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Understanding contracts

04 April 2016
ERF

Contents

To enter into a carbon abatement contract with the Commonwealth is to enter into a commercial arrangement with rights and obligations enforceable through the courts, similar to other contractual arrangements entered into between parties.

You are to seek your own legal advice about the contract prior to participating in the Emissions Reduction Fund auctions process. Each party will bear its own costs and expenses in connection with the preparation, negotiation and entering into or execution of the contract.

The Clean Energy Regulator will enter into carbon abatement contracts (contract), on behalf of the Commonwealth, with participants to purchase emissions reductions.

The contract starts when the Clean Energy Regulator notifies you that you had a successful bid at an Emissions Reduction Fund auction.

If you are successful at an auction the carbon abatement contract automatically comes into effect. If there are no conditions precedent 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.

If you have nominated an authorised representative at the auction qualification stage to act as an agent on your behalf in relation to the contract, the authorised representative can agree to:

  • amendments to the delivery schedule when ANREU malfunctions and prevents a delivery
  • amendments to the delivery schedule when the parties negotiate a change following a delivery failure, or in expectation of a predicted delivery failure
  • amendments to the delivery schedule when the parties negotiate a change following a force majeure event
  • terminate the contract where both parties agree
  • refer a dispute to the independent mediator where both parties agree.

An authorised representative can also send, on behalf of the seller, all certificates, consents, approvals, waivers and other communications in connection with the contract.

The contract ends when the final delivery of ACCUs is made in line with the contract’s delivery schedule and payment for the ACCUs delivered is made. A contract will be effective for the entire term of the contract unless terminated due to default of either party or by mutual agreement between the parties.

Three contract durations are available:

You choose the contract duration during stage two of the auction process – auction registration​.


What is a carbon abatement contract?

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

The contract is a standardised contract that will be used for all successful auction bids.

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

The contract is made up of four parts as illustrated below.

Diagram illustrating the four parts of the carbon abatement contract as described below.  

Code of common terms

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

You must agree to the code of common terms when qualifying to participate in an auction.

The other three parts of the contract (commercial terms, delivery terms and financial terms), set out information that is particular to each contract as determined by the seller and will be put forward to the Clean Energy Regulator as part of the bidding process. 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.

Download the carbon abatement contract – code of common terms.

Commercial terms

The commercial terms (auction qualification) identify:

  • the sellers under the contract and set out the Emissions Reduction Fund project(s) that are covered by the contract
  • the conditions precedent (if any are agreed between the parties)
  • the period during which any conditions precedent should be fulfilled or waived
  • the seller’s address for contractual notices
  • the Clean Energy Regulator’s Australian National Registry of Emissions​ Units (ANREU)​ account to which ACCUs are to be delivered, and
  • the Clean Energy Regulator’s address for contractual notices.

You must agree to the commercial terms of the contract when qualifying to participate in an auction.

Delivery terms

The delivery terms (auction registration) set out:

  • the total quantity of ACCUs to be delivered under the contract
  • the contract period
  • the dates that ACCUs are to be delivered, and
  • the quantity of ACCUS to be delivered by those dates.

You must agree to the delivery terms of the contract during auction registration.

Financial terms

The financial terms (auction bid) set out:

  • the price to be paid per ACCU
  • the date of the auction participation, and
  • the date of contract commencement (which will usually be the fifth business date after the auction date).

You agree to the financial terms of the contract when submitting your auction bid.

Conditions precedent

A conditions precedent 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 Clean Energy Regulator 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.

The conditions precedent expiry date is the date by which the conditions precedents must have been fulfilled or waived or the contract terminates automatically.

Conditions precedents and the conditions precedent expiry date are specified in the commercial terms and are assessed as part of the auction qualification stage.

Flexible contract options

The contract offers several flexible options including:

  • an option to negotiate conditions precedent for each contract
    • Conditions precedents allow you to manage risks related to project implementation providing for flexibility in delivery.
    • Certain aspects of your project may not be finalised yet, such as project finance or planning or regulatory approvals. You may identify these as conditions precedent as part of the commercial terms. The primary obligations in the contract – the schedule for delivery and purchase of ACCUs – will only come into effect once you meet any conditions precedent.
    • The contract will be terminated if the conditions precedents have not all been fulfilled or waived.
  • delivery of ACCUs in instalments over the duration of the contract (the delivery schedule)
    • You nominate your delivery schedule during auction qualification. It can be varied by mutual consent.
  • delivery of ACCUs not generated by the projects within the contract (make good provisions)
    • The contract allows you to deliver units from any source so that you can make good any underperformance of your project with units from another project or purchased in the secondary market.
  • the ability to deliver contracted abatement volume early
    • You can give us notice that you wish to deliver your contracted volume in advance in the same financial year. With our agreement, you can also bring forward contracted volume across financial years.

In line with normal commercial practice, the contract also makes provisions for damages that could be payable by the seller if emissions reductions are not delivered.

Contract terminology

To find out the meaning of any of the terms used in contracting with the Clean Energy Regulator, see the glossary.

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