ERF Update: Financial Product Changes and First ERF Auction

Friday, May 1st, 2015
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The Government gazetted the Corporations Amendment (Emissions Reduction Fund Participants) Regulation 2015 on Thursday, March 12, which specifies ERF bidders (as opposed to their advisors) do not require an Australian Financial Services Licence (AFSL).

The regulation exempts the Carbon Abatement Contract under the ERF Fund from the definition of “financial product” and “derivative.”

The explanatory statement seems to go further by stating that persons should not be required to hold an AFSL “only because they regularly enter carbon abatement contracts.” These changes may extend to aggregators “bidding” as participant and/or agent, which exposes the site owners to unregulated practices by unscrupulous operators.

However, the regulation does not extend such exemption to carbon advisors offering “incidental” financial advice to supplement their technical advice. It also does not change the fact that a tonne of carbon (i.e. an Australian Carbon Credit Unit [ACCU]) remains a “financial product.”

It now appears to be quite a grey area in comparison to the clarity prior to the new regulations. Site owners should be satisfied that any “bidder” and/or “aggregator” acting on their behalf are suitably qualified, experienced with adequate insurance to protect them from negligent/fraudulent conduct form such parties. Participants should procure independent legal advice on the AFSL requirements, especially if they wish to buy/sell ACCUs in the secondary market as a result of any under/over supply of ACCUs from their projects.

First ERF Auction

The first ERF Auction was held on April 15/16. We acted as agent and authorised bidder for a new transport project and also provided advice to various other project proponents (now referred to as participants) on various ERF matters. It was a very busy four weeks, but we do know that some existing CFI projects did not participate because they were not prepared and had not procured advice, which is disappointing. The days where participants could rely on the clean energy industry to provide free assistance to participants on the hope of future work has well and truly passed.

The Clean Energy Regulator (CER) appears to have once again performed extremely well in assisting existing and new participants access the first ERF Auction.

However, whilst bidding we did encounter problems with the Austender website which should be rectified. Further, it is clear that the bid price is unlikely to match many participants’ actual abatement costs as bidding in the true cost would most likely mean missing out on ERF funding. Now, all we have to do is wait until the CER announces whether our bid was successful!

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