What are environmental products and how do they work?

Understanding Australia’s environmental schemes

Australia’s Federal and State governments have introduced schemes through legislation, with each employing a different mechanism and ascribing different eligibility criteria, to help achieve the goal of emissions reduction and deliver improvements to energy efficiency and energy productivity. Broadly, these schemes are:

  • State-based environmental certificate schemes, which focus on reducing energy consumption, particularly through energy efficiency projects and decarbonisation projects.
  • Federal certificate schemes, which are designed to increase the amount of renewable energy in the market or incentivise the reduction of emissions.
  • A Federal carbon credit scheme, which incentives businesses to cut greenhouse gas emissions and undertake activities that store carbon.

Examples of the types of eligible activities include building renewable energy infrastructure, reducing direct emissions, installing energy efficient technology or carbon sequestration. Through these schemes, businesses and individuals can create certificates or credits for eligible activities. Scheme certificates or credits can then be surrendered to meet environmental obligations or sold on the secondary market to interested buyers.

The main buyers in the environmental products markets are liable entities (largely energy retailers) who purchase environmental products to meet specified obligations under State and Federal legislative schemes. Under the Federal scheme, buyers include those businesses or individuals seeking to purchase certificates to offset emissions on a voluntary basis.

What are the benefits of environmental products?

Some common benefits of generating Australian certificates and credits include the ability to:

    • Offset project costs or reinvest in future energy projects
    • Reduce site energy consumption and costs
    • Meet decarbonisation targets

International carbon credits are also available to Australian businesses to help meet decarbonisation targets. These are typically used to offset those emissions that can’t be eliminated by other energy efficiency initiatives.

Shell Energy offers a range of solutions for businesses looking to generate, surrender or trade environmental products.


Australian and international environmental products

The following tables provide an overview of selected environmental products and the types of projects eligible under each scheme. We then take a closer look at the various schemes, how they work and the regulators that operate them.

SCHEME Large-scale Renewable Energy Target Small-scale Renewable Energy Scheme
GOVERNMENT Federal Federal
CERTIFICATE OR CREDIT Large-scale Generation Certificate (LGC) Small-scale Technology Certificate (STC)
CERTIFICATE OR CREDIT UNIT Megawatt hour (MWh) Megawatt hour (MWh)
TYPES OF PROJECTS Available for eligible large-scale renewable energy systems, including, but not limited to, large commercial solar photovoltaic and wind systems rating above 100 kilowatts (kW), meeting certain accreditation criteria. To create an LGC, a large-scale renewable energy system must first be deemed an accredited power station. To view a full list of eligible categories for renewable energy sources (as outlined in the REE Act), visit the Clean Energy Regulator website. Available for eligible projects involving small-scale systems, including solar panels, solar water heaters, small-scale wind and hydro systems, and air source heat pumps. The number of certificates that can be created per system is based on its geographical location, installation date, and the amount of electricity in megawatt hours (MWh). Visit the Clean Energy Regulator’s website to learn about STC eligibility criteria.
SCHEME NSW Energy Savings Scheme Victorian Energy Upgrades
GOVERNMENT New South Wales Victoria
CERTIFICATE OR CREDIT Energy Savings Certificate (ESC) Victorian Energy Efficiency Certificate (VEEC)
CERTIFICATE OR CREDIT UNIT 1 notional MWh of energy saved 1 tonne reduction in greenhouse gas emissions (carbon dioxide equivalent - CO2-e)
TYPES OF PROJECTS Available for eligible activities that increase energy efficiency without reducing production or service levels. Some common examples at Commercial & Industrial (C&I) sites, include:
  • Installing energy efficient lighting
  • Electricity efficiency upgrades to motors, pumps, compressed air, HVAC or refrigeration systems
  • Gas efficiency upgrades to boilers, steam systems or ovens
  • Process or control system improvements
  • Replacing refrigerated display cases and other commercial equipment.
Available for various eligible installation or project-based activities, such as those related to:
  • Water heating, e.g., installing an efficient water heater
  • Space heating and cooling, e.g., installing a ducted air to air heat pump
  • Space conditioning, e.g., window retrofitting or weather sealing
  • Cold rooms, e.g., upgrading or installing refrigeration systems
  • Refrigeration display cabinets, e.g., installing high efficiency refrigeration display cabinets
  • Lighting upgrades (for approved lighting equipment), e.g., undertaking a lighting upgrade in certain buildings or areas
  • Gas-fired steam boilers, e.g., installing energy efficient gas-fired steam boilers.
SCHEME Emissions Reduction Fund Various international carbon credit schemes
GOVERNMENT Federal International
CERTIFICATE OR CREDIT Australian Carbon Credit Units (ACCUs) Various international carbon credits
CERTIFICATE OR CREDIT UNIT 1 tonne of CO2-e stored or avoided 1 tonne of CO2-e stored or avoided
TYPES OF PROJECTS Available for eligible activities that avoid or store greenhouse gas emissions. Examples of activities relevant to C&I businesses include:
  • Energy efficiency upgrades of electricity and gas using equipment
  • Direct facility emissions reduction
  • Cogen and on-site energy generation, including renewables
  • Lighting upgrades
  • Commercial building improvements
  • Alternative waste treatment, including installing an anaerobic digester
  • Oil and gas facility fugitive emissions reduction
  • Land and sea transport emissions reduction
Available for businesses looking to invest in voluntary carbon credits to contribute to the development of nature-based projects around the world. Typically, businesses will use these schemes to offset those emissions that can’t be eliminated through other energy efficiency or renewable energy projects.

Federal schemes

Renewable energy certificates
The Renewable Energy Target

The Renewable Energy Target (RET) is an Australian Government scheme designed to reduce greenhouse gas emissions in the electricity sector and encourage the additional generation of electricity from sustainable and renewable sources.

The Clean Energy Regulator administers the Renewable Energy Target’s two schemes[2]:

    1. The Large-scale Renewable Energy Target (LRET), which encourages investment in renewable power stations to achieve 33,000 gigawatt hours of additional renewable electricity generation by 2030, and
    2. The Small-scale Renewable Energy Scheme (SREC), which supports small-scale installations like solar photovoltaic (PV) panels, wind turbines, hydro systems, solar water heaters, and air source heat pumps. Small-scale technology certificates can be sold to recoup a portion of the cost of purchasing and installing the system.

The Renewable Energy Target works by allowing both large-scale power systems and the owners of small-scale systems to create LGCs and STCs, respectively, for every MWh of power​ they generate. (Note: any business that installs a large-scale renewable energy system and wishes to claim LGCs must apply for their systems to be accredited as a power station).

Certificates are then purchased by electricity retailers, like Shell Energy, and submitted to the Clean Energy Regulator to meet the retailers’ legal obligations under the Renewable Energy Target. This creates a market which provides financial incentives to both large-scale renewable energy power systems and the owners of small-scale renewable energy systems.

Shell Energy generates LGCs and STCs on behalf of our customers.

State-based schemes

Energy efficiency certificates

New South Wales Energy Savings Scheme

The Energy Savings Scheme (ESS), administered by the Independent Pricing and Regulatory Tribunal of NSW (IPART), provides financial incentives to install, improve or replace energy savings equipment and appliances in NSW businesses.

Financial incentives are in the form of tradeable certificates, called Energy Savings Certificates (ESCs).

Each ESC represents a saving of one MWh and can only be created by Accredited Certificate Providers (ACPs).

Shell Energy is an ESS Accredited Certificate Provider, and we support customers with the generation of ESCs for certifiable energy efficiency projects. In addition, as Scheme Participants in the ESS, we acquire and surrender ESCs from ACPs to meet our mandatory legislative obligations.

Victorian Energy Upgrades program

The Victorian Energy Upgrades (VEU) program, administered by the Essential Services Commission, helps Victorians reduce their energy bills and greenhouse gas emissions by providing access to discounted energy efficient products and services.[3]

The greenhouse gas savings associated with the installation of an energy efficient product and/or decommissioning of an inefficient product determines the number of Victorian Energy Efficiency Certificates (VEECs) that can be created. The level of incentive or discount received by businesses varies depending on the market activity and certificate price. Each certificate represents one tonne of CO2-e reduction.

Energy efficiency activities that create VEECs under the VEU program can be found on the Essential Services Commission website.

Shell Energy is an Accredited Provider in the VEU program, and we support customers with the creation of VEECs via eligible energy upgrade projects. In addition, as an energy retailer operating in the Victorian market, we are considered a Relevant Entity in the VEU program, so we acquire and surrender VEECs to meet our mandatory legislative obligations.

Carbon credits

Emissions Reduction Fund

Through the Emissions Reduction Fund (ERF), the Australian Government purchases lowest cost abatement in the form of Australian carbon credit units (ACCUs) from a wide range of sources, providing an incentive to businesses and landowners to proactively reduce their emissions.

A number of activities are eligible under the scheme and participants can earn ACCUs for emissions reductions. One ACCU is earned for each tonne of CO2-e stored or avoided by a project.

ACCUs can be sold to generate income, either to the government through a carbon abatement contract, or in the secondary market[4].

Shell Energy supports customers with the creation of ACCUs. The eligible projects you can choose to undertake as part of the Emissions Reduction Fund are called Methods. The Methods explain how to carry out a project and measure the resulting reductions in emissions. Methods can include activities such as commercial, industrial and aggregated energy efficiency, capture and combustion of landfill gas and agricultural waste, alternative treatment of organic waste capture and combustion of biogas from wastewater.  Methods for the land sector include increasing soil carbon, reducing livestock emissions, expanding opportunities for environmental and carbon sink plantings, and reforestation[5].

We also supply additional carbon offsets to match customers’ broader organisational decarbonisation goals.

International projects

Shell Energy can access reputable, verified international carbon credits for our customers. These are typically generated under the leading independent certification standards for verifying the activities of voluntary carbon credits projects, such as The Gold Standard and the Verified Carbon Standard of Verra.

As with other carbon credit schemes, these generate one carbon credit per tonne of CO2 equivalent stored or avoided for eligible activities.

Choosing the right scheme (or schemes) depends on where your operation is located, the activities that are undertaken, and your commercial and decarbonisation goals. Speak with one of Shell Energy’s experts in environmental products to better understand how the products could work for you and help maximise the value of your energy projects.

Related Content:

Energy Efficiency

Our guide to improving gas efficiency for your business

1 November 2023

Learn how you can lower your gas consumption, and its associated cost, with this five-step guide to improving your business’ gas efficiency.

Read more
Energy Efficiency

Five steps to reduce energy wastage this holiday season

27 October 2023

Our energy solutions experts share strategies to conserve energy and avoid unnecessary costs this holiday season.

Read more
Energy Efficiency

Five ways to improve your energy reporting

27 June 2023

Learn how to achieve more accurate and efficient reporting with the help of data management tools like the Energy Management Centre, combined with support from our expert team, and our customer portal.

Read more
Subscribe to Insights