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Contracts frequently asked questions

01 August 2016

Contents

What is a carbon abatement contract?

The carbon abatement contract is a standardised sale and purchase agreement that obligates the seller to deliver a quantity of Kyoto Australian carbon credit units (ACCUs) to the Clean Energy Regulator and the Regulator to purchase those ACCUs at the contracted price over a set delivery schedule for the duration of the contract.

The contract is not an agreement for the delivery of a project or for delivering ACCUs derived from a specific project, obligations to deliver ACCUs under the contract may be met from any source.

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Do I need a contract to participate in the Emissions Reduction Fund?

No. You can have a project and participate in the Emissions Reduction Fund without bidding into an auction or securing a contract provided the project is registered with the Clean Energy Regulator.

The project will still be required to provide offset and audit reports and will be issued with ACCUs for emissions abatement achieved. However the Clean Energy Regulator will not purchase ACCUs from projects without a contract, instead ACCUs generated can be sold on the secondary market to other parties who may require them to meet their obligations.

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Who are the parties to the contract?

The contract is between each scheme participant successful in an auction (the Seller) and the Clean Energy Regulator on behalf of the Commonwealth of Australia (the Buyer).

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What are the parts to the contract?

The contract is made up of four separate documents – the code of common terms, the commercial terms, the delivery terms and the financial terms.

The code of common terms sets out the standard rights and obligations of the parties under the contract and is non-negotiable.

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What are the 'commercial terms'?

The commercial terms (auction qualification) of the carbon abatement contract primarily set out the Scheme Participant’s details and any agreed conditions precedent that one or more parties to the contract will need to fulfil or waive before the obligations to deliver and purchase ACCUs come into effect.

The commercial terms comprise the following:

  • Seller
  • Project(s) of the seller(s) covered by the contract
  • Conditions precedent (if applicable)
  • Conditions precedent expiry date (if applicable)
  • Seller’s  Australian National Registry of Emissions Units (ANREU) account
  • Seller’s address
  • Buyer’s  Australian National Registry of Emissions Units (ANREU) account
  • Buyer’s address.

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What are the 'delivery terms'?

The delivery terms (auction registration) of the carbon abatement contract set out the quantity of ACCUs that the scheme participant will deliver under the contract and the dates on which deliveries will be made.

The delivery terms comprise the following:

  • Total quantity of ACCUs to be delivered
  • The contract period
  • The delivery schedule specifying delivery dates and quantities to be delivered.

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What are the 'financial terms'?

The financial terms (auction bid) of the carbon abatement contract primarily set out the unit price the Clean Energy Regulator will be obligated to pay for the units the Scheme Participant delivers, once they enter into a contract with the Clean Energy Regulator.

The financial terms comprise the following:

  • Price to be paid per ACCU
  • Date of the auction
  • Date of the contract.

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If my bid is successful at an auction do I have to enter into a contract?

Yes. If you are successful at auction, the carbon abatement contract automatically comes into effect.

  • If there are no conditions precedents, the sale and purchase obligations under the contract commence when the contract comes into effect.
  • Otherwise, those obligations will commence when all conditions precedent have been fulfilled or waived.

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What is the contract start date?

The contract comes into existence or starts when the Clean Energy Regulator accepts the offer (the commercial terms and the bid) made by the Scheme Participant at an auction.

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Do I have to wait until I have a contract to start my project?

No. You can start your project as soon as it is registered by the Clean Energy Regulator and secure a contract by bidding into an auction later.

If a project bid is unsuccessful at an auction, it can be bid in a later auction.

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Are there different contract durations?

Three contract durations are available:

  • Standard contract duration, where multiple deliveries of ACCUs will be made over a period of 7 years or 10 years for projects for with a crediting period or ten years or more.
  • Short term contract duration, where multiple deliveries of ACCUs will be made over a period of less than 7 years.
  • Immediate contract duration, where a single delivery of ACCUs will be made within a few days of being notified of the success of the bid. To obtain a contract for immediate delivery, you must already hold ACCUs in your ANREU account.
    The minimum volume for immediate delivery contracts is at least 10% of the forward abatement estimate for the project or 15,000 ACCUs (whichever is lower). If successful at auction, the units bid must be surrendered immediately (within 5 days of notification of success at auction). You must fulfil the obligations of any existing contract before you can enter into an immediate delivery contract.

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Can I run multiple contracts over the lifetime of my project?

Yes. If you had a short-term or immediate delivery contract and the contract duration is shorter than the crediting period of the project a participant may continue to receive ACCUs after they have fulfilled their contract.

If this is the case you may choose to enter into another contract by submitting a new bid into an auction. However you must fulfil the obligations of any existing contract before you can enter into a new contract.

Short term contracts (less than 7 years): You can have up to 3 short-term contracts per project over the crediting period.  The total combined length of all contracts cannot exceed seven years (or ten years depending on the crediting period).

Immediate delivery contracts (within 5 days of successful bid): You can have up to 10 immediate delivery contracts per project over the crediting period. To obtain a contract for immediate delivery, you must already hold ACCUs in your ANREU account.

Note: If you are successful at obtaining a contract at the first auction and choose an immediate or short term contract duration length (less than seven years), you cannot bid that project again at an auction until the 2016-17 financial year.

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How are delivery and payment transactions made?

Emissions abatement is purchased in the form of Kyoto Australian carbon credit units (ACCUs). Each ACCU represents one tonne of verified carbon emissions or equivalent abatement achieved.

The delivery of ACCUs from the seller to the Clean Energy Regulator occurs in the Australian National Registry of Emissions Units (ANREU) and must be made from the seller’s ANREU account to the buyer’s ANREU account.

Payment by the Clean Energy Regulator for the purchase of ACCUs will be made to the seller’s nominated bank account within twenty (20) business days of the later of an invoice for delivery or the date on which delivery occurs.

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What if I can’t deliver the quantity of ACCUs in my delivery schedule on the scheduled delivery date?

Sellers must deliver the quantity of ACCUs on the dates that they are due according to the delivery schedule in their contract.

If a seller is not able to deliver ACCUs generated by their own project they are able to purchase ACCUs on the secondary market to allow them to deliver their scheduled quantity.

If a scheduled delivery is not made in full it is considered a delivery failure and the difference between the quantity delivered and the quantity due is a delivery shortfall.

If a seller is aware that they are not likely to meet their scheduled delivery quantity by the scheduled delivery date they must give notice to the Clean Energy Regulator as soon as possible.

Following notice of a delivery failure both parties must make reasonable endeavours to agree on a revised delivery schedule. If the revised delivery schedule is reasonable and credible it will be agreed. The total amount of ACCUs to be delivered under the contract will not be revised. Further, the contract period will not be extended and the final scheduled delivery date will not be postponed past the contract period.

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What are my obligations and powers under the contract?

Unless otherwise specified, whenever anything is to be done under the contract, the party responsible must use every reasonable endeavour to fulfil their obligations as soon as practicable and within the specified period in the contract.

See a full list of the obligations of both parties.

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What happens if I don’t fulfil my obligations under the contract?

You must notify the Clean Energy Regulator as soon as you become aware that you are unable to fulfil any of your obligations under the contract. Failure to fulfil contractual obligations may have serious implications up to and including market damages and termination of the contract.

The Clean Energy Regulator also holds the right to disqualify sellers from future carbon abatement purchasing processes.

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What are the grounds for termination of the contract?

A contract can be terminated by the seller or the Clean Energy Regulator. There are a number of different circumstances in which a party’s right to terminate is activated. The main circumstances are summarised here:

  • Conditions Precedent not fulfilled or waived: Automatic termination of the contract if all Conditions Precedents are not fulfilled or waived by the Conditions Precedent Expiry Date.
  • Non-payment: A party fails to pay any amount due under the contract and does not remedy that failure within a prescribed period.
  • False Representation or warranty: A representation or warranty made by either party proves to have been recklessly, wilfully or intentionally false or materially misleading. This would include representations or warranties made by the seller during the qualification phase for the auction.
  • Insolvency: The seller becomes insolvent, or prescribed events occur that demonstrate insolvency or likely insolvency, where the insolvency is not overcome by novation to another approved solvent counterparty.
  • Force Majeure: Where the Force Majeure subsists for a year or more.
  • By mutual agreement.
  • Where all deliveries have been made and all sums owed between the parties have been paid.

In case of termination, the non-terminating party will be liable to pay damages for the balance of the contracted volume that will no longer be delivered.

Termination of the contract will not affect the continued operation of any provision that is intended to continue including confidentiality, incurring of interest on outstanding amounts, set-off, privacy and/or an indemnity.

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What constitutes force majeure?

Force majeure is the occurrence of any event or circumstance beyond the control of a party that could not, after using all reasonable efforts, be overcome and which results in or causes the failure of that party to perform its obligations under the contract. Lack of funds will not constitute a force majeure.

The force majeure affected party must notify the other party in writing providing reasonable detail of the event, the steps being taken to mitigate the effects of the event and an estimate of the extent and duration of the inability to perform obligations due to the event.

Where a force majeure occurs the obligations of both parties will be suspended for the period that the force majeure results in the failure of the affected party to perform their obligations. If or when the force majeure is overcome both parties will resume their obligations under the contract.

If the force majeure has prevented deliveries of ACCUs the parties will make reasonable endeavours to agree a revised delivery schedule and/or revised periodic quantities. If a revised delivery schedule is agreed the force majeure is considered to have been overcome and the revised delivery scheduled is binding.

If a force majeure continues for 365 days the contract may be terminated by either party.

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What are the flexibility provisions in the contract?

The contract offers several flexible options including:

  • Option to negotiate conditions precedent for each contract.
  • Delivery of units in instalments over the duration of the contract.
  • Delivery of units not generated by the projects within the contract (make good provisions).
  • Ability to deliver contracted abatement volume early.
  • Ability to under-deliver up to 20% for any period as long as the total quantity to be delivered under the contract is delivered by the end of the contract period.

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What are ‘make good’ provisions?

A seller has the option to deliver ACCUs from their project(s) or from alternative sources. If a Seller is unable to meet their delivery quantity for a delivery schedule they are able to purchase units on the secondary market to fulfil their obligations.

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What is the secondary market?

The secondary market refers to transactions of ACCUs outside of a contract with the Clean Energy Regulator.

Projects that do not receive a contract in an auction are able to generate and sell ACCUs. Projects with a contract do not have to deliver ACCUs generated by their project(s) and may wish to purchase ACCUs from another participant to meet their delivery obligations under the contract.

Further projects with contracts that generate ACCUs in excess of their delivery obligations are able to sell them to other parties.

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Could a contract be cancelled if the scheme is concluded or if there is a change of government?

No. A contract will be effective for the entire term unless terminated due to default of either party or by mutual agreement between the parties.

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What is a conditions precedent and how does it work?

A conditions precedent (CP) is a condition that must be fulfilled or waived before the obligation to deliver and purchase ACCUs under the contract comes into effect. For example, the contract will not commence until certain conditions such as financing or regulatory approvals for the project have been met. Conditions precedents may be specified in the Commercial Terms by the seller or the buyer or mutually.

All reasonable endeavours must be used to fulfil conditions precedents as soon as possible. Both parties must notify each other as soon as they become aware of a fulfilment or waiver of conditions precedent.

If a conditions precedents is not met by the conditions precedent expiry date the contract terminates automatically.

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What is a conditions precedent expiry date?

The conditions precedent expiry date is the date by which a conditions precedent must have been fulfilled or waived, if not the contract automatically terminates.

The conditions precedent expiry date is specified in the Commercial Terms and is assessed as part of the auction qualification stage.

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How do I make a delivery?

On each scheduled delivery date the seller must sell to the Clean Energy Regulator the quantity of ACCUs outlined in the delivery schedule. The transaction must occur directly from the seller’s ANREU account to the Clean Energy Regulator’s ANREU account.

Delivery is deemed to have occurred when the ACCUs are received in the Clean Energy Regulator’s ANREU account.

The seller must send the Clean Energy Regulator an invoice in relation to each delivery including:

  • The account number of the seller’s ANREU account from which the delivery has been or will be made.
  • The scheduled delivery date to which the delivery relates.
  • The number of ACCUs delivered.
  • The amount payable by the Clean Energy Regulator for that delivery.
  • The contract identification number.

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When do I receive payment for a delivery?

Following the successful delivery of ACCUs from the seller’s ANREU account to the Clean Energy Regulator’s ANREU account the Clean Energy Regulator will make payment by electronic transfer to the seller’s nominated bank account within twenty (20) business days of receipt of an invoice of delivery.

To facilitate ease of payment it is important that you notify the Clean Energy Regulator if your bank account details change.

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Can I make an early delivery?

Yes. Under the contract a seller can make an early delivery of all or part of a quantity of ACCUs due on a scheduled delivery date.

To make an early delivery the seller must give the Clean Energy Regulator appropriate notice. The Clean Energy Regulator will accept an early delivery if it is within the same financial year as the scheduled delivery.

The Clean Energy Regulator may accept an early delivery in a different financial year to the scheduled delivery. The Clean Energy Regulator will notify the seller of the acceptance or otherwise of the early delivery before the seller makes the delivery.

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How does contract aggregation work?

Aggregation involves grouping the ACCUs generated from multiple projects into a single contract and auction bid.  The aggregator must be the project participant for all the projects being aggregated.

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When does the contract end?

Unless terminated for other reasons, the contract ends when all obligations under the contract have been met. That is, the contract ends when the final delivery of ACCUs by the seller in accordance with the delivery schedule is made and the payment of all outstanding amounts owed between the parties under the contract is settled.

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How are the contracts managed?

Contracts are managed in accordance with the Clean Energy Regulator’s Contract Management Plan which guides contract officers in their administration of the contracts underpinned by the Clean Energy Regulator’s Contract Management Principles which will also be considered whenever a Clean Energy Regulator delegate is called upon to make a discretionary decision or exercise a power in relation to a contract.

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What are the procedures for dispute resolution?

A dispute is any action, controversy, proceedings or claim arising from the contract between the parties. A disagreement becomes a dispute when it is not possible for the parties to resolve it without resorting to a formal resolution mechanism.

Each party must deal with a dispute by:

  • Giving the other party a notice setting out the nature of the dispute.
  • Within ten (10) business days from service of the notice each party must nominate a representative with no prior involvement on the dispute and with the authority to settle the dispute.
  • Within ten (10) business days the party receiving the notice may provide a notice to the other party setting out its position.
  • The representatives will try to settle the dispute by negotiation between them.
  • Failing settlement by negotiation within twenty (20) business days from the service of the notice the parties may agree to refer the dispute to an independent third person with the power to mediate and recommend a non-binding resolution.
  • If a resolution is not reached within forty (40) business days of service of the notice either party may commence legal proceedings.

Each party will bear their own costs in the dispute resolution process and will equally bear the costs of any independent third party engaged.

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What is the process for contract variation?

Changes such as an amendment to a seller’s contact details and revising a delivery schedule constitute a variation to the contract.

A variation of the contract needs to be agreed in writing by both the parties.

The Clean Energy Regulator will verify that the person agreeing to an amendment has the authority to do so.

If the seller is a company the Clean Energy Regulator can accept a notice signed by:

  • Two company directors
  • A company director and company secretary
  • For a proprietary company that has a sole director who is also the sole company secretary, that director
  • For an Aboriginal and Torres Strait Islander corporation that has only 1 director, that director, or
  • A person who has been appointed to exercise powers under the contract be either two company directors or a company director and company secretary.

The Clean Energy Regulator will not agree to amend the Code of Common Terms, the Financial Terms, the Agreed Quantity (total abatement over the contract) or the contract duration.

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What must be included in a notice to the Clean Energy Regulator?

A notice from the seller to the Clean Energy Regulator under the contract is only effective if it is in writing and addressed to:

Emissions Reduction Fund Contracts
Clean Energy Regulator
GPO Box 621
Canberra
ACT, 2601
Australia

erf-contracts@cleanenergyregulator.gov.au

A notice must be:

  • Signed by the person giving the notice and delivered by hand
  • Signed by the person giving the notice and sent by pre-paid post
  • Signed by the person giving the notice and transmitted electronically by facsimile
  • Stated to be signed by the person giving the notice and transmitted by electronic mail.

A notice is effective:

  • If delivered by hand – upon delivery to the relevant address.
  • If sent by post – on the business day after the end of five (5) days after the date on which it was sent.
  • If transmitted electronically – upon actual receipt by the addressee’s facsimile machine or electronic mailbox.

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What are Buyer’s Market Damages?

Market damages can be sought to cover losses suffered by a party to a carbon abatement contract in the following circumstances:

  • By the Seller, if it chose to terminate the contract following an event of default by the Buyer.
  • By the Buyer (Clean Energy Regulator), if it chose to terminate the contract following an event of default by the Seller.
  • By the Buyer (Clean Energy Regulator), following a delivery failure when a revised delivery schedule could not be agreed.

Market damages are not a penalty, but a genuine pre-estimate of damage. The formulae for working out market damages in the different circumstances listed above, are specified in clause 1.1.1 of the Code of Common Terms.

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Who can I contact with enquiries?

For enquiries phone 1300 553 542 or email enquiries@cleanenergyregulator.gov.au

Opening hours are from 9:00am to 5:00pm Monday to Friday (Canberra time).

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