emissions, such as feeding supplements to dairy cows, may also increase livestock weight gain. Increasing soil carbon can improve soil health, water retention and plant growth.
Project Snapshot: Moombidary Forest Regeneration Project
The Moombidary Forest Regeneration Project establishes permanent native forests at the Moombidary Homestead, which is one of the southernmost homesteads in Queensland covering 154,000 hectares. The project uses assisted regeneration from seed, on land that was previously cleared of vegetation and where regrowth has been suppressed for over 10 years. The project is to assist native forest regrowth by managing the timing and extent of grazing and the cessation of mechanical clearing.
How does the Emissions Reduction Fund work?
The Emissions Reduction Fund operates in three parts-crediting, purchasing and as a safeguard mechanism.
Crediting
Businesses identify emissions reductions that go beyond their business-as-usual activities, that is, ‘additional’ to what they would normally do. Businesses must use an approved method to estimate the emissions that will be reduced by their project.
The Australian Government works with businesses to develop emissions reduction methods associated with agriculture, energy consumption, waste, transport, coal and gas production and industrial processes.
Every tonne of emissions that are reduced or stored through an Emissions Reduction Fund project earns one Australian carbon credit unit.
To participate in the Emissions Reduction Fund businesses need to register their project with the Clean Energy Regulator.
As businesses carry out their projects they must submit reports to verify the emissions that have been reduced. Businesses also need to have their project audited on a regular basis. The Clean Energy Regulator will issue Australian carbon credit units following receipt and assessment of these reports.
Purchasing
Businesses with a registered project have an opportunity to sell their Australian carbon credit units to the Australian Government, represented by the Clean Energy Regulator. The Regulator runs auctions to select the lowest cost abatement. If a business’s bid is successful at auction, they automatically enter into a contract with the Clean Energy Regulator to deliver Australia carbon credit units. The business will receive payment for Australian carbon credit units delivered at the price they bid at auction.
How to participate in the Emissions Reduction Fund
The diagram ‘How to participate in the Emissions Reduction Fund’ shows how a business could reduce its emissions and participate in the fund. The steps shown are for a business that:
- thinks of an activity to reduce emissions
- chooses an approved method and estimates emissions reductions for the project
- applies to become an Emissions Reduction Fund participant and registers the project with the Clean Energy Regulator
- successfully bids at auction
- enters a contract with the Clean Energy Regulator to guarantee payment on delivery of Australian carbon credit units
- carries out the project to reduce emissions, submits reports to earn Australian carbon credit units
- transfers Australian carbon credit units to the Clean Energy Regulator and receives payment.
The scheme provides businesses with flexibility to sequence these steps in different ways to suit their particular situations. For example, a business may choose to register its project, begin the activity and commence earning Australian carbon credit units before seeking to enter into a contract for sale with the Government.
Safeguard Mechanism
The safeguard mechanism started in July 2016 and only applies to a small number of businesses that report their emissions via the National Greenhouse and Energy Reporting Scheme. It will ensure that emissions reductions paid for by the Emissions Reduction Fund are not displaced by a significant rise in emissions above business-as-usual levels elsewhere in the economy.
Entering into a contract with the Government
Businesses with registered projects submit the volume of emissions reductions they believe they can deliver to the Clean Energy Regulator, expected timeframes for delivery and agree to the standard commercial terms of the contract. The Clean Energy Regulator assesses if participants can deliver the stated emissions reductions within the timeframes proposed and approves their participation in an auction.
Participants can then bid at auction the price they are willing to accept for the emissions reductions their project will deliver. Bids are ranked by price and those with the lowest priced emissions reductions are purchased.
The Clean Energy Regulator sets a benchmark price for each auction. The benchmark price is the maximum amount paid for emissions reductions. Any bid that is higher than the benchmark price for that auction will automatically be excluded. Each auction will have a unique benchmark price which will not be disclosed.
The Clean Energy Regulator purchases between 50 and 100 per cent of emissions reductions offered at each auction at prices below the benchmark price.
The Clean Energy Regulator publishes the average price per tonne of abatement paid across successful bids after each auction.
The best strategy for succeeding at auction is for a business to price its project realistically by bidding the lowest price at which it is worthwhile undertaking the project. The Clean Energy Regulator enters contracts with successful bidders for the delivery of Australian carbon credit units at set times and commits the Australian Government to buy those Australian carbon credit units at a set price.
The Clean Energy Regulator will conduct auctions in accordance with auction guidelines. These guidelines provide information about how auctions will be conducted, including information on eligibility, bidding, suspension and cancellation, participant disqualification and information publication.
What does the Emissions Reduction Fund mean for the community?
The Emissions Reduction Fund will help Australia do its part in reducing global greenhouse gas emissions. Even smaller players can participate by combining projects to create an aggregated project.
Scenario: Pooling emissions reductions in the community
By examining their operations for energy efficiency and emissions reduction opportunities, and aggregating a series of small projects, councils can make big savings.
A shire council in regional Victoria combined the installation of energy efficient LED lighting with a new air conditioning system to reduce the power bill of its shire office by over 30 per cent.
The council is now looking at installing a co-generation power unit at its community aquatic centre. The unit would provide heating for the pools and buildings, while also generating up to 85 per cent of the centre’s power needs.
Benefits for the environment
The Emissions Reduction Fund is protecting our environment for the future.
It is one aspect of the Australian Government’s ‘Plan for a Cleaner Environment’ which recognises that a healthy environment is also a healthy economy.
As well as cleaner air from fewer emissions, the Emissions Reduction Fund will contribute to more environmental tree plantings, more recycling and an emphasis on cleaning up power stations, coal mines and landfill.
How to get involved in the Emissions Reduction Fund
The Australian Government Department of the Environment and Energy develops new methods for businesses to use to estimate emissions reductions. For information on methods that are available or in development visit www.environment.gov.au/emissions-reduction-fund.
The Clean Energy Regulator administers the Emissions Reduction Fund, runs auctions, manages contracts, and monitors compliance with the safeguard mechanism. For information on how to participate in the fund visit www.cleanenergyregulator.gov.au/ERF.
The Australian Government Department of Agriculture and Water Resources has funded innovative research and on-farm trials of land sector emissions reduction and carbon storage opportunities that also seek to enhance productivity and sustainability. Research helps inform the development of methods under the Emissions Reduction Fund. The Department also administers the Extension and Outreach program which delivers information about land sector emissions management. Visit www.agriculture.gov.au/erf.