Emission Reduction Fund Auction

Northmore Gordon
The 14th Emissions Reduction Fund Auction

Interest in Australia’s Emission Reduction Fund continues to surge as businesses across the country increasingly look to lead the way in chartering a path to a greener and more sustainable future.

The 14th Emissions Reduction Fund Auction in early April saw 25 new projects contracted, which are set to wipe 7.6 million tonnes from Australia’s emissions tally. The volume made for an 11 percent increase on Auction 13 last October when 6.8 million tonnes of emissions reductions were contracted. The average price of carbon abatement also rose two percent, from $16.94 per tonne in October to $17.35 per tonne in April.

The above represents steady growth in pricing since Auction 3 in 2016 when the average price per tonne was valued at just $10.23. In total, contracts for the 25 new projects were nominally valued at $131.8 million, up from the $115.9 million that was committed six months earlier. Over 76 percent of the total volume offered at Auction 14 was accepted by the market.

The newest projects under the Emission Reduction Fund span across agriculture, vegetation, facilities, and landfill and waste. The vast majority of the projects contracted will establish permanent native forests through assisted regeneration on previously cleared land in Queensland, New South Wales, Western Australia, and South Australia.

There were two projects contracted that will upgrade existing landfill gas collection systems at facilities in regional Queensland to capture and combust gas generated at the landfill from legacy and non-legacy waste. One agriculture project in New South Wales will increase the carbon in soil by altering the stocking rate, duration, or intensity of grazing and adding nutrients to the land in the form of fertilisers. Another project will upgrade a facility in Queensland with new equipment that will reduce carbon emissions.

For the first time, the 14th Emissions Reduction Fund Auction did not offer long-term ‘fixed’ delivery contracts for the purchase of Australian Carbon Credit Units (ACCUs), with the market instead showing a preference for ‘optional’ contracts. Clean Energy Regulator chair David Parker says “The shift to optional contracts highlights how Australia’s carbon market is evolving with increasing demand from the private sector for Australian Carbon Credit Units”.

“We expect very few ACCUs under optional contracts to be delivered to the Commonwealth, with most being sold to private buyers at higher prices available in the private voluntary market. To date, only a tiny fraction of optional contracts have been delivered to the Clean Energy Regulator. This illustrates that optional delivery contracts are not primarily a means for the government to purchase abatement but rather act to underpin supply.”

Optional delivery contracts de-risk investment in projects and facilitate liquidity in the secondary market if contract holders choose to sell their carbon credits to others. There are 528 projects currently under contract as part of the Emissions Reduction Fund, with 220 of those in New South Wales, 158 in Queensland, and 71 in Western Australia. Since its inception in late 2014, the scheme has seen $2.7 billion committed towards projects which will deliver 217 million tonnes of abatement.

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