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How to participate in the Emissions Reduction Fund (ERF) How industrial companies can understand, prioritise, and action opportunities arising from the introduction of the Emissions Reduction Fund (ERF)

enter site  27th April 2014


conocer hombres mayores de 45 aГ±os The Australian federal government’s $2.55 billion Emissions Reduction Fund (ERF), the centrepiece of its Direct Action Plan, is all carrot and no stick. It offers to purchase verified greenhouse gas emissions reductions or offsets. Parties interested to sell emissions reductions will need to (i) estimate the reductions using approved methods and register the project, (ii) submit an auction bid, (iii) enter into a contract with the government for supply of emission abatement, and (iv) verify the abatement and report it to receive payment.

go site Industrial companies can use the ERF funding to improve the viability of existing project ideas at their facilities, or to simply provide abatement from dedicated projects where no other incentive exists. Figure 1

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Scheme basics

go The Australian Clean Energy Regulator will administer the program and issue Australian Carbon Credit Units (ACCUs) for reductions from approved projects.

Emissions calculation methods

Projects bidding under the ERF will have access to a ‘menu’ of approved emissions reduction methods, with the two main categories of methods being (i) an Activity Method relating to a specific project, and (ii) a facility-wide method to accommodate multiple activities at one site, and for which data are reported under the National Greenhouse and Energy Reporting scheme (NGER). 

The government is proposing to provide broad methods to ensure the widest range of activities are eligible. These will utilise and adapt the many methods that are currently being used in other emissions reduction schemes around the world, such as the Clean Development Mechanism, Joint Implementation, and country-specific programs. 

For industrial projects, almost all methods will rely on forecasting a baseline, or “alternative emissions scenario”, and measuring reductions below that baseline. The Government is seeking to build on, and potentially link to, the methods for energy efficiency currently used in state-based energy efficiency schemes, such as New South Wales’ Energy Savings Scheme (ESS).

Figure 2

Figure 2

Technical working groups set up by the government are developing a range of broad methods to be ready for the start of the ERF. Advice to the government on this process will be provided by a new Emissions Reduction Assurance Committee (ERAC). Methods currently under development include:

  • a generic method for emissions reductions at facilities reporting under the National Greenhouse and Energy Reporting Scheme
  • capture and destruction of coal mine fugitive emissions
  • reductions in emissions-intensity of transport
  • commercial, industrial and aggregated energy efficiency
  • capture and combustion of landfill gas
  • alternative treatment of organic waste
  • capture and combustion of biogas from wastewater, and
  • methods for the land sector, including increasing soil carbon, reducing livestock emissions, expanding opportunities for environmental and carbon sink plantings, and reforestation.

Pay-As-Bid Auction process

Financially, the proposal is for the Clean Energy Regulator (CER) to purchase the lowest cost emissions in a competitive bidding process. The CER would assess the suitability of projects prior to the bidding process, and apply pre-qualification criteria such as (i) identity, probity and capability of the proponent, (ii) consistency with an approved method, (iii) legal rights to undertake the project, (iv) commercial readiness, and (v) delivery of genuine and permanent emissions abatement. 

The Government is considering a minimum bid size of 2,000 tonnes of CO2e per year on average over the life of the contract. 

In our view the bid size may need to be larger to justify the transaction costs, but this will depend on the complexity of the methodology, and subsequent measurement and verification needs. 

Successful bidders will be paid the price that they bid into the auction, and the price must be less than the ‘benchmark price’. This benchmark price will be set prior to each auction, but not made publicly available. The weighted average price across the successful bids of the previous auction, however, will be made available.  See Figure 3 for clarification of how the benchmark price will be used.

Figure 3: Benchmark price for ERF projects

Figure 3

Four auctions are scheduled for the first year with no further commitments at this stage. Four weeks notice will be given to bidders once a minimum number of registered bidders and emissions reductions are received in advance. 

Participants will need to agree to standard contract terms and conditions as a requirement to enter the auction. 

Details of each contract will be published under an Emissions Reduction Fund Register once a contract is entered into.

Contract period (years) for purchase of emissions reductions

Initially the government intends to enter a five-year forward contract for buying emissions reductions, though it is open to other periods, which may suit larger and longer-term projects. 

Crediting period (years)

ACCUs will be issued for a period of time appropriate to the activity. This period is not to be confused with the contract period or project life; for example, it may be that ACCUs are issued for a crediting period of seven years for industrial projects, 10 years for significant industrial projects, and 15 years for land-based type activities. Any issued ACCUs that are in excess to the 5-year contract with the federal government could be sold into voluntary markets, or international markets, with the Government’s approval. 

Verifying the abatement

Emissions reductions must be independently verified with assurance reports prepared by an auditor registered under NGER.


Emissions reductions must be measureable, real and additional to business as usual. 

Emissions reductions from reductions in normal business activity, or from plant and equipment that is already installed, or from actions required by law shall not be considered additional, nor shall emissions that receive incentives from other national or state government programs. 


There is likely to be room in the market for aggregators who can combine the emissions reductions of multiple small projects and bid into the ERF.

“Safeguarding” emissions reductions

One of the most significant aspects of the scheme is the Safeguard Mechanism. This is projected to start on 1st July 2015 and limits the extent to which Australia’s approximate 130 largest ‘direct’ emitters can increase their GHG emissions above a historic baseline, as well as setting a trigger for new investments or significant expansions. 

The mechanism applies to existing or new facilities, or expansion projects with over 100,000 tonnes of direct CO2e emissions per year. 

Baselines for existing facilities will be set using the highest historic annual level of emissions between FY10 and FY14. There will be some flexibility to allow absolute increases in emissions over the baseline based such as:

  • Use of an emissions-intensity test
  • Allowing for multi-year compliance periods
  • Use of offsets

Further market consultation will be undertaken on new investments or significant expansions. These may also be required to meet industry best practice. 

Make Good provisions

Contracts will require the proponent to ‘make-good” any shortfall in delivery of emissions reductions except under approved circumstances. 

Carbon Farming initiative

The carbon faming initiative has relevance to the agricultural and food processing sectors, particularly piggeries and dairies. 

ACCUs created by existing projects will be able to be bid into the ERF auction process, and can use the current methodologies already in place. 

The ERF plans to simplify the audit requirements and methods used in the CFI over time.

What does this mean for my industrial facility?

The ERF provides an opportunity to (i) improve the internal rate of return of energy efficiency and other projects that have GHG reduction benefits as a secondary outcome, and (ii) participate in dedicated GHG reduction projects. 

Potentially eligible projects 

We foresee the following projects will be significantly impacted by the sale of ACCUs to the ERF:

  • Capture of fugitive emissions from coal mines, gas extraction and processing, LNG processing, industrial processes, pipelines, waste treatment facilities, landfills.
  • Coal mine ventilation air oxidation
  • Coal mine gas flaring and power generation
  • Landfill gas capture, flaring and power generation
  • Waste heat to energy
  • Biomass fuel substitution in steam boilers or oil heaters
  • Boiler economisers and boiler efficiency improvements
  • Industrial energy efficiency in all states
  • Fertiliser use changes in agriculture
  • Improvements in Emissions Intensity (GJ/unit-of-production)
  • Aggregation of small projects from industrial cooperatives with farmer-members

What can Northmore Gordon do?

Northmore Gordon has the unique strengths in strategic, regulatory and technical experience to help you maximise the benefits of the ERF in your business including:

  • Opportunity assessment
  • Project due diligence and business case
  • Methodology development
  • Monitoring and verification

For more details please contact:  Craig Morgan, Director in Northmore Gordon’s Melbourne office: This email address is being protected from spambots. You need JavaScript enabled to view it.

Images sourced from the Emissions Reduction Fund White Paper. 

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