What’s the difference between CfDs and the CCTI?

This is a very reasonable question. Both CfDs and the CCTI involve government stepping in to support investment in new clean industries where prices are uncertain and markets are still developing. At a high level, both aim to reduce revenue risk and help projects reach financial close.

But they operate in fundamentally different ways.

A CfD supports a project by topping up (or clawing back) revenue based on the market price the producer achieves when selling its product. The producer remains fully responsible for executing the sale. Government’s role is financial: it adjusts payments after the sale based on the difference between the market price and the agreed strike price.

The CCTI also supports a project by managing the gap between a target price and the realised sale price. However, the structure is different. Under CCTI, government retains control over how the physical product is sold.

For example, government may appoint the producer as its sales agent — but it can also appoint a different party if needed. Crucially, government maintains legal control over the product and the flexibility to determine:

• Who sells it

• How it is marketed

• How green attributes are bundled or separated

• How pricing strategy is managed

This difference matters for risk management.

Under a CfD, if government believes the producer is selling too cheaply - and therefore increasing the public payment required under the contract - its only remedy is to dispute the payment after the fact. That can involve complex and contentious legal arguments about what price “should” have been achieved in an immature market.

Under the CCTI model, government does not need to litigate over a derivative contract. If it is dissatisfied with how sales are being executed, it can intervene directly - including replacing the sales agent. The risk is managed operationally, not retrospectively through legal dispute.

In short:

• CfD = government insures revenue but does not control sales.

• CCTI = government supports revenue while retaining control over sales execution.

That structural difference significantly reduces dispute risk and gives government far greater flexibility in emerging, policy-driven markets.

A Contract-for-Difference (CfD) is not a contract to buy or sell a physical product. It is a financial agreement between a project developer and the government that stabilises revenue for the developer, thereby enabling ‘risky’ (eg first of a kind) projects to proceed.

Under a CfD, the government and the producer agree on a fixed “strike price” (a target price). The producer then sells its product (eg. green iron) into the market as usual.

• If the market price falls below the strike price, the government pays the producer the difference.

• If the market price rises above the strike price, the producer pays the government the difference.

In this way, the CfD “tops up” or “claws back” revenue so the producer effectively receives the agreed strike price over time.

This model works best in markets where prices are transparent, widely traded, and easy to verify. In those cases, the observed market price is a reliable benchmark, so both government and producer can be confident the contract reflects genuine market conditions.

The core risk is that there is no clear, trustworthy market price to base the contract on.

CfDs work by comparing a market sale price to an agreed strike price. But in early-stage markets like green iron, there often isn’t a transparent, widely traded price.

Green iron markets are still emerging. There are only a small number of buyers. Products vary in quality and technical specification. Prices are typically negotiated privately, deal by deal, rather than set on an open exchange.

In this environment, the price a producer receives can depend heavily on:

• how actively the product is marketed

• which buyer is chosen

• the timing of the sale

• the commercial strategy of the seller

It can be very difficult for government to judge whether a reported sale price reflects genuine market conditions — or simply weak marketing effort, conservative pricing, poor timing, or a strategic choice to accept a lower price.

A CfD does not solve this problem. The producer controls the sales process, while government payments are triggered by the price outcome. If that price is hard to verify or interpret, the government is effectively writing a cheque based on information it cannot fully assess.

This creates significant transparency and dispute risk — precisely because the benchmark price is not yet clear, liquid, or independently observable.

In an illiquid or early-stage market, the CfD will usually still pay out.

A CfD is triggered by the price achieved in the market. If the producer sells at a low price, the contract typically requires government to pay the difference up to the agreed strike price - regardless of why that price was low.

The difficulty is that government has limited visibility over the sales process and limited ability to intervene. It does not control how aggressively the product was marketed, or which buyers were approached, or the timing of sales, or the sales negotiation strategy used.

If concerns arise, the only real option is to argue - after the fact - that the producer failed to achieve a reasonable commercial outcome.

In a market that is still forming, this is extremely difficult to prove. There may be no clear benchmark price to compare against. Any attempt to challenge the sales outcome risks becoming a subjective dispute about what should have been achieved.

This creates three practical problems:

1. Dispute risk: disagreements about whether sales were handled properly.

2. Delay and uncertainty: which complicate public accountability.

3. Higher perceived risk for all parties: which ultimately increases costs.

In short, a CfD assumes the market price is objective and observable. In an immature market, that assumption may not hold.

CCTI starts from a fundamentally different premise: the government supports the physical transaction itself, not just the price outcome through a derivative contract.

Under a CfD, government pays (or receives) money based on the price the producer reports achieving in the market. The producer controls the sales process.

Under CCTI, government contracts for the physical supply of green iron. It then appoints a sales agent to sell the product and its associated clean attributes into the market. That agent could be the producer - but the legal structure is different.

Under CCTI:

• Government retains legal title to the product.

• Government has full visibility over the sales process.

• Government can see who the buyers are, how pricing decisions are made, and whether genuine effort is being applied.

• Government can choose how the product is sold.

This creates flexibility that a CfD does not provide. For example, government can:

• Sell the physical product bundled with its green attributes.

• Sell the physical product and green attributes separately.

• Sell the physical product while retaining the green attributes.

• Time sales strategically.

• Direct sales toward priority markets or partners.

In other words, government has operational control - not just financial exposure.

If sales performance is weak, or if the sales agent is not acting in good faith, the response is straightforward: the agent can be directed, corrected, or replaced. There is no need to retrospectively argue over whether a reported market price was “reasonable,” as would occur under a CfD.

CCTI reduces dispute risk because government is not second-guessing a price outcome after the fact. It is actively managing the transaction itself.

In short:

• CfD = government insures the price but does not control the sale.

• CCTI = government controls the sale and therefore manages the risk directly.

This matters because green iron is not yet a mature, liquid market - and its success depends on active market-building, not passive price-taking.

Both the physical product and the green attributes face uncertainty:

• Physical prices are not yet widely traded or transparently benchmarked.

• Volumes are large and “lumpy,” meaning a small number of deals can significantly move prices.

• Sales outcomes depend heavily on relationship management, negotiation strategy, and timing.

• The value of green attributes depends on evolving domestic and international policy settings - including mandates, border adjustments, and procurement rules.

In short, price outcomes are shaped by strategy and policy, not just by supply and demand.

In this context, relying on a derivative contract like a CfD - which pays out based purely on price differentials - leaves government exposed to outcomes it does not control. If prices are weak, government pays. If disputes arise, government must retrospectively argue about what a “fair” price should have been in a market that is still forming.

That is a fragile position in a politically sensitive, high-value emerging industry.

CCTI is better suited to green iron because it recognises that this is a market-building phase, not a mature commodity phase. It allows government to:

• Control the terms of sale.

• Manage how and where product is placed.

• Strategically bundle or separate green attributes.

• Respond directly to under-performance.

Rather than insuring a price outcome it cannot see into, government actively shapes the market as it develops.

For green iron - where prices, policy, and demand are all still evolving - that distinction is critical.

No. CfDs are well-established and effective tools in the right context.

They work particularly well in markets where prices are transparent, liquid and independently observable - such as wholesale electricity markets. In those environments, the market price is a credible benchmark, and a CfD can efficiently stabilise revenue without government needing to intervene in how sales are executed.

The issue is not whether CfDs are “good” or “bad” in general. The issue is whether they are well matched to the structure of the market in which they are applied.

In early-stage, illiquid clean commodity markets like green iron, price signals are still forming, sales are negotiated deal-by-deal, volumes are concentrated and execution strategy matters. In those conditions, risks around sales performance, weak price discovery and transparency become central.

Where those risks are significant, a model like CCTI may be better suited. By contracting for physical supply and retaining control over how sales are executed, government can actively manage market-building risk rather than relying on a derivative payment tied to prices it cannot fully observe or verify.

In short:

• CfDs are highly effective in mature markets.

• CCTI is designed for markets that are still being built.

In most early-stage clean commodity markets, yes.

A CCTI-based contract can be more bankable because it converts uncertain, hard-to-verify derivative price risk into a long-term physical offtake contract backed by a sovereign counterparty. That is a structure lenders understand, can model, and can underwrite at a lower cost of capital.

Compared to a CfD, a CCTI structure offers at least six potential advantages:

1. Stronger demand certainty

CCTI offtake contracts provide long-term commitments for defined volumes of physical product at fixed or floor prices from a highly rated government buyer.

For project financiers, this resembles the contracted revenue profile used to finance large-scale renewables: predictable cashflows from a strong counterparty over 10–15 years. That materially improves debt capacity and pricing.

2. Cleaner risk allocation

A CfD is a derivative settled against a reference or achieved market price. The producer still carries sales execution and counterparty risk, while government carries exposure to price outcomes it does not directly control.

In immature green commodity markets, price benchmarks are often weak or non-representative of specific products. This introduces:

• Basis risk (mismatch between benchmark and actual product)

• Incentive distortions

• Higher dispute risk

All of these increase perceived project risk and therefore the required return from equity and debt providers.

3. Observable and governable sales execution

Under CCTI, government contracts for the physical commodity and appoints a sales agent (which may be the producer) to execute resale.

Execution decisions - timing, buyer selection, bundling or separation of environmental attributes - are transparent and can be actively managed.

If performance is weak, the issue is handled through contract management (direct instruction or replacement of the agent), rather than through a complex legal dispute over derivative payments. That reduces uncertainty from a lender’s perspective.

4. Sovereign intermediation

By positioning the Commonwealth as the initial offtaker, CCTI intermediates between Australian producers and volatile export markets.

For lenders, this anchors credit exposure to Australian sovereign risk rather than to uncertain foreign carbon policies, demand mandates or trade regimes. That materially improves credit quality and reduces risk premiums.

5. Lower basis and policy risk

Because CCTI involves a physical transaction rather than a derivative tied to an evolving benchmark, it reduces the risk that changing policy definitions or market standards undermine contract performance.

This is particularly important in markets where green attribute definitions are still evolving.

6. Upside participation and fiscal sustainability

CCTI separates the physical commodity from its environmental attributes. Government can:

• Sell the physical product at conventional prices, and

• Trade, bundle, hold or strategically deploy the environmental attributes into emerging compliance or voluntary markets.

This creates the potential for fiscal recycling and upside participation for taxpayers, rather than purely one-way support payments.

From a Treasury and ratings perspective, a structure with visible asset flows and potential recovery mechanisms is easier to scale without triggering fiscal sustainability concerns. That, in turn, supports larger volumes and improves overall bankability for projects.

In short:

• A CfD insures a price outcome in a market government does not control.

• A CCTI contract provides a sovereign-backed physical offtake structure with active risk management; In early-stage clean commodity markets, lenders typically view the latter as more predictable — and price it accordingly.

The CCTI is best understood as a targeted demand-side instrument designed for early-stage clean commodity markets.

It works by using the Commonwealth balance sheet to enter into capped, pay-on-delivery physical offtake contracts with first-of-a-kind (FOAK) projects. In doing so, it brings forward investment by providing revenue certainty — while also creating a pathway for partial or full fiscal recovery through the later monetisation of environmental attributes.

This distinguishes it from other instruments:

• CfDs and reverse auctions primarily stabilise revenue through financial contracts linked to market prices.

• PTCs reduce production costs through per-unit tax credits.

• Mandates create demand by imposing compliance obligations on buyers.

CCTI combines elements of supply support and demand creation - but does so through physical contracting rather than derivative payments or tax expenditures.

Crucially, it is:

• Demand-anchored (via sovereign offtake),

• Capped and delivery-based (payments occur only when product is delivered),

• Actively risk-managed (through control over sales execution), and

• Potentially fiscally recoverable (via attribute monetisation once markets mature).

The table below compares these instruments across key dimensions such as fiscal exposure, bankability, risk allocation and price control.

The attributes could flow into multiple domestic and international markets, depending on where value is highest.

(1)   Domestic markets

(i)    Guarantee of Origin (GO) schemes

Product GO systems are being developed to track emissions intensity through supply chains. For green metals or SAF, methodologies could allow the environmental attribute to be separated from the physical product for CCTI projects.

In this case:

• The physical product is treated as conventional in trade.

• The Commonwealth retains the tradable low-emissions attribute.

Those attributes could:

• Support voluntary low-emissions claims; or

• Be deployed into future mandates or clean-product compliance schemes.

(ii)   Carbon and safeguard markets

Where methodologies permit, attributes could generate units under existing frameworks (e.g. ACCU-style or safeguard-linked instruments) and be sold into domestic compliance or voluntary markets.

(2)   International markets

If recorded in a recognised registry:

• Attributes could support participation in emerging carbon border regimes;

• Contribute to Article 6-type transactions;

• Be deployed in bilateral arrangements with trading partners such as Japan or Korea seeking credible low-emissions imports.

The key point is flexibility. Government can both shape the regulatory settings that determine demand (e.g. mandates) and decide when and where to monetise attributes to maximise taxpayer value.

Through strict assignment rules and registry controls.

Integrity depends on one principle: Each unit of abatement or low-emissions value is credited once, in one system, to one owner.

Under CCTI design:

• Attribute separation occurs only under approved methodologies;

• The environmental attribute is explicitly assigned to the Commonwealth (or its nominee) where a CCTI contract exists;

• The physical product is recorded and treated as conventional elsewhere.

Registries then enforce integrity by:

Flagging which emissions reductions are linked to which instrument;

• Preventing the same reduction being issued across multiple schemes;

• Locking or retiring units once used;

• Blocking cross-issuance between domestic and overseas systems.

This combination of clear legal assignment, registry architecture and single-use rules prevents double counting while preserving flexibility to monetise attributes efficiently.

Not on its own.

A production tax incentive improves project economics by lowering the effective cost of SAF production. It can accelerate some supply-side investment. But it has structural limitations.

1. Calibration risk

A PTC must be set at the right level: If it is too low, it will not mobilise supply at scale. If it is too high, it creates windfall gains and unnecessary fiscal cost. This binary calibration problem is difficult in a volatile feedstock and technology cost environment. Unlike negotiated contracts, a uniform per-unit credit cannot easily be fine-tuned project-by-project.

2. No demand guarantee

A PTC improves supply economics but does not guarantee buyers, volumes or price stability. Projects may still struggle to secure long-term offtake contracts.

3. One-way fiscal exposure

A PTC is a one-way transfer. Once paid, there is no recovery mechanism. Support cannot be recycled later if SAF becomes mandatory or commercially viable.

4. Mandate launch risk remains unresolved

If a SAF mandate is introduced into a thin market:

• Compliance prices are initially set by scarcity.

• Airlines become price-takers.

• Higher compliance costs are likely to flow through to ticket prices.

• Political backlash and cost-of-living pressure follow.

• Airlines argue government failed to secure supply.

A PTC does not solve this sequencing problem. It lowers costs but does not anchor launch prices or guarantee supply timing.

By separating supply-building from mandate-launch.

Under CCTI:

• Government contracts in advance for SAF and its environmental attributes.

• A verified bank of SAF credits is accumulated before any mandate begins.

• A mandate is introduced only once supply is demonstrably available and the cost base is known.

This changes the launch dynamics fundamentally. The CCTI enables:

• Supply certainty before obligations
  Contracts bring forward FID and verify delivery.

• Price anchoring at launch
  Government holds a bank of credits and can release them to prevent a scarcity premium.

• Political risk management
  Mandate timing is discretionary and evidence-based.

• Fiscal recycling
   Credits contracted early can later be sold into the compliance market to recover part of the public support.

These control levers do not exist under a PTC-only or mandate-first pathway.

Because the first compliance price in a thin market is set by scarcity, not cost.

Once a mandate is live:

• Airlines must comply regardless of price.

• Government becomes a price-taker.

• Relief measures, caps or redesign are reactive and politically messy.

The CCTI uniquely preserves price control at launch by ensuring that the initial compliance market is supplied from an existing, verified credit bank.

That prevents a launch spike and anchors prices closer to known production costs.

Potentially, yes.

Unlike a PTC, which is a one-way subsidy per litre, CCTI contracts for SAF credits upfront and later sells them into the compliance market once a mandate exists.

This creates a mechanism to:

• Recover part of the initial public support.

• Reduce net fiscal cost over time.

• Improve perceived policy durability and scalability.

For Treasuries and ratings agencies, a structure with visible asset flows and recovery pathways is easier to defend than an open-ended per-unit tax credit.

A PTC applies the same per-unit credit to all producers, regardless of cost structure.

CCTI support is negotiated competitively and project-specifically. Contracts can be set at “just sufficient” levels to bring production forward without creating windfalls.

This reduces over-subsidisation risk and improves value for money.

Most SAF‑mandate countries are using a wide diversity of subsidy tools to support supply: the EU leans on price‑gap support via ETS, Singapore on centralised procurement through SAFCo funded by a levy, Japan on direct production subsidies, and the UK on contracts‑for‑difference through its Revenue Certainty Mechanism (RCM).

These schemes either start with very small blend mandates or targets far into the future, are highly flexible, and are ultimately reliant on ongoing taxpayer or levy support, which creates uncertainty about how fast supply can scale to deliver meaningful emissions cuts. In addition, this diversity of policy approaches at what is still an early stage of SAF scale-up underlines that no clear “best practice” has yet emerged.