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Fixed delivery exit arrangement

11 October 2022

Contents

Fixed delivery exit window

Milestone delivery datesStatus
1 July 2022 to 31 December 2022 (an extension is available under transitional arrangements to 28 February 2023)

Now open

Applications are due on or before 14 February 2023

Background

On 4 March 2022, changes were announced to the Commonwealth Government administration of fixed delivery carbon abatement contracts (CACs).

CACs are commercial agreements between the Commonwealth (the ‘Buyer’) and a third party (the ‘Seller’). Fixed delivery CACs identify at least one associated Emissions Reduction Fund (ERF) project. However, Australian carbon credit units (ACCUs) may be sourced from any projects or from the private market to meet delivery obligations.

The fixed delivery exit arrangement (‘exit arrangement’) provides that the Buyer would make available to Sellers an optional alternative pathway to satisfy contractual obligations for fixed delivery contracts, by making an exit payment instead of delivering ACCUs for the contracted price. The exit payment is calculated by multiplying the contract price by the quantity of outstanding ACCUs for the milestone. The process is undertaken in line with existing clauses in carbon abatement contracts (including clause 9.3).

How to apply for the exit arrangement

Sellers considering applying for the exit arrangement are encouraged to review the documentasset:exit arrangement decision tree, which provides a simplified outline of the application process and key decision points.

There is a three-step settlement process under the exit arrangement:

  1. Application: Submit notice and offer to settle relating to ACCUs that will not be delivered under the exit arrangement. Sellers or authorised representatives must submit an application containing the notice and offer via the Client Portal.
  2. Conditional approval: If the offer is assessed as eligible, the Clean Energy Regulator will provide conditional approval and an invoice for the payment of the exit payment. The approval is conditional upon the exit payment being paid in full by the milestone delivery date.
  3. Settlement: Payment of the invoice is made in full and received before or on the nominated delivery milestone date.

The conditional approval intends to provide Sellers with confidence in undertaking third-party transactions, if they choose, prior to making their exit payment to the Clean Energy Regulator.

The exit arrangement will again be offered on a pilot basis for the second exit window (1 July to 31 December 2022 with an extension available under transitional arrangements to 28 February 2023). The Government will further consider its future use in light of the final Safeguard Mechanism design and the Independent Review of ACCUs.

Due date for applications for the second pilot window

To allow sufficient time for the processing of exit applications and the provision of conditional approval notification, exit fee invoice and payment instructions for eligible applications, applications must be submitted before 11:59 pm on Tuesday 14 February 2023 (AEDT).

Eligibility

The Clean Energy Regulator will assess eligibility to participate in the exit arrangement in Step 2 of the three-step process.

In assessing a request, the following eligibility requirements apply:

  • the nominated milestone delivery date(s) must fall due in the open window for the exit arrangement for which the Clean Energy Regulator is currently accepting applications
  • the Sellers must continue to be compliant with the contract(s)
  • the Sellers must remain in good standing with the Clean Energy Regulator, and
  • the requirements in the benefit sharing framework must be satisfied.

Benefit sharing framework

The benefit sharing framework sets out the requirements for Sellers to be eligible for the exit arrangement. Please refer to the Benefit sharing framework for further details.

The benefit sharing framework was finalised following consultation in April 2022. An overview of consultation outcomes is available on the Consultation Hub.

All parties involved in benefit sharing discussions should carefully consider their own circumstances and seek external financial and/or legal advice.

Frequently asked questions

What does it mean to be ‘compliant with the contract(s)’ and ‘in good standing’?

Sellers are considered to be compliant with the contract(s) where there are no outstanding contractual obligations related to delivery failures. Sellers are considered to be ‘in good standing’ where any negotiations with the Clean Energy Regulator have been conducted in good faith. Where a Seller holds multiple contracts, their eligibility is informed by their conduct across all such contracts.

How do I find out when applications open for upcoming windows? Can I apply ahead of applications opening?

Please refer to Fixed delivery exit windows for information on application opening dates for current and upcoming fixed delivery exit windows.

Pending Government consideration of the exit arrangement in light of the final Safeguard Mechanism design and the Independent Review of ACCUs, contract holders will be eligible to apply for the exit arrangement as fixed milestone delivery dates fall due within six-month windows each year, with applications opening ahead of each window between:

  • 1 January and 30 June, and
  • 1 July and 31 December

This approach intends to moderate the rate at which ACCUs are released to give the market time to adjust to the new supply. It also provides fixed contract holders with clarity about when their milestones will be eligible and time to pay the exit payment. Applications will not be accepted for milestones that are not within an open window.

Can I still deliver or partially deliver a contracted milestone after I submit an application or receive conditional approval?

Submitting an application or receiving conditional approval does not prevent you from delivering the milestone as per existing contractual arrangements. Should you wish to make deliveries and receive payment under the existing contract terms, you will be able to do so until the exit payment has been paid.

However, any delivery of ACCUs subject to an exit arrangement application to the Clean Energy Regulator after an application has been submitted will void the application for the exit arrangement and any associated conditional approval.

Where you anticipate making a partial delivery towards a delivery milestone, you are advised to do so prior to submitting an application for the remaining delivery under the exit arrangement to avoid needing to seek conditional approval multiple times.

How will the exit payment be calculated?

The exit payment will be calculated by multiplying the contract price by the quantity of ACCUs to be released. GST is not payable on the exit payment.

The quantity of ACCUs to be released will be the outstanding volume of the nominated delivery milestone subject to the application.

Do I need to have ACCUs in my account to participate? Can I accumulate released ACCUs in my account? Are the released ACCUs required to be subsequently sold on the private market?

Eligibility to participate does not depend on ACCU holdings or anticipated ACCU issuance. While benefit sharing requirements need to be satisfied, the exit arrangement does not impose additional requirements relating to the sale or other use of ACCUs.

What are the payment terms for the exit payment invoice?

The invoice must be paid in full by the nominated milestone delivery date otherwise, the conditional approval will be deemed to be void. Note for the second application window (milestones due between 1 July and 31 December 2022), an extension to 28 February 2023 is available. Note that an exit application due date of 14 February 2023 applies.

If the invoice is not paid in full on or before the milestone delivery date and ACCUs are not delivered, the full contractual obligations relating to delivery failures will be applicable.

Can I change the nominated bank details/the Seller details/the parties covered by the benefit sharing framework after I have submitted an application?

Any changes to bank account details after an application has been submitted will void conditional approvals. As the nominated bank accounts under CACs will be used for refunds, it is important that any changes are properly vetted to avoid the risk of funds being inappropriately directed.

Conditional approval will also be voided based on the below:

  • Any of the Sellers under the nominated contract change.
  • The relevant parties covered by the benefit sharing framework change.

Sellers who wish to change the nominated bank details/the Seller details/the parties covered by the benefit sharing framework will need to submit a new application for the exit arrangement after the changes have been made.

Are projects that will not receive a direct benefit related to the CAC proceeds from a given milestone subject to the benefit sharing framework?

If no benefit is expected to arise for a project associated with the CAC for a given milestone, the Seller is required to provide evidence to support this. Such evidence could take the form of documents showing project commencement dates or internal company records. If evidence is unable to be provided, then all projects associated with the CAC will be subject to the benefit sharing framework.

Are Sellers required to enter into a benefit sharing arrangements with both the property owner and the facility owner of nominated projects associated with the CAC?

Where a facility or property is under a long-term lease, the party that holds the lease may be within scope of the benefit sharing framework. Sellers should contact the Clean Energy Regulator to discuss their circumstances.

In other circumstances, such as vegetation, soil or savanna fire management benefit sharing arrangements may be required with the landholder.

For emissions avoidance projects, benefit sharing arrangements may be required with the facility owner.

Sellers may wish to provide benefit sharing arrangements with both the landholder and the facility owner.

Note that there may be other relevant parties that are within scope and that are required to enter into benefit sharing arrangements.

What is a scalable agreement?

A scalable agreement is an existing agreement where an agreement provides for a share of the revenue associated with the CAC to flow from the contract holder to a relevant party. Note that an existing agreement where no share of the revenue flows to a relevant party is not a scalable agreement and a new benefit sharing arrangement needs to be made between relevant parties.

Market information

The Clean Energy Regulator publishes information on the volume of ACCUs that could be released in each exit arrangement window when the window opens. This refers to a volume of ACCUs up to a certain amount,

However, as the exit arrangement is opt-in, not all volume scheduled for delivery in this window will necessarily be made available to the spot market. Also, some Sellers may choose to enter into longer term offtake agreements with private buyers covering subsequent delivery periods. If so, some ACCUs released under the exit arrangements in subsequent periods also may not be made available to the spot market.

After each window has closed and it is clear how many ACCUs have been released as a result of the exit arrangement, the Clean Energy Regulator publishes this information to support transparency and inform market decisions.

TimingInformation
When each window opensThe volume of ACCUs scheduled for delivery in the current window
Two weeks after each window closesOutcome: Volume of ACCUs that are released as a result of the exit arrangement for that window.
WindowDescriptionVolume
First pilot exit window (4 March 2022 to 30 June 2022, with an extension available under transitional arrangements to 31 August 2022)
Outcome – Fixed delivery milestones settled via the exit arrangement2.6 million ACCUs were released as a result of the exit arrangement.
Current window – applications now open for deliveries scheduled between 1 July 2022 and 31 December 2022, with an extension available under transitional arrangements to 28 February 2023 (note that an exit application due date of 14 February 2023 applies).
Fixed delivery milestones scheduled for deliveryUp to 3.2 million ACCUs

Notes:

  • All data is at 11 October 2022.
  • ACCUs that were not released may have been delivered as scheduled under contract, or had the delivery rescheduled using existing flexibility arrangements available under fixed delivery contracts. More information on deliveries under contracts is available on the contract register, and information about ACCU holdings and trading is available in the QCMR.
  • The data takes account of ACCUs already delivered.

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