Australia: Summary of ERF Carbon Abatement Contract

Last Updated: 16 December 2014
Article by Elisa de Wit


An amended form of the Carbon Abatement Contract (Contract) which the Clean Energy Regulator (Regulator) will use under the Emissions Reduction Fund (ERF) was released on 1 December 2014. The initial draft consultation version of the Contract (which was released on 27 June 2014) has been amended to provide flexibility for under delivery and less onerous make good requirements.

In simple terms, under the Contract the Seller (who will be a successful bidder at an ERF auction) agrees to sell to the Regulator a specified number of Australian Carbon Credit Units (ACCUs) over a specified time period, with delivery of the ACCUs to take place on specified dates. Although the Contract will reference particular pre-approved emissions reduction or carbon sequestration projects, the Seller can source the ACCUs from anywhere. In other words, to satisfy its delivery obligations under the Contract, the Seller can use ACCUs sourced from its own project, from other approved projects or from the secondary market.

The final version of the Contract will be published by the Regulator after the amendments to the Carbon Credits (Carbon Farming Initiative) Act 2011 take effect.

Overview of Contract

The Carbon Abatement Contract (Contract) comprises 4 parts:

  • Code of Common Terms
  • Commercial Terms
  • Delivery Terms; and
  • Financial Terms

As its name indicates, the Code of Common Terms contains the standardised provisions which will apply to all contracts entered between a successful bidder and the Regulator. These provisions are non-negotiable and acceptance of these terms will be a pre-requisite to auction participation.

The other three parts of the Contract will be determined by the Seller and will be put forward to the Regulator as part of the bidding process. The Commercial Terms include details of the registered projects that the Seller is bidding into the auction, and may include conditions precedent which must be satisfied for the Contract to take effect. There is no indication as to what form these conditions precedent can take, but we envisage they may include matters such as securing finance, obtaining all necessary approvals required to implement the project or obtaining any other third party consents. The Seller is able to specify the expiry date for satisfaction of the conditions precedent, which can be no later than the start date of the crediting period for the project.1

The Delivery Terms will specify the total quantity of ACCUs that the Seller must deliver under the Contract and the expiry date for the Contract. It will also detail the proposed delivery schedule for the term of the Contract. Delivery dates could be as frequent as every 6 months, given that ACCUs are able to be generated from a project this frequently.2

The price at which the ACCUs are sold to the Regulator will be included in the Financial Terms and will be the A$ amount bid into the auction by the Seller.

Main contract terms

The Contract commits the Seller to deliver an overall volume of ACCUs known as the "Agreed Quantity" to the Regulator.

The Seller is agreeing to deliver a specified quantity of ACCUs on specified dates to the Regulator and the Regulator is agreeing to purchase those ACCUs.

It is possible to deliver all or part of the specified quantity of ACCUs earlier than the specified delivery date, provided that the actual delivery date falls within the same financial year as the specified delivery date and provided that the Seller gives the Regulator 20 business days advance notice of the early delivery. If the actual delivery date is in an earlier financial year than the specified delivery date, then the Regulator must formally accept early delivery of the ACCUs and is under no obligation to do so.

Varying the Delivery Schedule

The delivery schedule can be varied in the following circumstances:

  • If it is not possible for the Seller (or its contractors or agents) to transfer ACCUs through the Australian National Registry of Emissions Units (ANREU) to the Regulator's ANREU Account. In this event, the Seller and Regulator will seek to agree a revised delivery date for that particular delivery of ACCUs.
  • By agreement between the Seller and Buyer (both acting in good faith), if the Seller is not going to be able to comply with a scheduled delivery date. In this instance, the Seller must give the Regulator notice of the actual or anticipated delivery failure, the reasons for it and what steps will be taken to address it. Provided that the scheduled delivery date is not the last date for delivery under the Contract, the Seller can propose a revised delivery schedule. This schedule can allocate all or part of the scheduled volume to different dates, but cannot extend the last delivery date, propose a date for delivery which is after the last delivery date or change the Agreed Quantity of ACCUs specified under the Contract. The Contract provides for a 20 business day negotiation period for the Seller and Regulator to reach agreement on the revised delivery schedule.
  • If the Seller and Buyer cannot reach agreement on a revised delivery schedule, then the Seller can put forward a revised delivery schedule which reallocates the undelivered amount (subject to a cap of 20% of the due amount) elsewhere in the delivery schedule. If the Seller doesn't put forward a revised delivery schedule, then the original delivery schedule will automatically be amended to add the undelivered amount to the final scheduled delivery date.
  • In the event of a force majeure event (see below)

Force majeure

Under the Contract, force majeure includes an event or circumstance beyond the control of the Seller (and its contractors or agents) that cannot, after using all reasonable efforts, be overcome and results in the failure by the Seller to perform its obligations under the Contract. A lack of funds is explicitly excluded from comprising force majeure, but the latest version of the Contract specifies that a force majeure event or circumstance will include the inability of the Seller to deliver ACCUs from the project which is specified in the Contract provided that the Seller did not play a substantial role in bringing about the event or circumstance. This change in the definition of force majeure contemplates a scenario where ACCUs cannot be produced from a project because of the action of a third party or the land owner (where the land owner is not the one undertaking the project).

If a force majeure event prevents deliveries of ACCUs being made on the scheduled delivery dates, the parties, acting in good faith, can use reasonable endeavours to agree a revised delivery schedule. As with the above scenarios, the final scheduled delivery date cannot be extended and deliveries cannot be scheduled for after this date. However, it may be possible to amend the Agreed Quantity. The ability to change the Agreed Quantity is entirely at the discretion of the Regulator, but the Regulator is not able to unreasonably withhold consent if the Seller is able to demonstrate that the force majeure event will prevent the delivery of the Agreed Quantity by the expiry date of the Contract.

Liquidated damages

The Seller will only be exposed to liquidated damages for non delivery if it fails to deliver more than 20% of the scheduled volume on a particular delivery date. (The first 20% can be reallocated in a revised delivery schedule, as explained above).

In this event, the Seller will need to pay damages to the Regulator which will comprise any additional amount the Regulator has to pay over and above the amount the Seller was due to receive under the Contract. As an example, if the price of the ACCUs bid by the Seller was A$10, but the Regulator had to pay A$12 to purchase the ACCUs which were not delivered by the Seller, the Seller would be liable to damages of A$2 per each non delivered ACCU. To determine the amount that the Regulator would need to spend to purchase the undelivered ACCUs, in the first instance it would calculated at the average spot price obtained from three separate third party dealers and if this was not possible, the price would be determined by an independent expert valuer.

The Seller would also be required to pay interest and the Regulator's reasonable costs and expenses, arising as a result of the non delivery.


The Contract can be terminated by either party in the following circumstances:

  • as a result of non-payment or false or misleading representations;
  • acts of insolvency or bankruptcy;
  • in the event of force majeure;
  • if there is mutual agreement by both parties.

The Contract will terminate automatically upon delivery of the Agreed Quantity and payment of all outstanding sums.

Damages will be payable by a defaulting party in relation to termination of the Contract, except in relation to termination for force majeure or by mutual agreement.

Dispute resolution

In the event that a dispute arises under the Contract, the parties are each required to nominate a representative to try and resolve the dispute through negotiation. If there is no resolution within 20 business days, the parties may refer the dispute to mediation by an independent third person, and if this does not result in resolution, either party may commence legal proceedings.


1If more than one project is covered by a Contract, the start date will be the earliest date of all of the crediting periods for the projects.
2Note that this frequency is applicable to emission reduction projects. Different reporting and credit issuance frequencies apply to other project types, such as carbon sequestration projects.

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Elisa de Wit
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