24 Apr 2015

Results are in for the first Emissions Reduction Fund

The results of the inaugural Emissions Reduction Fund auction, released yesterday, will give industry some valuable guidance for the next one – which is yet to be announced.

The Clean Energy Regulator announced the auction and methodology in February, and the auction itself ran between 9:00 am AEST on Wednesday 15 April and 5:00 pm AEST on Thursday 16 April 2015.

Although the price per tonne of carbon abatement will no doubt fluctuate in the future, the auction set an average price of $13.95 per tonne of avoided greenhouse gas emissions, which should give some guidance for future bidders.

The ERF auction results at a glance

  • There are 43 winning bidders, entering into 107 Carbon Abatement Contracts covering 144 projects.
  • Contracts between three and 10 years, with more than half the contracts lasting 10 years (although the standard contract period is 7 years).
  • The average price is $13.95 per tonne of avoided greenhouse gas emissions.
  • The contractors are supplying 47.3 million tonnes of abatement.
  • The total value of all contracts is $660 million, representing more than a quarter of the total funding available under the ERF.
  • The smallest contracted abatement is 12,000 tonnes.
  • The largest contracted abatement is 3.5 million tonnes.
  • The vast majority of abatement is via sequestration (28 million tonnes) and landfill / waste (18 million tonnes), with one contracted project for reduced land transport emissions and two for increasing carbon levels in soils.

Getting ready for the next Emissions Reduction Fund auction

While the Government's spend in this first auction exceeded most expectations, there is still about $1.9 billion of currently allocated Government funding left to spend, either in future auctions or in other purchasing methods which the Clean Energy Regulator may decide to use.

In addition, many of the successful auction bids were for projects which were established before the ERF and, since these projects will not be eligible to bid in the next auction, there is considerable space for new projects.

While the average successful bid price was $13.95 per tonne of avoided greenhouse gas emissions, and it's reasonable to expect the average at the next auction may be lower, this average is higher than many commentators expected, and the Government hasn't revealed what the highest successful bid price was.

So the indications are that there is still plenty of opportunity for new entrants to participate in the next ERF auction.

We don't know yet when the next auction will be – the Regulator has said it will hold another auction when it believes there is sufficient participation to make the auction competitive.  However, anyone considering bidding at a future auction should start the project registration process, and consider the available project methodologies (or propose a new one) as soon as possible.

If future abatement purchases are of this order of cost, this program alone will not meet the Government's target, but will require complementary assistance from other programs such as the renewable energy target, reductions in energy demand, increases in energy efficiency, and structural changes in the economy in order to meet the target.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.