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Emissions Reduction Fund - industry update

The Emissions Reduction Fund (ERF) is the centrepiece of the Australian Government’s Direct Action Plan and aims to provide incentives to drive emissions reduction activities. The Green Building Council of Australia is engaging with government and collaborating with industry to ensure that the property and construction industry has the best opportunities possible for accessing this scheme to realise the signficant carbon abatement potential within the built environment.

Please check this webpage for regular updates and contact Katy Dean, Director - Advocacy, via email at [email protected], for further information.

Emissions Reduction Fund – update November 2014

The Australian Government’s Carbon Farming Initiative Amendment Bill was passed by the Senate on 31 October 2014 following a number of amendments to the bill proposed by Senator Xenophon and a deal made with the Palmer United Party. Following the amendments to the legislation, it must again be considered by the lower house, where it is expected to pass.  

This legislation allows for the establishment of the $2.55 billion Emissions Reduction Fund which aims to identify and purchase emissions at the lowest possible cost via a ’reverse auction’ mechanism. Please see earlier updates below for further information on how the ERF works.

The GBCA has been a strong advocate for the design of ERF scheme to allow the best possible access for the property industry.  We still have some concerns that elements of the scheme's design - such as a minimum bid size of 2000t CO2-e per annum and no opportunity to access funding up front - will pose barriers to the property industry. We welcome the amendment to the legislation that extends the contract period from five to seven years and allows for longer contracts to apply if appropriate.

The Department of Environment recently released a draft methodology that will measure the carbon abatement from commercial building energy efficiency projects. Based on advice from industry, this methodology uses NABERS as the method of measurement. The methodology imposes a minimum annual abatement of 1 Star (NABERS Energy). The GBCA has some concerns that this requirement unintentionally imposes another barrier to industry and we will continue to work with the Department towards the best possible outcomes.   Further information about this methodology is available on the Department’s website.

The Australian Government has indicated that the first auction will take place in the first half of 2015. The GBCA will continue to provide information to our members about the ERF and the opportunities for industry to access the scheme including highlighting and sharing the work that GBCA members such as EY and Sparke Helmore Lawyers have been doing in this area.

 

Emissions Reduction Fund – update May 2014

The Emissions Reduction Fund (ERF) White Paper was released on 24 April 2014. The White Paper sets out the design, implementation and ongoing development of the ERF. The draft legislation setting out arrangements for the ERF was released on 9 May 2014. Further information is available on the Department of Environment website.

Next steps

  • While there are some aspects of the ERF design which may make accessing the scheme challenging for the property and construction industry, the GBCA will continue to engage with the Minister’s Office to highlight the importance of realising the carbon abatement opportunities available within the built environment. Our industry will play a vital role if Australia is to achieve its emissions reduction target by 2020.
  • We will continue to work with the Department of Environment to develop methodologies that will allow projects within the built environment to measure their abatement using industry-developed and accepted methods of measurement.
  • Most importantly, the GBCA will work with a wide range of industry stakeholders to explore the ways in which the property industry is best able to overcome any barriers and access the ERF. In the coming weeks we will seek to meet with members to discuss opportunities and considerations for aggregation.

As outlined in previous updates, the Green Building Council of Australia contributed to and endorsed the submissions made by the Australian Sustainable Built Environment Council (ASBEC) to the ERF Terms of Reference (December 2013) and Green Paper (February 2014).

The ASBEC submission to the Green Paper made 11 recommendations (see below update from April 2014), some of which were addressed and adopted in the White Paper. However, the three aspects of the scheme’s design which represent the most significant barriers are:

  1. Minimum bid size – the White Paper states that to be eligible, bids must have an average abatement volume of 2,000t CO2-e per annum. This will rule out most building-scale retrofit projects.
  2. Upfront funding – even though credits might be calculated upfront, they will only be generated and paid as abatement is delivered. This will be a disadvantage for capital-constrained proponents and could undermine additionality objectives (only those with existing capital will proceed).
  3. Contract duration – five-year contracts will limit investment in large, capital-intensive projects with longer payback periods and could therefore reduce the total abatement volume.

 

Emissions Reduction Fund – update April 2014

The Emissions Reduction Fund (ERF) is the centrepiece of the Australian Government’s Direct Action Plan and aims to provide incentives to drive emissions reduction activities. The ERF will have an initial allocation of $300 million, $500 million and $750 million over the next three years. These funds will be used to purchase low-cost carbon abatement through a ‘reverse auction’ process. The Green Building Council of Australia (GBCA) has been working closely with members and industry colleagues to ensure that the Australian Government has a clear understanding of the potential abatement opportunity that exists within the built environment and to make the ERF as accessible as possible for stakeholders within the property industry.

Formal submissions

December 2013 – The GBCA contributed to and endorsed the submission made by the Australian Sustainable Built Environment Council (ASBEC) to the Emissions Reduction Fund Terms of Reference. This submission was accompanied by the report, Delivering abatement through Direct Action, which was commissioned by the Property Council of Australia and prepared by ACIL Allen Consulting. This report outlined the key elements and considerations for the design of the ERF which would make this scheme as attractive, accessible and fair as possible to the property industry.

The Emissions Reduction Fund Terms of Reference submission and Delivering abatement through Direct Action report are available on the GBCA website.

February 2013 – The GBCA contributed to and endorsed the submission made by ASBEC to the Emissions Reduction Fund Green Paper. This second submission sought to reinforce the most important issues for the built environment, outline the key matters not discussed within the Green Paper, and highlight the areas on which the paper differed.

The Emissions Reduction Fund Green Paper submission is also available on the GBCA website.

Engagement with government

The Australian Government convened an Expert Reference Group to provide high level advice on the design of the ERF. The Expert Reference Group is made up of leading industry and academic experts (including Romilly Madew, Chief Executive of the GBCA) and met in February and March 2014. These meetings provided an opportunity for high-level, cross-sectoral discussion about how the ERF could be designed to ensure cost-effective, large-scale abatement. No further meetings have been scheduled.

The Department of Environment has established a number of technical working groups to work on developing methodologies for measuring baselines and abatement. The GBCA has been represented on the building technical working group which has met in December 2013, February 2014 and March 2014.

Over the past six months, the GBCA has met with many of our members about their views and concerns regarding the ERF. We have met with The Hon Greg Hunt MP, Minister for the Environment, as well as advisers from Mr Hunt’s office and Department of Environment staff working on the ERF.

The second ASBEC submission made a number of recommendations which address some the key issues and concerns for industry and these have been the focus of the discussions with the Minister’s Office and the Department. The recommendations are as follows: 

  1. that participation in complementary government emission reduction or energy efficiency programs not preclude access to the ERF; however, double dipping will be forestalled by ensuring there is a verifiable nexus between ERF-related incentives and ERF-related abatement.
  2. normalisation methods be adopted for the Facility Method to ensure fluctuations in building occupancy, hours of operation and climatic conditions are appropriately taken into account.
  3. live bid prices be made available during auction rounds until the finalisation of each auction. This will encourage competition.
  4. contract terms be extended beyond five years with a provision to deem and pay extended abatement upfront.
  5. successful bidders be provided with 50% of ERF funding upfront, with the remaining 50% payable on delivery of abatement instalments.
  6. full payment for abatement based on NSW Energy Savings Scheme ‘Default Savings Factors’ be made once installation of plant or equipment is verified.
  7. international permits not be allowable to make-good contract shortfalls.
  8. ERF payments to be classified as passive income for the purposes of Managed Investment Trust legislation.
  9. the coverage threshold for the safeguard mechanism be based only on Scope 1 emissions, in keeping with existing rules for Liable Entities.
  10. baselines for the safeguard mechanism be set with reference to individual facility history.
  11. international permits not be used by companies to meet their baseline requirements within the safeguard framework.

Next steps

The ERF is scheduled for implementation from 1 July 2014. The ERF White Paper (which will provide information regarding the final design of the ERF) is currently under development and expected for release in late April 2014. As this is a cabinet process, the contents of the paper may not be discussed before its release. However, due the strong submissions from ASBEC and the ongoing meetings (by GBCA and other members of ASBEC), both the Minister’s office and the Department are fully aware of the key points made in the submissions and the implications of the proposed elements of the scheme for the property industry.

Following the release of the ERF White Paper, the GBCA will provide a further update to members with a summary of what the proposed design of the ERF will mean for the property industry. Once we have a clearer understanding of the how the ERF will work, we would like to engage further with our members to examine how best to take advantage of the opportunities for accessing the scheme.