The second pilot window for the fixed delivery exit arrangement is now open. Exit applications can now be made for Australian Carbon Credit Unit (ACCU) deliveries scheduled from 1 July 2022 to 31 December 2022.
This window continues the pilot of the exit arrangements and the Government will further consider its future use in light of the final Safeguard Mechanism design and the Independent Review of ACCUs.
In March this year, the Australian Government announced a pilot for changes to Emissions Reduction Fund (ERF) contracts. The pilot allows fixed delivery contract holders to pay exit fees rather than deliver ACCUs to the Government. The pilot first window ran from 4 March to 30 June 2022 with an extension to 31 August 2022 available. In that window, 2.6 million ACCUs were made available to the carbon market via the exit arrangement.
Clean Energy Regulator Chair David Parker said the exit arrangement means businesses bound by fixed contracts have a "managed unwind" process that allows them to divert their ACCUs to the private market.
"Under the pilot, after paying an exit-fee to the Commonwealth, fixed delivery contract holders will, over time, be able to sell their ACCUs for higher prices on the private market. This will provide an additional source of ACCU supply to the private market in a period of increasing demand," said Mr Parker.
During the pilot, holders of fixed delivery contracts will have the opportunity to exit their fixed contracts with the Commonwealth for specific deliveries on payment of an exit-fee that is contemplated and determined according to their existing contracts.
Contract holders taking up the exit arrangement will be required to pay an early-exit fee equivalent to the existing damages provisions in their contracts. Current contract holders can still access these existing damages provisions but would require a potentially protracted process that could require the Commonwealth to take legal action.
Contract holders wanting to use the exit window may request an extension to delivery milestones that fall within the second pilot window until 28 February 2023. This is to provide flexibility so contract holders can liaise with landholders and other interested parties.
Applications will close at 11.59 pm on 14 February 2023 to allow time for the CER to process applications before the end of the second pilot window.
Contract holders will need to be in compliance with their delivery obligations to take part in the exit arrangement. They may also need to enter into a benefit sharing arrangement so that other parties with an interest in the contract can share in the gains from selling the ACCUs to the private market.
