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Market sounding - direct abatement offers

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20 December 2019

Pilot: Option to Deliver contracts for Emissions Reduction Fund auctions

An Option to Deliver contract will be offered on a pilot basis for the tenth Emissions Reduction Fund auction on 25 and 26 March 2020. This option gives sellers the right, but not the obligation, to sell Australian carbon credit units to the Australian Government at a set price within a set timeframe.

Documentasset: New auction guidelines are now available for those interested in bidding for an Option to Deliver contract at auction. A new auction qualification form and an associated Code of Common Terms for this contract option will be made available shortly.

The existing Documentasset: Code of Common Terms – version 3 and Documentasset: auction guidelines remain in force for fixed delivery contracts.

For more information, see participating in an auction.

Summary of market sounding consultation outcomes

The market sounding paper for direct abatement offers was open from 16 August 2016 to 14 October 2016. During that time, the paper was downloaded in excess of 500 times. The Clean Energy Regulator received six submissions. The submissions were mostly of a general nature commenting on the purchasing process. Those submissions which identified potential projects either did not meet the proposed criteria or there is no current method available to accommodate the project.  

Submissions suggested that:

  • Large and serious bids have the opportunity to be considered outside of the auction process
  • Some submissions recommended changes to the Emissions Reduction Fund design and legislated parameters, including contract length and widening of methods.

After assessing the submissions, the Clean Energy Regulator concludes:

  • There is limited appetite for the out-of-auction purchasing opportunity proposed in the paper (evidenced by the small number of submissions)
  • The auction process as it stands is generally not precluding projects from coming forward, nor is it inhibitive to securing a carbon abatement contract.

The Clean Energy Regulator remains open to suggestions for innovative options for purchasing low cost abatement, but the auction process will remain the preferred purchasing mechanism for the time being.​

The Clean Energy Regulator invites written submissions from interested parties on the proposal to open an alternative purchasing process of a 'direct abatement offer' under the Emissions Reduction Fund.

documentasset:Market sounding paper - Direct abatement offers

The three Emissions Reduction Fund auctions to date have been highly successful, contracting 143 million tonnes of abatement. However, it is possible that we have not yet tapped into all segments of the market that are capable of delivering large volumes of well-priced abatement. The Emissions Reduction Fund White Paper (page 48) stated that:

  • The Government recognises that ​some projects may deliver large volumes of emissions reductions and the Emissions Reduction Fund should provide incentives for such projects.
  • The Government will retain discretion to enter out-of-auction contracts for major projects which can deliver emissions reductions above 250 000 tonnes of CO2-e per year, on average, or 1.25 MtCO2-e or more over the contract period. To enable this, the Clean Energy Regulator will be given the flexibility to use different types of procurement and tendering processes.

Consistent with the White Paper, we would like to hear from stakeholders with possible large abatement projects at a single site that may be more suited to being brought forward through a direct abatement offer.

A direct offer process is not intended to provide an alternative pathway for proponents of projects that are unsuccessful at an auction, nor will it change the settings of the next auction in November 2019​.

Responses to consultation will aid the Clean Energy Regulator in its future purchasing of carbon abatement. In designing its carbon abatement purchasing processes, the Clean Energy Regulator must have regard to the purchasing principles in the Carbon Credits (Carbon Farming Initiative) Act 2011.

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