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Understanding carbon abatement contracts

03 April 2020

Under the Emissions Reduction Fund, you can enter into a contractual arrangement to sell Australian carbon credit units (ACCUs) to the government if you are successful at an Emissions Reduction Fund auction. This is referred to as a carbon abatement contract (a contract).

When you enter into a contract, you are entering into a commercial arrangement with the Clean Energy Regulator on behalf of the Commonwealth of Australia, including rights and obligations enforceable through the courts—similar to other contractual arrangements entered into between parties. You are advised to seek your own legal advice about the contract before participating in an Emissions Reduction Fund auction. Two types of contract are available.

Fixed Delivery contract

By entering into a Fixed Delivery contract (previously referred to as a standard contract), you are agreeing to provide a set number of ACCUs at a set price for the duration of the contract. The number of ACCUs you agree to provide is called the ‘agreed quantity’, and you can schedule these to be delivered across the duration of the contract. A contract begins when the Clean Energy Regulator notifies you that you had a successful bid at auction and ends when the final delivery of ACCUs has occurred and all payments have been made.

Each contract is tied to at least one Emissions Reduction Fund project, however each project can only be the subject of one Fixed Delivery contract at any one time. Once you have fulfilled your contractual obligations for one project, you may bring forward the same project to another auction.

It is up to you to ensure you can deliver the agreed quantity of ACCUs in accordance with the delivery schedule you have provided. When planning the agreed quantity and delivery schedule you should ensure that:

  • the number of ACCUs you have agreed to provide under the contract can be generated by your project, and delivered before the end of the contract, and
  • each date in the schedule allows sufficient time for you to undertake necessary audits and reporting, and to apply to the Clean Energy Regulator for ACCUs.

If your project cannot deliver the agreed quantity, you are required to source the difference from other projects you run or from the secondary market. The Fixed Delivery contract also contains make good provisions where contractual obligations are not met.

Option to Deliver contract

An Option to Deliver (Option) contract is being offered on a pilot basis for the tenth Emissions Reduction Fund auction. The Option contract provides the right, but not the obligation, to sell carbon abatement to the Commonwealth at an agreed price, within a set time. It will allow contract holders to better manage their price and supply risks with a view to encouraging more carbon abatement projects as a result. Option contracts may be used in negotiations with lenders or other parties to demonstrate what the Commonwealth will pay for abatement from a specified project, with no contractual barrier to seeking more lucrative contracts from other buyers.

The process to secure an Option contract is similar to that for a Fixed Delivery contract and separate Documentasset: Option to Deliver Auction Guidelines and Documentasset: Option to Deliver Code of Common Terms apply. You should read these documents in full before applying to participate at the forthcoming auction.

The Option contract has the following key features:

  • the Option contract provides you with the right, but not the obligation to sell up to a set number of ACCUs at a set price within a set time
  • flexible duration of up to 10 years for eligible projects
  • all contracted ACCUs must be sourced from a single identified project
    • the nominated project can be a new or existing project, providing that an existing project is not connected to, or identified as part of a portfolio of projects used to meet current contract obligations already committed to by the applicant.
  • scheduled milestones that are not delivered against will lapse
  • each Option contract may only be connected to one Emissions Reduction Fund project
  • an Option contract cannot be subject to any conditions precedent
  • an Option contract can be secured concurrently with a Fixed Delivery contract at the forthcoming auction, connected to the same project, providing that the sum of the contracted abatement of the combined contracts does not exceed what could reasonably be generated by the project, and
  • only one Option contract can be connected to a nominated project at any one time.

The outcomes of the Option contract pilot will inform the Clean Energy Regulator’s approach to any future Option contract offering. New rules may be needed to help ensure future Option contract offerings align with our legislative obligations to purchase abatement at least cost, including preventing bidding behaviour aimed at price gaming in any subsequent auctions. Any such rules would be developed through consultation with scheme participants and could include further refinements aimed at delivering administrative efficiencies. A possible approach might include allowing only one Option contract per project.

Delivery Schedules

It is up to you to ensure you can deliver the agreed quantity of ACCUs in accordance with the delivery schedule agreed with the Clean Energy Regulator. When planning the agreed quantity and delivery schedule you should ensure that:

  • the number of ACCUs you have agreed to provide under the contract can be generated by your project, and delivered before the end of the contract, and
  • each date in the schedule allows sufficient time for you to undertake necessary audits and reporting, and to apply to the Clean Energy Regulator for ACCUs.

If your project cannot deliver the agreed quantity for a Fixed Delivery contract, you are required to source the difference from other projects you run or from the secondary market.

To help you establish a contract delivery schedule, the Clean Energy Regulator has developed an interactive contract delivery schedule calculator. The calculator provides an indication of optimal management of key project timeframes, and helps you consider whether your allocated time for some project processes is achievable. The results from the calculator should not be considered as assurance that your project will meet delivery milestones as required under contractual obligations.

Parts of a carbon abatement contract

The four components to a carbon abatement contract

Code of Common Terms

The documentasset::Code of Common Terms sets out the rights and obligations of the parties under the Fixed Delivery contract. It is non negotiable, and all participants for each auction must agree to the same terms. Documentasset: The Option to Deliver – Code of Common Terms will be used for Option contracts.

You must agree to the relevant Code of Common Terms when qualifying to participate in an auction.

Archived Code of Common Terms

This code of common terms differs from those in force for projects contracted at previous auctions. Refer to Auction results for the version in force for each auction.

Documentasset: Code of Common Terms – version 1 archived

Documentasset: Code of Common Terms – version 2 archived

Commercial terms

The commercial terms set out details about who you are, and the project(s) that you are bringing forward to the auction. The commercial terms also includes any conditions precedent that must be met before abatement can be delivered through the contract. Option contracts cannot be subject to any conditions precedent.

The information to support the commercial terms must be provided when qualifying to participate in an auction.

Delivery terms

The delivery terms sets out when and how many ACCUs you will deliver, and the term (in years) of your contract. Delivery terms must be provided when registering to participate in an auction.

Should you not deliver in accordance with the Scheduled Delivery milestones for an Option contract, the right to deliver ACCUs against outstanding milestones will lapse.

Financial terms

The financial terms set out the price per ACCU you will be paid for delivering abatement under contract. The price paid per ACCU is determined through the auction bidding process.


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