Much has already been written on the $2.55 billion Emissions Reduction Fund (ERF).

Remember that the core aspect of the ERF is that payment from consolidated revenue to participants (i.e. those with the legal right to undertake the ERF project) by the Clean Energy Regulator (CER) will only be made on delivery by the participant of their agreed volumes.

The first ERF auction is due to be held between 9am on April 15, 2015 and 5pm on April 16, 2015. In essence, the reverse auction is based on “least cost” principles; once the participant has met all the qualification and registration criteria, then it is largely down to cost per tonne of GHG emissions reduction bid.

Firstly, participants must understand the various legal, financial, market and structural risks and opportunities under the ERF and their contract with the CER. There is a concern, however, that many current existing and new participants qualifying into the ERF process are not fully aware of these risks.

Secondly, participants themselves and their projects need to be registered prior to the auction qualification stage. This can take time and the CER has 90 days to approve your project application. Participants also must have a registry account and pass the fit and proper person test. Participant and project registration has been an issue for new projects trying to register for the first ERF auction.

Thirdly, a participant/agent then needs to qualify for the ERF auction by providing “indicative” GHG volume and contract length estimates. The first qualification phase closed on March 20, 2015, so there was little time for new projects under the new methods to complete the registration and qualification requirements.

Participants under the ERF need to ensure their documentation is complete and correct, which is not as simple as it may seem. A good understanding of the carbon markets and contacts within the CER will facilitate this process. As always, the CER did its level best to facilitate such registrations for new projects in time for he first ERF auction.

Fourthly, participants/agents must “register” for the first ERF Auction by April 7, 2015. This stage involves proving “final” volumes and length of contract. In order to submit such information, participants need to have detailed abatement estimates documented so that their volumes are realistic and not expose them to liquidated damages and reputational risks for under-delivery. They will also need to have legal advice on the risks of under/over delivery of final volumes.

The final step is bidding in a price per tonne at the first ERF auction. Participants should procure independent financial product advice on pricing.

I think participants involved in various industries need to be made very aware of the risk to the in discussing pricing with other bidders in order to gain an understanding of what their bid price should be. Such discussions could be characterised as anti-competitive and lead to prosecution as price fixing/cartel type behaviour under the Competition and Consumer Act 2010 (Cth).

It is also contrary to the CER Auction Guidance, which states that bids should not be disclosed to third parties. Breach of these obligations are likely to lead to disqualification for a period of up to two years and publication of your identity and disqualification on the CER’s website. Such behaviour could also lead the CER to suspend/cancel an auction.