Purpose of the benefit sharing framework
On 4 March 2022, changes were announced to the Commonwealth Government administration of fixed delivery carbon abatement contracts (CAC). This included a requirement that benefit sharing occur where there might otherwise be a windfall gain to the seller. Such a windfall gain might arise where the seller is one party in a private group of parties that are involved in the project that is related to the CAC. The need for additional benefit sharing arrangements will depend on the terms of the relationship between those private parties.
A Benefit Sharing Decision Tree is available to help sellers determine which requirements apply to their circumstances.
The benefit sharing framework sets out the requirements for sellers to be eligible for the Australian Carbon Credit Unit (ACCU) Scheme fixed delivery exit arrangement. These are the terms, with respect to benefit sharing, on which we are willing to consider agreeing to specific exit arrangement requests.
As CACs are commercial agreements, rather than regulated requirements, the exit arrangement is available on an opt-in and voluntary basis. So, contract holders who don't want to or are unable to meet benefit sharing requirements continue to have an obligation to deliver ACCUs to us in accordance with their existing contract. Where there is a failure to deliver ACCUs, the existing contracts include a 'buyer's market damages' clause that sets out a remedy mechanism.
What is benefit sharing?
'Benefit' refers to the additional revenue (net of the exit payment) obtained or expected to be obtained as a result of exiting fixed delivery contract milestones and selling ACCUs for higher prices in the private market than the CAC would have otherwise provided. Benefit sharing is the allocation of this revenue between relevant parties, as specified below.
We undertook a consultation in April 2022 to inform the design of the framework. While all submissions were broadly supportive of benefit sharing, views varied on the models for how benefit sharing should be done. The framework was developed taking into account the feedback received.
Considering all the submissions, we have taken an approach to the benefit sharing framework that deliberately minimises consequences for other private market arrangements. Specifically, the framework has been designed in a way that reduces the need for renegotiation of existing third-party contracts.
The exit arrangement is being conducted as a pilot for the current delivery milestone window of 1 January to 30 June 2023. While the principles outlined below are expected to broadly endure, it is possible that settings for the exit arrangement may evolve in response to experience with the pilot. Scheme participants should bear this in mind when putting in place any private agreements to support benefit sharing and the exit arrangement itself.
Guiding principles
Our role in benefit sharing
It's a matter for the seller to decide whether to request the exit arrangement option instead of delivery and to provide information to us about benefit sharing between relevant parties. As the buyer, in considering whether to agree to such a request, we will determine whether the requirements for benefit sharing have been met.
Any agreements to provide for benefit sharing are private commercial arrangements between the relevant parties. It is therefore primarily a matter for agreement between those parties. We will need to be informed that an agreement has in fact been reached where benefit sharing is required. Specifically, we will not undertake any of the following activities with respect to benefit sharing:
- require specific sharing outcomes
- assess the adequacy or appropriateness of an agreement, other than to check whether this guidance and requirements have been followed
- intervene in existing contractual agreements
- mediate new agreements.
Scope of the benefit sharing framework
The framework utilises the following principles to enable sharing on a fair and reasonable basis:
- Parties potentially within scope are those who receive a direct benefit related to CAC delivery proceeds rather than broader ACCU Scheme project activities or other market activities. These parties may include:
- landholders or facility owners of nominated projects associated with the CAC, except where they are out of scope
- proponents of other ACCU Scheme projects with an identified long-term relationship or delivery agreement associated with the CAC
- Carbon Service Providers (CSP) who undertake contractual activities as listed agents for the CAC.
- Where an existing scalable agreement provides for a share of the revenue associated with the CAC (such as revenue from the sale of ACCUs or a percentage, proportion or specific amount of ACCUs) to flow from the contract holder to a relevant party, these agreements are considered to already demonstrate sufficient benefit sharing. Examples of existing scalable agreements that provide for benefit sharing include:
- the contract holder receives 25% and the landholder/facility owner receives 75% of the revenue from the sale of ACCUs to us under the CAC
- the contract holder receives 30% and the landholder/facility owner receives 70% of the ACCUs issued to the contracted ACCU Scheme project.
- Where the existing agreement is in the form of a fixed fee for service rather than ACCUs or ACCU revenue, to be eligible a new benefit sharing agreement needs to be made between relevant parties.
- These agreements must be reached through mutual agreement and be fully informed and freely given between the relevant parties.
- To participate in the exit arrangement, contract holders will need to provide the evidence required for the applicable business model (Table 1).
The following parties are out of scope, although the framework does not prevent benefits from also flowing to these parties if that is the wish of the seller or if existing agreements already provide for benefit sharing with these parties:
- CSPs who are not listed as agents for the CAC.
- Purchased ACCUs: Where ACCUs have been sourced via market purchases, offtake agreements or other commercial arrangements independent of a direct linkage to the CAC, these ACCUs and associated landholders/facility owners are not in scope. Projects with long-term relationships and delivery agreements associated with the CAC are in scope.
- Previous contract holders: ACCU deliveries by any previous contract holders are not in scope.
- Landholders or facility owners of nominated projects associated with the CAC who will not receive or be entitled to receive any direct benefit related to the contract delivery proceeds at any time after 4 March 2022.
In this context, we recommend sellers actively consider whether other parties should be entitled to share in benefits on a fair and reasonable basis. These parties include native title holders and claimants with an interest in the nominated projects associated with the CAC.
It is our expectation that the best practice approach to consultation outlined in the guidance for stakeholder consultation on native title be applied to benefit sharing agreements.
Declaration and evidence requirements
To be eligible for the exit arrangement, sellers must meet the benefit sharing requirements set out in Table 1. All sellers must complete and upload a benefit sharing declaration form to the application containing the notice and offer to settle via the Client Portal.
All sellers will need to advise us of the relevant parties associated with their CACs including relevant suppliers of ACCUs.
Table 1: Benefit sharing declaration
| Sellers' relationship with relevant parties to the CAC | Requirements |
|---|---|
| The seller is the landholder or facility owner. There are no other relevant parties. | Declaration from seller that there are no relevant parties. |
| The seller is the landholder or facility owner with a CSP undertaking contractual activities as listed agents on the contract. | Declaration and evidence from seller of benefit sharing with the CSP. Where current arrangements do not provide scalable sharing (e.g. a fixed fee), a new benefit sharing arrangement will need to be reached to become eligible for the exit arrangement. |
| The seller is a CSP and a separate party to the landholders or facility owners of the nominated projects to meet CAC delivery obligations. | Declaration and evidence from seller of benefit sharing with the landholders or facility owners of the nominated projects. Where current arrangements don't provide scalable sharing (e.g. a fixed fee), a new benefit sharing arrangement will need to be reached to become eligible for the exit arrangement. OR A statutory declaration from seller that at no time after 4 March 2022, will any landholders or facility owners of the nominated projects associated with the CAC receive or be entitled to receive any direct benefit related to the contract delivery proceeds. |
In addition to the above, further requirements apply if the seller acquires ACCUs from other project proponents to meet CAC delivery obligations, as part of an identified long-term relationship or delivery agreement associated with the CAC. ACCUs acquired from the secondary market or from the CAC holder's broader project portfolio or ACCU holdings are not in scope. | Declaration and evidence from seller of benefit sharing with all other relevant parties. Where current arrangements do not provide scalable sharing (e.g. a fixed fee), a new benefit sharing arrangement will need to be reached to become eligible for the exit arrangement. Where current arrangements do provide a scalable benefit sharing, the declaration and evidence will need to include only evidence that the current arrangements do provide for a scalable benefit and a declaration that those arrangements will be honoured. Declaration from the seller that all relevant parties have been identified. |
Where the seller's business model is not reflected, they should discuss their circumstances with us. Evidence of benefit sharing must include copies or extracts of relevant third-party contracts.
Other important information
The provision of false or misleading information is a serious offence and carries penalties under the Criminal Code Act 1995 and may have consequences under the Carbon Credits (Carbon Farming Initiative) Act 2011 and other laws.
While we expect the guiding principles for the benefit sharing framework to hold, relevant parties should note that the framework is being applied on a pilot basis. As such, parties who enter into arrangements related to future windows do so at their own risk.
We have discretion as to whether appropriate benefit sharing exists and where behaviours are observed that are contrary to the above principles, the application to participate in the exit arrangement may be refused. The framework may be subject to change or updated over time to ensure that it remains appropriate and fit for purpose. All relevant parties involved in benefit sharing discussions should carefully consider their own circumstances and seek external financial and legal advice.