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13th Auction Results Cap a Big Month for the ERF

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Starting with the 1,000th project registered and the 100 millionth Australian Carbon Credit Units (ACCUs) issued, then ending with the announcement of the 13th Emissions Reduction Fund (ERFThe Emissions Reduction Fund is a voluntary scheme that aims to provide incentives for a range of organisations and individuals to adopt new practices and technologies to reduce their emissions.) auction results, the last month has brought a string of good news stories for the federal government’s direct-action carbon abatement program.  

The ERF is a $2 billion Abbott-era government fund that purchases carbon abatement twice a year by conducting reverse auctions. At each auction, projects can be awarded ACCUAn ACCU is a unit issued to a person by the Clean Energy Regulator (Regulator) by making an entry for the unit in an account kept by the person in the electronic [Australian National Registry of Emissions Units] registry. Each ACCU issued represents one tonne of carbon dioxide equivalent (tCO2-e) stored or avoided by a project. An ACCU can only be issued to a person if the person has a Registry account. off-take contracts that are either fixed – where the project must deliver the ACCUs over the contract term; or optional – where the project can sell their ACCUs to the ERF or choose to sell at a higher price on the spot market. 

The average price paid by the Australian Government for ACCUs in the latest auction was $16.94, spread across 24 optional delivery contracts, for a total of 6.8 million tonnes of CO2-e abatement. This is the first time that no fixed delivery contacts have been awarded, against the backdrop of climbing ACCU prices in spot market. This suggests that the ERF is moving to a role of providing a floor price to project developers while still allowing them to participate in the growing spot market. 

As shown below, this year has seen significant growth in the ACCU market with spot prices diverging from the historic trend of following the auction results. In the past 12 months, there has been a 108% growth price to $33.50, $10.40 (65% of the 12-month growth) being in the past 6 weeks alone. 

In compassion to international markets, ACCUs (AU$33.50) are still trading at discount, per tonne of CO2-e, compared to European Allowances – €57.93  (AU$90.36); and UK Allowances – £58.00 (AU$106.95); But above the Californian Emission Trading Scheme – US$23.30 (AU$31.21); and China’s newly launched ETS – ¥41.62 (AU$8.73). 

Also this month, the Minister for Energy and Emissions Reduction announced the program development priorities for 2022, which add methods for electric vehicle and hydrogen refuelling infrastructure, use of hydrogen, stacking of different activities on farms, and expansion of the existing carbon capture and savanna fire management methods. This announcement builds on the existing priorities for soil carbon, biomethane, plantation forestry, and blue carbon. 

While there have been criticisms of some land-based methods in the past months, ACCUs are recognised as a high-integrity carbon units with a diversity of methods to credit carbon savings. The growing value of ACCUs is increasing interest in projects for industry, particularly in energy efficiency, fuel switching, transport, and alternative waste treatment across a range of sectors. The methods for industry are based on rigorous internationally recognised standards, such as the International Performance Measurement and Verification Protocol. While the ERF is dominated by land-based projects, industrial projects now make up 22% of the active projects, with further growth expected as higher ACCU price reduces payback periods for capital intensive projects in the industrial sector. 

If you haven’t factored ACCU pricing into your next project, now is the time to reconsider how the carbon value of your projects can be realised to boost the energy productivity of your business as the world transitions to net-zero. 

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What was the average price paid for ACCUs in the 13th ERF auction?

The average price paid by the Australian Government for ACCUs in the 13th Emissions Reduction Fund (ERF) auction was $16.94, spread across 24 optional delivery contracts, for a total of 6.8 million tonnes of CO2-e abatement.

What was notable about the delivery contracts awarded in the 13th ERF auction compared to previous auctions?

This was the first time that no fixed delivery contracts were awarded in an ERF auction — all 24 contracts were optional delivery contracts — against the backdrop of climbing ACCU prices in the spot market, suggesting the ERF is moving toward providing a floor price to project developers while allowing them to participate in the growing spot market.

What two milestones preceded the 13th ERF auction results announcement?

In the month leading up to the 13th ERF auction results, the Emissions Reduction Fund reached the milestone of its 1,000th project registered and the issuance of its 100 millionth Australian Carbon Credit Units (ACCUs).

How much did ACCU spot prices grow over the past year according to the article?

ACCU spot prices grew 108% over the past 12 months to reach $33.50, with $10.40 of that growth (65% of the 12-month growth) occurring in the preceding six weeks alone.

How do ACCU prices compare to other international carbon markets mentioned in the article?

ACCUs (AU$33.50 per tonne of CO2-e) were trading at a discount compared to European Allowances (€57.93, or AU$90.36) and UK Allowances (£58.00, or AU$106.95), but above the Californian Emissions Trading Scheme (US$23.30, or AU$31.21) and China's newly launched ETS (¥41.62, or AU$8.73).

What new ERF program development priorities were announced for 2022?

The Minister for Energy and Emissions Reduction announced that 2022 program development priorities would add methods for electric vehicle and hydrogen refuelling infrastructure, use of hydrogen, stacking of different activities on farms, and expansion of the existing carbon capture and savanna fire management methods, building on existing priorities for soil carbon, biomethane, plantation forestry, and blue carbon.

What proportion of active ERF projects are industrial, and what growth is expected?

Industrial projects make up 22% of the active projects under the ERF, with further growth expected as higher ACCU prices reduce payback periods for capital-intensive projects in the industrial sector, even though the ERF is still dominated by land-based projects.

What is the Emissions Reduction Fund (ERF)?

The ERF is a $2 billion Abbott-era Australian government fund that purchases carbon abatement twice a year by conducting reverse auctions, where projects can be awarded ACCU off-take contracts that are either fixed (must deliver ACCUs over the contract term) or optional (can sell ACCUs to the ERF or at a higher price on the spot market).

What industry sectors are seeing growing interest in ACCU projects according to the article?

The growing value of ACCUs is increasing interest in projects for industry, particularly in energy efficiency, fuel switching, transport, and alternative waste treatment across a range of sectors, using methods based on rigorous internationally recognised standards such as the International Performance Measurement and Verification Protocol.

When was this article about the 13th ERF auction results published?

The article, titled '13th Auction Results Cap a Big Month for the ERF,' was published by Northmore Gordon on October 25, 2021.

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