The Emissions Reduction Fund (ERF) encourages emission reduction through incentive. It has been administered by the Clean Energy Regulator (CER) since its inception in 2015, when it was then called the Carbon Credits (Carbon Farming Initiative) Act 2011. The ERF is a voluntary scheme that provides incentives for participants to reduce the amount of greenhouse gases they produce, and earn Australian Carbon Credit Units (ACCUs) for every tonne of carbon reduced or stored through a project. Projects can then sell ACCUs to businesses, or to the Australian government through an auction to gain a new and diversified income.
Throughout the history of the ERF, the majority of the ACCUs have been sold back into the government, but with the ACCU price reaching a record high this year amid growing net zero commitments from a number of major Australian companies, that may be about to change.
For land managers and organisations wanting to improve and diversify their income by accruing ACCUs, the first step is to successfully register a project — the methodology of which must be approved. Vegetation management projects (including avoided clearing, avoided deforestation and Human-Induced Regeneration) are popular carbon farming methodologies. But equally, soil carbon projects (including changes to agricultural practices such as tilling, irrigation, and spraying regimes) provide alternative ways to reduce on-farm emissions and increase greenhouse gas absorption. Other project areas include waste, environmentally sensitive burning, energy consumption and transport.
The ERF is a boon for farmers wanting to earn income by improving both their farm and landscape — not to mention companies wanting to find ways to offset carbon in their value chains. But naturally, there are always pros and cons.
One critique of the ERF is in how it auctions ACCUs for government sale. Though, calling it an auction is slightly misleading as it’s more like a tendering process, where project managers bid for contracts with the CER, nominating their projects and the number and the unit price of ACCUs they would be willing to accept. The most competitive prices win contracts for ACCU-generating projects, and prices below the CER’s ‘benchmark’ are not accepted. This benchmark is often a point of criticism, as some think it’s prohibitively high and doesn’t allow an appropriate level of reward for high-value projects. Equally, many want to see the bar lowered – to drive more emission reduction for their taxpayer dollar, so that the project’s funding is actually enough to meet Australia’s climate commitments.
Another criticism of the ERF is its baseline for larger emitters. Despite being a largely voluntary scheme, the ERF has a built-in safeguard mechanism where a cap is set for emissions (100,000 tonnes of CO2 or equivalent per year) and larger polluters are obligated to keep their net emissions below baseline by either lowering their output or purchasing ACCUs to offset them. Many believe this baseline could (and should) be lowered.
However, the incentive approach, rather than a ‘stick’ approach, is certainly working to some degree. The CER confirmed that 16 million tonnes of emissions reductions were credited under the ERF in 2020. And with a flurry of ACCU-hungry net zero commitments locally and globally, demand may soon even outpace supply and change where the majority of ACCUs are purchased, forcing a move away from the scheme’s history of government purchasing.