New methods and greater price certainty makes the second ERF reverse auction more attractive

01 May 2015Archived News Emma Fagan Climate Change Matters

On 23 April 2015 the Clean Energy Regulator released the results of the first Emissions Reduction Fund (ERF) auction. Over one fifth of the total ERF funding pool was allocated to 144 projects. The first auction was dominated by projects offering abatement through avoidance of land clearing and destruction of methane or landfill gas. 

As the development of the ERF progresses, and more approved methods become available, Energetics anticipates a much broader selection of projects from across the Australian economy will be included in the next round of successful auction projects.

ERF reverse auction #1 – the results

In total over 47 million tonnes of abatement was awarded to 144 projects with an average price per tonne of abatement of $13.95.

Funding allocated in the first auction, to be paid on delivery of abatement, amounted to $660 million, or a fifth of the total $2.55 billion pool of funding. In reviewing the outcomes of this first auction, Energetics noted several interesting points.

Avoidance of land clearing and management of landfill gas projects were the major winners

Of the total abatement awarded, almost all projects were contracted under methods related to avoidance of land clearing and landfill gas destruction. The Avoided Deforestation and Landfill Gas Methods saw 47 and 38 successful projects respectively and together accounted for over 67% of the contracted ACCUs to be delivered by volume.

The sole successful project contracted under a method not directly related to avoided land clearance or methane destruction is the157 503 tonnes of abatement awarded to Automotive Holding Group Limited under the Carbon Credits (Carbon Farming Initiative - Land and Sea Transport) Methodology Determination 2015.

The figure below provides an overview of the total number of projects and ACCUs awarded by each individual method.

The majority of these projects are previously registered Carbon Farming Initiative projects

Of the total abatement awarded, 73% projects were legacy carbon farming initiative (CFI) projects registered prior to 2015. The remainder were registered in 2015 as part of the formal ERF registration process. 

The first ERF auction also identified some fast movers. The Soil Carbon Method, released following the announcement of the ERF in 2014, delivered 9% of total abatement across only 5 projects. Only one project registered under this method was unsuccessful.

ERF-newsletter-number-of-ACCUs.png

Who were the losers?

There were also several notable losers from the first auction process. Of the 38 savanna burning projects registered, only two were successful, accounting for 1.0% of the total ACCU volume contracted. Similarly only 4 of the 13 reforestation by environmental or mallee planting projects were successful in this first auction. 

In total, 144 projects of the 260 ERF registered projects were successful in the first auction. Though the remaining 116 projects did not successfully contract in the first auction, they may seek to participate in future auctions.

A significant number of project registrations are still needed for the Federal Government to meet their emissions reduction targets.

Can we expect the same in future auctions?

The dominance of abatement delivered under land-use and waste or wastewater treatment is unlikely to be repeated in future ERF auctions.  Yet the savanna burning projects are likely to feature prominently in the next auction. The majority of successful projects in the first auction were based on legacy CFI projects, using pre-existing ERF methods. The majority of these projects have already commenced generating ACCUs and will continue to do so, and with only 114 projects currently registered for the ERF, there is significant scope for participation in future auctions.

As a result of this, and as additional ERF method determinations are rapidly released, the next auction is likely to see different segments of the Australian business community benefit from ERF funding allocations: particularly the commercial, industrial and oil and gas sectors.

Commercial and industrial sectors

Whilst there were some method determinations finalised for use by the commercial and industrial sectors prior to the first auction, none were used.

The Industrial Electricity and Fuel Efficiency (IEFE) Method Determination was formally released on the 25 March 2015, subsequent to the project qualification stage. In addition technology-specific method determinations have been recently closed to public comment prior to finalisation, for:

  • Commercial lighting

  • Commercial appliances

  • Refrigeration and ventilation fan units.

These are likely to be available for the next auction and all three can be used across a variety of commercial and industrial applications.

These methods have been proven across the state energy efficiency schemes, with high take-up rates for commercial lighting and under the state IEFE equivalent in particular.

Energetics anticipates a similar take-up rate, extrapolated out to the entirety of the Australian economy able to participate under the method.

The broad consistencies between the requirements under the ERF and the state schemes will assist project proponents in being able to participate quickly, and with minimum administrative burden under the ERF.

Mining, oil and gas sectors

In addition the Carbon Credits (Carbon Farming Initiative— Oil and Gas Fugitives) Methodology Determination 2015, also closed to public consultation prior to being finalised, and will be available in future auctions to target close to 4MtCO2e1.

With significant potential for reducing fugitive emissions from oil and natural gas projects, we anticipate that the market share of Western Australia and Queensland will be higher in future auctions.

Now is the time for businesses to access the ERF with the new methods and a degree of price certainty, all backed by secure government contracts.

There are a number of positive indicators arising from the first auction. The results provided greater certainty and highlighted areas were the scheme could grow.

Potential future project proponents should be encouraged by the following points:

  • The pool of existing registered ERF remaining projects has lowered, opening up the market to new entrants who are willing and able to mobilise quickly.

  • There is now some price certainty.  The average first auction price of $13.95 per tonne of abatement opens up a number of cost-competitive abatement opportunities.

  • New methods are quickly coming online, opening up the range of projects that may be eligible in future auctions, to cover a broader section of the Australian economy. The commercial and industrial, and oil and gas sectors are in the best position to benefit from these new methods.

Footnote

[1] Based on “Quarterly Update of Australia’s National Greenhouse Gas Inventory: September 2014” http://www.environment.gov.au/system/files/resources/36653a43-4e2f-4b3a-bd1d-0d676778f780/files/nggi-quarterly-update-sept-2014.pdf

 

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