This page describes the market for energy savings certificates, including information on certificate pricing and penalty rates
What are energy savings certificates?
An energy savings certificate is a tradable certificate created under Division 7 of Part 9 of the Electricity Supply Act 1995. Each energy savings certificate represents the equivalent of 1 tonne of CO2-e resulting from energy savings activities.
Who purchases energy savings certificates?
People interested in buying energy savings certificates include:
- Liable Entities, who are required under NSW legislation to acquire and surrender energy savings certificates or pay a penalty. The number of energy savings certificates required by a Liable Entity depends on their compliance obligations.
- Intermediary agents who might subsequently sell the energy savings certificates to Liable Entities.
- Organisations or individuals interested in voluntarily purchasing offsets to manage their carbon footprint.
Liable Entities under the Energy Savings Scheme include all NSW electricity retailers and certain generators.
Review the list of Liable Entities
Certificate pricing and penalty rates
The price of certificates varies due to supply and demand and can fluctuate considerably depending on market conditions. Historically, ESCs have traded at prices around $14.00 - $32.00 (The Green Room reports, NGES.com.au).
There is no maximum price for a certificate. However, the penalty price acts as a practical maximum price - if a Liable Entity does not surrender the required number of certificates in a given year (excluding any shortfall it is allowed to carry forward to the next compliance year), it must pay a penalty.
The penalty rate is set annually, and for the 2015 compliance year it is $26.54 per certificate and is not tax deductible. Once tax impacts are taken into account, this is equivalent to $37.91 per certificate.
As the company tax rate is expected to reduce from the current rate of 30 percent to 28.5 percent from 1 July 2015, the penalty rate with tax impacts will change to $37.12 from 1 July 2015.
Please note that the figures with tax impacts are indicative only, as the net effect of tax impacts on individual companies may differ, and is subject to changes in the government tax rate.
Some organisations such as the Australian Financial Markets Association (AFMA) and a few environmental brokers provide regular updates on certificate wholesale market prices. Subscription to these services typically involves a fee.
Creating and selling certificates
Most energy savings certificates traded by direct contract between an Accredited Certificate Provider and a buyer. Contracts and prices vary. Currently there are no standard contracts for certificates traded or a recognised exchange. We are currently aware of three types of contracts for trading certificates:
- Spot contract.
- Forward contract.
- Option contract.
For further guidance on contracts and dealing with contracts for energy savings certificates, please refer to the Environmental Product Conventions published by the Australian Financial Markets Association.
Please note that when dealing with some contracts, you may need to hold an Australian Financial Services Licence (which are issued by the Australian Securities & Investments Commission). You should seek independent advice on your obligations in relation to your chosen contracting model.
Anyone can negotiate directly with an electricity retailer to sell energy savings certificates. Some retailers require a small number of certificates to meet their compliance obligations, and prefer to negotiate with Accredited Certificate Providers directly to avoid dealing with standard parcel sizes (of 5,000 certificates) traded in wholesale markets.
The title of the person responsible for acquiring certificates will vary from company to company. They could be the Regulatory Manager, Compliance Manager, Environmental Manager, Carbon Manager, or Head of Trading.