The Emissions Reduction Fund
—what it means for you
How Australian businesses and the community can benefit from the Emissions Reduction Fund
Written and published by the Department of the Environment
© Copyright Commonwealth of Australia, 2015.
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Commonwealth of Australia 2015’.
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The views and opinions expressed in this publication are those of the authors and do not necessarily
reflect those of the Australian Government or the Minister for the Environment. While reasonable
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Is the Emissions Reduction Fund for your business?
If you are thinking about investing in new technology to improve the productivity or energy efficiency
of your business operations, you may be interested in the Emissions Reduction Fund.
The Emissions Reduction Fund creates a positive incentive for Australian businesses to adopt smarter
practices to cut the amount of greenhouse gases they create.
The Emissions Reduction Fund has been designed to reduce Australia’s emissions while lowering your
energy costs—and your customers’.
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An opportunity to reduce Australia’s greenhouse gas emissions
The Australian Government’s Emissions Reduction Fund presents new opportunities for Australian
businesses to reduce their emissions.
Positive, direct action by the Australian Government, businesses and the community will allow us to
meet our emissions reduction target of five per cent below 2000 levels by 2020.
We will achieve this through the Emissions Reduction Fund and other measures under the ‘Plan for a
Cleaner Environment’, such as support for the uptake of renewable energy and energy efficiency
standards on appliances, equipment and buildings.
Opportunities for businesses
In addition to the direct benefits of participating in the Emissions Reduction Fund, businesses are set
to gain valuable co-benefits from reducing their emissions, such as lower electricity bills and improved
productivity.
Many businesses already reduce their emissions when they make changes to lower their operating
costs. The Emissions Reduction Fund gives businesses an extra incentive to reduce emissions further.
Any business that makes ‘additional’ reductions may be eligible to participate (see box).
For example, businesses that install energy-efficient lighting and heating systems could reap the
rewards of lower energy costs for years to come.
Joining up with other businesses to pool the emissions reductions they generate from more efficient
lighting, for example, could also give them an opportunity to sell those emissions reductions at
auction. Those savings, and any revenue from the sale of emissions reductions, can be put towards
new technology or business innovations to give the company a competitive advantage.
What projects can participate?
Projects are eligible to participate in the Emissions Reduction Fund if they are ‘additional’. This means
they must be new, not required by law and not already receiving financial support as part of another
government programme.
Key areas for emissions reductions
Agriculture and forestry
Coal mine waste gas
Energy efficiency in buildings
Industrial energy efficiency
Landfill
Transport
Waste
Examples of projects
Reforesting and revegetating marginal lands
Improving Australia’s agricultural soils
Capturing and destroying coal mine waste gas or using it for
energy generation
Installing cogeneration facilities or energy efficient building
systems
Installing more efficient motors, repairing leaks in
compressed air systems, switching to lower emissions fuels
Capturing and using landfill gas for energy generation
Upgrading vehicles and improving transport logistics
Alternative treatment of organic waste
Capture and use of biogas from wastewater for energy
generation
Scenario: Emissions reductions are a bonus on top of efficiency improvements
An agricultural processor decides to look into options for reducing its energy use and emissions and
finds that up to three quarters of its power bill is from one factory in regional Queensland.
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The company decides to participate in the Emissions Reduction Fund by installing a cogeneration plant
that captures the waste heat from electricity generation for use in another on-site process. In the first
year alone it saves $200 000 in energy costs and achieves a reduction in the factory’s emissions of
15 per cent, for which it receives payment under the Emissions Reduction Fund.
Scenario: Nothing goes to waste for these councils
A collection of local councils in Western Australia jointly operate a state of the art waste management
facility that diverts organic waste from landfill. Mixed household waste from 250 000 households is
sorted and processed in an alternative waste treatment facility that treats waste to convert it rapidly
into usable compost.
The facility reduces the quantity of waste sent to landfill and produces compost that is used to put
nutrients back into the soil for improving crops, pastures, parks and gardens.
Each year the facility prevents over 32 000 tonnes of carbon dioxide equivalent from entering the
atmosphere.
Opportunities for the land sector
The land sector already makes a real contribution to Australia’s emissions reduction target and it has
significant potential to reduce emissions even further. Landholders will receive incentives under the
Emissions Reduction Fund to undertake activities that store carbon and/or reduce emissions.
Many land sector emissions reduction activities deliver valuable co-benefits: a win for the environment
is also a win for the farmer. For example, reforestation can reduce erosion and improve water quality,
address salinity and provide habitat for native species. Some methods for reducing livestock emissions,
such as feeding supplements, may also increase livestock weight gain. Increasing soil carbon can
improve soil health, water retention and plant growth.
An ongoing role for carbon farming in the Emissions Reduction Fund
Under the Emissions Reduction Fund, the Government will apply the proven approach of carbon
farming to the entire economy. The Carbon Farming Initiative was a voluntary carbon offset scheme
that enabled farmers and landholders to reduce the greenhouse gases their farms created. Projects
earnt carbon credits from activities such as reducing livestock emissions, storing carbon in the soil and
reducing land clearing. These credits were then sold, providing farmers with an additional source of
income.
Key areas for emissions reductions
Sequestration projects (‘carbon
farming’)
Emission reduction or avoidance
projects
Examples of projects
Enhancing soil carbon
Environmental and carbon sink plantings
Reforestation and avoided deforestation
Reducing livestock emissions
Reducing methane emissions from piggeries
and dairies
Reducing landfill gas emissions
More efficient fertiliser use
Reducing emissions from savanna burning
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The Emissions Reduction Fund offers several enhancements on the Carbon Farming Initiative:

a new 25-year permanence option, giving landholders the choice of maintaining their forestry or
soil carbon projects for 25 or 100 years

simpler reporting, verification and audit processes

simpler land title requirements, to make it easier for project owners to pool their emissions
reduction activities (‘aggregate’) and thereby keep costs down

for existing Carbon Farming Initiative projects, the choice of using their current method or moving
to a streamlined Emissions Reduction Fund method as these become available.
With the start of the Emissions Reduction Fund, existing projects have automatically become Emissions
Reduction Fund projects. New land sector projects can use existing Carbon Farming Initiative rules
until 1 July 2015 but after that date all new land sector projects will be set up using Emissions
Reduction Fund methods.
Scenario: Harvesting the benefits in the land sector
An Australian landholder identifies an unproductive pasture that had been cleared many years earlier.
The landholder plants a combination of permanent environmental tree plantings and small-scale
forestry plantings of commercially useful species in targeted sites on her property.
These plantings may assist in dryland salinity management for the surrounding pasture. Over the
longer term, the landholder could begin harvesting timber from the farm forestry plantations and
produce a number of timber products for sale.
The growing trees will capture carbon dioxide from the atmosphere and provide the landholder with a
range of benefits including a potential income source from the sustainably harvested wood products.
How will the Emissions Reduction Fund work?
The Emissions Reduction Fund will create positive incentives for businesses to adopt better practices
and technologies to cut the amount of greenhouse gases they create. The Emissions Reduction Fund
has been designed to reduce Australia’s emissions without adding to household and business energy
costs.
The Emissions Reduction Fund operates in three parts: crediting, purchasing and a safeguard
mechanism.
Crediting
Businesses will identify emissions reductions that go beyond their business-as-usual activities, that is,
‘additional’ to what they would normally do. Businesses will use ‘methods’ as a way of estimating the
emissions that will be reduced.
Purchasing
Businesses have an opportunity to sell these emissions reductions in auctions run by the Clean Energy
Regulator on behalf of the Australian Government. The Clean Energy Regulator will buy the lowest
priced emissions reductions in each auction, up to a certain price. If a business’ bid is successful at
auction, they will sign a contract with the Clean Energy Regulator. When the Clean Energy Regulator
has verified that the project has achieved the reductions the participant will receive carbon credits and
payment at the price bid at auction.
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The diagram ‘How to participate in the Emissions reduction Fund’ shows how a business could reduce
its emissions and participate in the Emissions Reduction Fund. The steps shown are:

a business thinks of an activity to reduce emissions

chooses an approved method and estimates emissions reductions for the project

registers the project with the Clean Energy Regulator
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
successfully bids at auction

signs a contract with the Clean Energy Regulator to guarantee payment on delivery of emissions
reductions

carries out the project

receives payment from the Clean Energy Regulator.
What is a carbon credit?
Cutting greenhouse gas emissions will earn carbon credits, also known as Australian Carbon Credit
Units (ACCUs). These are issued for emissions reductions which have been verified by the Clean Energy
Regulator. ACCUs can be bought and sold in the market. One ACCU equals a reduction of one tonne of
carbon emissions.
Safeguard
The safeguard mechanism is due to start in July 2016 and will only apply to a small number of firms
that report their emissions via the National Greenhouse and Energy Reporting Scheme. It will ensure
that emissions reductions paid for by the Emissions Reduction Fund are not displaced by a significant
rise in emissions elsewhere in the economy.
Emissions reduction methods
A participant must use an approved emissions reduction method, which sets out the rules for
estimating emissions reductions from different activities.
The Australian Government has been working with businesses to develop emissions reduction
methods to ensure a broad range of projects are able to participate in the Emissions Reduction Fund.
A range of methods are already available or will be developed, including:

methods from the Carbon Farming Initiative, for example reforestation or dietary additives for
dairy cows

methods for energy efficiency, waste, transport and coal mine waste gas capture projects

facility-wide methods for businesses reporting under the National Greenhouse and Energy
Reporting Scheme.
The Emissions Reduction Fund will build on state and territory-based energy efficiency methods where
possible, to make them nationally applicable.
How will auctions work?
Businesses will submit their project proposals to the Clean Energy Regulator outlining the volume of
abatement they expect to achieve and the price they are willing to accept for the emissions reductions
their project will deliver.
The Clean Energy Regulator will check projects to determine if they are credible and can deliver the
stated emissions reductions within the timeframes proposed by the participant. Projects will be ranked
by price and those with the lowest priced emissions reductions will be purchased. The Clean Energy
Regulator will set a benchmark price for each auction, above which bids will not be considered. The
Clean Energy Regulator will purchase only the cheapest 80 per cent of the bids below the benchmark
price in any auction.
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The best strategy for succeeding at auction is for a business to price its project realistically by bidding
the lowest price at which it is worthwhile undertaking the project. Participants with the most
competitive prices will be successful. The Australian Government has set aside $2.55 billion in the next
four years to buy emissions reductions at auction.
To be eligible to participate in an auction projects will need to reduce emissions by at least
2000 tonnes each year.
The Clean Energy Regulator will publish the weighted average price paid across successful bids after
each auction.
The Clean Energy Regulator will sign contracts with successful bidders to set the volume and timing of
emissions reductions that the business agrees to provide and the price the Australian Government will
pay.
How emissions reductions are selected at auction
The diagram ‘How emissions reductions are selected at auction’ illustrates the auction process:

emissions reductions greater than the benchmark price are not considered

the lowest priced 80 per cent of emissions reductions below the benchmark price are selected,
subject to the emissions reduction budget

sellers not selected can bid into future auctions.
What does the Emissions Reduction Fund mean for the community?
The Emissions Reduction Fund will help Australia do its part in reducing global greenhouse gas
emissions. Even smaller players can participate through aggregated projects.
Scenario: Pooling emissions reductions in the community
By examining their operations for energy efficiency and emissions reduction opportunities and
aggregating a series of small projects, councils can make big savings.
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A Shire Council in regional Victoria combined the installation of energy efficient LED lighting with a
new air conditioning system to reduce the power bill of its Shire office by over 30 per cent.
The council is now looking at installing a co-generation power unit at its community aquatic centre.
The unit would provide heating for the pools and buildings, while also generating up to 85 per cent of
the centre’s power needs.
Benefits for the environment
The Emissions Reduction Fund is all about protecting our environment for the future.
It is one aspect of the Australian Government’s ‘Plan for a Cleaner Environment’ which recognises that
a healthy environment is also a healthy economy.
As well as cleaner air from fewer emissions, the Emissions Reduction Fund will contribute to more
environmental plantings and less land clearing, more recycling and an emphasis on cleaning up power
stations, coal mines and landfill.
How to get involved in the Emissions Reduction Fund
For information about the Emissions Reduction Fund and how businesses can get involved visit
environment.gov.au/emissions-reduction-fund.
For advice on making an application, contact the Clean Energy Regulator at
cleanenergyregulator.gov.au.
More information
The Australian Government Department of the Environment develops new methods for businesses to
use to estimate emissions reductions: environment.gov.au/emissions-reduction-fund
The Clean Energy Regulator will administer the Emissions Reduction Fund, manage contracts, run
auctions and (from July 2016) monitor compliance with the safeguard mechanism:
cleanenergyregulator.gov.au
AusIndustry can provide advice on the application requirements and energy efficiency and other
emissions reduction opportunities: business.gov.au and 13 28 46.
The Australian Government Department of Agriculture funds innovative research and on-farm trials
of land sector emissions reduction and carbon storage opportunities that also seek to enhance
productivity and sustainability. Research outcomes will help inform the development of methods
under the Emissions Reduction Fund. The Department also administers the Extension and Outreach
program which delivers information about land sector emissions management: agriculture.gov.au/erf.
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