At the 12th Emissions Reduction Fund (ERF) Auction, held on 12 and 13 April 2021, the Clean Energy Regulator committed to purchasing 6.8 million tonnes of carbon abatement for an average price of $15.99.
The ERF is a voluntary scheme that aims to provide incentives for a range of organisations and individuals to adopt new practices and technologies to reduce their emissions.
It is enacted through the Carbon Credits (Carbon Farming Initiative) Act 2011, the Carbon Credits (Carbon Farming Initiative) Regulations 2011 and the Carbon Credits (Carbon Farming Initiative) Rule 2015.
There are four steps to participate in the ERF:
- Joining the scheme by registering yourself and your project.
- Securing a contract with the Australian Government by participating in an auction.
- Running your project according to the method you have chosen to use. Reporting on your project and ensure it is audited when required.
- Claiming Australian carbon credit units (ACCUs) for the emissions reductions you have achieved and sell them.
Chair of the Clean Energy Regulator, David Parker, said Auction 12 saw a strong result with new ERF contracts worth in excess of $108 million supporting a wide range of projects across the economy.
While the Commonwealth is still the largest participant in the market, private demand is stepping up. The Clean Energy Regulator’s most recent quarterly carbon market update found demand from other market players surged in 2020 with 4.9 million Australian units and certificates surrendered, four times the volume of 2019.
“We know many registered projects chose not to bid this time. 117 ERF projects registered after the September 2020 auction and are expected to generate tens of millions of tonnes of emissions reductions. So there is strong supply coming online to meet existing contracts and growing private demand for Australian carbon credit units (ACCUs). This bodes well for the overall liquidity of the market,” Mr Parker said.
ACCU supply reached a record 16 million in 2020, up 8 per cent from 2019. Supply is expected to reach over 17 million in 2021.
Auction 12 also saw new project types coming forward. Orica received a contract for 3.4 million ACCUs for a project to improve the emissions intensity of its operations under the facilities method. A project using aerial drone technology under the afforestation and reforestation method also received an ERF contract.
Mr Parker acknowledged the optional delivery contracts, which give participants price certainty with the flexibility to sell to other purchasers at a higher price, was a key factor in the success of Auction 12.
Optional delivery contracts are now a standing feature of ERF auctions, representing 98 per cent of purchased abatement at Auction 12. Fixed delivery contracts are still being offered but make up a diminishing share of contracts (149,000 tonnes at Auction 12).
ERF Auction signals new chapter on climate policy
The Carbon Market Institute said the latest auction should mark a turning point in federal climate policy.
“Let’s hope this is a turning point for a more evolved and sophisticated approach to carbon markets by the Morrison Government under stronger market-driven climate policy that leads to more ambitious 2030 and 2050 goals,” said Carbon Market Institute CEO, John Connor.
Mr Connor noted that a similar size auction due in September later this year will need to draw on the Federal Government’s Climate Solution Fund commitments of just under $2 billion over the next 15 years.
He said the average $15.99 carbon price in this auction is lower than the spot market prices of around $18 that Australian companies are paying in voluntary or compliance emissions trades.
“The ERF became a lifeline to carbon and some other emission reduction activities after the Gillard government’s emissions trading scheme was removed,” Mr Connor said.
“The Morrison Government has begun making some welcome pragmatic changes to the Emission Reduction Fund carbon market, and is seeking to expand accessibility.”
“We continue to recommend strengthening the safeguard mechanism so emission-intensive businesses become the primary funder cutting emissions rather than the taxpayer.”
“The safeguard mechanism already requires most major emitters measure and manage their emissions, and make compliance investments if they exceed set baselines. Those baselines could, with appropriate reforms, be aligned against strengthened 2030 and 2050 Australian climate goals that provide clearer investment guidelines for business transitioning to net-zero emissions,” he said.
“U.S. President Joe Biden’s Summit has shown us all that Australia will need to do more on climate change if it wishes to avoid penalties put in place by our trading partners – such as carbon border adjustments that are looming in Europe and Japan.”
