Proposed exemptions to the Corporations Regulations 2001 for ERF participants

Treasury has released a discussion paper outlining the Government’s proposed exemptions from the Corporations Act 2001 and Corporations Regulations 2001 for participants in the Emissions Reduction Fund’s processes.

The Government considers the existing generic financial services laws are not well suited for protecting participants against the risks associated with Emissions Reduction Fund (ERF) processes and, in some cases, may impede the efficient and effective operation of the ERF.

To make it easier to participate in the ERF, the Government is proposing to simplify the application of the Corporations Regulations 2001 to ordinary business activity expected to occur under the Fund.

Under the proposed exemptions, most project proponents, aggregators and carbon service providers would not be required to hold an Australian Financial Services Licence (AFSL) or provide Product Disclosure Statements (PDSs) so long as they do not provide financial services, as defined under the corporations laws.

The draft regulation would provide that:

- carbon abatement contracts, which a project proponent and
Clean Energy Regulator (CER) enter into after a successful ERF bid, would not be regulated as financial products;

- certain eligible aggregation arrangements would not be regulated as financial products;

- carbon service providers who only provide financial product advice which is incidental to technical advice relating to an ERF project would not be regulated as financial advisers.

As described in previous editions of our Energy Market Update, the ERF will forward-contract for the purchase of Australian Carbon Credit Units (ACCUs) from eligible emissions reduction projects via a reverse auction.  Under the reverse auction process, the CER will invite bids from proponents of projects already approved under the Carbon Farming Initiative (or aggregators of ACCUs from such projects) to offer to supply emissions reductions in the form of ACCUs.

Aggregation occurs when discrete or separate emissions reductions activities are combined into one project and/or bid.

There are two broad categories of aggregation:

- The first is project aggregation, when emissions reduction activities which are covered by a single approved methodology are grouped together and registered as a single project. The activities could be carried out on multiple sites. – For example, an aggregated project under the commercial building methodology might consist of energy efficiency activities in several buildings in one or more states and territories.

- The second is contract aggregation, when multiple projects are grouped into a single bid for the purpose of receiving a single carbon abatement contract through an ERF auction. In this case, the projects could be covered by different approved methodologies. – For example, a project proponent who has registered a commercial building project, a landfill gas project and a savanna fire management project could bundle these projects into a single bid for an ERF auction and contract.

It should be noted that the financial services regime will continue to apply to financial services that do not fall within the scope of the proposed exemptions to protect against the risks associated with these services. Therefore, financial services in relation to ACCUs which pose similar risks to other financial services, such as the brokering of trades, will continue to be regulated in a similar manner.

The Treasury is currently seeking public comment on the proposed exemptions. Consultation is open until 13 February 2015.