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Contracting under the Emissions Reductions Fund - Frequently asked questions (FAQ’s)

04 August 2020

Contents

What is a carbon abatement contract?

A carbon abatement contract (contract) is a contractual arrangement to sell Australian carbon credit units (ACCUs) to the Commonwealth. A contract can be secured by participating in an Emissions Reduction Fund purchasing process such as an auction.

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. 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 and Optional Delivery.

For further information please see:

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What is a Fixed Delivery contract?

A Fixed Delivery contract refers to the purchase agreement offered by the Clean Energy Regulator that obligates the Seller to deliver an Agreed Quantity of ACCUs to the Clean Energy Regulator. The Clean Energy Regulator purchases these ACCUs at the contracted price over a set delivery schedule for the duration of the contract. ACCUs delivered under this contract can be sourced from the nominated project, other ERF projects or from the secondary market. Fixed Delivery contracts are better suited to projects where abatement can be projected with more certainty or where the contract holder wants the flexibility to deliver ACCUs from more than one source.

Please note, Fixed Delivery contracts contain make good provisions and you will be expected to deliver your Agreed Quantity of ACCUs irrespective of the performance of the associated project.

The Fixed Delivery contract with the Commonwealth has the following key features:

  • It provides security of a set price for ACCUs
  • Flexible duration of up to 10 years for eligible projects
  • Flexibility to source ACCUs from anywhere

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What is an Optional Delivery contract?

An Optional Delivery contract refers to the purchase agreement offered by the Clean Energy Regulator which offers Sellers the right, but not the obligation, to sell ACCUs to Commonwealth at an agreed price over a set period. ACCUs sold under an Optional Delivery contract must be derived from a single identified ERF project.

The Optional Delivery contract with the Commonwealth has the following key features:

  • No obligation to deliver
  • It provides security of a set price for ACCUs
  • Flexible duration of up to 10 years for eligible projects

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What is the difference between the two contract types?

Contract featuresFixed Delivery carbon abatement contractsOptional Delivery carbon abatement contracts
Multi-year contracts yes
yes
Fixed price yes
yes
Obligated to deliver ACCUs yes
-
Can deliver ACCUs derived from any ERF project yes -
Must deliver ACCUs from a single identified ERF project - yes
Only available for ERF projects that are new or have not been previously contracted - yes
Reduced total outstanding quantity where a scheduled delivery is not made - yes
Can have Conditions Precedent yes -
Short term and immediate delivery yes yes

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Why was the Optional Delivery contract introduced?

The Clean Energy Regulator introduced the Optional Delivery contract as a pilot offering for Auction 10. Following the pilot and consultation with industry it was found that there was significant support for the innovative and flexible contract to assist and underpin investment in emissions reductions projects in Australia, enhance supply of ACCUs, offer certainty and help investors better manage their price risks.

Optional Delivery contracts can assist in negotiations with lenders or other parties to demonstrate what the Commonwealth will pay for ACCUs from a specified project, with no contractual barrier to seeking more lucrative contracts from other buyers. In effect, the Optional Delivery contract provides assurance in the form of a minimum price for carbon abatement from a specified project.

You should seek your own legal advice and read the Code of Common Terms for each contract type before deciding on which is most suitable for your individual circumstances.

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

No. You can register a project and participate in the Emissions Reduction Fund without bidding into an auction or securing a contract.

You will still be required to provide offset and audit reports for the registered project and will be issued with ACCUs for emissions abatement achieved. However, the Clean Energy Regulator will not purchase ACCUs from projects without a contract. Any ACCUs generated can be sold on the secondary market or directly to other parties.

Please refer to the Choosing a project type for further information regarding obligations on registering and running a project.

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Who are the parties to a carbon abatement contract?

The contract is between applicant(s) successful in an auction (as the Seller) and the Clean Energy Regulator on behalf of the Commonwealth of Australia (as the Buyer).

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What are the parts of a carbon abatement contract?

The contract is made up of four separate parts:

  • The relevant Code of Common Terms (d Delivery Fixed Delivery or Optional Delivery)
  • The Commercial Terms
  • The Delivery Terms
  • 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 of the carbon abatement contract as proposed in the auction qualification application, set out the Seller’s details and, in the case of Fixed Delivery contracts, 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 include the following details:

  • Seller
  • Project(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.

Conditions precedent are not available for Optional Delivery contracts.

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What are the 'Delivery Terms'?

The Delivery Terms of the carbon abatement contract as proposed in the auction registration, set out the quantity of ACCUs that the scheme participant agrees to deliver under the contract, and the dates on which the deliveries will be made.

The Delivery Terms include the following:

  • total quantity of ACCUs which may be delivered under an Optional Delivery contract or required to be delivered under a Fixed Delivery contract
  • the contract period, and
  • the delivery schedule specifying delivery dates and quantities which may be delivered under an Optional Contract or required to be delivered under a Fixed Delivery contract.

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What are the 'Financial Terms'?

The Financial Terms of the carbon abatement contract as proposed by the auction bid, primarily set out the unit price that the Clean Energy Regulator will be obligated to pay for ACCUs delivered under the contract.

The Financial Terms include the following:

  • price to be paid per ACCU
  • date of the auction
  • date of the contract.

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Does my 'Fixed Delivery pre-qualification' from a previous auction qualify me to bid for an Optional Delivery contract?

No, you can only be pre-qualified for the contract type of the original qualification.

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Can I become a Seller for an Optional Delivery or Fixed Delivery contract if I'm not the project participant?

No. You must be the project participant for the registered ERF project in order to become the Seller under either type of carbon abatement contract.

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How many projects can be linked to an Optional Delivery contract?

All ACCUs delivered under the Optional Delivery contract must be sourced from the single identified ERF project.

Please see the Auction Guidelines which cover eligibility in further detail.

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What are conditions precedent and how do they work?

Conditions precedent (CP) are conditions that must be fulfilled or waived before the obligation to deliver and purchase ACCUs under the Fixed Delivery 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 precedent is not met by the conditions precedent expiry date the contract may terminate.

Please see conditions precedent for further information.

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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 be fulfilled, waived or re-negotiated, if not the contract may terminate. If you hold a contract subject to conditions precedent and are concerned about fulfilling the conditions precedent before the expiry date please contact the Clean Energy Regulator to discuss the matter.

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

Conditions precedent are not available for Optional Delivery contracts.

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Are conditions precedent available for an Optional Delivery contract?

Conditions precedent are not available for Optional Delivery contracts as there is no obligation to deliver ACCUs.

You should consider the length of the contract you may need and the timing of your scheduled deliveries to align with your expected abatement.

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Can I bid for a Fixed Delivery contract and an Optional Delivery contract for the same project?

An Optional Delivery contract can be secured for a new or existing project provided that the existing project is not connected to, or identified as part of, a portfolio of projects used to meet current contract obligations previously committed to by the applicant.

It is possible to secure both an Optional Delivery contract and a Fixed Delivery contract at the same auction for the same project provided that the sum of the abatement of the combined contracts does not exceed what can reasonably be generated by the project.

Please note that should you be successful in securing both a Fixed Delivery contract and an Optional Delivery contract for a single project, you will be required to preference deliveries to the Fixed Delivery contract. Failure to do so may result in early termination of the Optional Delivery contract. Sellers are reminded that non-deliveries under Fixed Delivery contracts could trigger Buyer’s Market Damages and affect the Seller’s future participation in schemes administered by the Clean Energy Regulator.

Please refer to participating in an auction for further eligibility information.

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What if I make a mistake on my auction qualification application?

If you make a mistake, and you wish to participate in the current auction, it may be possible to withdraw your current application and resubmit a fresh application. We encourage you to contact the Clean Energy Regulator as soon as possible on erf-auctions@cleanenergyregulator.gov.au or by calling 1300 553 542 to discuss.

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I have a Fixed Delivery contract which is now successfully completed; can I bid for an Optional Delivery contract for the same project?

No. An Optional Delivery contract can be secured for a new or existing ERF project, providing that the project has not previously been contracted and 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.

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How many times can I bid for a contract?

Only one bid may be submitted for a contract during the auction window. Any subsequent bids will be disregarded.

Amendments to the bid are not possible. You can withdraw the bid before the auction closes (using the bid withdrawal form available in AusTender within the auction window). However, following submission of the bid withdrawal form, all bids made against the contract application will become ineligible.

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

Yes. The sale and purchase obligations for Fixed Delivery contracts start when all conditions precedent have been fulfilled or waived. If there are no conditions precedents, the sale and purchase obligations under the contract start when the contract comes into effect.

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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.

If you wish to secure a contract for that project, you can apply to qualify for an auction at a later date provided you satisfy the eligibility criteria described in the auction guidelines.

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Are there different contract durations?

Yes, there are three contract durations:

Standard

Refers to contracts where multiple deliveries of ACCUs are scheduled over a period of 7 years. Ten-year contracts are available for projects for with a crediting period of ten years or more.

Short term

Refers to where multiple deliveries of ACCUs are scheduled over a period of less than 7 years, and

Immediate

Where a single delivery of ACCUs are scheduled to be delivered within 30 calendar days of the auction. The minimum volume for immediate delivery contracts is 2,000 ACCUs.

Please see the following resources for further information:

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

Yes, the Clean Energy Regulator offers Sellers flexibility in the way they choose to contract with the agency by offering a maximum of 3 short term and 10 immediate delivery contracts over a single project’s crediting period, subject to eligibility criteria. This is in addition to the standard duration contracts that are also offered.

If you had a short-term or immediate delivery contract and the contract duration is shorter than the crediting period of the project, you may continue to receive ACCUs after fulfilment of the contract and offer those for sale to the Clean Energy Regulator by participating in an auction.

You must fulfil the obligations of any existing contract type before you can enter into a new Fixed Delivery contract. In some circumstances both a Fixed Delivery and an Optional Delivery contract may be held. Please refer to the latest auction guidelines for further information.

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Can I contract additional abatement as a result of transitioning to the new savanna sequestration method?

Yes, where you are intending to transition an existing project which falls under the Savanna Fire Management – Emissions Avoidance method 2015 to the Sequestration and Emissions Avoidance method 2018, you may bid any additional ACCUs generated under the newer method for an additional Fixed Delivery contract. Please note that you will be required to demonstrate the availability of additional abatement through detailed modelling.

Optional Delivery contracts are not available for projects that are currently, or have been previously, contracted.

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What are my obligations and powers under the contract?

Unless otherwise specified, all reasonable endeavours must be taken to fulfil contractual obligations as soon as practicable and within the specified period in the contract, by the party responsible. Please see obligations of both parties for more information.

Please refer to understanding carbon abatement contracts for resources that may assist you in understanding your obligations and powers under the contract. You may also refer any questions to CERenquiries@cleanenergyregulator.gov.au

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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.

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

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

All notices to the Clean Energy Regulator relating to carbon abatement contracts, must be from the Seller or authorised representatives on behalf of the Seller, and in writing addressed to:

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

Or by email to:

erf-contracts@cleanenergyregulator.gov.au

A notice must be signed by the person giving the notice and:

  • delivered by hand
  • or sent by pre-paid post
  • or transmitted electronically by facsimile, or
  • 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
  • sent by post – on the business day after the end of 5 days after the date on which it was sent, or
  • transmitted electronically – upon actual receipt by the addressee’s facsimile machine or electronic mailbox.

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What flexibility provisions are available in a carbon abatement contract?

Carbon abatement contracts offer several flexible options to manage obligations.
  • Flexibility for Fixed Delivery contracts include:
    • delivery of ACCUs in instalments over the duration of the contract
    • delivery of ACCUs sourced from any project, not just the project identified during auction qualification
    • option to negotiate conditions precedent for each contract
    • an ability to deliver ACCUs early in the same financial year or across financial years with approval, and
    • an ability to vary the delivery schedule subject to mutual agreement.
  • Optional Delivery contracts include:
    • no obligation to deliver ACCUs. Sellers may choose to deliver between zero and 100 per cent of a scheduled milestone without penalty
    • the ability to structure the delivery of ACCUs in instalments over the duration of the contract, and
    • an ability to deliver ACCUs early in the same financial year or across financial years with approval.

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What is the secondary market?

The secondary market refers to transactions of ACCUs outside of schemes administered by the Clean Energy Regulator. Anyone can trade and sell ACCUs on the secondary market.

Please note that the Clean Energy Regulator’s expectation is that Sellers will prioritise Fixed Delivery contract obligations. If ACCUs destined to meet obligations under a carbon abatement contract are sold elsewhere and the Seller is no longer able to meet these obligations, the Seller risks being liable for Buyers Market Damages.

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How do I make a delivery?

All deliveries are conducted in the Australian National Register of Emissions Units (ANREU), with the transaction being performed 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.

For an Optional Delivery contract, the Seller can deliver up to the volume of ACCUs specified on the due date of a delivery schedule. All ACCUs delivered under the Optional Delivery contract must be sourced from the single ERF project that is identified in the Commercial Terms of the contract.

Deliveries of ACCUs for Fixed Delivery contracts can be sourced from alternative projects or the secondary market.

After every delivery, the Seller must send the Clean Energy Regulator an invoice detailing the:

  • Seller’s ANREU account number from which the delivery has been made
  • scheduled delivery date to which the delivery relates
  • number of ACCUs delivered
  • amount payable by the Clean Energy Regulator for that delivery, and
  • the carbon abatement contract identification number (CAC number).

Please note that the Clean Energy Regulator expects Sellers to provide an invoice within 90 days of a delivery being made. Failure to do so may result in delays in payment.

Guidance on how to use the ANREU is available here.

For further information please see Delivering units and receiving payment.

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Can I make an early delivery?

Yes. For early deliveries where the scheduled delivery date falls within the same financial year as the transaction, you do not need to seek prior approval and you will be paid in accordance with the Code of Common Terms.

Only early deliveries across future financial years require prior approval. To request an early delivery across financial years, the Seller must submit a notice to the Clean Energy Regulator, detailing:

  • the delivery date (milestone) against which the delivery is proposed
  • the quantity of ACCUs proposed for delivery, and
  • the proposed date of the early delivery - this date must be 20 or more business days from the date of the Seller’s notice.

The Clean Energy Regulator will notify the Seller of the acceptance, or rejection, of the request for an early delivery across financial years and may seek additional information.

If delivery is made without prior approval it will not be accepted and ACCUs may be transferred back to the Seller’s ANREU account.

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

Sellers are required to deliver the quantity of ACCUs on the due delivery dates according to the delivery schedule.

If the Seller is not able to deliver ACCUs generated by their own project they are able to either:

  • Purchase ACCUs on the secondary market to allow them to deliver their scheduled quantity, or;
  • Source ACCUs from a new or alternate project

If a scheduled delivery is not made in full it is considered a delivery failure.

If the Seller is aware that they may not meet their scheduled delivery quantity by the due date they must contact the Clean Energy Regulator to give notice as soon as possible. The Seller can do this via the Client Portal (preferred option), or alternatively provided by email to erf-contracts@cleanenergyregulator.gov.au.

This notice must set out in reasonable detail:

  • the amount of the actual or anticipated undelivered amount in respect of the Scheduled Delivery Date to which the Delivery Failure relates;
  • the reason for the Delivery Failure and the steps being taken by the Seller to address the Delivery Failure;
  • the anticipated duration of the Delivery Failure; and
  • whether the Seller proposes a revision to be made to the Delivery Schedule.

Following notice of a delivery failure both parties must make reasonable endeavours to agree on a revised delivery schedule. The total amount of ACCUs to be delivered under the contract will not be revised.

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What if I can’t deliver the scheduled quantity of ACCUs under an Optional Delivery contract?

If ACCUs are not delivered in accordance with the delivery schedule of an Optional Delivery contract, the right to deliver the outstanding volume of ACCUs from a due delivery date will lapse. You must advise the Clean Energy Regulator as soon as you are aware that you will not be able to deliver against a specified due date (milestone).

In very limited circumstances, e.g. a delay in ACCU issuance, a milestone may be extended by mutual agreement.

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What if the ACCUs delivered are not from the project linked to the Optional Delivery contract?

All ACCUs delivered under the Optional Delivery contract must be sourced from the single ERF project that is identified in the Commercial Terms of the contract. ACCUs from other sources will not be accepted, and if delivered will be returned to the Seller’s ANREU account.

The delivery will not be accepted against the Optional Delivery contract delivery milestone, and no payment will be made. Seller’s Market Damages will not be applicable.

Under the Optional Delivery contract, it is the responsibility of the Seller to ensure that only eligible ACCUs are transferred to the Commonwealth.

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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 the correctly rendered invoice.

It is important that you notify the Clean Energy Regulator of any changes to your bank account details.

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When does the contract end?

A carbon abatement contract ends when it has been completed or terminated.

The contract will be completed at the end of, or prior to, the delivery period when all scheduled ACCUs have been delivered and all payments made.

Contracts can be terminated for several reasons including non-payment, misleading representation or warranty, extended force majeure, insolvency or by mutual agreement. Full details can also be found in the Code of Common Terms for the relevant type of contract.

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How are the contracts managed?

Contracts are managed in accordance with the Clean Energy Regulator’s Contract Management Plan. This document guides contract officers in their administration of the contracts underpinned by the Clean Energy Regulator’s Contract Management Principles and will also be considered whenever a Clean Energy Regulator delegate is required 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 an issue without resorting to a formal resolution mechanism. Please refer to the relevant Code of Common Terms for further detail on dispute resolution.

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What are Buyer’s Market Damages?

Buyer’s Market Damages may only be sought to cover losses suffered by a party to a Fixed Delivery contract. 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 the Code of Common Terms.

Buyer’s Market Damages are not applicable under an Optional Delivery contract as there is no obligation to deliver the ACCUs.

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Where can I find more information?

You can read more about the Emissions Reduction Fund, or for information on how an auction will be run please see Participating in an auction and read the latest auction guidelines available on the page.

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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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