The Emissions Reduction Fund (ERF): opportunities for industrials, manufacturing, food and agriculture

The first ERF auction contracted 144 projects to deliver 47 million tonnes of abatement at an average price of $13.95/tCO2-e. Whilst the contracted price of abatement is unlikely to get a project over the line on its own, good opportunities exist for fuel switching projects, biogas projects, and energy efficiency programs.

The second ERF auction is scheduled for 4-5 November. Energetics can help your business secure this funding for new or planned projects, as well as identify additional sources of project funding.  
 

What are the funding opportunities for my business in the ERF?

Energetics expects that prices in future auctions will range from $10 to $15/ tCO2-e.
With these prices in mind:

  • a 2,000 tCO2-e reduction in facility emissions would be worth $20,000 – $30,000 p.a. for up to seven years,

  • a project that reduces emissions by 10,000 tCO2-e p.a. would be worth $100,000 -$150,000 p.a. for up to seven years.


Good opportunities are likely to be found in:

  • Fuel switching projects e.g. replacing a gas boiler with a biomass boiler

  • Biogas projects e.g. capturing methane from anaerobic lagoons

  • Company/site energy efficiency programs e.g. programs that reduce facility level emissions per unit of product  (tCO2-e/tonne) on an ongoing basis.

For companies in the industrial, manufacturing, food and agriculture sector the contracted price of abatement is unlikely to have a substantive impact on financial hurdles. Instead, the ERF should be seen as an additional revenue stream for projects that are going ahead for other reasons.

The compliance and reporting requirements make ERF funding unsuitable for small projects.

What are the key requirements for projects to receive ERF funding?

  • Approved methodologies: The Clean Energy Regulator (CER) has created a number of methods for accounting for emissions reductions. Carbon abatement projects that follow these methods can create Australian Carbon Credit Units (ACCUs), each equivalent to 1 tCO2-e.

  • Minimum abatement levels: The minimum auction offer size is 2,000 tonnes of abatement per year. This is roughly equivalent to 2,000 MWh of electricity or 40 TJ of gas (around $300,000 of energy spend).

  • Aggregation can be used: Projects across multiple sites or across a single site can be aggregated to reach the 2,000 tonnes p.a. minimum size, provided that aggregation occurs under a single method. All credits must be created in Australia.

  • Lowest cost abatement: The Government will favour lower cost abatement as part of selecting successful projects through the auction. This will be based on the project’s cost per tCO2-e as nominated in the bid

  • Payment on delivery of abatement: Entities with projects which are successful in the reverse auction will need to provide regular reports to the CER showing that reductions in emissions have been achieved. Reporting will be required every two years at minimum and can be as frequent as every six months. Payment is strictly on production of the evidence.

Steps to participate in the ERF auction

Eligible projects must be registered with the Clean Energy Regulator (CER) to gain market entry. The volume of abatement from the proposed project can then be bid in to an auction or can be sold to other market participants. If successful at the auction, a contract is entered into with the CER for provision of abatement over a 3, 7 or 10 year period.
Payment for abatement is made at the end of the reporting period (typically annual), at the successful bid price, for the delivery of Australian Carbon Credit Units (ACCUs) as evidenced by the ERF methodology.      

ACCU generation is audited throughout the contract period. ACCUs can be traded outside of the CER contract for over or under generation and are likely to be a fairly liquid commodity once the scheme matures.

Methodologies for my industry

There are currently three methods that are well suited to businesses operating in the manufacturing sector. 

Industrial Fuel and Energy Efficiency Method

The industrial fuel and energy efficiency methodology provides a general platform for assessing savings though energy efficiency including replacement of equipment such as boilers and motors, modification of equipment and processes, waste heat capture and re-use, installing co-generation plants, fuel switching, biomass, reducing wastewater emissions and wastewater biogas projects.  

An example:  Installing a Biomass Boiler:
A conventional boiler can be replaced with a biomass boiler. This will reduce the amount of natural gas purchased by the plant and reduce the emissions from natural gas combustion by replacing it with carbon neutral biomass combustion. The plant determines the emissions savings each year using the methodology and offers those emissions for ACCU generation.

Facility Level Method

This method recognises improvements in energy productivity at a facility level. Improvements may be due to a single project or group of projects that have reduced emissions intensity, as measured by NGER and auditable production volumes. The baseline is set at the lowest emissions intensity recorded in the last four years of NGER reporting. Activities that could affect the abatement by more than 5% should be outlined, but there is no minimum project abatement as such.

Facility-wide Energy Efficiency Program

Emissions per tonne of product are reduced due to improved maintenance, operating practises and some retrofit projects. The emissions savings, relative to business as usual, can generate ACCUs and receive payment for that facility or aggregate of facilities.

Wastewater Treatment Method

The method applies to projects that combust biogas in a flare, internal combustion engine or boiler. Facilities that treat domestic, commercial and industrial wastewater in an uncovered anaerobic lagoons (>2m deep) are eligible if they install an anaerobic digester to capture and combust the biogas. If additional feedstock was added to the digester, the additional biogas generated would not be eligible.

Wastewater biogas capture

A business has been treating site wastewater in a deep anaerobic lagoon for longer than 12 months. The business installs a system to capture the biogas from the lagoons and then either flares and/or uses the biogas onsite to displace other fuels such as natural gas. The emissions reductions from the wastewater and/or fuel and electricity displacement are eligible to create ACCUs.

Refrigeration and Ventilation Fan Upgrade Method

This method applies to projects to upgrade fans (replacing or modifying existing motors with more efficient EC units) which improve energy performance, thus reducing electricity use and scope 2 emissions.

Replacing old refrigeration fans in cold store

The evaporator fans that provide cooling to a cold store are driven by old AC motors. Replacing them with new, high efficiency EC motors will reduce their electricity consumption and generate ACCUs.

Energetics can help

We can help in the assessment of projects and support corporate functions to act as the primary contracting point with the Government’s ERF program.

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Andrew Lister

Principal Consultant

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