The Emissions Reduction Fund is a key element of the Australian Government’s carbon abatement policy. The scheme was introduced in late 2014, following the repeal of the carbon pricing mechanism. It provides an incentive for industry, businesses, land owners, state, territory and local governments and other organisations to adopt new practices and technologies to reduce emissions or store carbon. The Emissions Reduction Fund is an expansion of the former Carbon Farming Initiative, encouraging participation across the whole economy.
The Emissions Reduction Fund has three elements.
The first is crediting. We issue one Australian carbon credit unit (ACCU3) for each tonne of carbon abatement achieved through an Emissions Reduction Fund project using an approved method. Scheme participants can sell these ACCUs to generate income, either to the government through a carbon abatement contract or on the secondary market4.
The second element is purchasing. We enter into contracts with participants, agreeing to purchase the ACCUs earned through eligible carbon abatement activities. To date this has been through reverse auctions, where we purchase the least cost abatement offered.
The third element is the safeguard mechanism. This is designed to ensure emissions reductions are not offset by significant emissions increases above business as usual levels in other sectors of the economy.
We are joint stewards of the Emissions Reduction Fund with the Department of the Environment and Energy. The Department’s role is to set policy direction and develop methods for project activities, as well as manage other legislative matters. Our role is to administer the scheme including register projects, issue ACCUs, process reports and audits, manage contracts and ensure compliance.
The Emissions Reduction Fund is making a significant contribution to Australia’s international emissions reduction commitments.
This year, our focus for the Emissions Reduction Fund moved from scheme implementation to a stronger emphasis on contract management, monitoring and compliance.
The scheme was designed to allow for easy entry, with measures in place to ensure compliance and eligibility once projects are running. An example is conditional registration of projects, where a project participant can finalise consent and approval requirements at a later time, but prior to being issued ACCUs. This feature is intended to encourage participation, and the high number of project registrations and contracts awarded demonstrates this has been successful.
With more than 690 registered projects and 370 contracts, our priority has evolved from encouraging participation to ensuring participants comply with obligations to report and to deliver carbon abatement in line with contractual requirements. To do this, we have focused on ensuring scheme participants understand their obligations, including adhering to agreed timeframes.
Our work in this regard has included increased education and awareness activities to encourage voluntary compliance.
4 contracts delivered all their contracted carbon abatement
314 projects issued with ACCUs
23% increase in carbon abatement achieved from 10.7 million in 2015–16 to 13.2 million in 2016–17
58% increase in ACCUs delivered against contracts from 8.4 million in 2015–16 to 13.3 million in 2016–17
63% of total ACCUs issued to vegetation projects
First ACCUs issued to an energy efficiency project
2 auctions held, contracting a total of 45.6 million tonnes of carbon abatement
2 enforceable undertakings entered into to protect scheme integrity
In 2016–17 we registered 84 new projects under the Emissions Reduction Fund, compared with 361 last year. The rate at which projects were registered in the first two years of the scheme exceeded all expectations and has since matured to a more sustainable level. Most new projects continued to occur in the land sector, involving vegetation regeneration activities for native forests. As at 30 June 2017, there were 692 Emissions Reduction Fund projects.
This year, 21 projects were revoked. The majority of these were voluntary revocations. There are several reasons for revocations, including larger project participants consolidating their projects into single projects to reduce administrative costs. There has been little change in carbon abatement potential as a result of these revocations.
84 projects registered in 2016–17,
692 Emissions Reduction Fund projects in total
In 2016–17 there was an increase in overall activity as the Emissions Reduction Fund moved into its third year. There was a 55 per cent increase in the number of crediting applications received, from 325 in 2015–16 to 504 in 2016–17. The scheme is evolving as expected, as the emphasis moves from encouraging new participation to delivering carbon abatement.
This year we introduced online forms for a range of Emissions Reduction Fund applications, available through our client portal. This has streamlined processes including project registration, project variation and crediting. In this way, we have improved efficiency and data quality for our clients, and also improved the way we administer the scheme.
In 2016–17 a total of 84 project registration applications were approved and 20 were withdrawn, incomplete or refused. We met our obligation to process all project registration applications within the 90 day statutory timeframe, and 99 per cent of all crediting applications were also processed within that 90 day timeframe. This is consistent with 2015–16, despite a large increase in crediting applications in 2016–17.
One ACCU represents the equivalent of one tonne of carbon dioxide prevented from entering the atmosphere. Emissions Reduction Fund projects either avoid emissions or sequester carbon to earn ACCUs.
We issued 13 151 991 ACCUs in 2016–17. This is an increase from 10 719 735 ACCUs7 issued in 2015–16.
As seen in graph 1, carbon abatement is accelerating year-on-year as the number of ACCUs issued each year increases. This is a consequence of an increasing number of projects reaching the stage of achieving abatement, with ACCUs issued to 314 projects in 2016–17. Many projects will take time to achieve carbon abatement, and we expect the acceleration to continue in future years.
Total carbon abatement achieved since December 2011 is nearly 40 million tonnes of carbon dioxide equivalent, including under the preceding Carbon Farming Initiative.
13 million tonnes of carbon abatement achieved this year, with almost
40 million tonnes abated to date
In 2016–17 more than 60 per cent of all ACCUs were issued to projects under vegetation methods. Energy efficiency projects were credited with ACCUs for the first time, with 120 425 ACCUs issued to three projects.
We have used reverse auctions to award carbon abatement contracts9 to Emissions Reduction Fund participants seeking to sell carbon abatement to the government. We have run five auctions so far, each as a single-round, pay-as-bid, sealed-bid format.
We purchase abatement based on bid price, consistent with our statutory requirement to purchase least cost abatement. We advise that participants’ bids should reflect their most competitive price.
We held two auctions during 2016–17, on 16–17 November and 5–6 April, where 45 million tonnes of abatement was contracted across 78 contracts worth more than $500 million combined. We purchased 84.1 per cent and 98.6 per cent of carbon abatement offered below the benchmark price10 at each auction (respectively).
Across all five auctions held to date, the total contracted abatement is 189 million tonnes. The majority is from vegetation projects, totalling more than 122 million tonnes of abatement. This is a reflection of the sector’s experience in undertaking carbon abatement projects, and also demonstrates the volume of abatement available within the land sector. No new methods were made available ahead of the fourth and fifth auctions. Diversity of abatement across the sectors remained consistent with previous auctions.
189 million tonnes of carbon abatement contracted to date
Overall, we have awarded 387 contracts for 435 projects, with a standard duration of seven to 10 years. Contracted abatement amounts range from 5000 tonnes to 15 million tonnes.
The average price per tonne of abatement at the fourth auction was $10.69 and $11.82 at the fifth auction.
To protect the integrity of the scheme we do not publish individual contract values, individual contract price per ACCU or the benchmark price. However, we do publish
summary statistics for each auction on our website.
Each carbon abatement contract includes a delivery schedule of the times that the seller will deliver ACCUs to us. This schedule is nominated by the seller in a contract offer. Payment occurs on delivery for the price agreed in the contract. This delivery schedule can be varied by negotiation as the actuality of project implementation and administration evolves. These activities are shown in graph 2.
According to the delivery schedules agreed at the time of the auction, we expected to receive 13 217 245 ACCUs during 2016–17. Total deliveries to our agency were 13 294 184 ACCUs, representing 101 per cent of the expected volume11.
The overall volume delivered under Emissions Reduction Fund contracts since the scheme began is 110 per cent of the volume expected at 30 June 2017. This aggregate position reflects a diversity of individual contract situations with early delivery of abatement across financial years from a number of contracts currently outweighing a number of delivery schedules which have been moved to a later date. Purposefully designed flexibility within carbon abatement contracts means some participants will deliver early and others may request to vary delivery milestones. Sellers choosing to bring forward deliveries early may be an indicator that some project portfolios are performing better than expected, while delays may indicate other projects may be taking longer to proceed to implementation. For more details see
Feature: Contract delivery under the Emissions Reduction Fund below.
We will continue to monitor compliance with the original volume agreed at the time of establishing the contract, as well as revised delivery schedules.
Four of the 387 Emissions Reduction Fund contracts have completed all delivery obligations.
If a contract has satisfied all conditions precedent, delivery obligations under the contract commence. If a contract fails to meet or waive any conditions precedent, the contract is terminated or lapsed and the delivery and payment obligations of the contract cease. All funds are paid on delivery of carbon abatement only.
In 2016–17 there were also four terminated and lapsed contracts. The amount of contracted abatement involved in these contracts is 790 028 tonnes, or less than 0.5 per cent of the total contracted portfolio.
4 contracts have already delivered their total carbon abatement commitment
Through the Emissions Reduction Fund the government purchases least cost abatement from a wide range of sources–providing an incentive to businesses, households and landowners to actively reduce their emissions.
While most contracted projects deliver abatement on time, some projects may have delayed deliveries. This may be due to factors outside the participant’s control. For example, bad weather, delays in gaining necessary approvals, or natural disasters such as bushfires may affect a project’s ability to deliver abatement on time.
Conversely, some projects may deliver more abatement than originally expected or deliver abatement earlier than anticipated.
The scheme’s design allows for a degree of flexibility to manage both these situations with contracts being varied accordingly.
We closely monitor all contracts and work with sellers to identify potential problems early, including where necessary timeframes for auditing, reporting and processing have not been considered in the development of delivery schedules. By taking this approach, we can manage delays that are considered reasonable.
Where abatement is achieved early, sellers can generally deliver that abatement early and receive payment. This approach has proved successful and, at the end of 2016–17, early payments outweighed delayed payments.
In fact, due to some contracts delivering abatement early, at this stage we are 10 per cent ahead of the overall scheduled volume of carbon abatement.
Image acknowledgment: Clean Energy Regulator. Plantation, Bundaberg, Queensland, Emissions Reduction Fund.
A key focus during 2016–17 was to protect the integrity of the scheme by ensuring compliance with participation requirements.
This year, we entered into two enforceable undertakings with Emissions Reduction Fund participants who improperly supplied information during the project application stage. Enforceable undertakings are written statements from a person or organisation that they will do, or refrain from doing, certain things in order to resolve breaches or improve compliance with the legislation.
Following consultation with the participants in question, we issued directions for them to review their internal processes and record keeping to our satisfaction.
We also published our 2017 Compliance Priorities across all schemes. For the Emissions Reduction Fund, our focus was on the integrity of client declarations and their ability to meet contractual obligations. We check this by using data analytics to detect non-compliance.
The Australian National Registry of Emissions Units (ANREU) is the system where ACCUs are tracked and traded. It enables the carbon unit market to operate.
In 2016–17 the ANREU was available for public access 98.1 per cent of the time (including scheduled maintenance).
After building a contract portfolio quickly during the Emissions Reduction Fund’s first year, abatement volumes coming forward in auctions during 2016–17 were at more sustainable levels. This was expected, as the market levelled out following contracting of pent up supply from the Carbon Farming Initiative at the first few auctions. The market has demonstrated continued capacity to bring forward projects that deliver least cost abatement.
Currently, more than $300 million remains uncommitted under the Emissions Reduction Fund which will continue to support the growing carbon market.
While we prepare for future purchasing processes and manage an expanding portfolio of contracts, we will also continue to enhance the capabilities that support the Emissions Reduction Fund. The potential introduction of new methods for projects will broaden opportunities within the scheme for industry.
$300 million remains available to contract additional abatement in the Emissions Reduction Fund
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