The Emissions Reduction Fund: Contracting

Department of the Environment, 2014

The Clean Energy Regulator will conduct auctions to purchase emissions reductions in the form of Australian Carbon Credit Units at the lowest available cost. The Regulator will enter into contracts with successful bidders, which will guarantee the price to be paid for future delivery of emissions reductions for the life of the contract.

When will businesses enter into contracts with the Government?

After an auction, the Regulator will enter into a carbon abatement contract with a successful bidder.

The contract will set out the Commonwealth's obligation to pay for emissions reductions at the bid price and the project proponent's obligation to deliver the bid quantity of emissions reductions.

The contracts will be standardised, provide commercial terms and conditions, and detail a schedule for delivery of emissions reduction and subsequent payment. The design of the standard contract will be developed in consultation with businesses and the legal profession and will be available in advance of the first auction.

How long will contracts run?

The contract period is the period over which the Government will purchase emissions reductions delivered by a proponent.

While a proponent will be bound by a contract immediately after having been successful at auction, the contract period will not commence until certain conditions, such as final financing and regulatory approvals for the project, have been met.

The Government's preference is that contracts will be for five years. As part of its ongoing consultation with business, the Government has commissioned a commercial consultant to undertake market testing prior to the first auction to investigate the types of projects proposed to be bid into the Emissions Reduction Fund, and the contract details that will best meet business needs. This process will allow the Government to make sure the contracting arrangements are right for business and assess whether alternate contract lengths are required.

What flexibility will be available for delivery of emissions reductions?

A proponent can deliver emissions reductions from their own project or obtain Australian Carbon Credit Units from another registered project. The Government will pay the contract price whether the emissions reductions delivered under the contract come from the proponent's project or another registered project.

A proponent that is unable to deliver emissions reductions because of a force majeure can seek to renegotiate the timing of delivery or the quantity of emissions reductions that must be delivered. 

In line with normal commercial practice, contracts may also make provision for damages that could be payable by the proponent if emissions reductions are not delivered.

More information

Details about the Emissions Reduction Fund are available at:www.environment.gov.au/emissions-reduction-fund.

Note: While the Commonwealth has made reasonable efforts to ensure the accuracy, correctness or completeness of the material, the Commonwealth does not guarantee, and accepts no liability whatsoever arising from or connected to, the accuracy, reliability, currency or completeness of this material. Any references to the potential costs or benefits of undertaking an activity in accordance with an emissions reduction method are estimates only. This material is not a substitute for independent professional advice and entities should obtain professional advice suitable to their particular circumstances.