On 4 March 2022, changes were announced to Commonwealth Government administration of fixed delivery
carbon abatement contracts (CACs).
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 process will be undertaken in accordance with existing clauses in
carbon abatement contracts (including clause 9.3).
On 9 March 2022, the agency announced that feedback will be sought on how to ensure a fair sharing of the financial benefits that result from the exit arrangement.
On 4 March 2022, the Minister for Industry, Energy and Emissions Reduction announced changes to ERF fixed delivery contracts. Current holders of fixed delivery contracts are able to pay an exit payment to be released from fixed delivery obligations to the Commonwealth.
Additional information was released on 9 March 2022 in relation to the agency's announcement on 4 March 2022. The agency consulted on how to ensure a fair sharing of the financial benefits that result from exiting fixed-contract delivery obligations between the parties involved.
Parties were invited to register their interest in the consultation process at
how to provide a submission. This
documentasset:consultation paper provides a proposed framework for the benefit sharing arrangement, as well as key questions for your consideration and feedback. Please include the
documentasset:submission coversheet with your submission.
Consultation submissions were due 5 pm AEST Monday 11 April 2022. Any submissions received after this date will be considered at the agency's discretion.
15 submissions, (9 of which are confidential), were received from a cross section of stakeholders, including carbon service providers (CSPs), project proponents, landholders and industry groups.
The Clean Energy Regulator has now finalised the
benefit sharing framework, taking into account feedback received during consultation.
Submissions are not owned by the Clean Energy Regulator and we cannot guarantee that they meet accessibility requirements.
All submissions were generally supportive of benefit sharing, although views differed as to the preferred model. A broad overview of feedback was received, and the Clean Energy Regulator's response is outlined in the table below. Some submissions also raised issues beyond the scope of benefit sharing, which have not been included in the below table.
Most submissions recommended that the benefit sharing framework should be flexible and broadly applicable to a wide range of business models.
Some submissions sought more stringent requirements, such as a default percentage share to be applied when agreement cannot be reached.
The Clean Energy Regulator has taken an approach to the benefit sharing framework that deliberatively minimises consequences for other private market arrangements. Specifically, the benefit sharing framework has been designed in a way that reduces the need for renegotiation of existing third-party contracts where possible.
The framework does not require specific sharing outcomes, and the Clean Energy Regulator will not assess the adequacy or appropriateness of agreements, nor intervene or mediate agreements, which will be up to relevant parties to agree.
Some submissions noted that their existing contractual arrangements already appropriately share benefits between relevant parties.
Where this is the case, the need to seek further agreement unnecessarily introduces administrative burden and uncertainty.
The Clean Energy Regulator has updated the framework to include a streamlined declaration pathway where appropriate benefit sharing already exists (and is based upon a flexible, scalable or percentage-based outcome). Under these circumstances, Sellers are required to provide evidence of this benefit sharing.
Some submissions noted that it was not possible or feasible to seek agreement in scenarios where CACs were indirectly serviced by multiple projects.
The Clean Energy Regulator has updated the framework to specify that the benefit sharing framework is only applicable to CAC holders and the landholder/facility owners of the project(s) nominated in the CAC and parties who receive a direct benefit from the CAC (through an identified long-term relationship or delivery agreement associated with the CAC), rather than through broader ERF project activities or other market activities.
There were mixed views on whether landholders that are also CAC holders should be able to access the exit arrangement without a benefit sharing arrangement with the CSP.
For consistency across different business models, the Clean Energy Regulator has taken the position that landholders must share benefits with CSPs who undertake contractual activities as listed agents for the CAC to be eligible for the exit arrangement.
Some submissions noted that landholders must not be left worse off, as there may be information and power asymmetry between CSPs and landholders.
The submissions recommended that additional resources and support should be provided to landholders.
The benefit sharing framework intends to support more transparent, fair and reasonable outcomes.
However, 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.
All relevant parties involved in benefit sharing discussions should carefully consider their own circumstances and seek external advice.
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