Results of 4th ERF auction announced

The results of the fourth 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 34.4 million tonnes CO2-e (or 34.4 million Australian Carbon Credit Units (ACCUs)) at an average weighted price of $10.69 per tonne (at a total of $367 million). The abatement will be delivered by 49 projects under 47 contracts.

The total volume purchased at the four auctions held thus far is 178 million tonnes of CO2-e from 397 projects at an average weighted price of $11.83 per tonne. The overall trend has been that the average weighted price has declined over successive auctions, with a slight increase in this auction as compared with the last one, which had an average weighted price of $10.23.

Today’s auction results mean there is more than $440 million left from the initial $2.55 billion allocation, meaning that another auction may be scheduled in 2017. The Government is scheduled to undertake a review of domestic climate policy in the latter half of 2017. This review may include consideration of future allocations of funding for the ERF.

Further information about the results from the fourth auction can be found on the Regulator’s website.

Other recent developments in the ERF are set out below.

The Department of Environment and Energy has released two draft savanna fire management methods for consultation:

• Carbon Credits (Carbon Farming Initiative—Savanna Fire Management—Sequestration and Emissions Avoidance) Methodology Determination 2017
  (Draft Sequestration Method);
• Carbon Credits (Carbon Farming Initiative—Savanna Fire Management—Emissions Avoidance) Methodology Determination 2017
  (Draft Emissions Avoidance Method).

The existing method for savanna fire management, the Carbon Credits (Carbon Farming Initiative – Emissions Abatement through Savanna Fire Management) Methodology Determination 2015, enables participants to earn ACCUs for emissions reductions resulting from fire management regimes in which prescribed burning is undertaken in the early dry season, rather than the late dry season.

The Draft Sequestration Method would allow participants to earn ACCUs for the resulting carbon sequestration as well as the emissions reductions. The sequestration is calculated by comparing the average amount of carbon stored in the coarse and heavy dead organic matter during the ‘baseline period’ (before the project was undertaken) with the average stored during the crediting period.

Projects would be subject to permanence obligations for 25 or 100 year permanence periods. A sequestration buffer would also apply to ACCUs issued for sequestration. This is a discount on ACCUs equivalent to the risk of reversal and permanence period discounts which apply to other sequestration project types (i.e. 5% for a 100 year permanence period and 25% for a 25 year permanence period).

The documents released for consultation also include a technical guidance document, which specifies a range of parameters (e.g. vegetation classification), which would apply to projects under both methods.

The Draft Emissions Avoidance Method only credits emissions reductions and would effectively replace the existing method, the main difference being that abatement calculations under the Draft Emissions Avoidance Method are aligned with the technical guidance document and Draft Sequestration Method.

A draft amendment to the CFI Rule has also been released for consultation, the bulk of which is directed at ensuring the new savanna methods would work as intended.

The draft amendment sets out a process for participants who want to transfer existing savanna fire management projects to the Draft Sequestration Method. It allows for crediting to be finalized under the existing method, the current project to be revoked, and a new project to be declared. Participants would need to obtain all eligible interest holder consents for the new project before the existing project is revoked.

The draft amendment provides that a project under the Draft Sequestration Method, unlike other sequestration project types, would need to provide offsets reports until the end of the project’s nominated permanence period.

The draft amendment also includes changes relevant to other project types:

• for projects involving industrial facilities with over 100,000 tonnes of direct emissions, if operational control of the facility changes during the crediting period, new eligible interest holder consents are required; and
• if a project proponent dies or is incapacitated, their legal personal representative can apply to transfer the project to another person, such as their heir.

The Carbon Credits (Carbon Farming Initiative—Facilities) Methodology Determination 2015 (Facilities Method) allows facilities reporting under the National Greenhouse and Energy Reporting Scheme to earn credits for reductions in emissions intensity.

This month saw the first project declaration being issued under the Facilities Method, to wood products manufacturer and distributer Carter Holt Harvey Pinepanels Pty Ltd. The project will reduce emissions by substituting fuel used by existing energy consuming equipment.

Norton Rose Fulbright has been advising clients on the Emissions Reduction Fund and the Carbon Farming Initiative since 2010. We have a comprehensive understanding of project registration, eligibility requirements for a range of project types, and participation in ERF auctions. If you would like to understand more please contact a member of our Climate Change team.