On 4 March 2022, changes were announced to Commonwealth Government administration of fixed delivery carbon abatement contracts (CACs). This included a requirement that benefit sharing occur where there might otherwise be a windfall gain to the Seller. Such a windfall gain might arise where the Seller is one party in a private group of parties that are involved in the project that is related to the CAC. The need for additional benefit sharing arrangements will depend on the terms of the relationship between those private parties. A
documentasset:Benefit-Sharing-Decision-Tree is available to help Sellers determine which requirements apply to their circumstances.
The benefit sharing framework ('the framework') sets out the requirements for Sellers to be eligible for the Emissions Reduction Fund (ERF)
fixed delivery exit arrangement (exit arrangement). These are the terms, with respect to benefit sharing, on which the Clean Energy Regulator is willing to consider agreeing to specific exit arrangement requests.
As CACs are commercial agreements, rather than regulated requirements, the exit arrangement is available on an opt-in and voluntary basis. So, contract holders who do not want to or are unable to meet benefit sharing requirements continue to have an obligation to deliver Australian carbon credit units (ACCUs) to the Clean Energy Regulator in accordance with their existing contract. Where there is a failure to deliver ACCUs, the existing contracts include a 'buyer's market damages' clause that sets out a remedy mechanism.
'Benefit' refers to the additional revenue (net of the exit payment) obtained or expected to be obtained as a result of exiting fixed delivery contract milestones and selling ACCUs for higher prices in the private market than the CAC would have otherwise provided. Benefit sharing is the allocation of this revenue between relevant parties, as specified below.
The Clean Energy Regulator undertook
consultation in April 2022 to inform the design of the framework. While all submissions were broadly supportive of benefit sharing, views varied on the models for how benefit sharing should be done. The framework was developed taking into account the feedback received.
Considering all the submissions, the Clean Energy Regulator has taken an approach to the benefit sharing framework that deliberately minimises consequences for other private market arrangements. Specifically, the framework has been designed in a way that reduces need for renegotiation of existing third-party contracts.
The exit arrangement is being conducted as a pilot for the current delivery milestone window of 4 March to 30 June 2022. While the principles outlined below are expected to broadly endure, it is possible that settings for the exit arrangement may evolve in response to experience with the pilot. Scheme participants should bear this in mind when putting in place any private agreements to support benefit sharing and the exit arrangement itself.
It is a matter for the Seller to decide whether to request the exit arrangement option instead of delivery and to provide information to the Clean Energy Regulator about benefit sharing between relevant parties. As the Buyer, in considering whether to agree to such a request, the Clean Energy Regulator will determine whether the requirements for benefit sharing have been met.
Any agreements to provide for benefit sharing are private commercial arrangements between the relevant parties. It is therefore primarily a matter for agreement between those parties. The Regulator will need to be informed that agreement has in fact been reached where benefit sharing is required. Specifically, the Clean Energy Regulator will
not undertake any of the following activities with respect to benefit sharing:
The framework utilises the following principles to enable sharing on a fair and reasonable basis:
The following parties are out of scope, although the framework does not prevent benefits from also flowing to these parties if that is the wish of the Seller or if existing agreements already provide for benefit sharing with these parties:
In this context, the Clean Energy Regulator recommends Sellers actively consider whether other parties who should be entitled to share in benefits on a fair and reasonable basis. These parties include native title holders and claimants with an interest in the nominated projects associated with the CAC.
To be eligible for the exit arrangement, Sellers must meet the benefit sharing requirements set out in
Table 1. All sellers must complete and upload a
documentasset:benefit sharing declaration form to the application containing the notice and offer to settle via the
All Sellers will need to advise the Clean Energy Regulator of the relevant parties associated with their CACs including relevant suppliers of ACCUs.
Table 1: Benefit sharing declaration
Declaration and evidence from Seller of benefit sharing with the CSP.
Where current arrangements do not provide scalable sharing (e.g., a fixed fee), a new benefit sharing arrangement will need to be reached to become eligible for the exit arrangement.
Declaration and evidence from Seller of benefit sharing with the landholder(s) or facility owner(s) of the nominated project(s).
In addition to the above, further requirements apply if the Seller acquires ACCUs from other project proponents to meet CAC delivery obligations, as part of an identified long-term relationship or delivery agreement associated with the CAC.
ACCUs acquired from the secondary market or from the CAC holder's broader project portfolio or ACCU holdings are not in scope.
Declaration and evidence from Seller of benefit sharing with all other relevant parties.
Where current arrangements do not provide scalable sharing (e.g. a fixed fee), a new benefit sharing arrangement will need to be reached to become eligible for the exit arrangement.
Where current arrangements do provide a scalable benefit sharing, the declaration and evidence will need to include only evidence that the current arrangements do provide for a scalable benefit and a declaration that those arrangements will be honoured.
Declaration from the Seller that all relevant parties have been identified.
Where the Seller's business model is not reflected, they should discuss their circumstances with the Clean Energy Regulator. Evidence of benefit sharing must include copies or extracts of relevant third-party contracts.
The provision of false or misleading information is a serious offence and carries penalties under the
Criminal Code Act 1995 and may have consequences under the
Carbon Credits (Carbon Farming Initiative) Act 2011 and other laws.
While the Clean Energy Regulator expects the guiding principles for the benefit sharing framework to hold, relevant parties should note that the framework is being applied on a pilot basis. As such, parties who enter into arrangements related to future windows do so at their own risk.
The Clean Energy Regulator has discretion as to whether appropriate benefit sharing exists and where behaviours are observed that are contrary to the above principles, the application to participate in the exit arrangement may be refused. The framework may be subject to change or updated over time to ensure that it remains appropriate and fit-for-purpose. All relevant parties involved in benefit sharing discussions should carefully consider their own circumstances and seek external financial and/or legal advice.
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