The Australian Government’s Emissions Reduction Fund (ERF) is a $2.55 billion funding commitment to provide incentives for the development of eligible greenhouse gas (GHG) abatement projects. Emissions reductions (or abatement) can be in the form of carbon sequestration such as increasing soil carbon, or avoided emissions such as improving energy efficiency. Australian Carbon Credit Units (ACCUs) are awarded to projects for each tonne of carbon dioxide pollution avoided or sequestrated. It is these permits that are purchased by the ERF.

Emissions reduction projects compete on price to win a contract to deliver ACCUs to the Clean Energy Regulator at an ERF Auction. The contract sets out an ACCU delivery schedule over a contract period of up to ten years for carbon sequestration projects (such as soil carbon) and up to seven years for emissions avoidance projects.The Regulator has a standard contract that is unable to be varied. This contract includes penalties should the project not be able to deliver the required ACCUs.There have been five ERF Auctions held to date, with contracts to purchase 92.8 million ACCUs at an average price of $13.12 per ACCU ($13.95 in the first auction and $12.25 in the second auction) were awarded, and $10.23 in the third auction. The ERF still has $684 million of the original funding allocation remaining for future auctions and the next auction will be held over 16 and 17 November 2016.

There are no obligations for the landholder at the project registration stage, or even after a successful auction result. This means that the landholder may elect not to proceed with the project. However, once a decision to proceed has been made, the main obligations relate to project implementation (baseline soil carbon testing, new management activity to build soil carbon, and project reporting), and to maintaining the stored carbon over a period of 25 years, after which there are no further obligations for the landholder.

There is a range of flexible solutions to managing this obligation on a project by project basis, to be discussed with the landholder during the project implementation stage, including:

• option to assign to RAF’s partner Corporate Carbon (who would carry the relinquishment risk from sale of land or change of land use activity to obviate the need for landholder having to pay back credits)
• no need for registration of carbon project on land title
• novation of contract to the new landholder.

The ERF Auction is essentially a form of tender process with the lowest cost carbon sequestration bids offered being the winners of the auction. However there are a number of involved steps for project registration, auction pre-qualification, auction participation, project implementation and ongoing monitoring and compliance in order for projects to participate in an ERF auction, create ACCUs and be paid for ACCU delivery. Project registration is the first step and requires a legislated Methodology Determination that covers the proposed project activity.

The Carbon Farming (Carbon Farming Initiative)(Sequestering Carbon in Soils in Grazing Systems) Determination 2014 was made in July 2014 and enables eligible land projects in Australia that increase carbon inputs in grazing systems to create Australian Carbon Credit Units (ACCUs). Every ACCU represents 272 kilograms of carbon stored in soil. (One tonne of carbon equals 3.67 tonnes of carbon dioxide equivalent (CO2e) and one ACCU represents one tonne of CO2e removed from the atmosphere).For a project to qualify, it must undertake a ‘new’ management activity to build soil carbon (this addresses the additionality and/or newness considerations). The carbon delivery team can assist in identifying and implementing this activity.

NEWSFLASH 7/2/18: The new Soil Carbon Agricultural Systems Method has just been released. This is great news as its much more flexible, expanded coverage of agricultural enterprises, simpler and more cost effective.

RAF together with Corporate Carbon has introduced a streamlined ‘end-to-end’ solution for ERF landholder participation that removes barriers and minimises risk. Under this approach, the carbon delivery team manages all of the registration, establishment, implementation, baseline soil carbon testing and monitoring, offsets reporting, audit and ACCU issuance activities required by the scheme, and enters into a contract with the landholder to purchase ACCUs from the project. This minimises the upfront cost and hassle of a soil carbon project and also removes the potential risks of an ERF contract with Government, such as contract delivery shortfall, make good and damages.

Corporate Carbon has been successful in winning contracts for approximately 22 million ACCUs across a number of methodologies, including contracts to deliver 7.8 million ACCUs through soil carbon storage projects in grazing systems. This level of success with support from the carbon delivery team has made Corporate Carbon/RAF the largest soil carbon contractor and gives them valuable insights into the operation of emissions reduction projects.

Regenerative Australian Farmers (RAF) and Corporate Carbon work together to develop carbon projects with the aim of making the implementation of soil carbon projects as straightforward as possible for landholders. These specialist carbon market solutions providers have a strong track record in Australian carbon market participation.

Regenerative Australian Farmers and its partners will identify suitable project areas and design and assist with the necessary activities to build carbon stores in the soil. Corporate Carbon will interface with the Clean Energy Regulator to register projects, secure ERF contracts and manage the resulting contractual obligations.

The first two ERF Auctions have been successes in terms of the volume of emissions reductions purchased and the weighted average price paid (47 million ACCUs at $13.95 per ACCU at the first auction and 45 million tonnes at $12.25 per ACCU at the second auction). The third sold 50.5 million ACCUs for $516 million (@$10.23).This success has sparked a large amount of interest in ERF participation, including for the new methodologies that have been developed by the Department of Environment. This level of interest is likely to make subsequent auctions very competitive (a factor seen in the second ERF Auction), which increases the value of securing a long term contract with the Clean Energy Regulator. Participating now to be part of a registered project and to access the ERF Auction process gives landholders the greatest chance of accessing a long term carbon contract.

The next steps to participate in the ERF with the above carbon delivery team are as follows:

1. Register an Expression of Interest (EoI) with the carbon team (RAF or Corporate Carbon as service delivery providers) to undertake an emissions reduction project, such as a soil carbon project on grazing land. Main information requirements at this stage are the property address, size and farming practices over the past five years (see EoI form)
2. The team will then discuss the potential project(s) and contact the landholder if further information is required. Corporate Carbon will complete a conditional project registration with the Clean Energy Regulator
3. Project financial needs and the best auction strategy will be determined in conjunction with the carbon delivery team, including the project funding model (net amount per carbon unit to be paid to landholder)
4. If the project is successful in the ERF auction a detailed implementation plan (based on existing template) will be developed in conjunction with the landholder. This will include options around staging and scale of project implementation and an update on any improved measurement approaches. The landholder only needs to make a decision to proceed with project implementation at this point as they still have the option to withdraw.
5. Following a decision to start and the formalisation of an abatement sale contract with Corporate Carbon, the broader carbon delivery team will commence activities such as soil baseline testing and soil carbon management activities.
6. Corporate Carbon will manage the ERF contract with the Regulator and pay the project for ACCUs created.

There are no obligations for the landholder at all for steps 1-4 above. However, once a decision to proceed with the project has been made, the main obligations relate to project implementation and to maintaining the stored carbon over a period of 25 years, assuming there is no change in land ownership or land use.