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Emissions Reduction Fund Auction: Why And How To Bid

Nadia Krienke-Becker of Cardia Bioplastics and the Australian Bioplastics Association
The Clean Energy Regulator (CER) will hold the second emissions reduction fund auction in November. Nadya Krienke-Becker provides some insights into the auction process, including what projects qualify and how to prepare to bid in future auctions.

When announcing the second ERF auction would be held on 4 and 5 November 2015, Chair of the CER, Chloe Munro, said the volume of projects registered in July indicated that the market was ready for a second round. This gives industry and local government another opportunity to register their projects under the ERF and to obtain funding for their abatement efforts.

The first auction saw 43 participants secure 107 contracts worth $660 million at an average price of $13.95 per Australian carbon credit unit (ACCU). This left $1.89 billion of ERF funding available.

Held in April 2015, it gave bidders a two-day bidding window to follow the registration steps and prepare a competitive bid. Each auction was run as a single round, pay as bid, sealed bid format. This meant that the auction contained one round, with sequential bidding not an option. Bids were sealed so that participants could not see what others were offering.

Successful bidders automatically entered into a Carbon Abatement Contract with the CER on behalf of the Commonwealth of Australia. Bidders who were unsuccessful were told they could re-bid in a subsequent auction.

First round winning bids

In the ERF first round, the CER awarded 47 million tonnes of abatement to 144 projects. The winning projects offered abatement through avoidance of deforestation and destruction of methane or landfill gas, which collectively accounted for over 67 per cent of the contracted ACCUs to be delivered by volume.

Of the 43 participants who secured 107 contracts, 38 per cent of the initial bids, or a total of 18 million tonnes, comprised landfill gas and resource recovery projects. Contract lengths ranged between three and 10 years.

Landfill gas was by far the biggest contributor from the resource recovery industry. However, the CER also credited several Alternate Waste Treatment (AWT) projects, including five of Suez’s AWTs, the Biomass Solutions AWT in Coffs Harbour, and Veolia’s Natural Recovery Systems Composting plant in Melbourne.

Clarence Valley and the City of Armadale were the only local governments to bid in the first round, both for small landfill gas projects. This means councils have a valuable opportunity to participate in and benefit from future auctions.

Resource recovery companies did not take part beyond the landfill gas and AWT methodologies, despite the possibilities for reducing emissions from transportation and energy efficiency at facilities. This gives resource recovery and landfill gas operators plenty of scope to get involved in future auctions.

Council-led organic waste diversion programs offer both councils and industry the prospect to apply for ERF funding. Organic waste diversion projects reduce the load on landfills, create organic fertilisers, decrease potential greenhouse gas emissions, and qualify to generate ACCUs through the ERF. Such programs hold many potential benefits for councils and industry aside from abatement contracts.

New guidelines for second ERF auction

Since the first auction, the CER has developed more ways to take part in the ERF to cover areas including agriculture, commercial buildings, industrial energy efficiency, coal mining, oil and gas, and waste.

For the second round, the CER released new guidelines and a new carbon abatement contract. The updated rules outline a new variable volume threshold that will be used to determine successful auction bids. The variable volume threshold means that participants have the flexibility to accept between 50 and 100 per cent of the volume of abatement offered at auction below the benchmark price. The threshold will be at the point where the bids represent best value for money.

At the same time, the variable volume threshold allows the CER to fulfil the requirements of the purchasing principles in the Carbon Credits (Carbon Farming Initiative) Act 2011, both to maximise the amount of abatement bought and to buy abatement at the lowest cost.

In all other respects, the format will be similar to the auction held in April. Bidding will be conducted in a single round through AusTender.

To monitor the integrity of the auction process, including the application of the variable volume threshold, the Regulator has engaged an independent probity adviser.

Participating in future ERF auctions

The deadline for registering for the second ERF auction in November passed on 18 September. However, a third round is likely to be held in early 2016.

Project applications submitted after 18 September, or those that require further information to be assessed, will be eligible to qualify for future auctions.

When announcing the second round, Chloe Munro warned: “We understand that some potential participants will only apply to register their projects after an auction date has been announced. Our message for those that haven’t yet prepared their applications is do not leave it until the last minute.”

The CER stated that projects will not be eligible to participate unless a complete application for registration is received at least 30 business days before an auction.

Therefore, if you are interested in taking part in a future ERF auction, it would be wise to start preparing now.

The information and forms businesses need to register a project to participate in the ERF are available on the CER website.

Waste and resource recovery businesses will keep a close eye on the results of second ERF auctions to see which applications are successful and which are not.

Depending on the outcome, the Clean Energy Regulator may develop further ways in which future participants can take part in the ERF. 

Nadya Krienke-Becker is Head of Global Marketing at Cardia Bioplastics and PR Consultant to the Australian Bioplastics Association.

Involved in creating sustainable outcomes for businesses and organisations since 1991, she is
a former adviser to the Shaper Group, who at the time was the only Australian company to be involved with the World Economic Forum on the development of the Global Sustainable Consumption Strategy.

Nadya is a regular Banksia Foundation judge and has presented on sustainable branding at numerous events including Wealth From Waste and the Australian Sustainability Conference.

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