Announcement date
4/03/2022
Link to announcement
https://www.minister.industry.gov.au/ministers/taylor/media-releases/emissions-reduction-fund-contracts
Problem being addressed
Recent, rapid increases in the spot price of Australian Carbon Credit Units (ACCUs) on the private voluntary market pose risks to the ERF contract portfolio. If current spot prices persist, there is a powerful financial incentive for all fixed delivery contract holders to break the ERF contract in order to sell ACCU's on the private voluntary market. The current mechanism under which contract holders may exit from their delivery obligations (known as Buyers Market Damages (BMD)) is unfit to address a large scale default on delivery obligations as it is costly to pursue for both fixed delivery contract holders and the Clean Energy Regulator. Maintaining existing arrangements would risk creating market uncertainty, ACCU price volatility, and rewarding first movers over those who chose to meet their delivery obligations.
Proposal
On 4 March 2022, the government announced their intention to allow fixed delivery contract holders to pay a specified amount based on their contract, equal to the maximum BMD provisions, in order to be released from their contracted deliveries in a controlled manner. This staged approach will reduce costs for contract holders and government, and will minimise shocks to the private voluntary ACCU market through the sudden influx of credits.
The Department of Industry, Science, Energy and Resources (the Department) has certified a Regulation Impact Statement (RIS), which the Office of Best Practise Regulation has assessed as adequate. The Department estimated that announced changes to the Emissions Reductions Fund will result in an estimated regulatory saving of $0.9M when compared to the anticipated regulatory costs in the event that no changes were made.
Please note - any accessibility enquiries should be directed to the Department of Industry, Science, Energy and Resources.
Assessed RIS outcome
Adequate