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Eligibility, additionality and newness

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06 July 2016
ERF

Contents

For a project to be eligible for registration with the Clean Energy Regulator under the Emissions Reduction Fund (unless the method covering the project specifies otherwise), it must:

The newness requirement

An Emissions Reduction Fund project (including projects that upgrade or expand current practices) must not have started before it has been registered with the Clean Energy Regulator, unless the method covering the project specifies otherwise.

This is because the Emissions Reduction Fund is not intended to support projects that are already underway without support from the Emissions Reduction Fund.

Applicants are required to provide evidence which satisfies the Clean Energy Regulator that the project has not begun.

What activities are not permitted prior to project registration?

Examples of actions that would indicate that a project has started:

  • making a final investment decision in relation to the project (more information on what is a final investment decision is below)
    • this would not include the situation where an investment decision is made subject to a condition that the project should first be registered as an Emissions Reduction Fund project
  • acquiring or leasing a tangible asset (other than land or a minor asset) that is for use wholly or mainly for the purposes of the project 
    • this would not include the situation where the acquisition or leasing contract is subject to a condition that the project should first be registered as an Emissions Reduction Fund project
  • commencing construction work for the purposes of the project
  • in the case of a planting (sequestration) project: 
    • preparing soil for seeding or planting that is for the purposes of the project
    • seeding, planting or fertilising plants that are for the purposes of the project
    • installing an irrigation or drainage system for the purposes of the project.

What is a final investment decision?​

An investment decision is a decision by the decision-making body of an organisation (for example, directors of a company) regarding how, when, where and how much capital of the organisation will be spent on investment opportunities. In the context of the Emissions Reduction Fund (ERF), this would be a decision to invest in any aspect of activity/activities as part of an ERF project). This decision often follows research to determine costs and returns for options. 

Once an investment decision is made, typical practice is for relevant executives - who are authorised to bind the organisation - to execute the investment decision by entering into an agreement or other binding arrangement (for example, a work order) by which the organisation becomes committed to expenditure toward the investment. 

If the nature of the power vested in the relevant executives is mechanical and administrative, such that they have no discretion whether or not to execute a particular agreement or binding arrangement for the original investment decision, the original investment decision itself will be the final investment decision. 

If, however, the power vested in the relevant executives is discretionary, so that they are able to exercise further discretion about the acceptability of the terms and conditions of, or counterparties to, the agreement or binding arrangement for the investment, then the original investment decision will not be the final investment decision. The final investment decision will be the decision of those executives to enter into a particular agreement or binding arrangement for the investment. In such a case, existence of a final investment decision is evidenced by a binding agreement or arrangement encapsulating the rights and obligations of the organisation in relation to the investment. 

In either case, internal allocations of funding to an investment, for example in an approved budget, does not necessarily constitute a final investment decision unless there is a legislative requirement to the contrary. 

Prospective participants will need to examine their own corporate governance or legal situation regarding the point at which a recorded investment decision represents a commitment to making the investment. ​

Examples

  1. Local Government Council X has undertaken a feasibility study for the upgrade of street lighting to more energy efficient technology. A project to undertake the activity was publicly announced and subsequently included in budget proposals that were approved by Council X. In the case of Council X, approval of budget proposal papers authorises possible funding allocation but does not commit the council to spend the allocated funding, and therefore would not in itself fail the newness requirement. Council X runs a tender process and selects the successful tenderer with whom terms and conditions of the contract for carrying out the project are negotiated within the parameters set out in the approved budget. However, until a contract is signed, the authorised delegates of the Council have the final decision about whether the project will go ahead and the terms of the contract. When the authorised delegates of Council X decide to enter into a specific contract with the successful tenderer and subsequently the contract for the project is executed , it would be considered that a final investment decision had been made and the project would likely fail the newness requirement if the contract is executed before the project is registered as an Emissions Reduction Fund project. 

  2. Company Y has been investigating upgrading a suite of office buildings under an Emissions Reduction Fund project. It has undertaken scoping and research to ascertain project costs, and has investigated legal right issues and drawn up draft agreements to transfer the required rights from third parties. It has presented the project including budget figures to its company board and they have endorsed it. Executives of Company Y have started to talk to potential suppliers of equipment and services to conduct the upgrade. Under Company Y’s governance arrangements, none of these decisions or activities commit Company Y to undertake the project, and are therefore not considered final investment decisions. Once agreement has been reached with a particular supplier and terms and conditions for the provision of upgrade services are agreed in principle and reflected in a draft contract, the updated proposal and the draft contract is put before Company Y’s board. The board approves the proposal and authorises nominated executives to execute the contract. The board’s decision would be considered a final investment decision and the project would likely fail the newness requirement if this decision is made before the project is registered as an Emissions Reduction Fund project. 

What activities are permitted prior to project registration?

Examples of actions that by themselves would not indicate a project has started:

  • conducting a feasibility study for the project
  • planning or designing the project
  • obtaining regulatory approvals for the project
  • obtaining consents relating to the project
  • obtaining advice relating to the project
  • conducting negotiations relating to the project
  • sampling to establish a baseline for the project
  • an activity specified in the legislative rules
  • an activity that is ancillary or incidental to any of the above activities.

When can a project commence?

When a project application is received the Clean Energy Regulator conducts a check and sends the applicant an email to confirm that a complete application was received. Even after this notification has been received the newness requirement will continue to apply to the project. A project must not commence before it has been registered.

A project will not be registered until an application has been fully assessed and a decision has been made by the Clean Energy Regulator. When a decision has been made by the Clean Energy Regulator the applicant will be notified of the outcome in writing. The project may then commence.

If a project is registered and it is subsequently found, for example during an audit, that it had commenced prior to registration, the project’s registration may be invalid. In such a case, no Australian carbon credit units will be issued. If ACCUs have been issued to the project they may be required to be returned to the Clean Energy Regulator.

The regulatory additionality requirement

Emissions Reduction Fund projects cannot be mandatory under a Commonwealth, state or territory law, unless the method covering the project specifies otherwise.

In some cases, the project may involve doing more than is required by these laws or by industry regulations. For example, many landfill operators are required to manage methane emissions and may undertake projects to capture additional gas. Methods for these types of projects may provide rules for establishing a regulatory baseline.

The government program requirement

Some projects that include activities also carried out under specified Commonwealth, state or territory government program or schemes may be excluded from participating in the Emissions Reduction Fund. This is intended to ensure that emissions reductions are not incentivised under the Emissions Reduction Fund if the projects have received incentives under another government program.

Projects are able to source funding or in-kind support from other government programs in some cases. It is not the Government's intention to prevent participants from obtaining funding or in-kind support from multiple sources. For example, the Government anticipates that environmental planting projects could receive assistance from the Green Army, fire management projects may involve rangers involved in Indigenous ranger programs and some energy efficiency projects may receive funding assistance through investment schemes run by the Clean Energy Finance Corporation and Australian Renewable Energy Agency.

The table below provides a high-level overview of the additionality requirements and associated government program specified in the rule. Full details of excluded activities is included in section 21 of the Carbon Credits (Carbon Farming Initiative) Rule 2015 (the rule). If the government program your Emissions Reduction Fund project receives funding from is not listed below and your project does not contain certain activities under a government program listed below, then your project is not excluded from participation in the Emissions Reduction Fund under the ‘government program requirement’ provisions.

Additionally requirement Government program
Your project must not receive funding under the20 Million Trees Program
Your project must not include certain activities under the Renewable Energy (Electricity) Act 2000 (Cth)
Electricity Supply Act 1995 (NSW)
Victorian Energy Efficiency Target Act 2007 (VIC)
Electricity (General) Regulations 2012 (SA)
Gas Regulations 2012 (SA)
Energy Efficiency (Cost of Living) Improvement Act 2012 (ACT)

Activities included in an Emissions Reduction Fund project may expand on a non-Emissions Reduction Fund project that has previously been funded by a government program specified above , but must not currently receive funding from those government programs listed above.

The excluded activities specified above may be included in an Emissions Reduction Fund project if:

  • the project’s method allows for abatement from the excluded activities to be subtracted from the project’s net abatement amount, or
  • the excluded activity has only a minor or trivial impact on the abatement amount.

The Clean Energy Regulator will require participants to make a statement about support from other government programs as part of their application for project registration. If a project subsequently breaches the government program requirements you must notify the Clean Energy Regulator in:

  • writing within 60 days of becoming aware of the change
  • any offsets reports following the change.

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