What is aggregation?

Aggregation is the process of bringing multiple sources of carbon abatement together. Aggregation can be undertaken by individuals or organisations.

What do aggregators do?

Aggregators provide a range of services that support participation in the Emissions Reduction Fund. Aggregators might be agents, project developers, holding companies or provide a range of expanded services. Aggregation can introduce economies of scale, reduce transaction and other business costs and help manage performance risk.

How does aggregation work for the Emissions Reduction Fund?

Aggregation as part of the Emissions Reduction Fund can be done in a number of ways. Regardless of the method used, two broad categories of aggregation apply:

1. Project aggregation - where activities that use the same method to bring about carbon abatement are grouped into a single registered project.
2. Contract aggregation - where projects are grouped or ‘bundled’ into a single bid made by the aggregator at an auction for a single Carbon Abatement Contract. An aggregated contract can include projects using different carbon abatement methods.

It is important to remember that under the contracting arrangements of the Emissions Reduction Fund, the Clean Energy Regulator will contract with the participant to whom we will issue any ACCUs earned by the project. This party has taken responsibility for executing the project and will also take responsibility for delivering the contracted ACCUs. If other parties are involved in the project, commercial arrangements define how the financial costs and benefits, including performance risk, are allocated amongst the parties.

Note—The business models described below do not determine whether the Clean Energy Regulator will enter into a carbon abatement contract with an aggregator. Before qualifying or registering for Emissions Reduction Fund auctions, the Clean Energy Regulator will need to be satisfied, amongst other things, that the aggregator has the capability to deliver the proposed volume of abatement from the project.

ACCUs are specified as financial products in the Corporations Act 2001 (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (ASIC Act). This means that you may require an Australian financial services (AFS) licence to carry on a carbon services business including aggregation. Before entering into an aggregation arrangement participants should seek advice on the need to hold an AFSL. Further guidance can be found at www.asic.gov.au.

Working with carbon service providers

Participants may seek support from carbon service providers when undertaking a project. Carbon service providers are private businesses, independent of government, who assist farmers and land managers to participate in the Emissions Reduction Fund. See working with or entering into agreements with carbon service providers for important points you should take into consideration.

Example approaches to aggregation

Example 1 – participant owns or controls multiple sites

In this example the site owner is both the participant and the aggregator. Sites are aggregated at the project level (where activities at each site are bundled to form a project).

• Sites with relatively small volume are aggregated to achieve sufficient volume to offset transaction costs.
• The owner of these sites can decide which sites to include in the project based on the performance of each site.
• The increase in volume may allow sites or activities that would otherwise have been too small to be bid into an auction individually to be bid into an auction as part of a larger project.

Example 2 – participant is a project developer

In this example the aggregator contracts with site owners for consultation and installation of building upgrades. The aggregator is the participant and bears the performance risk associated with undertaking the project.

• Sites are aggregated to achieve sufficient volume to offset transaction costs.
• Some of the benefit of the ACCUs may be shared with the site owners as part of separate contractual arrangements outside of the primary contract.

Example 3 – participant engages multiple project developers on multiple sites

In this example, the aggregator is a business that contracts with multiple project developers to undertake activities across multiple sites. The project developer will approach site owners and undertake the efficiency activity. The project developer will then have a separate arrangement with the aggregator that empowers the aggregator to be the participant and manage the abatement contracting. If successful in entering into a carbon abatement contract:

• the aggregator would ultimately hold responsibility for delivery of abatement to the Clean Energy Regulator (i.e., would bear the delivery risk).
• the aggregator bears the risk of underperformance on the carbon abatement contract.

Example 4 - participant is an energy retailer

In this example the aggregator is an energy retailer who applies an energy efficiency treatment to a population of customers. The energy retailer is the participant and bears the performance risks associated with undertaking the project.

• ACCUs are earned with reference to the energy consumption of the energy efficiency treatment population relative to an untreated control portion of the population.
• Sites (population of customers) are aggregated to achieve sufficient volume to participate.

Example 5 – participant is the landholder (sequestration)

In this example the aggregator undertakes all aspects of the project and can aggregate across multiple sites in a single project or register a separate project for each site with the intent of bundling some or all of them into a single contract.

The aggregator could establish one or several projects using the same method across multiple sites.

• Aggregating these sites into a single project may reduce the number of audits required for the project and reduce any transaction costs.
• Aggregating the projects into a single contract may provide financing and delivery flexibility.

What requirements apply for aggregators?

An aggregator has the same requirements as any other participant to substantiate their legal right to undertake the project, and responsibility for the project.

The Clean Energy Regulator’s approach is to require demonstration of existence of legal right to carry out the project at the time of project registration. This is done through the provision of:

• a description of the project activities and associated obligations (such as allowing access or monitoring),
• a statement that you (the applicant):
• have the right to carry out the project activities on or for the sites or assets included in the project, and
• have a lawful and exclusive right to be issued all ACCUs that may be created as a result of the project activities,
• an explanation of how you acquired the legal right, and
• a statement about the duration of your legal right.

You may support your explanation with documents demonstrating your legal right.

In relation to applications for project registrations that cover existing and prospective sites, the Clean Energy Regulator will ask for evidence of legal right at two stages:

1. For one or more existing sites, at the time of project registration
2. For any sites you are claiming ACCUs for at the ACCU issuance stage.

As well as the above, an aggregator wishing to participate in the Emissions Reduction Fund must pass the fit and proper person test outlined under the Carbon Credits (Carbon Farming Initiative) Act 2011. A person passes the fit and proper person test if:

• the person is a fit and proper person, and
• the person is not an insolvent under administration, and
• the person is not an externally administered body corporate.

The compliance and enforcement requirements that apply to an aggregator are the same as those that apply to all participants.