After the Auction: The Emissions Reduction Fund and Councils

Alexi Lynch

In an article in the Fifth Estate in February this year (The ERF For Dummies) we took readers through the Federal Government’s flagship emissions reduction program, the Emissions Reduction Fund (ERF). At the time of writing it appeared there were very few – if any – opportunities for councils to partake in the fund. The subsequent first “reverse auction” that was completed in April proved this to be true. While the expected announcement of additional ERF “methodologies” may allow for local government involvement in the future, the discerning onlooker would still be well advised to tread cautiously. Certainly do not be relying on the ERF to make or break an energy efficiency project.

A Refresher On The Basics

In a nutshell, the ERF involves the government purchasing lowest cost carbon abatement from a wide range of sources to reduce greenhouse emissions. It is administered by the Clean Energy Regulator (CER).

To get involved you need to have a project that complies with one of the approved methodologies, or “types of projects”. There are now a dozen or so methodologies with more slated to be included over the coming months.

Most of the methodologies will not be of much relevance to councils (for example, Avoided Clearing of Native Regrowth; Savanna Fire Management or Coal Mine Waste Gas) and others may spark some interest but only if councils are have potential emissions reductions projects in those areas that have not already been implemented over the past decade (for example Landfill Gas and Alternative Waste).

Other methodologies such as Commercial Buildings will largely exclude councils given the requirement for NABERS ratings and reports. A typical council’s building stock will include a small number of large buildings and a large number of small buildings. It’s common for the large buildings – such as civic centres, administration centres, town halls, leisure centres, recreation centres and large libraries – to be responsible for the majority of a building stock’s energy use and greenhouse emissions. Then there are a number of smaller buildings such as Maternal and Child Health Centres, depots, kindergartens, community centres and smaller libraries.

Only council administrative buildings would be eligible under this methodology because calculations are based exclusively on NABERS energy ratings, which only has tools for office buildings, shopping centres and hotels. So this excludes energy-intensive council facilities such as recreation centres and swimming pools. (More on the Commercial Buildings methodology and how it relates to councils at the bottom of this article). 

The First Auction

If your council did have an eligible project according to one of the methodologies you would then have to:

  • Demonstrate abatement of at least 2,000 tonnes per year (except for sequestration projects where thresholds don’t apply)
  • Demonstrate that you are a fit and proper person (you’re not in jail for fraud)
  • Demonstrate the credibility of your emissions reductions estimates
  • Demonstrate that your project is “additional” (it must be a “new” project; it’s not a project that you are not legislated to undertake through regulation; it is not part of other government programs or schemes).

You now need to register your project with the CER and if they believe that your project ticks all the boxes above you can create Australian Carbon Credit Units, or ACCUs. Now you’re ready to get involved and sell your ACCUs, which can be done through one of the upcoming reverse-auctions.

This is the process undertaken by organisations that brought 260 projects to the table for the first reverse auction in April. They put in a “sealed bid” or silent bid with a price per unit of their ACCUs and the lowest-cost projects were selected.

As we outlined in February it was always going to be highly likely that the first auction would include a majority of legacy CFI projects under the landfill gas or alternative waste methodologies.

Sure enough almost three-quarters were legacy CFI projects that were registered before the current ERF process, some that started over a decade ago, which certainly raises some questions about the “additionality” requirement.

The average price of carbon abatement for the auction was $13.95 per tonne and the total abatement to be delivered is 47 million tonnes. This represents 11-20% of Australia’s abatement goal of 238 million tonnes by 2020 depending on where you draw the line (much of the delivered abatement from these projects is post-2020).

The total contract value from the first auction was $660 million, which means that 57% of the $1.15 billion allocated in budget forward estimates has already been spent (or 26% of the $2.55 billion the government says it will spend but has not yet allocated). Either way the 238 million target looks very doubtful, however there was a line item in the budget for creating colourful infographs summarising the first auction that you can download via the image to your left or here.

Council Involvement?

There were no councils successful in the first auction. As outlined above the current methodologies leave little scope for council involvement with the possible exception of landfill gas and waste. There is still hope with new methodologies being released quicker as the year progresses and more to come. For example, the High Efficiency Commercial Appliances and Commercial and Public Lighting methodologies may both present opportunities with draft versions of each methodology based largely on the New South Wales Energy Savings Scheme (ESS).

The ESS has been a successful program and many councils have benefitted from involvement through council buildings and lighting projects. So, for example, if you had a project that was eligible for the ESS then it will likely be eligible for the ERF pending the final methodology.

However... you can’t have your cake and eat it too. It’s one or the other. Given that ESS is essentially a guaranteed funding scheme there is less risk involved developing ESCs (Energy Efficiency Certificates) however councils should undertake detailed financial and risk analysis before deciding on one or the other. 

Scoping Street Lighting? Download the ERF Calculation Tool

For councils scoping public lighting projects, Ironbark have developed a free calculator to assist councils in determining the potential ERF funding that could be sourced through energy efficient (for example, LED) street lighting projects. 

Download the ERF Street Lighting Calculation Tool here.

This tool provides an estimate of the funding councils could receive through the ERF if and when the Commercial and Public Lighting methodology is approved. You simply type in your number of lights, technology type and an estimate of the ACCU price that you could bid in an upcoming ERF auction and the tool will calculate your potential funding. 

The Last Word 

Given the ERF is the centrepiece of the Government’s climate policy it is still important for councils to know what the ERF means for local businesses and the economy in general. Theoretically there could also be opportunities for councils to work with their community on aggregating abatement depending on the structure of some of the to-be-determined methodologies. Noting of course for most councils this is unlikely as it is not exactly council core business. For other programs involving aggregation (such as the Energy Savings Scheme and Victorian Energy Efficiency Target (VEET)), councils don’t knock on the doors of residents to create energy efficiency certificates, third parties and other businesses do.

From an advocacy position councils could provide input into the ERF Safeguard Mechanism, designed to ensure that emissions reductions paid for through the ERF are not offset by significant increases in emissions elsewhere in the economy. So far the “safeguard” proposals have been roundly criticised by expert commentators, as there will be no requirement on major energy polluters to limit greenhouse gas emissions. Responding to future consultation opportunities may be one of the only real checks on emissions reduction. 

Local government could play their part in ensuring that their operations and communities are part of the ERF solution. But clearly not through the methodologies that were available for the first auction, leaving the perception that the ERF is ending up exactly as critics said it would – using taxpayers money to pay big business to pollute with no way for other sectors to get involved. This may change but will depend on the detail of future methodologies and whether councils can compete with other industries providing low-cost abatement. If the future methodologies do in fact open the door to councils for eligible projects it will be interesting to see if auction bids hover around the first auction prices or increase given much of the low-cost abatement went in the first auction. Another possibility is that councils sell their ACCUs on secondary markets as Shellharbour did after missing out on the first auction, or submit "low-ball" bids to ensure they can at least get something from the ERF and a return on much of the hard emissions reduction lifting they’ve been doing over the last decade.