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Emissions Reduction Fund (ERF) Open for Business – Kind of…

On 1 July 2014 the Clean Energy Regulator will allow project proponents to register a ‘Notice of Intention’ to participate in the $2.55B ERF. Despite the lack of legislation at this stage, and the events of the past week, projects that will achieve carbon reductions and meet the eligibility criteria can initiate the process to achieve ERF funding.

This process is particularly important for ‘new’ projects that are not transitioning from the Carbon Farming Initiative (CFI), which will be expanded under the ERF. Carbon saving projects and methodologies are already well underway for new activities such as:

  • Industrial Energy Efficiency (i.e. fuel switching, boiler upgrades etc.)
  • Transport efficiency improvements
  • Commercial building upgrades

What’s the Rush?

The additionality tests for the ERF (which governs if a project is eligible or not) have softened significantly via proposed amendments to the CFI, opening the door for many new activities. One of the key eligibility criteria is that the project cannot have already ‘begun’ if it is to be considered eligible. If a project has been identified to the Regulator (via Notice of Intention) before it begins and meets the other criteria, it will be eligible for support under the ERF.

So, if you have any carbon saving projects under consideration, they should be included in the Notice of Intention as soon as possible. This will keep the door open for ERF funding if and when the legislation passes. If the project begins before the Regulator is notified, it will immediately be ruled out!

The ‘notice of intention’ is not a binding agreement, and we have been told the form will be (likely) available on 1 July or very soon thereafter. It will be a straightforward process with only preliminary company and project details required. If you are interested in pursuing ERF funding, contact us directly and we will forward the link to the form as soon as it’s available. Further if would like some more information on the types of projects likely to be eligible and feasible we’re happy to discuss.

Taken from CARBON FARMING INITIATIVE AMENDMENT BILL 2014 EXPLANATORY MEMORANDUM:

“The Bill expands the current land-based scope of the CFI Act to enable any type of emissions reduction project to be an eligible offsets project. This is to enable the Emissions Reduction Fund to unlock emissions reduction opportunities across the economy.

A key requirement under both the Emissions Reduction Fund and the Carbon Farming Initiative is that credits are issued for emissions reductions that are ‘additional’ – that is, they are not likely to have occurred under normal business conditions, in the absence of the Emissions Reduction Fund.”

As mentioned, one of the key requirements to prove additionality is that the project has not begun, this is called the ‘newness’ test. An extract from Section 388B(2) describes the concept:

In determining whether the project has begun to be implemented, disregard any of the following activities that have been, or are being, undertaken in relation to the project:

  • planning or designing the project;
  • obtaining regulatory approvals for the project;
  • obtaining consents relating to the project;
  • obtaining advice relating to the project;
  • conducting negotiations relating to the project;
  • sampling to establish a baseline for the project;
  • an activity specified in the legislative rules;
  • an activity that is ancillary or incidental to any of the above activities.

The following are examples of when a project has begun to be implemented:

  • making a final investment decision in relation to the project;
  • acquiring or leasing a tangible asset (other than land) that is for use wholly or mainly for the purposes of the project (disregard an asset that is a minor asset);
  • commencing construction work for the purposes of the project;
  • in the case of a sequestration offsets project—preparing soil for seeding or planting that is for the purposes of the project;
  • in the case of a sequestration offsets project—seeding, planting or fertilising plants that are for the purposes of the project;
  • in the case of a sequestration offsets project—installing an irrigation or drainage system for the purposes of the project.

‘Final investment decision’ has the meaning generally accepted within the corporate finance community.

As you can see the criteria is quite broad, with some ambiguity, however the basic principle is that the Government is genuinely trying to remove as many barriers to entry as possible and encourage participation.

Projects will also need to be undertaken in accordance with a methodology to obtain registration from the Regulator. Once registered, a project will generate Australian Carbon Credit Units (ACCUs) and it is these units that the Regulator will contract to buy at a price the successful bidder (proponent) nominates, generally via a reverse auction process.  The contract period will likely be 5 years or less depending on the nature of the project.

The exposure draft of the contract is currently open for consultation and can be found here.

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