Australia’s Emissions Reduction Fund Legislation Receives Royal Assent

On 25 November 2014 the Carbon Farming Initiative Amendment Act 2014, which puts in place the Emissions Reduction Fund (ERF), received Royal Assent and is now law. The ERF is the cornerstone of the Australian Government’s Direct Action Plan climate change policy for the reduction of greenhouse gas emissions. It will provide $2.55 billion in financial incentives over four years for companies to voluntarily reduce emissions. The Government says its Direct Action Plan climate change policy will mean that Australia will meet the 5 percent emissions reduction target by 2020.

The ERF is a modified baseline-and-credit scheme. The establishment of the ERF provides businesses with opportunities to enter into contracts with the Government, via the Clean Energy Regulator (CER), under which the business receives payment for undertaking carbon abatement.

The ERF has the following three components:

  1. Crediting emissions reductions
    In order for a project to be eligible to participate in the ERF it must be declared to be an eligible offsets project. Such projects will receive one Australian Carbon Credit Unit (ACCU) for each tonne of carbon dioxide equivalent of sequestered carbon or avoided emissions.
  2. Purchasing emissions reductions
    Project owners and the CER will enter into contract under which the CER will purchase the project owner’s ACCUs. Purchasing will be via a reverse auction process. In order to participate in an auction, project owners will be required to register their projects with the CER and agree to the contract terms in advance. Projects will be selected solely on the basis of bid price such that the lowest cost projects will be successful.
  3. Safeguarding emissions reductions.
    The safeguard mechanism will apply to businesses that report under the Department of Environment’s National Greenhouse and Energy Reporting Scheme and have direct emissions of 100,000 tonnes per year. These businesses will be required to keep their emissions below a set baseline. They will be able to surrender ACCUs to offset any emissions over the baseline.

The Minister for the Environment, Greg Hunt, has indicated that the ERF will commence in the first quarter 2015. The CER has stated that it will provide at least 6 weeks’ notice of the auction date and eligibility requirements.

For further information, please refer to our Legal Insight dated 26 November 2014.

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