The Clean Energy (Auction of Carbon Units) Determination 2013 (Cth) (Auction Determination) is now in force and sets out the arrangements for the auctioning of carbon units under the Carbon Pricing Mechanism.

The Clean Energy Regulator is required to conduct eight (8) auctions for each vintage year of carbon units. Two (2) auctions for FY16 carbon units will be conducted before 30 June 2014 and one of these auctions will also involve the auction of FY17 carbon units.

Auctions will be conducted in the form of an “ascending clock” (i.e. ascending price increments for carbon units) where eligible bidders indicate the number of carbon units they wish to buy at the nominated price. The price increases until the number of units bid for in the auction is not more than the number of units offered in the auction.

20 million FY16 carbon units will be offered in the first auction.

The second auction will offer 20 million FY16 carbon units plus any FY16 carbon units not sold at the first auction.

One of these auctions will also offer 20 million FY17 carbon units.

Prior to the auctions, eligible bidders will also need to know the total number of carbon units to be issued for each financial year (which includes the number of carbon units issued for free via sectoral assistance measures). As communicated to you on in our 23 April edition of this newsletter (click here), the Climate Change Authority is seeking submissions on the process for determining the “pollution caps” for FY16, FY17, FY18, FY19 and FY20.

While the recommendations will not be finalised until after the election, and default pollution caps are set out in the Clean Energy Act 2011 (Cth), we encourage you to participate in this process. In our view, and experience, following the appropriate process to set pollution caps is critical to the efficiency and effectiveness of any emissions trading scheme to achieve the primary objective of reducing emissions at lowest cost to the economy.

Please click here for a copy of the Issues Paper. The closing date for submissions is Thursday, 30 May 2013.

The Auction Determination contains further detail on the method for setting the deposit price (which must be paid by eligible bidders at least five (5) business days before the auction) and procedures during bidding which we would be happy to discuss with you further.

What you need to know now is that:

  • the Clean Energy Regulator is required to provide 3 months advanced notice of the date of each auction and 2 months advanced notice of the technical requirements for participating in the auction; and
  • the technical aspects of the auction system are currently being developed and we understand the Clean Energy Regulator will be running a number of demonstration workshops in the very near future.

Separate but related to the Auction Determination, it is relevant to note that:

  • the Corporations Regulations 2001 (Cth) have been amended to clarify the application of the regulatory provisions of the Corporations Act 2001 (Cth) (and the limitation of licensing exemptions) to the operation of, and participation in, carbon unit auctions;
  • the Clean Energy Regulations 2011 (Cth) have been amended to provide necessary detail concerning the coverage of non-transport LPG and LNG under the carbon pricing mechanism;
  • the Clean Energy Regulations 2011 (Cth) and the Renewable Energy (Electricity) Regulations 2001 (Cth) have been amended to amend the existing emissions-intensive trade-exposed activity of integrated lead and zinc production and extend the deadline for applications in relation to this activity for free carbon units and partial exemption certificates to 30 June 2013;
  • under the Australian National Registry of Emissions Units (Commonwealth foreign registry account in the Union Registry) Direction 2013 (Cth), the Clean Energy Regulator is required to open and operate an account in the Union Registry for the EU ETS in accordance with, amongst other things, any terms agreed between the Australian Government and the European Commission (or specified administrative bodies) - this account will play a key role in the operation of the link between the EU ETS and the Carbon Pricing Mechanism;
  • on 13 May 2013, the Council of the European Union authorised the European Commission to open negotiations with Australia on linking the EU ETS with the Carbon Pricing Mechanism; and
  • the European Parliament is scheduled to vote on a revised “Backloading Proposal” in the first week of July 2013.