The ERF is at the heart of the federal government's Direct Action plan and will purchase emissions reductions through a carbon abatement purchasing process.

This process could include a reverse auction, tender or other process. The regulator plans to hold the first auction early this year but will provide at least six weeks' notice of the auction date.

Emission reduction purchases will be in the form of Kyoto Australian carbon credit units (ACCUs) and will be made through a Carbon Abatement Contract – draft terms were released last month – at a price determined through a pay-as-bid reverse auction.

Auctions will be conducted in accordance to these draft guidelines, which are divided into six sections: auction schedule; auction qualification and registration; disqualification and obligations of participants and authorised bidders; auction bidding; auction suspension and cancellation; and auction information publication and timelines.