The Clean Energy Regulator announced last week the 9th Emissions Reduction Fund (ERF) auction will take place on 24-25 July 2019. There is around $226 million left in the ERF and even more interesting is the announcement on 25 February 2019 that the Federal government is putting up an additional $2 billion to extent the current ERF regime.
As you will remember, the Emissions Reduction Fund was an initiative of the Federal government to combat climate change by generating a demand for Australian Carbon Credit Units (ACCU) which were initially sold to the Clean Energy Regulator under carbon abatement contracts.
Many local governments have participated in the ERF which has been a good source of revenue through the sale of the ACCUs with some of the bigger projects being methane flaring at landfills, carbon sequestration projects, energy efficiency projects including fleet vehicles and lighting efficiencies and early savannah burning.
Increased opportunity with the secondary market now getting up to speed
A Statement of Opportunities was released on 19 March 2019 by the Clean Energy Regulator in response to the Climate Change Authority review of the ERF which indicates that:
- There is likely to be an increased demand for ACCUs of an estimated 1.6 million ACCUs on the secondary market in 2018/19.
- ACCUs are being purchased by companies and government agencies who are required under the National Greenhouse and Energy Reporting scheme to maintain base level carbon emissions. This is the Safeguard mechanism to prevent an escalation of carbon emissions by some of the big polluters such as coal-fired power stations.
- These companies buy ACCUs on the secondary market to effectively cancel out any increase in carbon emissions from their own operations. One example of the secondary market is the sale of ACCUs to offset carbon emissions from fleet vehicles such as airlines and transport companies.
What is the price of hot air (or the lack thereof)?
On the secondary market, ACCUs are retailing at around $15 per ACCU which is well above the average ERF auction price of $12 – 13 per ACCU. One ACCU is earned for each tonne of carbon that is stored or not generated for release into the atmosphere.
Latest methodology approved by the Clean Energy Regulator
The latest approved methodology is Sequestering Carbon in Soils in Grazing Systems” which will be a win-win for farmers who improve organic matter in the soil to create better pastures but it also sequesters carbon which is measurable. This means they can recover some or maybe even all of their costs of improvement by selling ACCUs.
How does this assist local government?
There are a number of methodologies already approved by the Clean Energy Regulator which means setting up a carbon abatement project will be less costly and time-consuming.
Government entities all over Australia have registered projects with the Clean Energy Regulator and are enjoying the benefits of the sale of the ACCUs.
In the most recent auction in December 2018, 2 local governments entered into new carbon abatement contracts with the Clean Energy Regulator as below:
- Savanna Fire Management – Cape York – 64,993 ACCUs
- Landfill Gas Project – Tasmania – 18940 ACCUs
Both projects are likely to generate a significant income for their respective communities over the life of the carbon abatement projects.
The secondary market is growing rapidly and many corporations as part of their environmental and social responsibilities are looking for ways to offset their carbon emissions and buying ACCUs someone prepared earlier is a good way to achieve that.
How can we help?
With one of the largest government teams in Queensland and as many of our clients are already operating carbon abatement projects, we are well placed to assist with legal advice on the maze of legislation that applies and also in the preparation and negotiation of favourable carbon abatement contracts for our clients particularly with respect to the secondary market.