The Emissions Reduction Fund (ERF) is a blind reverse auction run twice yearly, with competitive bids for carbon abatement being awarded contracts with the Clean Energy regulator (CER). The ERF is centred on the principle of "least cost abatement". Projects are funded first on the basis of a comparative analysis of their financial cost of reducing emissions or sequestering (or locking up) carbon, or price per tonne of carbon dioxide equivalent (CO2-e), and the total volume of carbon being offered. The cheapest carbon is purchased first, which seems reasonable when spending public funds (Consolidated Revenue).

There are three major flaws with the ERF:

Firstly, the ERF does not take into consideration the Total Economic Value (TEV) of projects when awarding contracts. So projects that might be slightly more expensive per unit carbon cost but deliver much greater economic and social values, such as job creation or biodiversity protection, can miss out on ERF contracts.
Secondly, the ERF auctions are not transparent. The Regulator only reveals the average price paid for carbon credits, so the public (whose funds are being invested) are not able to directly compare the benefits of one project with another and achieve "price discovery", as the market is opaque.
Finally, the ERF is heavily biased towards aggregation. Small projects are largely excluded from participation as fixed costs such as auditing & compliance.

Ecosystem Exchange 3 solves all of the above flaws by introducing a transparent, secure token trading platform.