Australia: New opportunities emerging for participation in the ERF (Emissions Reduction Fund)

Introduction

The results of the second auction under the Emissions Reduction Fund (ERF) were announced earlier today. The total volume of abatement contracted to be purchased by the Clean Energy Regulator (Regulator) was 45 million tonnes of CO2-e (or 45 million Australian Carbon Credit Units) at an average weighted price of $12.25 per tonne. This volume will be produced by 131 projects, including traditional Carbon Farming Initiative land based projects (such as plantations, revegetation and savannah burning) and new project activities in the energy efficiency, commercial building, industrial and transport sectors. Further information about the results from the second auction can be found here.

This result builds upon the outcome of the first ERF auction, held in April this year, at which the Regulator contracted to purchase 47 million tonnes of CO2-e from 144 projects at an average weighted price of $13.95. Today's auction results mean there is $1.33 billion left from the initial $2.55 billion allocation.

Given the existing project activities that can be undertaken under the ERF and the new project types being developed, now is the time to consider participation in the ERF in anticipation of the next auction, which is likely to be held in the first half of next year (assuming sufficient volume is available by then).

This legal update provides an overview of existing eligible project activities and new project types which are proposed to be developed.

Existing project opportunities

ERF projects are undertaken in accordance with a set of rules, known as a "method" or "methodology". At present, there are 31 methods available, covering the areas of agriculture, energy efficiency, facilities, transportation, mining, oil and gas, vegetation management, waste and wastewater. Further detail about some of these methods can be found in our legal update here or on the Department of the Environment's website.

Methods under development

A number of methods are currently under development. Many of them represent an improvement to, or extension of, existing project types. These methods, which have now been through public consultation and are awaiting finalisation, include:

• a 'biochar from chicken litter' method, which aims to reduce methane emissions from stockpiling poultry litter, by subjecting the litter to pyrolysis and applying the biochar which is produced to soil;
• a variation of the savannah fire management method, which will enable crediting of the carbon sequestration in the 'debris pool', as well as the emissions reductions from the fire management activities;
• a new method for 'combined forest sequestration', which combines the project activities from two kinds of existing methods, (1) regeneration methods which involve assisted regeneration from in-situ seed sources, and (2) planting methods which involve direct seeding and planting, and allows both activities to be credited under one project;
• a forestry method, covering potential abatement from new commercial plantations and the conversion of short-rotation plantations to long-rotation plantations;
• a new method for coal mine waste gas, which intends to support further reductions in fugitive methane emissions from coal mines, compared with the existing method;
• a method enabling credits to be generated from the diversion of organic waste away from landfills by separating waste at its source;
• a method to cover projects that install variable speed drives on existing constant speed electric motor driven systems, such as fans, pumps or conveyors, achieving emissions reductions from improved energy efficiency.

Method prioritisation process

Proposed ERF project types are subject to a prioritisation process, which takes place on an annual basis. The Emissions Reduction Assurance Committee (ERAC) reviews proposed activities, taking into account feedback from the ERF Method Technical Working Group and the general public, and provides advice to the Minister for the Environment. The Minister develops a priority list, which provides a 12 month work plan for ERF method development. The Department of the Environment then undertakes feasibility testing of activities/proposed methods on the priority list to determine whether methods should be developed.

Priority activities

The Department recently published the 2015-2016 priority list. Many of the proposed project activities concern energy efficiency or land-based activities.

Energy efficiency activities on the priority list include improved boiler energy efficiency, improvements to pumping systems in industrial and commercial settings, air conditioner upgrades, and a proposed sampling method for energy efficiency projects which operate over a number of sites which would allow measurement to occur at a representative sample of sites taken from the broader population of sites under the project. A method covering commercial buildings, which are not covered by the National Australian Built Environment Rating Scheme (NABERS), such as schools, hospitals, aged care facilities, retirement villages and public buildings such as law courts, libraries and museums, is also proposed.

For the land sector, proposed activities include reducing emissions from sheep production through improved productivity, and reducing emissions from fertilizer use in sugar cane production through improved productivity. An improved method for savannah fire management is proposed, which in addition to the carbon sequestration for the 'debris pool' discussed above, would account for sequestration from biomass and soil carbon pools.

Other proposed methods include:

• an industrial process efficiency method to cover activities which reduce scope 1 emissions of industrial process gas, such as the installation of flue gas scrubbers
• an extension of the existing land and sea transport method, to cover emissions reductions which occur when freight is moved by rail instead of road
• a 'waste to energy' method to credit emissions reductions from turning waste gas into an energy source, crediting both the reductions in waste-related emissions and the displacement of emissions from more emissions-intensive energy sources.

How we can help

Norton Rose Fulbright has been advising clients on the Emissions Reduction Fund and the Carbon Farming Initiative since 2010. In the first auction, our clients collectively secured over two thirds of the successfully contracted volume. We have a comprehensive understanding of project registration requirements, including establishment of legal right and satisfying the ERF eligibility requirements.