The legislation establishing the Emissions Reduction Fund (ERF) has now been passed by the Senate and its implementation will be commenced by the Clean Energy Regulator (Regulator).  Implementation will include finalising the auction arrangements and any pre-qualification requirements and publishing the final version of the carbon abatement contract. (Please see our previous legal updates for an overview of the ERF: Emissions Reduction Fund legislation tabled,Emissions Reduction Fund White Paper released and The latest CFI and ERF developments). In the meantime, however, businesses, project developers and aggregators can start investigating what projects they could potentially undertake under the ERF.

The fundamental requirement for any ERF project is that there must be an approved methodology, which is essentially the “set of rules” for that project.  Over the course of the last year, the Department of Environment (Department) has been working with different industry sectors to prepare these methodologies. To date, 7 such draft methodologies have been released for public consultation.

This legal update provides a brief overview of the types of projects which can be undertaken under these methodologies, with a view to informing you on where the opportunities under the ERF lie for your business or organisation.

The 7 methodologies cover the following activities or sectors:

  1. facilities;
  2. landfill gas;
  3. alternative waste treatment;
  4. coal mining;
  5. wastewater treatment;
  6. commercial building energy efficiency; and
  7. transport.

A further methodology covering industrial building energy efficiency is anticipated to be released shortly.

1. Facilities

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Facilities) Determination 2014applies to projects that implement measures that aim to reduce greenhouse gas emissions from a facility (facilities project).

This methodology enables a broad range of sectors currently reporting under the National Greenhouse and Energy Reporting (NGER) scheme to participate in the ERF by achieving emissions reductions through a range of measures, without being prescriptive about what these measures should be or how they should be undertaken.  

To be eligible for participation a facilities project must satisfy the following requirements:

  • NGER reports relating to the operation of the facility during the baseline period for the project (i.e. the 4 consecutive NGER reporting years prior to the start of a project, unless circumstances indicate otherwise) have been provided to the Regulator;
  • the facility has one or more relevant production variables (see below);
  • the facility has not undergone major changes in the 2 consecutive NGER reporting years preceding the start of the facilities project (major changes can include a ramp-up, a plant shutdown, major maintenance activities or a significant expansion);
  • the project proponent has access to the NGER facility level emissions data and production variable data for the facility for the 2 consecutive NGER reporting years preceding the start of a project; and
  • the facility is not a transport facility1.

A production variable is a product which is produced or processed by a facility if:

  • the product is the last saleable output;
  • a change to the quantity of the product would result in a change to the quantity of greenhouse gas emissions from the facility;
  • the quantity of the product can be expressed in a unit of measurement; and
  • the product is not an intermediate product, a by-product or a waste product.

2. Landfill gas

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Landfill Gas) Determination 2014 applies to offsets projects that involve collecting and combusting landfill gas from a landfill using a combustion device (usually a flare, boiler or internal combustion engine) (landfill gas project). A landfill gas project can be:

  1. a new project;
  2. an upgrade project; or
  3. a transitioning project.

A new project must collect landfill gas by:

  • installing a landfill gas collection system at a landfill where none had previously existed; or
  • recommencing landfill gas collection (for the purposes of combustion) using either a new or existing landfill gas collection system at a landfill where no such system has operated after:
  1. 24 April 2014; and
  2. during the 3 years before the application for registration as an eligible offsets project is made.

An upgrade project collects landfill gas by upgrading an existing landfill gas collection system at a landfill to increase its capture efficiency.  Operational records are required to support the calculation of the capture efficiency for the previous two year period.

A transitioning project is one that collects landfill gas by continuing to operate a landfill gas collection system that was operated as part of a previous eligible offsets project.2

Unlike the existing landfill gas methodology determinations under the Carbon Farming Initiative (CFI) which only applied to emissions generated from legacy waste (waste received by a landfill prior to 1 July 2012), the new methodology determination will apply to emissions from new waste (excluding waste received during the period of the Carbon Pricing Mechanism – ie between 1 July 2012 and 30 June 2014).

3. Alternative Waste Treatment (AWT)

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Alternative Waste Treatment) Determination 2014 applies to projects that divert eligible waste from landfills to alternative waste treatment (AWT) facilities and process that waste using an  eligible waste treatment technology (AWT project).

An AWT project can be:

  • a new project (i.e. the construction of a new AWT facility);
  • an expansion project (which involves expanding an existing AWT facility to increase the facility’s capacity to process eligible waste); or
  • a transitioning project (which is a project that must immediately before the ERF comes into force, be an eligible offsets project covered under a CFI methodology3).

Eligible waste (except for certain transitioning projects) includes municipal solid waste, commercial and industrial waste, and construction and demolition waste.  AWT facilities processing the following wastes are excluded:

  • Recyclable paper, paperboard, glass, metal or plastic separated at the point of generation;
  • Green waste or wood waste separated at the point of generation;
  • Organic waste from the livestock industry;
  • Biosolids; and
  • Putrescible waste separated at the point of generation.

Eligible treatment technologies include enclosed composting; anaerobic digestion and process engineered fuel manufacture.

4. Coal mining

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Coal Mine Waste Gas) Determination 2014 applies to projects which, through the installation and operation of flares or electricity production devices, destroy the methane component of coal mine gas drawn from an operating coal mine (coal mine waste gas project).

Projects involving the capture or use of coal seam methane or coal mine waste gas from a decommissioned coal mine are excluded. 

There are 5 project types under this methodology: 

  • a new flaring project
  • an expansion flaring project 
  • a new electricity production project 
  • an expansion electricity production project, and 
  • a displacement electricity production project.

Expansion or displacement projects will need to demonstrate that the abatement is additional to the recognised capacity of the existing destruction devices.

5. Wastewater treatment

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Industrial, Domestic and Commercial Wastewater) Determination 2014 applies to projects that install anaerobic digesters to replace deep open anaerobic lagoons.

For the purposes of this methodology, an anaerobic digester is a system consisting of: 

  1. one or more closed units designed to promote anaerobic digestion; 
  2. a biogas collection system; and 
  3. any equipment associated with the transfer of biogas to a combustion device

Examples of anaerobic digesters include covered anaerobic lagoons, plug-flow reactors, continuously stirred reactors, fixed film digesters and up-flow anaerobic sludge blanket digesters. 

Deep open anaerobic lagoons include lagoons of more than 2 metres in depth which cover the biological treatment of biomass or other organic matter through anaerobic digestion where methane emissions are released into the atmosphere and are not captured. The wastewater treated by the lagoon can include domestic, commercial or industrial wastewater, or a combination of these wastewaters.

It is a requirement of this methodology that the biogas must be combusted (ie by a flare, boiler or internal combustion engine).

6 Commercial building energy efficiency

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Commercial Buildings) Determination 2014 applies to projects that reduces greenhouse gas emissions by reducing the energy consumption at one or more commercial buildings that have, or are eligible to have, a National Australian Built Environment Rating System (NABERS) energy rating4 (commercial buildings project). This can involve modifying, removing or replacing energy-consuming equipment in the building and changing the building to influence energy consumption.

It is important to note that if the project involves removal of energy consuming equipment from the building, that equipment must be disposed of and must not be refurbished, re-used or sold. However, the equipment can be broken down into components and recycled.

The project cannot involve installing equipment which may generate renewable energy certificates under the Renewable Energy Target and it must not involve activities limiting the use of the building or reducing service levels in order to reduce electricity or fuel consumption.

As in the case of the facilities methodology, this methodology does not explicitly prescribe activities that can be undertaken. Rather, it gives project proponents flexibility to analyse and determine the activities that they consider to be most appropriate for each building.

7. Transport

The Exposure Draft Carbon Credits (Carbon Farming Initiative) Methodology (Transport) Determination 2014applies to projects that achieve emissions reductions through a reduction in the emissions intensity of transport activities (i.e. emissions per unit of transportation service) rather than changes to absolute emissions.

The activities covered by this methodology include:

  • replacing existing vehicles;
  • modifying existing vehicles;
  • changing energy sources (by switching fuel/electricity source) or the mix of energy sources;
  • changing operational practices (e.g. driver training, route scheduling or vehicle maintenance scheduling).

In addition to road, rail, air and sea transport, the methodology also allows for emissions reductions to be achieved from mobile equipment, such as mining trucks or agricultural machinery.

There are 2 sub-methods that apply under this methodology:

  • Sub-method 1 must be used in relation to a group of vehicles (but not for mobile equipment). This group of vehicles must be made up of all the vehicles in one or more vehicles categories (for example, passenger vehicles, motorcycles, buses, rail freight, coastal shipping) that are used from time to time by one or more transport operations or business units. The emissions reductions from the group of vehicles are aggregated.
  •  Sub-method 2 concerns aggregated individual vehicles and cannot be used for passenger vehicles, motorcycles, or light commercial vehicles. This sub-method must be used for one or more individual vehicles. Sub-method 2 covers emissions intensity reductions that are achieved by individual vehicles where the baseline for these is tailored to the vehicle and activity being undertaken. Unlike in the case of sub-method 1, this sub-method is suitable for proponents with disaggregated, vehicle-specific data (for example, aviation and shipping).