Experts say it is hard to tell what happens to billions of dollars in taxpayer funds handed out in the Government's Direct Action climate policy.

The second round of Direct Action Emissions Reduction Fund (ERF) funds were opened this week, to be distributed via a reverse auction system.

The online bidding process pits companies against each other to come up with the cheapest emissions-reduction measures they can.

With the potential for up to a billion dollars to be handed out in this round of the auction, it is important to be able to tell where it goes.

But Hugh Grossman, executive director of Energy and Carbon Markets for market analyst firm Reputex, says the process is not transparent.

“The way the ERF has been structured is very much to create an opaque sort of market setting where it's sort of a secret tender process. There is no transparent market price,” he told the ABC.

He said an open auction system would give taxpayers more value for money.

“I think the one thing that transparency does is that it fosters confidence in the market, so if you're a company, particularly a high-emitting company, you're looking at creating abatement over the long term — and that's not just next year, that's over the next 10 or 15 years.

“So I think transparency over a market price and the ability to predict what that price will be in five or 10 years is certainly healthy.”

Iain MacGill, from the University of New South Wales' centre for energy and environmental markets, told reporters he shared Mr Grossman’s concerns.

“It's very problematic with the Emissions Reduction Fund is that its transparency is very low,” he said.

“That means that if it's working or not, it's hard to say. And that's a real problem.”

Dr MacGill said there was a good chance taxpayers would foot the bill for projects that a company was going to do anyway.

This is referred to as a failure of “additionality”.

“If we look at similar sorts of mechanisms that are happening elsewhere in the world — and one is the Clean Development Mechanism under the United Nations Framework Convention on Climate Change — they often have additional additionality tests around financial additionality,” he said.

“[This is] really trying to make a very strong case that the taxpayer funds are actually going to fund things that wouldn't happen otherwise, rather than just representing a nice windfall for a company doing something that it was probably going to do anyway.

“Obviously in terms of prudent and wise expenditure of limited taxpayer funds, we should be focusing on supporting stuff that wouldn't happen otherwise.”

Environment Minister Greg Hunt says the Emissions Reduction Fund auctions are the world's best.

“The Australian reverse auction is perhaps the most successful and transparent emissions reduction system in the world. Indeed the success of the Australian model is reflected in three major international systems or proposals,” Mr Hunt’s spokesperson said.

Australia’s system is certainly different to the World Bank’s process, wherein bids are not hidden from other competitors, and the same price per tonne of carbon abatement is awarded to any company.

In the World Bank model, winning companies pay a fee for the right to be paid for emissions reductions in the future.

This form of contract is known as a “put option”, and it allows winning bidders to trade their contracts if they choose.

The first Emissions Reduction Fund auction in April saw 43 companies paid $660 million to for projects intended to reduce greenhouse gas emissions by 47 million tonnes.

Reports say 529 projects have registered with the Clean Energy Regulator, but it is unclear how many of those will actually compete in the auction.

The successful bidders will be unveiled in mid-November 12, as will the price per tonne of carbon they will be paid.