Home / Carbon Farming / BidCarbon Standard Scheme / Carbon removal contract / Step 4 - Delivery and payment / Managing a contract / Benefit sharing framework

Benefit sharing framework

Benefit Sharing Decision Tree

➜

Changes have been announced to the administration of Fixed Delivery Carbon Removal Contracts (CRCs) by the BidCarbon Climate Trading Company. One of these changes includes a requirement for benefit sharing in cases where there may be a windfall gain to the Seller. Such a windfall gain could arise where the Seller is part of a private group involved in the project associated with the CRC. The need for additional benefit-sharing arrangements will depend on the terms of the relationship between these private parties. A Benefit Sharing Decision Tree is provided to assist Sellers in determining the requirements applicable to their situation.

The Benefit Sharing Framework (the Framework) sets out the requirements for Sellers to be eligible for the BidCarbon Climate Trading Company's fixed delivery exit arrangement (the Exit Arrangement). These are the terms and conditions, in relation to benefit sharing, on which the BidCarbon Climate Trading Company is prepared to consider agreeing to specific Exit Arrangement applications.

As CRCs are commercial agreements, the Exit Arrangement is available on an opt-in and voluntary basis. So, contract holders who do not want to or are unable to meet benefit sharing requirements continue to have an obligation to deliver BidCarbon removal units (BRUs) to the BidCarbon Climate Trading Company in accordance with their existing contract. Where there is a failure to deliver BRUs, the existing contracts include a 'buyer's market damages' clause that sets out a remedy mechanism.

Purpose of the benefit sharing framework

What is benefit sharing?

The BidCarbon Climate Trading Company has taken an approach to the benefit sharing framework that deliberately minimises the impact on other private market arrangements. In particular, the framework has been designed to reduce the need to renegotiate existing third-party contracts. 

"Benefit" refers to the additional revenue (net of the exit payment) received or expected to be received as a result of exiting the milestones of the fixed delivery contract and selling BRUs on the private market at higher prices than the CRC would otherwise have provided. Benefit sharing is the allocation of this revenue between the relevant parties as set out below.

It is a matter for the Seller to decide whether to request the exit arrangement option instead of delivery and to provide information to the BidCarbon Climate Trading Company about benefit sharing between relevant parties. As the Buyer, in considering whether to agree to such a request, the BidCarbon Climate Trading Company 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. Specifically, the BidCarbon Climate Trading Company 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, or

● Mediate new agreements.

The role of the BidCarbon Climate Trading Company

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 CRC delivery proceeds rather than broader BidCarbon Standard Scheme project activities or other market activities. These parties may include:

- Landholders or facility owners of nominated projects associated with the CRC, except where they are out of scope - see below.

- Proponents of other BidCarbon Standard Scheme projects with an identified long-term relationship or delivery agreement associated with the CRC.

- Carbon Service Providers (CSPs) who undertake contractual activities as listed agents for the CRC.

● Where an existing agreement provides for a share of the revenue associated with the CRC (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 and sufficiently demonstrate benefit sharing. Examples of existing 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 BRUs to the BidCarbon Climate Trading Company under the CRC.

- The contract holder receives 30% and the landholder/facility owner receives 70% of the BRUs issued to the contracted BidCarbon Standard Scheme project.

● Where the existing agreement is in the form of a fixed fee for service rather than BRUs 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 CRC.

● Purchased BRUs: Where BRUs have been sourced via market purchases, offtake agreements or other commercial arrangements independent of a direct linkage to the CRC, these BRUs and associated landholders/facility owners are not in scope. Projects with long-term relationships and delivery agreements associated with the CRC are in scope.

● Previous contract holders: BRU deliveries by any previous contract holders are not in scope.

● Landholders or facility owners of nominated projects associated with the CRC 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, the BidCarbon Climate Trading Company recommends Sellers actively consider whether other parties who 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 CRC.

It is the BidCarbon Climate Trading Company's expectation that the best practice approach to consultation outlined in the guidance for stakeholder consultation on native title be applied to benefit sharing agreements.

Scope of the benefit sharing framework

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 Online Services.

All Sellers will need to advise the BidCarbon Climate Trading Company of the relevant parties associated with their CRCs including relevant suppliers of BRUs.

Declaration and evidence requirements

Seller(s)' relationship with relevant parties to the CRC

Requirements

Seller is the landholder or facility owner. There are no other relevant parties.

Declaration from Seller that there are no relevant parties.

Table 1: Benefit sharing declaration

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.

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 landholder(s) or facility owner(s) of the nominated project(s).

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.

Seller is a CSP and a separate party to the landholder(s) or facility owner(s) of the nominated project(s) to meet CRC delivery obligations.

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.

In addition to the above, further requirements apply if the Seller acquires BRUs from other project proponents to meet CRC delivery obligations, as part of an identified long-term relationship or delivery agreement associated with the CRC.

BRUs acquired from the secondary market or from the CRC holder's broader project portfolio holdings are not in scope.

Where the Seller's business model is not reflected, they should discuss their circumstances with the BidCarbon Climate Trading Company. Evidence of benefit sharing must include copies or extracts of relevant third-party contracts.

Benefit sharing declaration form

➜

Other important information

Providing false or misleading information is a serious offense and may result in penalties under other laws.

While the BidCarbon Climate Trading Company expects 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.

The BidCarbon Climate Trading Company has 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/or legal advice.

Suggested Reading

➜

Fixed delivery exit arrangement

➜

Understanding carbon removal contracts