Emissions Reduction Fund White Paper: Energetics’ advice to business

02 May 2014Archived News Jody Asquith Climate Change Matters

On 24 April, the Commonwealth Government released the Emissions Reduction Fund (ERF) White Paper. The Paper follows both the release of the ERF Terms of Reference and Green Paper, and provides clarity on aspects of the reverse auction process.  The reverse auction is intended to commence 1 July 2014 with $300 million to spend.

There are three immediate actions that business can take: assess the funding opportunities and types of eligible projects, develop your position on the 'safeguard mechanism' and consider the risks.

Three immediate, recommended actions for business

1. Assess the funding opportunities for your business: types of eligible projects

The White Paper lists the types of projects that may be eligible for inclusion in the ERF:

•               upgrading commercial buildings
•               improving energy efficiency of industrial facilities and houses
•               reducing electricity generator emissions
•               capturing landfill gas
•               reducing waste coal mine gas
•               reforesting and revegetating marginal lands
•               improving Australia’s agricultural soils
•               upgrading vehicles and improving transport logistics, and
•               managing fires in savanna grasslands.

Methodologies will also include a generic “facility method”.  This method will enable facilities reporting under the National Greenhouse and Energy Reporting scheme to bid projects into the reverse auction process, that incorporate multiple, facility-wide initiatives delivering emissions reductions.

2. Develop your business’ position on the “safeguard mechanism”

For facilities that surpass the 100 ktCO2-e threshold, there is still opportunity to progress the case for establishing meaningful, rather than generic baselines. Your business should:

  • Develop an understanding of what your baseline will be and what the likelihood is that your facility will exceed baseline emissions beyond 1 July 2015.

  • Establish your position with regards to the safeguard mechanism and become involved in the consultation process. 

3. Risk management - be prepared for prolonged regulatory uncertainty

Political uncertainty remains. The Palmer United Party has indicated that it will support the repeal of the carbon pricing mechanism. However, it will not support the introduction of the Direct Action Plan, and without the support of PUP (or the Labor Party) the legislation will not pass the Senate.

Clive Palmer has gone further and suggested that the PUP will block the repeal of the carbon pricing mechanism if the Government attempts to link the passage of the Direct Action Plan to the Federal budget.

Businesses need to assess the risks associated with the alternatives:

  • Emissions Reduction Fund is implemented and the reverse auction process commences 1 July 2014.

  • Clean Energy Act remains.  What are the financial implications?

  • No national emissions reduction policy – what does this mean? Is this really a better alternative? Will you still have a carbon shadow price?

Employing a scenario-based approach [read our previous article] enables you to understand your risk profile.

How the ERF bidding process works:

The approach for approving ERF funding will not necessarily need to be legislated, and provided the FY15 Federal Budget passes through both Houses of Parliament, funding should be available.

Opening up the bidding process to all interested parties, and creating a minimum project size of just 2,000 tCO2-e abatement per year increases the pool of potential projects that may be awarded funding.  Your business should become familiar with the stages involved in bidding into the reverse auction, as outlined in the figure below:

ERF-reverse-auction-explanation-1-(2).png

For those parties interested in bidding into the ERF, there are a number of preparatory steps that should be taken:

  • Be aware of the requirement for “additionality” for projects. They need to be new projects where implementation has not commenced prior to registration with the ERF.

  • Be pragmatic with the projects selected for bidding into the auction. The broad scope of eligibility is likely to impact the benchmark price for lowest cost abatement.

  • Be proactive.  Uncertainty surrounding the longevity of the ERF may flow through to available future funding, so bidding in lowest cost projects early will offer the greatest chance of success - particularly for target emission reductions (refer to methodologies listed above) and large scale emission reduction projects (>250kt CO2e).

With $300 million allocated for the first year and the reverse auction process set to commence from 1 July, businesses that are ready will achieve a first mover advantage. Energy efficiency projects particularly suit the auction and pre-qualification criteria.   

We can assist in assessing the potential projects, help in the qualification process and advise on a potential bid price.  

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Jody Asquith

Principal Consultant

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