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2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
CARBON POLLUTION REDUCTION SCHEME BILL 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Minister for
Climate Change and Water, Senator the Honourable Penny Wong)
Table of contents
Glossary .................................................................................................. 1
General outline of the Carbon Pollution Reduction Scheme Bill
2010 ........................................................................................................ 3
Chapter 1 Liable entities and covered emissions ................................. 31
Chapter 2 Scheme caps, gateways and emissions units ..................... 83
Chapter 3 Allocation of units -- introduction, auction and fixed
charge units .............................................................. 109
Chapter 4 Emissions-intensive trade-exposed assistance
program..................................................................... 119
Chapter 5 Coal mining ....................................................................... 135
Chapter 6 Coal-fired electricity generation ......................................... 147
Chapter 7 Reforestation ..................................................................... 191
Chapter 8 Destruction of synthetic greenhouse gases....................... 223
Chapter 9 Domestic Offsets Program ................................................ 231
Chapter 10 Assessment, surrender, relinquishment and
voluntary cancellation ............................................... 247
Chapter 11 Compliance and enforcement.......................................... 261
Chapter 12 The Australian National Registry of Emissions Units ...... 279
Chapter 13 Public information ............................................................ 287
Chapter 14 Independent reviews ....................................................... 293
Chapter 15 Review of decisions and miscellaneous provisions ......... 305
Index ................................................................................................... 313
Glossary
The following abbreviations and acronyms are used in this explanatory
memorandum.
Abbreviation Definition
Authority The Australian Climate Change
Regulatory Authority
The bill The Carbon Pollution Reduction
Scheme Bill 2010
CO2-e Carbon dioxide equivalence
The consequential The Carbon Pollution Reduction
amendments bill Scheme (Consequential
Amendments) Bill 2010
CSAS Coal Sector Adjustment Scheme
DOIC Domestic Offsets Integrity Committee
ESAS Electricity Sector Adjustment Scheme
Eligible emissions unit An Australian emissions unit or an
eligible international emissions unit
Eligible international A certified emission reduction (other
emissions unit than a temporary certified emission
reduction or a long-term certified
emission reduction), an emission
reduction unit, a removal unit, a
prescribed unit issued in accordance
with the Kyoto rules
Garnaut Climate Change R. Garnaut, The Garnaut Climate
Review Final Report; Change Review: Final Report,
Garnaut Final Report Cambridge University Press, 2008
Green Paper Carbon Pollution Reduction Scheme
Green Paper, July 2008
IPCC Intergovernmental Panel on Climate
Change
1
Carbon Pollution Reduction Scheme Bill 2010
Abbreviation Definition
Kyoto units An assigned amount unit, a certified
emission reduction, an emission
reduction unit, a removal unit or a
prescribed unit issued in accordance
with the Kyoto rules
Kyoto rules This term is defined in section 5. In
brief, it includes the Kyoto Protocol,
decisions of the Meeting of the Kyoto
Parties, certain standards adopted by
such a Meeting and prescribed
instruments
NCOS National Carbon Offset Standard
NEMMCO The National Electricity Market
Management Company
Non-Kyoto international A prescribed unit issued in
emissions units accordance with an international
agreement (other than the Kyoto
Protocol) or a prescribed unit issued
outside Australia under a law of a
foreign country
OTN Obligation transfer number
Registry National Registry of Emissions Units
The Scheme The Carbon Pollution Reduction
Scheme
White Paper Carbon Pollution Reduction Scheme:
Australia's Low Pollution Future,
White Paper, December 2008
2
General outline of the Carbon Pollution
Reduction Scheme Bill 2010
Rationale for the Carbon Pollution Reduction Scheme
Climate change is the greatest social, economic and environmental
challenge of our time. Scientific evidence confirms that human activities,
such as burning fossil fuels (coal, oil and natural gas), agriculture and land
clearing, have increased the concentration of greenhouse gases in the
atmosphere. As a consequence, the earth's average temperature is rising
and weather patterns are changing. This is affecting rainfall patterns,
water availability, sea levels, storm activity, droughts and bushfire
frequency, putting at risk Australian coastal communities, health
outcomes, agriculture, tourism, heritage and biodiversity for current and
future generations.1
The climate is already changing, with more frequent and severe droughts,
rising sea levels and more extreme weather events. Globally, the decade
of the 2000s (2000-2009) was warmer than the decade spanning the
1990s (1990-1999), which in turn was warmer than the 1980s (1980-
1989)2. Australia has experienced temperatures warmer than 1961-90
average mean annual temperature for 18 of the past 20 years.3 In
Australia, each decade since the 1940s has been warmer than the
preceding decade.4 The latest report from the Intergovernmental Panel on
Climate Change (IPCC), the 2007 Fourth Assessment Report, concludes
that Australia has significant vulnerability to the changes in temperature
and rainfall projected over the coming decades.5
The Garnaut Climate Change Review Final Report paints a bleak picture
of Australia at the end of this century should greenhouse gas emissions
continue unchecked. There would be major declines in agricultural
production across much of the country. The Great Barrier Reef and other
reef systems, such as Ningaloo, would be effectively destroyed, with
serious ramifications for tourism industries and biodiversity. Coastal
infrastructure would be at risk of damage from storm surges and flooding.
Key Australian export markets would have significantly lower economic
1
Intergovernmental Panel on Climate Change, Fourth assessment report, Synthesis report,
2007.
2
WMO press release 2000-2009, the Warmest Decade.
3
Based on Bureau of Meteorology data.
4
Australian Government Bureau of Meteorology Annual Australian Climate Statement 2009.
5
Intergovernmental Panel on Climate Change, Fourth assessment report, Synthesis report.
3
Carbon Pollution Reduction Scheme Bill 2010
activity, feeding back into lower prices for Australian exports and poorer
terms of trade.
The Garnaut Final Report also suggests that emissions are tracking at the
upper bounds of the scenarios modelled by the IPCC in the Fourth
Assessment Report. New data and scientific understanding, unavailable
for the Fourth Assessment Report, suggest that the rate and magnitude of
climate change over the next century may be at the high end of the range
estimated by the IPCC. There is increasing concern about the stability of
the Greenland and west Antarctic ice sheets, with major implications for
sea-level rise.6
The costs of inaction on climate change
The IPCC's Fourth Assessment Report suggests that, in a `business as
usual' world where world-wide economic growth continues based on
fossil fuels, the best estimate of temperature rise by the end of the century
would be 4 degrees Celsius.7 The report says that climate change caused
by this temperature rise is very likely to have widespread and severe
consequences, including significant species extinctions around the globe,
increased danger of wildfire, real threats to food production, and severe
health impacts, with dramatic increases in morbidity and mortality from
heatwaves, floods and droughts.8
The environmental impacts of climate change have flow-on effects for
other aspects of human society, such as the economy, security and human
health.
Small variations in climate are expected to be more damaging to Australia
than to other developed countries. Climate change will also affect
Australia's neighbours.
Referring to Australia's region, the Lowy Institute for International Policy
has noted:
... even if not catastrophic in themselves, the cumulative impact of
rising temperatures, sea levels and more mega droughts on
agriculture, fresh water and energy could threaten the security of
states in Australia's neighbourhood by reducing their carrying
capacity below a minimum threshold, thereby undermining the
legitimacy and response capabilities of their governments and
jeopardising the security of their citizens. Where climate change
coincides with other transnational challenges to security, such as
6
EJ Rohling, K Grant, CH Hemleben, M Siddall, BAA Hoogakker, M Bolshaw & M Kucera,
`High rates of sea level rise during the last interglacial period', Nature Geoscience, 2008,
vol. 1, pp. 38-42.
7
Intergovernmental Panel on Climate Change, Fourth Assessment Report, Synthesis report.
8
Intergovernmental Panel on Climate Change, Fourth Assessment Report, Synthesis report.
4
General Outline
terrorism or pandemic diseases, or adds to pre-existing ethnic and
social tensions, then the impact will be magnified.9
Australia's economic growth in recent years has boosted domestic living
standards and consumption. This growth has been supported by rapidly
expanding developing economies, particularly in the Asia-Pacific region.
Continued growth in developing economies could be threatened by the
impacts of climate change as expenditure is diverted to cope with severe
weather events, food crop failures, droughts and population displacement.
The findings of the Garnaut Final Report suggest that, in the long term,
the costs of inaction will be greater than the costs of mitigation. The
aggregate costs of action are modest, and the benefits of action (and the
cost of inaction) increase over time, becoming more pronounced in the
second half of this century and beyond.
Analysis presented in the Garnaut Final Report builds a strong case for
responding to climate change with mitigation action. The Garnaut Final
Report observes that `the overall cost to the Australian economy is
manageable and in the order of one tenth of 1 per cent of annual economic
growth'10 and concludes that `the costs of well-designed mitigation,
substantial as they are, would not end economic growth in Australia, its
developing country neighbours or the global economy; unmitigated
climate change probably would'.11
The Garnaut Final Report also predicts that, in a world of unmitigated
climate change, real wages will be 12 per cent lower by 2100 than in a
world without climate change. This is due to the reduced demand for
labour in the second half of the century as a result of climate change.
The Government accepts the key findings of the Garnaut Climate Change
Review Final Report that:
· a fair and effective global agreement delivering deep cuts in
emissions consistent with stabilising concentrations of
greenhouse gases at around 450 parts per million or lower
would be in Australia's interests
· achieving global commitment to emissions reductions of this
order appears unlikely in the next commitment period
· the most prospective pathway to this goal is to embark on
global action that reduces the risks of dangerous climate
change and builds confidence that deep cuts in emissions are
9
A Dupont & G Pearman, Heating up the planet: Climate change and security, Lowy Paper
12, Lowy Institute for International Policy, 2006.
10
R Garnaut, The Garnaut Climate Change Review: Final report, Chapter 12.
11
R Garnaut, The Garnaut Climate Change Review: Final report, Chapter 11.
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Carbon Pollution Reduction Scheme Bill 2010
compatible with continuing economic growth and improved
living standards.
Economies can respond more efficiently to new circumstances when
businesses and individuals have certainty about long-term direction.
Starting as soon as possible on a gradual adjustment to a low-carbon
economy will give them the opportunity to plan their adjustment pathways
and manage changes in technology, equipment and skills requirements,
and will minimise the risk of stranding existing long-lived assets12. This
will help to reduce the costs of mitigation.
The Australian community stands to gain from a comprehensive response
to climate change. Modelling conducted by the CSIRO suggests that
taking action to reduce Australia's greenhouse gas emissions is consistent
with strong jobs growth over the next 10 years -- including in the
relatively emissions-intensive the transport, construction, agriculture,
manufacturing and mining sectors.13 A comparison can be drawn with the
process of Australian tariff reform, whereby structural reform triggered
growth in productivity, jobs and living standards.
While some climate change is unavoidable, the negative effects of
warming can be substantially diminished by prompt and concerted action.
The sooner we stabilise and then reduce atmospheric concentrations of
greenhouse gases, the sooner we can reduce our impact on the climate and
minimise the risk of dangerous change.
The Government's climate change strategy
The Government's climate change policy is built on three pillars --
reducing Australia's carbon pollution, adapting to the impacts of climate
change that we cannot avoid, and helping to shape a global solution.
Reducing Australia's carbon pollution
The Government is committed to a medium-term national target range of
reducing emissions by between an unconditional 5 per cent of 2000 levels
by 2020, with up to 15 per cent or 25 per cent of 2000 levels by 2020
conditional on the extent of action by other nations as set out in the Prime
Minister's announcement of 4 May 2009.14. The Government is also
12
Stranded assets are those that are no longer economically viable due to a change in
circumstance, even though they are viable from an engineering point of view.
13
S Hatfield Dodds, G Turner, H Schandl & T Doss, Growing the green collar economy:
Skills and labour challenges in reducing our greenhouse emissions and national
environmental footprint, report to the Dusseldorp Skills Forum, CSIRO Sustainable
Ecosystems, Canberra, 2008.
14
Joint press release by the Prime Minister, the Hon Kevin Rudd MP with the Treasurer, the
Hon Wayne Swan MP and the Minister for Climate Change and Water, Senator the Hon
6
General Outline
committed to a long-term emissions reduction target of 60 per cent below
2000 levels by 2050.
In the event that there is a comprehensive global agreement capable of
stabilising atmospheric concentrations of greenhouse gases at around
450 parts per million of carbon dioxide equivalence or lower, the
Government has committed to a target of reducing emissions by
25 per cent of 2000 levels by 2020. Such an ambitious global agreement
would be in Australia's national interest.
While international developments have improved the prospects of
achieving such an agreement, it will require a significant further shift in
negotiating dynamics so that all advanced and major developing
economies take serious action to restrain and then reduce emissions.
Achieving global commitment to such action in the near term will be very
challenging. The Government is therefore pursuing responsible action
now, to help move the economy to a low pollution future and position
Australia to be part of a comprehensive 450 parts per million agreement in
the future when that proves possible.
Should the world achieve this ambitious agreement, the Government
would also seek a new election mandate for an increased target for 2050.
In December 2009, in Copenhagen, the world came together at the United
Nations Climate Change Conference to agree to a path forward on climate
change. The Conference of the Parties noted the Copenhagen Accord.
The Accord, strongly supported by both developed and developing
countries, is the first time there has been agreement to hold the increase in
global temperature below two degrees Celsius.
The Government fully supports the Accord and submitted information on
Australia's 2020 quantified economy-wide emissions reduction target
range, outlined above, to the UNFCCC secretariat on 27 January 2010.15.
The Government will continue to support negotiations under the United
Nations Framework Convention on Climate Change (UNFCCC) to deliver
further climate change actions.
Meeting the emissions reductions targets will be challenging. Australia's
emissions have been growing rapidly since 1995. Monitoring and
Penny Wong MP New Target for Reducing Australia's Carbon Pollution dated 4 May 2009
http://www.pm.gov.au/node/5187
15
Media release by the Minister for Climate Change and Water, the Hon Senator Penny Wong
dated 27 January 2010 Australia's Submission to Copenhagen Accord
http://www.climatechange.gov.au/minister/wong/2010/media-releases.aspx
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Carbon Pollution Reduction Scheme Bill 2010
reporting of Australia's emissions by the Department of Climate Change16
suggest that, while Australia is likely to meet its Kyoto Protocol target of
limiting emissions in the 2008-2012 period to an average of 108 per cent
of 1990 levels, emissions will increase to 120 per cent of 1990 levels by
2020 (even after the expanded Renewable Energy Target is taken into
account) without additional policy measures.17 This indicates considerable
momentum in national emissions.
The Government will manage the transformation to a low-carbon
economy through:
· the implementation of the Carbon Pollution Reduction
Scheme (the primary tool for driving reductions in
greenhouse gas emissions)
· an expanded national Renewable Energy Target
· investment in renewable energy technologies and in the
demonstration of carbon capture and storage
· action on energy efficiency.
To avoid adverse income or distributional effects arising from the Scheme
and ensure the most vulnerable households in society are protected, the
Government is introducing changes to the tax and transfer systems and is
introducing new, and accelerating existing, energy efficiency measures to
help alleviate increases to the cost of living arising from the Scheme.
The Government has established the $1.97 billion Climate Change Action
Fund to provide targeted assistance to business, community sector
organisations, workers, regions and communities to smooth the transition
to a low pollution economy. The Fund will help break down market
barriers that may raise the cost of responding to a carbon price, and
encourage investment in low-emissions technology. It will also provide
targeted assistance for regions, communities and workers that may be
disproportionately affected by the introduction of the Scheme because of
their economic reliance on industries that are more exposed to a carbon
price.
16
Department of Climate Change, Tracking to the Kyoto Target: Australia's greenhouse
emissions trends 1990 to 2008 2012 and 2020, Commonwealth of Australia, 2008.
17
Modelling conducted by the Australian Treasury (published in Australia's low pollution
future (2008)) used scenarios to explore the potential economic effects of climate mitigation
policy on Australia. Each scenario represents, in a stylised way, a different possible future,
including levels of greenhouse emissions, which may differ from those projected in
Tracking to the Kyoto target. The scenarios developed and presented by the Treasury in
Australia's low pollution future are illustrative and do not represent the official policy or
negotiating position of the Australian Government, are not an official Government or
Treasury forecast, and are not an official projection of Australia's future greenhouse gas
emissions.
8
General Outline
The Climate Change Action Fund will commence in 2009-10, with the
first tranche of funding supporting businesses and community
organisations to take early action in identifying energy efficiency
opportunities and invest in energy improvements.
The Government will establish a Prime Minister's Task Group on Energy
Efficiency to consider and advise on economically and environmentally
effective energy efficiency measures. The Task Group will report to the
Government by mid-2010 on options for introducing new energy
efficiency mechanisms to complement the Scheme and the Renewable
Energy Target.
The Government has also committed $75.8 million over five years from
2009-10 to establish the Australian Carbon Trust to further support action
on climate change by households and businesses. Of this, $50 million will
be seed funding to an Energy Efficiency Trust to support energy
efficiency investment in the business sector. The Trust will demonstrate
innovative approaches to energy efficiency investment with the aim of
increasing business awareness of energy efficiency opportunities and
facilitating the growth of private sector capacity in this area.
The Australian Carbon Trust will also deliver an Energy Efficiency
Savings Pledge Fund, which will assist households to identify
opportunities to reduce energy use, save money and directly contribute to
achieving emission reductions beyond Australia's targets.
In addition, the Council of Australian Governments agreed on 2 July 2009
to a National Strategy for Energy Efficiency. The Strategy is designed to
accelerate energy efficiency improvements across all sectors of the
economy and help households and businesses prepare for the introduction
of the Scheme.
Adapting to unavoidable climate change
Even if global mitigation efforts are successful, scientific evidence
indicates that some climate change is unavoidable. The National Climate
Change Adaptation Framework has been developed by the Australian
Government and all State and Territory governments to build Australia's
capacity to respond effectively to climate change, and outlines action to
reduce regional and sectoral vulnerability.
Helping to shape a global solution
While Australia is responsible for only a relatively small proportion of
global emissions, Australia's climate and economy are likely to be
strongly affected by climate change. Australia therefore has a strong and
direct national interest in pursuing a global solution. Being one of the
group of countries leading the global response means that Australia is in a
position to positively shape an international agreement to address climate
change beyond the first compliance period of the Kyoto Protocol, which
9
Carbon Pollution Reduction Scheme Bill 2010
ends in 2012. The Government supports the fast and full implementation
of the Copenhagen Accord. Australia's domestic action will also be a
critical influence on our international credibility and capacity to help
shape an effective global response.
Major steps to date
United Nations Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change was
ratified by Australia on 30 December 1992. The Convention is aimed at
stabilising greenhouse gas concentrations in the atmosphere at a level that
would prevent dangerous anthropogenic interference with the climate
system. It includes an obligation on Australia to `adopt national policies
and take corresponding measures on the mitigation of climate change, by
limiting anthropogenic emissions of greenhouse gases and protecting and
enhancing its greenhouse gas sinks and reservoirs' (Article 4.2(a)). It
provides an overall framework for intergovernmental efforts on climate
change.
Ratification of the Kyoto Protocol
The Prime Minister handed over Australia's instrument of ratification of
the Kyoto Protocol on 3 December 2007. The ratification entered into
force on 11 March 2008. Under the Kyoto Protocol, Australia is
committed to restraining its national emissions to an average of
108 per cent of 1990 levels over the first commitment period (2008 to
2012).
The Garnaut Climate Change Review
The Garnaut Climate Change Review was an independent study
conducted by Professor Ross Garnaut and commissioned by Australia's
Commonwealth, state and territory Governments. The Review was
established on 30 April 2007, and concluded on 30 September 2008. A
number of forums were held around Australia to engage the public on
various issues relating to the Review.
The Review examines the impacts of climate change on the Australian
economy and the costs of adaptation and mitigation. It analyses the
elements of an appropriate international policy response, and the
challenges that face Australia in playing its proportionate part in that
response. It recommends medium to long-term policies and policy
frameworks to improve the prospects for sustainable prosperity. In making
these recommendations, the Review considered policies, including the
design of the Carbon Pollution Reduction Scheme that: mitigate climate
change, reduce the costs of adjustment to climate change (including
through the acceleration of technological change in supply and use of
10
General Outline
energy), and reduce any adverse effects of climate change and mitigating
policy responses on Australian incomes.
Green Paper
On 16 July 2008, the Government released its Carbon Pollution Reduction
Scheme Green Paper. This Paper reflected the Government's preferred
positions on issues relating to the Scheme.
After the publication of this paper, the Government received more than
1000 submissions relating to all aspects of climate change policy. More
than 2400 people attended 18 public consultation sessions and workshops
held in capital cities and regional areas. More than 260 companies
attended technical workshops and meetings. Six industry and
non-government roundtables were held with representatives from
45 organisations.
Treasury modelling
The Treasurer and the Minister for Climate Change and Water released
Australia's Low Pollution Future: The Economics of Climate Change
Mitigation on 30 October 2008.
The report presents the results of the Treasury's economic modelling of
the potential economic impacts of reducing emissions over the medium
and long term. It spans global, national and sectoral scales, and looks at
distributional impacts, such as the implications of emission pricing for the
goods and services that households consume.
The Treasury's modelling demonstrates that early global action is less
expensive than later action; that a market-based approach allows robust
economic growth into the future even as emissions fall; and that many of
Australia's industries will maintain or improve their competitiveness
under an international agreement to combat climate change.
White Paper
On 15 December 2008, the Government released its White Paper entitled
Carbon Pollution Reduction Scheme: Australia's Low Pollution Future.
This reflected the Government's decisions on the Scheme. It addressed
scheme design issues including scheme caps, emissions coverage,
reporting and compliance, the nature of Australian emissions units,
international linking, auctioning, assistance for emissions-intensive trade-
exposed activities and coal-fired electricity generation, household
assistance, tax and accounting issues, and complementary measures
including the Climate Change Action Fund.
Public information sessions on the White Paper were held in capital cities
in December 2008. On 26 February 2009, public information sessions
were delivered through a Sky Channel broadcast to 37 regional centres.
11
Carbon Pollution Reduction Scheme Bill 2010
The detailed policy positions in the White Paper and subsequent policy
decisions taken by the Australian Government form the basis of the
current package of bills.
Exposure draft legislation
On 10 March 2009, the Government released the following draft bills for
public comment:
· Carbon Pollution Reduction Scheme Bill 2009
· Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2009
· Australian Climate Change Regulatory Authority Bill 2009
· Carbon Pollution Reduction Scheme (Charges -- General)
Bill 2009
· Carbon Pollution Reduction Scheme (Charges -- Customs)
Bill 2009
· Carbon Pollution Reduction Scheme (Charges -- Excise)
Bill 2009.
Further industry and non-government organisation roundtables were
conducted, as well as stress testing workshops. Workshops were also held
on a wide range of emissions-intensive trade-exposed activities.
The exposure period ended on 14 April 2009. The Department received
about 170 submissions and approximately 11,000 campaign emails. The
comments received were taken into account in the preparation of the bills
introduced into Parliament.
New measures announced on 4 May 2009
As a result of extensive consultation with the community, business and
environmental advocates, the Government announced a package of new
measures for the Scheme, including:
· a delay in the start date of the Scheme of one year, to help
Australian businesses to manage the impacts of the global
recession
· a one year fixed-price period in 2011-12, during which
emissions units will cost $10 per tonne of carbon, with the
transition to full market trading from 1 July 2012
· eligible businesses will receive funding to undertake energy
efficiency measures commencing in 2009-10
· a commitment to reduce carbon pollution by 25 per cent of
2000 levels by 2020 if the world agrees to an ambitious
12
General Outline
global deal to stabilise levels of carbon dioxide equivalent
(CO2-e) in the atmosphere at 450 parts per million or less
· up to five percentage points of the 25 per cent target could be
achieved through Government purchase of international
credits, such as avoided deforestation credits, using Scheme
revenue and commencing no earlier than 2015
· should the world achieve this ambitious agreement, the
Government would seek a new election mandate for
increased 2050 targets
· the establishment of Australian Carbon Trust to allow
households to do their bit by investing directly in reducing
Australia's emissions and to drive energy efficiency in
commercial buildings and businesses.
These measures will allow the Australian economy more time to recover
from the impacts of the global recession, while strengthening Australia's
2020 carbon pollution target, assisting business to prepare for a low
carbon future, and supporting individual households and businesses to
reduce emissions.
Changes announced on 24 November 2009
The Government announced a number of further changes to the Scheme
on 24 November 2009. These changes made adjustments to:
· household assistance - modified to reflect the lower carbon
price estimate ($26 per tonne) due to the appreciation of the
Australian dollar.
· emissions-intensive trade-exposed industries with regards to
assistance rates, review of the carbon productivity
contribution and liquefied natural gas production - includes
incorporation of the Global Recession Buffer into base
assistance rates which will not be removed after five years,
assistance will decline at 1.3 per cent per annum, and
liquefied natural gas is expected to be eligible for assistance.
· food processing - assistance for the food processing sector
under the Climate Change Action Fund (CCAF).
· agriculture, including the exclusion of emissions and the
inclusion of offsets - agriculture will be excluded indefinitely
and offsets will be provided for abatement from agricultural
emissions and other uncovered sectors.
· coal mining - the coal sector will receive assistance through
the Coal Sector Adjustment Scheme, in the form of permits,
and the Coal Mining Abatement Fund through CCAF.
13
Carbon Pollution Reduction Scheme Bill 2010
· Electricity Sector Adjustment Scheme (ESAS) and the
inclusion of the Low Emissions Transition Incentive -
duration and quantum of assistance under ESAS to be
increased and a Low Emissions Transition Incentive
introduced to provide generators with credit for investment in
replacement capacity.
· a Transitional Electricity Cost Assistance Program - a
transitional fund to reduce the impact of electricity prices on
medium to large corporations in the manufacturing and
mining sectors.
· measures to further encourage voluntary action - potential
for adjustment of targets to take voluntary action into
account.
· other issues - including removing liability for exported fossil
fuel; providing that the forestry sector is eligible for CPRS
fuel tax credits; consultation on operational subsidiary
liability and joint venture liability; and minor amendments to
procedural provisions.
These changes will ensure that the CPRS delivers for the environment and
for households, while at the same time providing significant new
assistance to industry to help make the transition to a low carbon future.
The final package is in the national interest and is both environmentally
credible and economically responsible.
The 2009 legislative package
A package of 11 bills, including the Carbon Pollution Reduction Scheme
Bill 2009, was introduced into the House of Representatives in May 2009
and, after passing through the House of Representatives, was introduced
into the Senate on 15 June 2009. The Senate negatived the second reading
of bills on 13 August 2009.
The same bills were reintroduced in the House of Representatives on
22 October 2009. After passing through the House of Representatives,
they were introduced into the Senate on 17 November 2009. The Senate
negatived the third reading of the bills on 2 December 2009.
The 2010 legislative package
The current legislative package follows the same structure as the
legislative package rejected by the Senate on 2 December 2009. It
includes the Government-sponsored amendments moved and requested in
the Senate between 25 November 2009 and 2 December 2009.
The CPRS legislative package comprises the following eleven bills:
· Carbon Pollution Reduction Scheme Bill 2010
14
General Outline
· Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2010
· Carbon Pollution Reduction Scheme (Charges - General)
Bill 2010
· Carbon Pollution Reduction Scheme (Charges - Customs)
Bill 2010
· Carbon Pollution Reduction Scheme (Charges - Excise) Bill
2010
· Australian Climate Change Regulatory Authority Bill 2010
· Carbon Pollution Reduction Scheme Amendment
(Household Assistance) Bill 2010
· Carbon Pollution Reduction Scheme (CPRS Fuel Credits)
Bill 2010
· Carbon Pollution Reduction Scheme (CPRS Fuel Credits)
(Consequential Amendments) Bill 2010
· Customs Tariff Amendment (Carbon Pollution Reduction
Scheme) Bill 2010
· Excise Tariff Amendment (Carbon Pollution Reduction
Scheme) Bill 2010.
The Carbon Pollution Reduction Scheme Bill 2010 is the main bill. It
contains the detailed provisions relating to the emissions trading scheme.
These include:
· entities and emissions that are covered by the Scheme
· liable entities' obligation to surrender emissions units
corresponding to their emissions
· limits on the number of emissions units that will be issued
· the nature of Australian emissions units
· allocation of Australian emissions units, including by auction
and the issue of free units
· mechanisms to contain costs, including a fixed price period
and a price cap
· linking to other emissions trading schemes
· assistance in relation to emissions-intensive trade-exposed
activities, coal-fired electricity generators and coal mining;
· voluntary inclusion of reforestation activities under the
Scheme
· the domestic offsets program
15
Carbon Pollution Reduction Scheme Bill 2010
· the Australian National Registry of Emissions Units
· monitoring and enforcement.
The Carbon Pollution Reduction Scheme (Consequential Amendments)
Bill 2010 includes the consequential amendments which will be
necessary, in particular amendments to the taxation legislation and to the
National Greenhouse and Energy Reporting Act 2007, which will provide
the basis for emissions reporting required under the Scheme.
The Australian Climate Change Regulatory Authority Bill 2010
establishes the Australian Climate Change Regulatory Authority, which
will administer the trading scheme, the reporting regime (the National
Greenhouse and Energy Reporting Act 2007) and the renewable energy
target (Renewable Energy (Electricity) Act 2000).
Three of the bills are technical bills, in case the charge for Australian
emissions units issued as the result of an auction or for a fixed charge is,
at some time in the future, considered to be taxation:
· Carbon Pollution Reduction Scheme (Charges -- General)
Bill 2010 will impose charges for the issue of Australian
emissions units as the result of an auction or for a fixed
charge if the charges are taxation within the meaning of
section 55 of the Constitution but are neither duties of
customs nor duties of excise.
· Carbon Pollution Reduction Scheme (Charges -- Customs)
Bill 2010 will impose charges for the issue of Australian
emissions units as the result of an auction or for a fixed
charge if the charges are taxation and are duties of customs
within the meaning of section 55 of the Constitution.
· Carbon Pollution Reduction Scheme (Charges -- Excise)
Bill 2010 will impose charges for the issue of Australian
emissions units as the result of an auction or for a fixed
charge if the charges are taxation and are duties of excise
within the meaning of section 55 of the Constitution
In addition to the above bills, the following related bills will be before the
Parliament:
· the Excise Tariff Amendment (Carbon Pollution Reduction
Scheme) Bill 2010 and Customs Tariff Amendment (Carbon
Pollution Reduction Scheme) Bill 2010, which deliver the
Government's `cent-for-cent' fuel tax reductions to
households and business
· the Carbon Pollution Reduction Scheme (CPRS Fuel Credits)
Bill 2010 and Carbon Pollution Reduction Scheme (CPRS
Fuel Credits) (Consequential Amendments) Bill 2010, which
provide fuel credits to offset the impact of the Scheme for the
16
General Outline
agriculture, fishing and heavy on-road transport industries
and gaseous fuels
· the Carbon Pollution Reduction Scheme Amendment
(Household Assistance) Bill 2010, which amends relevant
legislation to increase pensions, income support allowances
and family payments.
Outline of the Scheme
The Carbon Pollution Reduction Scheme Bill 2010 (the bill) establishes a
national emissions trading scheme.
The quantity of greenhouse gas emissions for which liable entities are
responsible will be monitored, reported and audited.
At the end of each financial year, each liable entity will need to surrender
an eligible emissions unit for every tonne of greenhouse gas emissions
that they are responsible for in that year.
Eligible emissions units include Australian emissions units issued by the
Australian Climate Change Regulatory Authority (the Authority) and
eligible international emissions units. The number of Australian emissions
units issued by the Authority in each year (apart from 2011-12) will be
limited by a scheme cap, with further units being issued for additional
abatement from reforestation, destruction of synthetic greenhouse gases
and domestic offsets.
Liable entities will compete to purchase the number of units that they
require, either at auctions arranged by the Authority or on the secondary
trading market. Those that value the units most highly will be prepared to
pay most for them. From 2012-13 onwards, liable entities will also be able
to use eligible Kyoto units to meet their obligations.
Certain categories of entities will receive an administrative allocation of
Australian emissions units as a transitional assistance measure. Those
entities will be able to use the units to comply with obligations under the
Scheme or sell them.
The ability to trade emissions units allows for the Scheme cap to be
achieved at lowest cost to the economy.
Placing a price on greenhouse gas emissions will change the relative price
of goods and services, making emissions-intensive goods more expensive
relative to those that are less intensive. This provides incentives for
consumers and businesses to adjust their behaviour to reduce emissions.
The objects
The objects of the Scheme are specified in clause 3 of the bill. The first
object is to give effect to Australia's obligations under the United Nations
17
Carbon Pollution Reduction Scheme Bill 2010
Framework Convention on Climate Change and the Kyoto Protocol. The
Carbon Pollution Reduction Scheme is designed as the primary policy tool
to meet Australia's international obligations regarding greenhouse gas
emissions reductions. Backing international commitments with the robust
mechanism of the Scheme means that there is greater likelihood of these
international targets being met. The strong focus on international
obligations also has direct Scheme design implications, ranging from
accounting methodologies to how the Scheme links with emissions
trading schemes elsewhere in the world.
If Australia becomes a party to a new international agreement which does
not comprise an amendment to the Climate Change Convention or the
Kyoto Protocol, the Government considers it may be necessary to amend
the bill to ensure that it reflects Australia's new international obligations.
A review of the Scheme will be conducted as soon as practicable after
Australia signs a new multilateral international agreement containing
emissions reductions obligations, in accordance with clause 335A.
The Government accepts the key findings of the Garnaut Final Report that
a fair and effective agreement delivering deep cuts in emissions consistent
with stabilising concentrations of greenhouse gases at around 450 parts
per million or lower would be in Australia's interests. Therefore, the
second object is to support the development of an effective global
response to climate change. The Scheme will contribute to the
development of a global carbon market and put Australia in a position to
influence the shape of the post-2012 international legal framework for
climate change.
The third object is to take action directed towards meeting Australia's
national emissions reduction targets.
The third object provides for a target of reducing greenhouse gas
emissions by 25 per cent of 2000 levels by 2020 in the event that there is
comprehensive international agreement to which Australia is a party,
capable of stabilising atmospheric concentrations of greenhouse gases at
around 450 parts per million of carbon dioxide equivalence or lower. The
Australian Government's conditions on becoming a party to an
international agreement that entails a minus 25 per cent 2020 target are set
out below and are designed to achieve a robust international agreement.
The third object also provides, in the event that the minus 25 per cent
target does not apply, for a target of reducing greenhouse gas emissions to
between 5 per cent and 15 per cent below 2000 levels by 2020, and
60 per cent by 2050, and to do this in a flexible and cost-effective way.
The minus 5 to 15 range will ensure that Australia is positioned to make
deeper and more rapid reductions in emissions if global momentum grows
after 2020, including towards an agreement aimed at stabilisation of the
concentration of greenhouse gases in the atmosphere at 450 parts per
million.
18
General Outline
In relation to the minus 25 per cent target, the Government considers that
such an agreement requires a clear pathway to achieving an early global
peak in total emissions, with major developing economies slowing the
growth and then reducing their emissions, advanced economies taking on
reductions and commitments comparable to Australia, and access to the
full range of international abatement opportunities through a broad and
functioning international market in carbon credits.
This would involve:
· comprehensive coverage of gases, sources and sectors, with
inclusion of forests (reducing emissions from deforestation
and forest degradation in developing countries) and the land
sector (including soil carbon initiatives (e.g. bio char) if
scientifically demonstrated) in the agreement
· a clear global trajectory, where the sum of all economies'
commitments is consistent with 450 parts per million CO2-e
or lower, and with a nominated early deadline year for peak
global emissions not later than 2020
· advanced economy reductions, in aggregate, of at least
25 per cent below 1990 levels by 2020
· major developing economy commitments to slow growth and
to then reduce their absolute level of emissions over time,
with a collective reduction of at least 20 per cent below
business-as-usual by 2020 and a nomination of a peaking
year for individual major developing economies
· global action which mobilises greater financial resources,
including from major developing economies, and results in
fully functional global carbon markets.
For the purposes of the above, `advanced economies' refers to Annex 1
parties to the UNFCCC and at least some other high/middle income
economies; `major developing economies' refers to non-Annex 1
members of the Major Economies Forum.
A Ratification Review will be established in addition to the Joint Standing
Committee on Treaties Process to assess whether the terms of any global
agreement meet the conditions set out for Australia to adopt the
25 per cent target. The establishment of the Ratification Review is a
policy commitment, and is not referred to in the legislative package.
For the Ratification Review, an independent review panel (with broad
membership but including appropriate economic and scientific expertise)
will be established and will conduct public hearings as to whether the
conditionality set out by the Government is met. The Review will report
its findings to Government, which is required to table its response along
19
Carbon Pollution Reduction Scheme Bill 2010
with the Review report in Parliament within 90 days. Consideration of a
new international agreement is likely to follow the steps below:
· Australia participates in negotiation and finalisation of a new
international agreement
· A Ratification Review is conducted prior to Government
decision regarding ratification, in addition to consideration
by Joint Standing Committee on Treaties
· the Government makes final decision regarding ratification
· assuming Australia proceeds to ratify the new agreement and
it enters into force for Australia, subsequent scheme caps and
gateways, which are made in regulations under the bill,
would reflect Australia's new targets . In practice, this is
likely to take the form of narrowing and/or extending scheme
gateways, and extending scheme caps.
While not part of the Scheme, were the Government to decide to fund the
purchase of international units from auction revenue, as a matter of policy,
this would be taken into account in setting the Scheme caps.
If an ambitious international agreement is reached, the case for EITE
assistance is significantly reduced and a scheme review, including the
review of assistance measures, would be triggered immediately.
If the conditions relating to the minus 25 per cent target are not met, then
the minus 5 to 15 per cent target range is relevant. The Government
accepts the Garnaut Final Report's finding that, in the event that an
ambitious target is not achieved immediately, the most prospective
pathway to this goal is to embark on global action that reduces the risks of
dangerous climate change and builds confidence that deep cuts in
emissions are compatible with continuing economic growth and improved
living standards. In this way, even if conditions are not met for the minus
25 per cent commitment, Australia's 2020 emissions reduction target can
still contribute to stronger global reductions in emissions over time.
The minus 5 to 15 range represents:
· A minimum (unconditional) commitment to reduce emissions
to 5 per cent below 2000 levels by 2020
· A commitment to reduce emissions by up to 15 per cent
below 2000 levels by 2020 in the context of global agreement
under which all major developing economies commit to
substantially restrain emissions and advanced economies take
on reductions comparable to Australia.
The minus 15 per cent target would involve an international agreement
where major developing economies commit to substantially restrain
20
General Outline
emissions and advanced economies take on commitments comparable to
Australia's. In practice this implies:
· global action on track to stabilisation between 510-540 ppm
CO2-e
· advanced economy reductions in aggregate, in the range of
15-25 per cent below 1990 levels
· substantive measurable, reportable and verifiable
commitments and actions by major developing economies, in
the context of a strong international financing and technology
cooperation framework, but which may not deliver
significant emissions reductions until after 2020
· progress toward inclusion of forests (reducing emissions
from deforestation and forest degradation in developing
countries) and the land sector, deeper and broader carbon
markets, low carbon development pathways.
The minus 60 per cent target for national emissions by 2050 could be
reconsidered should it become necessary in playing our part alongside
commitments from both developed and developing countries in a truly
ambitious global agreement around stabilisation at 450 parts per million.
The Government would seek a new election mandate for an increased
target for 2050.
When interpreting Australia's emissions reduction targets, greenhouse gas
emissions are calculated in accordance with the Kyoto rules, which
provide an accounting framework and take a net approach that allows for
the international trade of emissions units. That is, national targets for
emissions reductions will comprise reductions in emissions in Australia
and any abatement purchased overseas and cancelled by the Australian
Government in respect of its international targets. Emissions units
exported to other countries will not be counted towards the target. This
approach is consistent with arrangements under the Kyoto Protocol, where
Australia can increase its emissions above its target by purchasing and
retiring additional Kyoto units from other countries.
If there is a successor international agreement to the Kyoto Protocol to
which Australia is a party, the targets would then be calculated in
accordance with the accounting framework in that agreement.
The objects clause states that these emissions reductions targets are to be
achieved in a flexible and cost-effective way. The Scheme incorporates
many elements, such as the ability to trade eligible emissions units, broad
coverage, international links, and the ability to `bank' and `borrow'
Australian emissions units, which contribute to this goal.
21
Carbon Pollution Reduction Scheme Bill 2010
The scheme in brief
National targets and Scheme caps
The Government has announced national targets which are reflected in the
objects of the Scheme quoted above.
The Scheme is a `cap and trade' scheme. It involves setting a national
scheme cap for a particular year and issuing units up to the level of that
cap. The scheme cap for a particular year is a quantity of greenhouse
gases that have a carbon dioxide equivalence of a specified number of
tonnes.
Scheme caps generally will be lower than the emissions path required to
meet the national targets because some emissions sources are not covered
by the Scheme (primarily, agricultural and deforestation emissions) and
some direct emissions from facilities are only covered if they exceed
specified thresholds.
Detailed scheme cap numbers for each relevant financial year will be
specified in regulations. The Government intends that these be consistent
with the 2020 and 2050 targets. The Minister will be required to take all
reasonable steps to ensure that regulations to specify the Scheme cap
numbers for the four years commencing 1 July 2012 are made by
31 December 2011 at the latest. The purpose of this requirement is to
provide market certainty. In a similar vein, for all subsequent financial
years, the Minister is required to take all reasonable steps to ensure that
regulations declaring the Scheme cap number are in place at least five
years before the end of the relevant year. There is provision for a default
scheme cap number in the event that there is no scheme cap number for a
year beginning on or after 1 July 2016.
To provide further guidance to liable entities and participants in the
carbon market more generally, national scheme gateways may be
prescribed for years beginning on or after 1 July 2016. A gateway is a
range, comprising an upper bound and a lower bound of emissions,
expressed in terms of tonnes of carbon dioxide equivalent, for a particular
year. The Minister is required to take all reasonable steps to ensure that
the Scheme caps are within the range specified for the relevant year.
The same considerations that are relevant in making decisions about
national targets and the national emissions trajectory are relevant for
setting caps and gateways. In making a recommendation to the
Governor-General about scheme cap and scheme gateway regulations, the
Minister must have regard to Australia's international obligations under
the United Nations Framework Convention on Climate Change and the
Kyoto Protocol. Other matters that may be taken into account when
setting the national scheme caps and gateways are specified in the bill and
discussed in Chapter 2 of this explanatory memorandum.
22
General Outline
The bill is designed to provide the maximum feasible level of certainty
over future scheme caps consistent with retaining legitimate flexibility to
adapt to changing international conditions.
Liable entities and covered emissions
The Scheme applies liability in two main ways. First, liability generally
arises where the greenhouse gases emitted from the operation of a facility
have a carbon dioxide equivalence of 25,000 tonnes or more per year.
(One exception is in respect of landfill facilities, where the threshold is
10,000 tonnes for facilities within a prescribed distance of a landfill
facility emitting more than 25,000 tonnes of carbon dioxide equivalence
and accepting the same classification of waste). Where the entity that has
operational control of the facility is a member of a controlling
corporation's group, liability attaches to the controlling corporation. The
controlling corporation's group consists of a controlling corporation and
its subsidiaries, if any. To avoid doubt, a group may consist of the
controlling corporation alone. Where the legal person with operational
control of the facility is not a member of a controlling corporation's group
(a non-group entity), liability attaches to that person.
Secondly, where there are large numbers of small emitters, it is more
practical to cover emissions by applying liability at another point along
the supply chain. For example, to avoid imposing a compliance burden on
many individual suppliers or users of fossil fuels and synthetic greenhouse
gases, while sending the same price signal, the Scheme applies liability at
the earliest point of the fuel supply chain within Australia, for example the
importer or manufacturer of the fuel or synthetic greenhouse gas.
In some situations, entities that purchase fuel from that `upstream' entity
will be required to quote an `obligation transfer number' and to take
responsibility for emissions that would result from the combustion of the
purchased fuel (referred to as `potential emissions'). Large users of fossil
fuels (other than petroleum liquid fuels) will be required to do this.
In certain other situations the purchaser will be allowed, on a voluntary
basis, to obtain and quote an `obligation transfer number', acquire the
fuel, gas or other substance and take responsibility for surrendering the
units to meet the Scheme obligation. This mechanism allows entities to
take on liability voluntarily or to avoid liability for emissions associated
with exported substances, such as export of fuel and synthetic greenhouse
gases, because the emissions will occur outside Australia. This is
discussed in detail in Chapter 1.
Making upstream entities liable, while providing the `obligation transfer
number' mechanism, will assist in achieving a reduction of greenhouse
gas emissions in a flexible and cost-effective way.
23
Carbon Pollution Reduction Scheme Bill 2010
Issue of Australian emissions units
The Australian Climate Change Regulatory Authority will issue
Australian emissions units up to the national scheme cap each year. These
units will be issued:
· following purchase through an auction (see Chapter 3)
· in relation to emissions-intensive trade-exposed activities
(see Chapter 4)
· in relation to coal mining (see Chapter 5)
· in relation to coal-fired electricity generators (see Chapter 6).
In addition, units will be issued:
· for $10 in relation to the year commencing 1 July 2011 (see
Chapter 3)
· on application, for the four years commencing 1 July 2012, at
a fixed charge (see Chapter 3)
· for reforestation (see Chapter 7)
· for the destruction of synthetic greenhouse gas (see
Chapter 8)
· for eligible domestic offsets activities (see Chapter 9).
Chapter 2 addresses Australian emissions units and eligible international
emissions units.
Assessment and surrender
Liable entities under the Scheme will report the emissions for which they
are liable through the National Greenhouse and Energy Reporting Act
2007. This Act will be amended to require those liable entities which are
not currently reporting under that Act to do so.
Liability may arise from several sources for which the one entity is liable.
For example, controlling corporation A may be responsible for the
emissions from one or more facilities and as a large user of fossil fuels.
The emissions from each of these sources are `provisional emissions
numbers'.
The sum of the provisional emissions numbers is reduced by any excess
surrender number (that is, excess units surrendered in the previous year)
and increased by the `make good' number (if the entity failed to meet its
obligations in a previous year). The result of this calculation is the entity's
emissions number.
Eligible emissions units representing this number must be surrendered by
15 December following the relevant financial year. If sufficient units are
not surrendered, a penalty becomes due on 31 January and a late payment
24
General Outline
penalty will begin to accrue. The penalty is a pecuniary penalty and a
`make good' obligation. (A `make good' obligation means that if a liable
entity surrenders too few units in one year, the obligation to surrender the
shortfall carries over into the following year.)
The arrangements differ slightly for the year commencing 1 July 2011.
This is explained in Chapter 10.
Compliance and enforcement
The powers relating to information gathering and monitoring are
described in Chapter 11. The enforcement regime is also described in that
Chapter.
The Australian National Registry
A National Registry, described in Chapter 12, will be established to track
the legal title to eligible emissions units and to manage their surrender and
cancellation. This includes opening of accounts, and correction and
rectification.
Public information
Price-relevant information will be published regularly to enable Scheme
participants to make informed decisions about the price of emissions
units. In addition, information about liable entities, holders of Registry
accounts and forestry projects will be available. This is described in
Chapter 13.
Independent reviews
An independent expert advisory committee will be constituted to conduct
public reviews of the Scheme. The committee and its operations are
described in Chapter 14.
Review of decisions and miscellaneous
Chapter 15 addresses merits review of decisions by the Australian Climate
Change Regulatory Authority and various miscellaneous matters.
Simplified outline
The bill includes a simplified outline of the Scheme (at clause 4) and each
Part of the bill includes a simplified outline of that Part's contents.
Date of effect and application
While the proposed Act will commence 28 days after Royal Assent, the
first year in relation to which entities will be liable under the Scheme will
commence on 1 July 2011. This is achieved by use of the phrase `eligible
financial year' which is defined to mean the financial year beginning on
1 July 2011 or a later financial year.
25
Carbon Pollution Reduction Scheme Bill 2010
Early commencement will allow liable entities and the Authority to
prepare for the Scheme and for the Authority to operate the National
Registry in relation to Kyoto units. It will also provide time for liable
entities to manage the impacts of the current global recession. The delayed
start will also provide time for:
· Education and assistance for entities which are likely to be
liable and their representatives
· Receipt and assessment of applications, for example, for
certificates of eligibility for coal-fired generation assistance,
registry accounts, obligation transfer numbers, emissions-
intensive trade-exposed assistance and in relation to
reforestation
Proposal announced
The measures are based on:
· the positions included in the White Paper entitled Carbon
Pollution Reduction Scheme: Australia's Low Pollution
Future, released by the Government on 15 December 2008;
· changes announced by the Prime Minister, the Treasurer and
Minister for Climate Change and Water on 4 May 2009,
including managing the impacts of the global recession
· additional measures negotiated with the Opposition and
announced by the Prime Minister, the Treasurer and the
Minister Assisting the Minister for Climate Change on
24 November 2009.
Transitional provisions and consequential amendments
The transitional provisions and consequential amendments are included in
the Carbon Pollution Reduction Scheme (Consequential Amendments)
Bill. There is a separate explanatory memorandum for this bill.
Financial impact
Financial impact statement
The financial impact associated with the legislative proposals in the
Carbon Pollution Reduction Scheme Bills and consequential amendments,
is reflected in the table of key measures below. Further detail on the
financial implications of these measures is provided with the Carbon
Pollution Reduction Scheme Amendment (Household Assistance) Bill
2010.
The Government will use every cent it receives from the sale of emissions
units to help households and businesses adjust and move Australia to the
low pollution economy of the future.
26
General Outline
Table 1: Key Measures -- Carbon Pollution Reduction Scheme (and
related Bills and appropriations) (fiscal balance)
2009 2010 2011 2012 Total
-10 -11 -12 -13 $b
$b $b $b $b
Revenue from the issuing of - - 4.5 11.5 15.9
permits
Households Assistance
Measures
Assistance for Low and - - -1.5 -4.7 -6.2
Middle Income
Households
Fuel Tax Adjustment - - -1.0 -2.2 -3.3
Industry Assistance Measures
Assistance to Emissions - - -1.2 -3.2 -4.4
Intensive Trade Exposed
Industries (EITE)
Electricity Sector - - -0.3 -0.7 -0.9
Adjustment Scheme
(ESAS)
Coal Sector Adjustment - - -0.1 -0.3 -0.4
Scheme (CSAS)
Climate Change Action -0.2 -0.3 -0.6 -0.3 -1.4
Fund (CCAF)
Transitional Electricity - - - -0.7 -0.7
Cost Assistance Program
(TECAP)
Agriculture Research - - - -
1
Funding
Green Carbon Fund
2
- - - -
Transitional assistance to - -0.1 - - -0.1
firms participating in the
Greenhouse Gas
Reduction Scheme
(GGAS)
Net Impact of Revenue and -0.2 -0.4 -0.3 -0.7 -1.6
Assistance Measures
NB: Discrepancies in the table between totals and sums of components are due to rounding.
Financial impacts are based on a -5 trajectory.
Voluntary Action - Green Power is not listed as fiscal impacts do not arise over the forward estimates.
1
Agriculture Research Funding will cost $20 million over the forward estimates however this is not
listed in the table due to rounding.
2
Green Carbon Fund will cost $26 million over the forward estimates however this is not listed in the
table due to rounding.
27
Carbon Pollution Reduction Scheme Bill 2010
Regulation impact statement
The Regulation Impact Statement for the Carbon Pollution Reduction
Scheme comprises the following:
· The initial Regulation Impact Statement
· Review of Input to Regulatory Impact Analysis on
Administrative Costs of the Carbon Pollution Reduction
Scheme by Ernst & Young by George Wilkenfeld and
Associates
The initial Regulation Impact Statement was undertaken in consultation
with the Office of Best Practice Regulation and assessed by the Office as
adequate in December 2008. The compliance costs in the Regulation
Impact Statement are based on two elements:
· Hypothetical company cost estimates based on analysis in the
report Input to Regulatory Impact Analysis on Administrative
Costs of the Carbon Pollution Reduction Scheme by Ernst &
Young which was undertaken in November 2008 for the
Department of Climate Change
· Total annual compliance cost estimates based on aggregation
of the hypothetical company cost estimates drawing on
analysis undertaken by the Department of Climate Change.
In April 2009, George Wilkenfeld and Associates was commissioned by
the Department of Climate Change to undertake a review of the analysis
which underpins the compliance costs for the Regulation Impact
Statement.
The Regulation Impact Statement and the George Wilkenfeld and
Associates review were published (as a separate document) with the
Explanatory Memorandum prepared for the introduction of this Bill.
These documents reflect the administrative costs of compliance. They do
not assess the business cost impacts of the Scheme associated with the
purchase of emissions units for surrender nor the commercial
opportunities presented to some businesses. This was outlined in the
Treasury report entitled Australia's Low Pollution Future: the economics
of climate change mitigation.
The Regulation Impact Statement shows ongoing administrative
compliance costs for business of around $107 million per annum. This
represents less than 1 per cent of total scheme revenues (approximately
$13 billion annually).
The effects of the new measures announced by the Prime Minister on
4 May 2009 and 24 November 2009 are not included in the Regulation
Impact Statement. For example, for liable entities, the delayed start means
28
General Outline
more time to put appropriate compliance systems in place, procure audit
and other business services, and will therefore lower initial costs.
The new measures will also have an effect on the cost for relevant entities
to meet their surrender obligations.
The impact of the new measures on Government finances is outlined in
Table 1 above.
29
Chapter 1
Liable entities and covered emissions
Outline of chapter
1.1 This chapter defines the entities that will have obligations to
surrender eligible emissions units for the various types of emissions
covered under the Scheme. The chapter also introduces two mechanisms
that enable entities to transfer obligations to surrender units, Obligation
Transfer Numbers and Liability Transfer Certificates.
Context
1.2 The Carbon Pollution Reduction Scheme covers a broad range
of emission sources. This reduces the overall cost to the Australian
economy of achieving emissions reductions, by increasing opportunities
for low-cost abatement.
1.3 The Scheme will cover the stationary energy, transport, fugitive
emissions, industrial processes and waste sectors, and all of the six
greenhouse gases that are included under the Kyoto Protocol.
1.4 Clear rules for assigning and transferring responsibility for
emissions are necessary to ensure that one eligible emissions unit is
surrendered for each tonne of emissions covered under the Scheme.
Summary of new law
Liable entities
1.5 Liable entities are liable to surrender eligible emissions units.
A person may be a liable entity during an eligible financial year if the
person:
· is responsible for greenhouse gases emitted directly from a
facility; or
· imports, produces or supplies certain fuels; or
· imports, manufactures or supplies a synthetic greenhouse
gas.
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Carbon Pollution Reduction Scheme Bill 2010
Greenhouse gases emitted from a facility
1.6 The provisions relating to emissions of greenhouse gases from
the operation of a facility are in Division 2 of Part 3. Subdivision A relates
to emissions from non-landfill facilities, including emissions from any
waste sources at these facilities. Subdivision B deals with emissions from
landfill facilities.
1.7 In broad terms, a person responsible for greenhouse gases
emitted from the operation of a facility will have an obligation to
surrender eligible emissions units if:
· the total amount of greenhouse gases emitted from the
operation of the facility was 25,000 tonnes or more of carbon
dioxide equivalence (CO2-e); or
· the facility was a landfill facility that emitted greenhouse
gases of 10,000 tonnes or more of CO2-e, and was within a
prescribed distance of a landfill facility that emitted
greenhouse gases of 25,000 tonnes or more of CO2-e and
accepts a similar classification of waste.
1.8 However, to avoid double counting, a person responsible for
greenhouse gases emitted from the operation of a facility will not be
required to surrender eligible emissions units for emissions attributable to
the combustion of fuel for which an importer, producer or re-supplier of
that fuel has incurred Scheme obligations.
1.9 A person can be responsible for greenhouse gases emitted from
the operation of a facility because:
· the person is a controlling corporation of a group, and a
member of the group operates the facility; or
· the person is not a member of a controlling corporation's
group, but operates the facility; or
· the person is the holder of a liability transfer certificate in
relation to a facility.
Liability transfer certificates
1.10 Liability transfer certificates allow for the liability for a
particular facility to be transferred from one entity to another. Provisions
relating to the transfer of liability for emissions under a liability transfer
certificate are in Division 6 of Part 3.
1.11 There are two circumstances in which liability transfer
certificates can be used.
1.12 The first circumstance applies to corporations only. Liability
under the Scheme is placed on the controlling corporation for facilities
that are operated by a member of its group (that is, the controlling
32
Chapter 1: Liable entities and covered emissions
corporation itself or one of its subsidiaries). However, Category A
certificates allow a subsidiary to apply to take on liability from its
controlling corporation with the consent of that corporation in certain
circumstances. This transfer is intended to help resolve contract pass
through issues for some corporations where possible. If the subsidiary
fails to meet its obligations, liability will revert back to the controlling
corporation.
1.13 The second circumstance applies when an entity with financial
control over a facility is not the operator of that facility. In this instance,
the operator and the entity with financial control may both have influence
over emissions reductions. In line with the object of the Scheme -- to
reduce emissions -- the entity that has financial control may take on
liability in certain circumstances through a Category B liability transfer
certificate. If more than one entity has financial control, it is intended that
the entity with the greatest financial control would be permitted to apply
for a liability transfer certificate.
1.14 All reporting obligations under the National Greenhouse and
Energy Reporting Act 2007, including reporting of greenhouse gas
emissions, energy production and energy consumption data, in relation to
the facility for which a liability transfer certificate is issued are transferred
to the holder of the certificate.
Importers, producers and re-suppliers of eligible upstream fuel
1.15 Provisions relating to importers, producers and re-suppliers of
`eligible upstream fuels' are in Division 4 of Part 3. (A list of eligible
upstream fuels is set out in clause 5.)
1.16 In the first instance, liability for eligible upstream fuels is
applied at the top of the supply chain.
1.17 In the case of liquid petroleum fuels, the top of the supply chain
is defined by reference to the requirement to pay excise duty or import
duty on these fuels. For these fuels liability arises when the requirement to
pay import duty or excise duty arises.
1.18 For eligible upstream fuels other than liquid petroleum fuels, the
top of the supply chain is generally the point at which the fuel is
manufactured or imported. In broad terms, liability for these fuels arises
when fuel that has been manufactured or entered for home consumption is
first supplied to another person or applied to a person's own use.
1.19 Obligations can be transferred from fuel suppliers to other
persons using an Obligation Transfer Number (OTN, see below).
1.20 The quotation of an OTN relieves a supplier of liability in
relation to that supply. The subsequent re-supply of that fuel will result in
liability for the re-supplier unless the recipient of the fuel quotes an OTN
in relation to the re-supply. A person that quotes an OTN in relation to a
33
Carbon Pollution Reduction Scheme Bill 2010
supply of fuel will also be liable for any emissions that arise from the
application of that fuel to their own use.
1.21 However, the person will not incur a liability for uses that do not
result in emissions (or that result in emissions outside Australia) such as
the export of fuel or synthetic greenhouse gas and their use as a chemical
feedstock.
Importers, manufacturers and re-suppliers of synthetic greenhouse
gases
1.22 Provisions relating to importers, manufacturers and re-suppliers
of synthetic greenhouse gases are outlined in Division 3 of Part 3.
1.23 Scheme obligations for emissions from the use of synthetic
greenhouse gases will apply to importers, manufacturers and in certain
circumstances, re-suppliers of these gases. A person responsible for
greenhouse gases emitted from a facility will not be required to surrender
eligible emissions units for emissions of synthetic greenhouse gases from
the operation of the facility unless those emissions are generated by an
industrial process, for example, during the production of aluminium.
Excluding exported eligible upstream fuel
1.24 For the avoidance of doubt, the bill explicitly provides that no
liability arises under the Scheme for exported eligible upstream fuel. [Part
3, Division 4, clause 37A]
Obligation transfer numbers
1.25 Provisions that establish Obligation Transfer Numbers (OTNs)
and govern their use are outlined in Division 5 of Part 3. Quoting an OTN
will generally relieve the supplier of liability in respect of the supply of
fuel.
1.26 Liability for all eligible upstream fuels can be transferred down
the supply chain to a re-supplier or end user of the fuel if the rules of the
OTN mechanism require or permit this transfer of liability. The bill
prescribes circumstances under which entities are permitted or required to
quote an OTN. [Part 3, Division 5, clauses 52 -64AA]
1.27 The OTN mechanism allows the point of liability to move down
the supply chain to an entity that has better information on the use of the
fuel. This allows certain entities to manage their own liability for their
fuel use, to avoid a double liability or to avoid liability for a use of fuel
that does not result in emissions.
34
Chapter 1: Liable entities and covered emissions
Detailed explanation of new law
1.28 The bill includes a simplified outline of Part 3. [Part 3, Division 1,
clause 16]
Key concepts
1.29 Key concepts and definitions referred to throughout this chapter
are explained in this section.
Greenhouse gas
1.30 `Greenhouse gas' has the same meaning as in the National
Greenhouse and Energy Reporting Act 2007. [Part 1, clause 5, definition of
`greenhouse gas'] This definition will be amended by the consequential
amendments bill to provide for additional gases to be included through
regulations. (See the consequential amendments bill, Schedule 1, Part 2,
item 146) This will allow for the inclusion of any additional greenhouse
gas which is recognised in a post-2012 international agreement.
1.31 The amended definition will cover
· carbon dioxide
· methane
· nitrous oxide
· a synthetic greenhouse gas
· a prescribed greenhouse gas.
1.32 The following gases are synthetic greenhouse gases:
· sulphur hexafluoride
· a hydrofluorocarbon of a kind specified in the National
Greenhouse and Energy Reporting Act 2007
· a perfluorocarbon of a kind specified in the National
Greenhouse and Energy Reporting Act 2007.
Carbon dioxide equivalence
1.33 Paragraph (a) of the definition of carbon dioxide equivalence
(CO2-e) has the same meaning as in the National Greenhouse and Energy
Reporting Act 2007 in respect of an amount of a greenhouse gas. [Part 1,
clause 5, definition of `carbon dioxide equivalence'] That is, the CO2-e of an
amount of greenhouse gas (metric weight) means the amount of the gas
multiplied by a value specified in the National Greenhouse and Energy
Reporting Regulations 2008 in relation to that kind of greenhouse gas.
This value is the internationally accepted global warming potential for that
gas.
1.34 Paragraph (b) of the definition provides that calculating the
carbon dioxide equivalence of an amount of potential greenhouse gas
35
Carbon Pollution Reduction Scheme Bill 2010
emissions embodied in an amount of an eligible upstream fuel also has the
same meaning as in the National Greenhouse and Energy Reporting Act
2007. That is, the CO2-e of the potential greenhouse gas emissions is the
total of the carbon dioxide equivalence of that amount of greenhouse gas
or the amounts of one or more greenhouse gases embodied in an amount
of eligible upstream fuel. (See the consequential amendments bill,
Schedule 1, Part 2, items 112, 146)
Person
1.35 The coverage of legal entities is given effect through the
definition of a `person'. The Scheme may apply obligations to any legal
entity. Legal entities are captured as broadly as possible, ranging from an
individual to a corporation, a trust (a trustee or trust estate), a body
corporate, and Commonwealth, State, Territory and local governments.
[Part 1, clause 5, definition of `person']
1.36 Government bodies will be bound by the bill. Key financial
penalties, such as penalties for failing to surrender sufficient emissions
units, apply to government bodies. However, in line with usual practice
this clause ensures that the Crown is not subject to a pecuniary or criminal
penalty. This protection does not apply to an authority of the Crown.
[Part 1, clause 9]
1.37 These legal entities may be liable under the Scheme if they meet
the criteria for liable entities under Part 3 of the bill.
1.38 The definition of a `non-group entity' has the same meaning as
in the National Greenhouse and Energy Reporting Act 2007. This
includes any person that is not a member of a controlling corporation's
group (essentially this is individuals and entities that are not constitutional
corporations) [Part 1, clause 5, definition of `non-group entity']. (See the
consequential amendments bill, Schedule 1, Part 2, item 129)
Liable entity -- direct emitters of greenhouse gases
1.39 In broad terms, a person is liable in respect of greenhouse gases
emitted from the operation of a facility if:
· the person operates a facility (other than a landfill facility
that was closed prior to 1 July 2008); and
· the facility had direct (scope 1) emissions of greenhouse
gases covered by the Scheme; and
· the amount of those greenhouse gases exceeds a threshold.
[Part 3, Division 2, clauses 17(1)-(3), 18(1)-(3), 19(1)-(3), 20(1)-(3),
21(1)-(3), 22(1)-(3)]
1.40 A person's liability for a facility will be for greenhouse gases
emitted from that facility other than those from fuel for which an
importer, producer or re-supplier of fuel has incurred a liability.
36
Chapter 1: Liable entities and covered emissions
Facility and landfill facility
1.41 Facility has the same meaning as in the National Greenhouse
and Energy Reporting Act 2007. [Part 1, clause 5, definition of `facility']
1.42 A `landfill facility' is a specific type of facility that is defined
separately in the bill. A landfill facility is defined as a facility for the
disposal of solid waste as landfill, and includes a facility that is closed for
the acceptance of waste. [Part 1, clause 5, definition of `landfill facility']
1.43 The definitions lead to a distinction between facilities for which
the main purpose is the disposal of solid waste and other facilities,
including those for which disposal of solid waste is a secondary purpose.
An example of a facility for which disposal of solid waste is a secondary
purpose is a mine that disposes of mine-generated waste on-site.
Facilities included in the Scheme
Facilities that exceed a threshold
1.44 Thresholds are used to determine when a facility is included in
the Scheme. That is; when the operator of a facility is a liable entity for a
particular facility.
1.45 The operator of a facility will be a liable entity during a financial
year if the facility emitted 25,000 tonnes or more of CO2-e of greenhouse
gases during that year. [Part 3, Division 2, clauses 17, 18, 20 and 21]
1.46 The holder of a liability transfer certificate for a facility will be a
liable entity during a financial year if the facility emitted 25,000 tonnes or
more of CO2-e of greenhouse gases during that year. [Part 3, Division 2,
clauses 19 and 22]
1.47 In the case of landfill facilities, an additional threshold of
10,000 tonnes of CO2-e applies where a facility is within a specified
distance of an open landfill facility which triggered the 25,000 tonnes of
CO2-e threshold in the previous financial year, and accepts a similar
classification of waste. This distance will be set in the regulations and will
be fixed for five years to provide certainty for industry. [Part 3, Division 2,
clause 20(13)], [Part 3, Division 2, clause 21(13)], [Part 3, Division 2, clause 22(12)].
1.48 If a landfill facility triggered the 25,000 tonnes of CO2-e
threshold in the previous eligible financial year it is considered to be a
designated large landfill facility. The Authority may publish a list of
designated large landfill facilities and their locations for the purpose of
assisting landfill facilities in determining if the 10,000 tonnes of CO2-e
threshold applies to them for an eligible financial year. [Part 1, clause 5,
definition of `designated large landfill facility'], [Part 12, Division 7, clause 278G]
1.49 A lower threshold is used in these circumstances to prevent the
movement of waste from a landfill facility that has Scheme obligations to
one that does not.
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Carbon Pollution Reduction Scheme Bill 2010
Example 1.1: Application of 25,000 tonnes of CO2-e
threshold
During a financial year Company X operates a facility that emits
20,000 tonnes of CO2-e from the combustion of fuel that another entity
supplies to it, and 15,000 tonnes of CO2-e from an industrial process.
The total emissions from the facility are 35,000 tonnes of CO2-e.
Company X is a liable entity.
Example 1.2: Application of 10,000 tonnes of CO2-e
threshold for landfill facilities
Landfill facility A emits 14,000 tonnes of CO2-e in an eligible financial
year. The landfill facility is within the specified distance of another
open landfill facility, landfill facility B, which accepts a similar
classification of waste and in the previous eligible financial year
emitted 25,000 tonnes or more of CO2-e. Landfill facility A is therefore
covered under the Scheme.
Closed landfill facilities
1.50 The definition of landfill facility includes a facility that is closed
for the acceptance of waste. However landfill facilities which no longer
accept waste and closed prior to 1 July 2008 are excluded from the
Scheme.[Part 3, Division 2, clause 20(6)], [Part 3, Division 2, clause 21(6)], [Part 3,
Division 2, clause 22(6)]
1.51 The operator of a landfill facility that closed after
30 June 2008 will be a liable entity for that facility if the facility meets
one of the thresholds outlined above. In the event that operational control
changes after the facility is closed, obligations transfer to the new entity
with operational control. In many cases, this will be the land owner. The
liable entity will be determined through the operational control definition.
1.52 In situations where gas capture technology, for example, is
installed on a site that is closed, the liable entity will be the one who has
authority over operating and environmental policies relating to that site.
Pro-rata thresholds
1.53 Pro-rata emissions thresholds will apply where:
· a facility is under the operational control of a member of a
controlling corporation's group for part of a year
· a facility is under the operational control of a non-group
entity for part of a year
or
· an entity is the holder of a liability transfer certificate for part
of a year. [Part 3, Division 2, clauses 17(1), 18(1), 19(1), 20(1), 21(1),
22(1)]
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Chapter 1: Liable entities and covered emissions
1.54 The pro-rata threshold is applied in recognition that there will
always be a person that operates a facility, but that the entity that is liable
for a facility may change during the course of a year. This would occur
when operational control passes from one entity to another during a year,
and when an entity holds a liability transfer certificate for a facility for
part of a year. The pro-rata threshold ensures that facilities that would
reach a threshold during an entire financial year continue to be covered
under the Scheme for the full compliance year. This maintains consistent
coverage under the Scheme and prevents entities from avoiding
thresholds, deliberately or otherwise, by changes in operational control or
the issue of a liability transfer certificate.
1.55 Pro-rata thresholds are calculated using a specified formula.
[Part 3, Division 2, clause 17(5)] [Part 3, Division 2, clause 18(5)] [Part 3, Division 2,
clause 19(5)] [Part 3, Division 2, clause 20(5)] [Part 3, Division 2, clause 21(5)] [Part 3,
Division 2, clause 22(5)]
1.56 The calculation involves multiplying the relevant threshold by
the number of control days for a facility, or the number of certificate days
in the case of the holder of a liability transfer certificate, and dividing the
product by the number of days in the year.
1.57 Control days are the days in the financial year, where this is less
than the full year, that a facility was under the operational control of one
or more members of a controlling corporation's group. [Part 3, Division 2,
clauses 17(1), 18(1), 20(1), 21(1)]
1.58 Certificate days are the days in the financial year, where this is
less than the full year, that a person was the holder of a liability transfer
certificate for a facility. [Part 3, Division 2, clauses 19(1), 22(1)]
Example 1.3 Pro rata threshold
If a non-group entity had operational control of a facility for 100 days
of the year, the threshold for that facility would be worked out using
the formula:
25,000 × 100 control days ÷ 365 = 6849 tonnes of CO2-e
If the emissions from that facility are 6849 tonnes CO2-e or more
during the 100 control days then those emissions will count towards
the entity's liability as outlined above.
Anti-avoidance
1.59 Provisions which address schemes entered into with the
substantial purpose of obtaining the advantage of a threshold are described
in Chapter 11. In brief, the benefit of the threshold provision may be lost.
[Part 3, Division 2, clauses 23 and 30]
39
Carbon Pollution Reduction Scheme Bill 2010
Scope 1 emissions covered by the Scheme
1.60 In broad terms, emissions that count towards the facility
thresholds and that determine a facility operator's liability are scope 1
emissions of greenhouse gas, where:
· the greenhouse gas is released into the atmosphere as a direct
result of the operation of the facility; and
· regulations made for the purposes of paragraph 10(2A)(a) of
the National Greenhouse and Energy Reporting Act 2007
declare that the emission is a scope 1 emission covered by
the Scheme. [Part 3, Division 2, clause 24]
1.61 The consequential amendments bill will amend the National
Greenhouse and Energy Reporting Act 2007 to require that its regulations
specify scope 1 emissions that are covered by the Scheme. (See the
consequential amendments bill, Schedule 1, Part 2, item 159)
1.62 The broad categories of sources that will be declared in the
National Greenhouse and Reporting Regulations 2008 as scope 1
emissions covered by the Scheme are:
· fugitive emissions
· industrial process emissions
· emissions from a waste source
· emissions from the combustion of energy sources.
1.63 For the purposes of landfill facilities, the bill categorises
emissions from a solid waste disposal source into two components. The
first component is `legacy emissions', which are generated from waste
deposited prior to 1 July 2011. The second component is emissions from
new waste; that is, emissions from waste deposited from 1 July 2011
onwards.
1.64 The key sources that will not count as scope 1 emission covered
by the Scheme are:
· agriculture sources
· forestry sources
· fugitive emissions from decommissioned underground coal
mines
· emissions of synthetic greenhouse gases from the source `use
of commercial air conditioning etc.' as defined under the
National Greenhouse and Energy Reporting Regulations
2008
· emissions from the combustion of biomass.
40
Chapter 1: Liable entities and covered emissions
1.65 Agricultural emissions cannot be included within the meaning of
`emission of greenhouse gas from the operation of a facility' [Part 3,
Division 2, clause 24(2)].
1.66 Amendments in the consequential amendments bill also ensure
that regulations made for the purpose of paragraph 10(2A)(a) of the
National Greenhouse and Energy Reporting Act 2007 cannot declare
agricultural emissions to be a scope 1 emission covered by the Scheme.
1.67 Together these two provisions ensure that direct obligations
cannot be imposed for agricultural emissions.
1.68 The six types of emissions identified for exclusion by these two
provisions correspond broadly to the agricultural emissions that countries
are required to report under international accounting rules:
· Emissions of methane from the digestive tract of livestock -
these emissions arise from digestive processes whereby
carbohydrates are broken down by microorganisms in the
digestive system of herbivores.
· Emissions of methane or nitrous oxide from the
decomposition of livestock urine or livestock dung - these
emissions result from the anaerobic decomposition of manure
(livestock urine or livestock dung) or when manure nitrogen
is converted to nitrous oxide. Emissions that result from
these biological processes may occur when manure is
handled through management systems, such as a lagoon, or
from processes that occur when manure is deposited or
spread on soil.
· Emissions of methane from rice fields or rice plants - these
emissions result from decomposition of organic matter in
anaerobic conditions that exist in flooded or waterlogged rice
fields. The methane created under these conditions may be
emitted directly from rice fields or transported into the
atmosphere by rice plants.
· Emissions of methane or nitrous oxide from burning
savannas or grassland - these gases are produced when
grassland or savanna biomass is combusted.
· Emissions of methane or nitrous oxide from burning crop
stubble in fields, crop residues in fields, or sugar cane before
harvest.
· Finally, emissions of carbon dioxide, methane or nitrous
oxide from soil are excluded from the Scheme. These
emissions arise from biological processes in soil including
decomposition, nitrification and denitrification. Agricultural
practices can influence these processes and give rise to
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Carbon Pollution Reduction Scheme Bill 2010
emissions. For example, practices which increase soil
nitrogen, such as the application of fertilisers or planting of
legumes, affect nitrification and denitrification processes and
in turn influence nitrous oxide emissions.
1.69 In relation to the last dot point above, the exclusion of soil-
related emissions is limited to emissions that arise from, or that are
produced in, soil. The exclusion does not cover an emission from soil
where released greenhouse gas passes through soil but originates
elsewhere, for example where the greenhouse gas originates in a
geological formation used for carbon capture and storage.
1.70 Furthermore, the exclusion for soil-related emissions does not
apply to emissions attributable to the operation of a landfill where, for
example, a mixture of soil and organic matter gives rise to emissions at a
landfill facility.
1.71 The term "soil" is intended to cover the upper portion of the
earth's surface in which plants generally grow that comprises a mixture of
organic and inorganic matter. Soil does not include minerals or rock that
lie below this upper portion.
1.72 Scope 2 emissions, such as those relating to electricity use, are
not included in the definition of a facility's emissions. Scope 3 emissions
are also not included.
1.73 Under the Scheme, greenhouse gases emitted from the operation
of a facility will be measured using methods to be determined under
subsection 10(3) of the National Greenhouse and Energy Reporting Act
2007, or methods which meet criteria under that subsection, where the use
of those methods satisfies any conditions specified under that subsection.
[Part 3, Division 2, clause 25]
1.74 The consequential amendments bill provides for subsection
10(3) of the National Greenhouse and Energy Reporting Act 2007 to
allow the Minister to determine the methods and criteria for methods by
which amounts of emissions are to be measured. A single determination
will apply under the Carbon Pollution Reduction Scheme and the National
Greenhouse and Energy Reporting Act 2007. (See the consequential
amendments bill, Schedule 1, Part 2, item 160-162)
Emissions that count towards thresholds
1.75 All scope 1 emissions covered by the Scheme will count towards
thresholds for all facilities.
1.76 To avoid doubt, for facilities that are not landfill facilities,
emissions from solid waste disposal count toward the threshold for that
facility. Similarly, thresholds for landfill facilities include all scope 1
emissions from the facility; that is, all scope 1 emissions that are covered
under the Scheme including emissions from combustion of energy sources
42
Chapter 1: Liable entities and covered emissions
at the facility, emissions from legacy waste and emissions from new
waste -- these are examples only and this is not intended as an exhaustive
list.
Emissions that count towards liability
1.77 The provisional emissions number for an entity that is liable in
respect of a facility is the amount of greenhouse gases emitted from the
facility's operation, in CO2-e, for which the entity must surrender eligible
emissions units. [Part 3, Division 2]
Avoidance of double counting
1.78 To avoid double counting of emissions, certain emissions that
count towards a facility's threshold do not count towards the facility
operator's provisional emissions number. There are two circumstances
where this occurs.
1.79 The first is where an amount of greenhouse gas emitted from the
facility is attributable to the combustion of eligible upstream fuel that was
supplied to a person who is not the operator of the facility or that is
supplied to the operator of the facility without the operator quoting their
OTN. [Part 3, Division 2, clauses 17(7)-(8,) 18(7)-(8), 19(6)-(7), 20(9)-(10), 21(9)-(10)
and 22(8)-(9)]
1.80 If fuel was supplied to a person who is not the operator of the
facility and that person did not quote an OTN in relation to the supply,
liability will arise for an importer, producer or supplier of that fuel. If the
person did quote an OTN for the supply, that person will be liable for
emissions from the combustion of that fuel.
1.81 If the fuel was supplied to the operator of a facility and the
operator did not quote an OTN, liability will arise for an importer,
producer or supplier of that fuel.
1.82 The second circumstance where greenhouse gases emitted from
a facility do not count towards the facility operator's provisional emission
number is where the emissions are attributable to the combustion of liquid
petroleum fuel for which there is already a liability imposed on the facility
operator under the import or production provisions by way of import duty
or excise duty being payable by that person on that fuel. [Part 3, Division 2,
clauses 17(9)-(10), 18(9)-(10), 19(8)-(9), 20(11)-(12), 21(11)-(12) and 22(10)-(11)] [Part
3, Division 4, clauses 31-32]
Example 1.4: Avoidance of double counting
Company A has operational control of a black coal mine. During a
particular financial year fugitive emissions of 23,000 tonnes of CO2-e
are emitted from the mine. A further 3,000 tonnes of CO2-e are emitted
from the combustion of diesel in equipment at the mine. Company A
does not quote an OTN for the supply of the diesel.
43
Carbon Pollution Reduction Scheme Bill 2010
Company A is a liable entity under the direct emitter provisions
because total emissions from the mine are 26,000 tonnes of CO2-e.
Company A is only liable for the fugitive emissions of 23,000 tonnes
of CO2-e. The supplier of the diesel is liable for the emissions from
Company A's combustion of the diesel.
Legacy emissions do not count towards liability
1.83 Emissions from legacy waste deposited prior to the
commencement of Scheme obligations for landfill facilities on 1 July
2011 are not included in a landfill facility's liability. Therefore, the
operator of a landfill facility will be liable for annual total emissions, less
· annual legacy emissions, and
· any emissions that count towards the `OTN -no double
counting' provisions. [Part 3, Division 2, clauses 20(8), 21(8), 22(8)]
1.84 Legacy waste emissions have been excluded from Scheme
liabilities because in many cases there is little or no opportunity to recover
the cost of emissions from waste that was deposited in the past.
1.85 Details on developing a legacy emissions profile to allow liable
landfill facilities to determine the ongoing annual emissions from legacy
waste will be outlined in regulations.
Example 1.5: Thresholds and liability for landfill facilities
A landfill facility, which is under the operational control of
Company S, emits 100,000 tonnes of CO2-e. This is made up of
20,000 tonnes of new emissions and 80,000 tonnes of legacy
emissions. The following applies:
· Company S is a liable entity under the Scheme. The total emissions
from the landfill facility (100,000 tonnes of CO2-e per year) exceed
the facility threshold of 25,000 tonnes of CO2-e.
· Company S's liability is equal to the total emissions from the
landfill minus legacy emissions. Therefore, Company S would be
liable for 20,000 tonnes of CO2-e from the landfill facility.
1.86 The Scheme will allocate methane that is captured, flared,
combusted and transferred proportionally between legacy and new
emissions. This allocation will be given effect by an amendment to the
National Greenhouse and Energy (Measurement) Determination 2008.
Example 1.6: Allocating capture, flaring, combustion and
transfer of methane
Company R has operational control over a landfill facility. Total
emissions from that landfill facility (prior to accounting for methane
capture, flaring, combustion and transfer) are 200,000 tonnes of CO2-e.
This is made up of 150,000 tonnes of CO2-e of legacy emissions and
50,000 tonnes of CO2-e of new emissions (a ratio of 3:1).
44
Chapter 1: Liable entities and covered emissions
The facility flares an amount of methane that reduces its net emissions
to 100,000 tonnes of CO2-e. The following applies:
· Company R is a liable entity under the Scheme as the total
emissions from the facility (100,000 tonnes of CO2-e) exceed the
facility threshold of 25,000 tonnes of CO2-e.
· The reduced emissions (achieved through methane flaring) are
allocated proportionally between legacy emissions and new
emissions. Therefore, net legacy emissions are 75,000 tonnes of
CO2-e and net new emissions are 25,000 tonnes of CO2-e
(maintaining the ratio of 3:1).
· Company R is liable for emissions of 25,000 tonnes of CO2-e.
Operational control
1.87 `Operational control' is used to allocate emissions obligations
for a facility. The operational control approach is adopted for the Scheme
as it identifies the person that has the greatest ability to introduce and
implement operational and environmental policies for a facility and
therefore is likely to have the ability to give effect to emissions
reductions. In addition many controlling corporations have already
organised emissions reporting systems around the operational control
approach as defined in the National Greenhouse and Reporting Act 2007.
Exceptions to the operational control approach relating to liability transfer
certificates are outlined below.
Meaning of operational control
1.88 Operational control has the same meaning as in the National
Greenhouse and Energy Reporting Act 2007. [Part 1, clause 5, definition of
`operational control'] This definition is amended as discussed in the
remainder of this section. (See the consequential amendments bill,
Schedule 1, Part 2, items 131 and 163-172)
1.89 Any person may have operational control over (operate) a
facility. The range of entities that can have operational control in the
National Greenhouse and Reporting Act 2007 is broadened from a
member of a controlling corporation's group to a person. (See the
consequential amendments bill, Schedule 1, Part 2, item 163-170)
1.90 In addition, the entities that the Authority may declare as having
operational control will be expanded to include any person. This is
provided for by amendments to the National Greenhouse and Energy
Reporting Act 2007. (See the consequential amendments bill, Schedule 1,
Part 2, items 190-191 and 193)
1.91 The Government intends that wherever possible liability for a
facility will always be attributable to a single person. This streamlines
compliance and enforcement under the Scheme and assists in maintaining
45
Carbon Pollution Reduction Scheme Bill 2010
Scheme coverage and integrity by ensuring that the person responsible for
a facility's emissions is clearly identified.
Circumstances where authority is shared equally amongst persons
1.92 In many cases, if there is uncertainty about which person
operates a facility, the person deemed to have operational control will be
the one with the greatest authority to introduce and implement operating
and environmental policies. (See the consequential amendments bill,
Schedule 1, Part 2, item 172)
1.93 However, there may be instances where persons have equal
authority to implement operational and environmental policies over a
facility, for example in the case of a partnership, a joint venture or a trust.
Amendments to the National Greenhouse and Energy Reporting Act 2007
which insert new sections 11B and 11C deal with these circumstances.
(See the consequential amendments bill, Schedule 1, Part 2, item 172) In
these instances the Authority will still have the ability to make a
declaration regarding which person has operational control.
1.94 If the Authority has not made a declaration, then those persons
with equal authority are required to nominate one of them to be the
nominated person for that facility. Nomination has the effect of deeming
the nominated person to have operational control and therefore obligations
and liability under the Scheme and the National Greenhouse and Energy
Reporting Act 2007. Nominations must be made by 31 August following
the financial year in which the facility met or exceeded the facility
threshold.
1.95 If the persons do not make a nomination, they are each subject to
a civil penalty. In addition, where there is no nomination, liability is
apportioned equally among the persons that have equal authority. For
example, if there are two persons, each would be responsible for
fifty per cent of total liability. If there are four persons each would be
responsible for twenty-five percent of total liability. This is done by
adjusting the provisional emissions number by way of the formula
specified in sections 11B and 11C of the National Greenhouse and
Energy Reporting Act 2007. Each person will also have reporting
obligations in relation to that facility.
1.96 The penalty discussed above is aimed at encouraging the
nomination of a single liable entity under the Scheme. The application of
equal liability applying in the absence of nomination ensures that there is
no gap in liability at any time and as such maintains the integrity of the
Scheme. There is no requirement to nominate if the question of
operational control of a facility is not relevant (directly or indirectly) to a
requirement under the Scheme or the National Greenhouse and Energy
Reporting Act 2007.
46
Chapter 1: Liable entities and covered emissions
1.97 Equally shared authority over operational and environmental
policies is distinct from shared financial control under a partnership or
joint venture, which is discussed below under liability transfer certificates.
Controlling corporations and liability for a facility
1.98 Persons may be liable, in relation to direct emissions from a
facility if:
· they are a controlling corporation of a group and a member
of that group has operational control over a facility;
· they are a non-group entity that has operational control over a
facility; or
· they are a holder of a liability transfer certificate for a given
facility.
Controlling corporation and non-group entity will have the same
meaning as in National Greenhouse and Energy Reporting Act 2007. The
consequential amendments bill introduces a definition of `non-group
entity' into the National Greenhouse and Energy Reporting Act 2007.
(See the consequential amendments bill, Schedule 1, Part 2, item 129)
1.99 As outlined above, the controlling corporation of a group will be
the liable entity for facilities that are under the operational control of a
member of its group. [Part 3, Division 2, clauses 17, 20]
1.100 This is consistent with the National Greenhouse and Energy
Reporting Act 2007, which imposes reporting obligations on controlling
corporations of a corporate group, where a controlling corporation is
generally the corporation at the top of the corporate hierarchy. Corporate
grouping in this way also provides greater surety for the Scheme as the
controlling corporation is likely to have greater access to funds than an
individual corporation with a single facility. It will therefore have a
greater ability to meet its Scheme liability. It also consistent with the fact
that the controlling corporation should be in a position to exert control
over the activities of the members of its group.
1.101 A controlling corporation's group will consist of the controlling
corporation and its subsidiaries, if any. Subsidiary has the meaning given
by section 46 of the Corporations Act 2001. To avoid doubt, a controlling
corporation's group may consist of the controlling corporation alone. The
consequential amendments bill provides for this by amending the National
Greenhouse and Energy Reporting Act 2007, as discussed in Chapter 1 of
the explanatory memorandum to the consequential amendments bill.
Non Group entities and liability for a facility
1.102 A non-group entity that has operational control over a facility is
the liable entity in relation to that facility. [Part 3, Division 2, clause 18 and 21]
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Carbon Pollution Reduction Scheme Bill 2010
Holder of a liability transfer certificate and liability
1.103 A person that is the holder of a liability transfer certificate for a
facility is the liable entity in relation to that facility. [Part 3, Division 2,
clauses 19 and 22]
1.104 Where a member of a controlling corporation's group takes on
liability through a Category A liability transfer certificate under Part 3,
Division 6, Subdivision A, the controlling corporation will not have
liability for that facility. [Part 3, Division 2, clause 17(6)] [Part 3, Division 2, clause
20(7)] However, the controlling corporation must give its consent to the
transfer and provides a statutory guarantee for the payment of the penalty
for a unit shortfall and any late payment penalty for that member. [Part 6,
Division 4, clause 138]
1.105 Where liability has been transferred to a person with financial
control of a facility, through a Category B liability transfer certificate, the
facility is taken not to be under the operational control of its operator. This
means that the operator's controlling corporation (the transferor of
liability) will therefore not have obligations or liability for the facility.
[Part 3, Division 2, clauses 17(6) and clause 20(7)]
1.106 Liability transfer certificates are discussed in more detail in a
separate section below.
Liable entities -- importers, producers and re-suppliers of eligible
upstream fuels
1.107 In order to achieve comprehensive and efficient coverage of
emissions from the combustion of certain fuels, liability is imposed
upstream on importers, producers and re-suppliers of these fuels. [Part 3,
Division 4, clauses 31-33, 35]
1.108 Fuels for which there is an upstream point of liability are known
as `eligible upstream fuels'. [Part 1, clause 5, definition of `eligible upstream
fuels']
1.109 Eligible upstream fuels are:
· liquid petroleum fuel
· liquid petroleum gas
· black coal
· brown coal
· coking coal
· brown coal briquettes
· coke oven coke
· coal-based char
· natural gas that is distributed or transmitted in a pipeline
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Chapter 1: Liable entities and covered emissions
· coal seam methane that is captured for combustion
· coal mine waste gas that is captured for combustion
· ethane
· town gas
· liquefied natural gas
· compressed natural gas
· syngas
· refinery grade propene (propylene)
· a fuel specified in the regulations.
1.110 Liquid petroleum fuels are excisable goods classified to item 10
of the Schedule to the Excise Tariff Act 1921 and equivalent imported
goods, other than hydrocarbon solvents classified to sub-items 10.25 to
10.28 that are not combusted. [Part 1, clause 5, definitions of `liquid petroleum
fuels' and `exempt hydrocarbon solvent']
1.111 Other eligible upstream fuels are defined by reference to the
National Greenhouse and Energy Reporting Regulations 2008 which will
be amended to define fuel types not currently defined in these regulations,
such as coal-based char and syngas.
1.112 The regulation-making power will enable an upstream point of
liability to be applied wherever emissions from other fossil-based fuels,
including new fuels, can be efficiently covered upstream.
1.113 In many circumstances the point of liability for eligible upstream
fuel will be transferred to the end user of the fuel using the Obligation
Transfer Number mechanism.
Potential greenhouse gas emissions
1.114 For eligible upstream fuels, liabilities arise for potential
greenhouse gas emissions, rather than actual emissions. This is because
the liability generally arises before the fuel is combusted and emissions
are released. [Part 3, Division 4, clauses 31(1), 32(1), 33(1), 33A(1), 34(1), 35(1),
36(1), 37(1), 38(1), 39(1) and 40(1)]
1.115 The potential greenhouse gas emissions embodied in an amount
of an eligible upstream fuel means the amounts of the greenhouse gas or
gases that would be released into the atmosphere as a result of its
combustion. This is defined by reference to the National Greenhouse and
Energy Reporting Act 2007, which will be amended to define this concept.
[Part 1, clause 5, definition of `potential greenhouse gas emissions'] (See the
consequential amendments bill, Schedule 1, Part 2, items 135, 146)
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Carbon Pollution Reduction Scheme Bill 2010
1.116 The potential greenhouse gas emissions embodied in an amount
of eligible upstream fuel will be able to be calculated in two ways. (See
the consequential amendments bill, Schedule 1, Part 2, item 146)
· Under the first method, known as the default method, the
Minister may determine that the amount of a particular
greenhouse gas that would be released into the atmosphere as
a result of the combustion of an amount of eligible upstream
fuel is taken, for the purposes of the Scheme, to be the
amount of fuel multiplied by a value specified in the
regulations in relation to that fuel.
· Alternatively, a person may elect to use a prescribed
alternative method to ascertain the potential greenhouse gas
emissions embodied in an amount of eligible upstream fuel.
This involves, amongst other things, using a method
specified in the determination which involves testing one or
more samples of the fuel.
Points of liability for eligible upstream fuels
1.117 In the first instance, liability for eligible upstream fuels is
applied at the top of the supply chain. Different circumstances are used to
define the top of the supply chain for liquid petroleum fuels and other
eligible upstream fuels. Similarly, different events result in liability for
entities at the top of those supply chains.
1.118 Liability for all eligible upstream fuels can be transferred down
the supply chain to a re-supplier or end user of the fuel if the rules of the
OTN mechanism require or permit this transfer of liability. The quotation
of an OTN relieves a supplier of liability in relation to that supply. The
subsequent re-supply of that fuel will result in liability for the re-supplier
unless the recipient of the fuel quotes an OTN in relation to the re-supply.
A person that quotes an OTN in relation to a supply of fuel will also be
liable for any emissions that arise from the application of that fuel to their
own use.
1.119 The entities that may have liability for eligible upstream fuels
and the circumstances that result in liability are discussed in detail below.
Supply
1.120 As noted above a person may be liable for emissions from
eligible upstream fuels if they supply those fuels. Supply means supply,
including re-supply, by way of sale, exchange or gift. [Part 1, clause 5,
definition of `supply']
1.121 In most instances, supply occurs when a substance is physically
delivered. If there is not a physical delivery but ownership of the
substance changes then supply is taken to occur when property is
transferred. [Part 1, clause 6]
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Chapter 1: Liable entities and covered emissions
1.122 In the case of natural gas that is transmitted or distributed in a
pipeline, the bill provides for regulations to be made that over-ride this
definition of when supply occurs. This will allow for the Government to
intervene where it appears that entities are structuring gas supply contracts
in order to undermine the working of the Scheme. If provided for in
regulations, the supply of natural gas in a pipeline occurs when the gas
passes a point ascertained in accordance with the regulations. [Part 1,
clause 6(1)]
1.123 A supply is also taken to occur, where there would not otherwise
be a supply, when a person makes an eligible upstream fuel available to
another person for combustion at a facility. In this situation, supply occurs
when the fuel is combusted. [Part 1, clause 5A]
Example 1.7 Fuel made available for combustion at a facility
Company K engages Company L, a gas-fired electricity generator, to
generate electricity for it. Under the terms of the agreement, Company
K purchases natural gas and makes it available to Company L. In
return Company L provides electricity to Company K.
The gas that is made available by Company K is taken to be supplied
to Company L when it is combusted.
1.124 A supply of fuel that does not occur within the geographical
reach of the bill - which covers Australia, the external territories, the
exclusive economic zone and the continental shelf - will not result in a
liability under the Scheme. This follows from a basic principle of
legislative interpretation and section 21 of the Acts Interpretation Act
1901.
Liable entity -- importers and producers of liquid petroleum fuel
1.125 Importers and producers of liquid petroleum fuel are at the top
of the supply chain for the purpose of applying Scheme obligations for
emissions from the combustion of these fuels. A person is liable in respect
of the import or production of liquid petroleum fuel if
· the entity imports or manufactures / produces an amount of
liquid petroleum fuel, and
· import duty or excise duty is or was payable by the person on
that amount. [Part 3, Division 4, clauses 31-32]
1.126 This aligns Scheme liability with fuel tax arrangements.
1.127 Scheme liability is not imposed where import duty or excise
duty is or was payable by a person on an amount of fuel and:
· the duty was remitted, rebated or refunded in accordance
with section 163 of the Customs Act 1901 or section 178 of
the Excise Act 1901 or a drawback of duty was allowed under
regulations made for the purposes of sections 168(1) and
79 of those Acts respectively; and
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Carbon Pollution Reduction Scheme Bill 2010
· the remission, rebate, refund or drawback was prescribed by
regulations under the bill [Part 3, Division 4, clause 31(5)] [Part 3,
Division 4, clause 32(5)]
1.128 This is to ensure that Scheme liability is not imposed in
circumstances such as where excise duty or customs duty has been paid
but that fuel is exported by the person or that fuel is returned to a
warehouse or manufacturer.
1.129 Specific arrangements for the treatment of fuel emissions
generated from the carriage of domestic cargo on ships engaged in an
international voyage are not addressed in the bill. The Government is
currently developing measures separate to the Scheme to address these
emissions. There may be some interaction between these measures and the
Scheme, and the Government will ensure that the measures are consistent
and complementary.
Provisional emissions number
1.130 The provisional emissions number for a person that imports or
manufactures liquid petroleum fuel equals the potential greenhouse gas
emissions embodied in the fuel for which they have a liability to pay
import or excise duty, minus any `netted-out' number for the person.
[Part 3, Division 4, clause 31(2)] [Part 3, Division 4, clause 32(2)] [Part 3, Division 4,
clause 32A].
1.131 The person's `netted-out' number refers to the potential
greenhouse gas emissions embodied in liquid petroleum fuel that they
supplied to another person who quoted an OTN in relation to that supply.
[Part 3, Division 4, clause 32A]
1.132 This ensures that a manufacturer or importer of liquid petroleum
fuel does not incur liability under the Scheme for an amount of liquid
petroleum fuel for which another person has assumed Scheme liability.
Liable entity -- supply of untransformed and transformed eligible
upstream fuel (other than liquid petroleum fuel)
1.133 Eligible upstream fuels which are not liquid petroleum fuels are
not subject to excise duty, therefore, liability for these fuels is applied to
entities at the top of the supply chains in a different way. A supplier is
liable in respect of the supply of eligible upstream fuel (other than liquid
petroleum fuel) to another person who does not quote an OTN if:
· for imported fuel, the supply is the first supply after the fuel
was entered for home consumption
· for fuel that is not imported, either:
- the fuel is the result of the supplier carrying out a
recognised transformation of another type of eligible
upstream fuel [Part 3, Division 4, clause 35]
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Chapter 1: Liable entities and covered emissions
- the fuel was not supplied in Australia to the supplier and
is not the result of the supplier carrying out a recognised
transformation of another type of eligible upstream fuel;
that is, the fuel was manufactured or produced by the
supplier. [Part 3, Division 4, clause 33]
1.134 A list of recognised transformations is contained in [Part 1,
of the bill. The regulations
clause 5, definition of `recognised transformation']
may add to this list.
1.135 To avoid double counting, a person that carries out a recognised
fuel transformation will be permitted to quote an OTN in respect of the
supply to them of pre-transformed fuel. [Part 3, Division 5, clause 59]
Example 1.8: Manufacturer of compressed natural gas
A company purchases natural gas and transforms it into compressed
natural gas. The company quotes an OTN when purchasing the natural
gas:
· the company is liable for the potential emissions from any
compressed natural gas that it supplies to a person who does not
quote an OTN
· the company is not liable for the potential emissions from any
compressed natural gas it supplies to a person who quotes an OTN
· the company is liable for any emissions from the application to its
own use of the pre-transformed fuel or the transformed fuel.
Application to own use is explained later in this chapter.
Provisional emissions number
1.136 The provisional emissions number for the supplier is equal to the
potential greenhouse gas emissions embodied in fuel supplied to persons
who do not quote an OTN, minus
· where the fuel is natural gas, the potential greenhouse gas
emissions embodied in any natural gas that was supplied into
a prescribed wholesale gas market, and
· any netted out number of the supplier. [Part 3, Division 4, clause
33(1)-(2)] [Part 3, Division 4, clause 35(1)-(2)] [Part 3, Division 4, clause
37A(2)-(3)]
1.137 The supplier's `netted-out' number accounts for emissions
embodied in eligible upstream fuel that is exported. It ensures that there is
no liability under the Scheme for exported fuel. For a netted-out number
to arise, the supplier must have a provisional emissions number for that
fuel type under clause 33 or 35. The fuel must have been entered for
export within the meaning of section 113 of the Customs Act 1901, the
supplier or the recipient of the fuel must have exported the fuel, and the
supplier must have documentary evidence of a kind prescribed in the
53
Carbon Pollution Reduction Scheme Bill 2010
regulations to show that the fuel was exported. [Part 3, Division 4, clause
37A(2)-(3)]
1.138 When a supplier exports fuel and does not supply the fuel prior
to export, the supplier will simply not be liable for the potential
greenhouse gas emissions embodied in the exported fuel. In this case the
supplier will not have a `netted out' number or a provisional emissions
number for the fuel. [Part 1, clause 5, definition of `supply']
Liable entity -- re-supplier of natural gas supplied out of a wholesale
gas market
1.139 A person is a liable entity if they re-supply gas that they were
supplied out of a prescribed wholesale gas market. This is because when
natural gas is supplied into a prescribed wholesale gas market, there is no
liability arising in relation to that supply. This provision effectively places
the re-supplier at the top of a supply chain.
1.140 A person is liable in respect of the re-supply of natural gas that
is supplied to them out of a prescribed wholesale gas market if they
re-supply it to another person who does not quote an OTN in relation to
the supply. [Part 3, Division 4, clause 33A]
1.141 However a liability does not arise when natural gas is supplied
or re-supplied into a prescribed wholesale gas market. This is because a
seller in a wholesale market is not able to determine who purchases their
gas, which is instead determined by the market rules. [Part 3, Division 4,
clauses 33(1), 33A(1), 35(1), 37(1)]
1.142 The purpose of these provisions is to ensure that entities such as
gas retailers that purchase natural gas through wholesale gas markets are
able to take on Scheme obligations when they re-supply this gas, and that
the efficient operation of gas markets is not impeded by the Scheme.
1.143 Prescribed wholesale gas markets will be defined in the
regulations [Part 1, clause 5, definition of `prescribed wholesale gas market']. It is
intended that the regulations will allow for the prescription of a gas
market which has an arrangement where amounts of natural gas are
supplied such that they are to be allocated to persons by the market
operator in accordance with the rules of that market. In the short term, this
is intended to cover the Victorian wholesale gas market currently
regulated by Part 19 of the National Gas Rules under the National Gas
Law. It is also intended to cover the trading of gas at hubs through the
Short Term Trading Market currently being developed and any similar
regulated trading mechanism.
Example 1.9: Wholesale Gas Market Supplies
The following supplies into a prescribed wholesale gas market would
not be supplies which attract a liability under the Scheme (assuming
the relevant market is prescribed in the regulations):
54
Chapter 1: Liable entities and covered emissions
· where a market participant injects gas into the Victorian principal
transmission system under and in accordance with the National Gas
Rules (e.g. where an injection bid was scheduled under the
National Gas Rules by the market operator); or
· where a right to natural gas has been transferred between registered
participants in the Short Term Trading Market because a bid under
the National Gas Rules is scheduled at a hub under those rules by
the market operator and settled under those rules.
The following supplies out of a prescribed wholesale gas market would
not be supplies which may attract a liability under the Scheme or for
which a person supplied is required or permitted to quote an OTN:
· where a market participant withdraws natural gas from the
Victorian principal transmission system under and in accordance
with the National Gas Rules (e.g. as a result of the scheduling of a
withdrawal bid or because of the participant's demand forecast); or
· natural gas is obtained by a registered participant in the Short Term
Trading Market because an offer was scheduled and settled at a hub
under the National Gas Rules by the market operator.
However, bilateral contracts for the supply of gas which operate
alongside the Victorian wholesale market or the hubs of the Short
Term Trading Market would not be supplies into, or out of, a
prescribed wholesale market and the normal liability and OTN
quotation arrangements would apply.
Provisional emissions number
1.144 The provisional emissions number for a person that re-supplies
natural gas supplied out of a prescribed wholesale gas market is equal to
the potential greenhouse gas emissions embodied in fuel supplied to
entities that do not quote an OTN, minus any fuel that was supplied into a
prescribed wholesale gas market. [Part 3, Division 4, clause 33A(2)]
Liable entity -- re-supply of eligible upstream fuel (including liquid
petroleum fuel)
1.145 The quotation of an OTN to a person at the top of a supply chain
or a person who is a re-supplier relieves that person of liability in relation
to that supply. In this way, liability can transfer down a supply chain.
1.146 A re-supplier is liable in respect of the re-supply of eligible
upstream fuel to another person if they:
· quote their OTN in relation to the supply of an amount of
eligible upstream fuel, and
· re-supply this fuel to another person who does not quote an
OTN in relation to the supply. [Part 3, Division 4, clause 37]
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Carbon Pollution Reduction Scheme Bill 2010
Provisional emissions number
1.147 The re-supplier's provisional emissions number is equal to the
potential greenhouse gas emissions embodied in fuel supplied to entities
that do not quote an OTN, minus any netted out number of the re-supplier.
[Part 3, Division 4, clause 37(2)] [Part 3, Division 4, clause 37A]
1.148 The re-supplier's `netted-out' number accounts for emissions
embodied in fuel that is exported and ensures that there is no liability
under the Scheme for exported fuel. For a netted-out number to arise, the
re-supplier must have a provisional emissions number for that fuel type
under clause 37. The fuel must have been entered for export within the
meaning of section 113 of the Customs Act 1901, the re-supplier or the
recipient of the fuel must have exported the fuel, and the re-supplier must
have documentary evidence of a kind prescribed in the regulations to
show that the fuel was exported. [Part 3, Division 4, clause 37A (4)-(5)]
1.149 When a re-supplier exports fuel and does not supply the fuel
prior to export, the re-supplier will simply not be liable for the potential
greenhouse gas emissions embodies in the exported fuel. In this case the
supplier will not have a `netted-out' number or a provisional emissions
number for the fuel. [Part 1, clause 5, definition of `supply']
Example 1.10: Re-supplier and exporter of black coal
Company G is a re-supplier and exporter of black coal. Company G
purchases coal from several coal mines and quotes its OTN in relation
to each supply. The potential greenhouse gas emissions embodied in
that coal have a carbon dioxide equivalence of 100,000 tonnes.
Company G:
· exports half of this coal (50,000 tonnes of CO2-e)
· re-supplies coal with potential emissions of 40,000 tonnes of CO2-e
to a large coal user who quotes an OTN in relation to the supply
· re-supplies the remaining coal, with potential emissions of
10,000 tonnes of CO2-e, to a number of small coal users who do not
quote an OTN.
Company G is:
· not liable for the emissions embodied in the export coal
· not liable for the emissions embodied in the coal supplied to the
large user
· liable for 10,000 tonnes of CO2-e for the coal re-supplied to the
small coal users.
Liable entity -- application of eligible upstream fuel to own use
1.150 Where a person is at the top of a supply chain, or where a person
quotes an OTN in relation to the supply of fuel they may incur Scheme
obligations under the application for own use provisions. An entity may
56
Chapter 1: Liable entities and covered emissions
be liable in respect of the application to its own use of eligible upstream
fuel if:
· greenhouse gases are emitted from the application to own
use; and
· the emissions are not attributable to a facility for which the
entity is liable. [Part 3, Division 4, clauses 34, 36, 38 and 39]
1.151 Application for own use includes making the fuel available to
another person, where making the fuel available is not a supply of the
fuel. [Part 1, clause 5, definition of `application to own use']
1.152 The provisions relating to own use of fuel only apply where that
use results in the release of greenhouse gas into the atmosphere. The
intention of these provisions is to cover the combustion of fuels or other
emissive uses that involve the release of greenhouse gas emissions
embodied in the fuel. Uses that do not result in the release of greenhouse
gas into the atmosphere, such as the use of fuels as feedstock, are not
covered by these provisions. [Part 3, Division 4, clauses 34(1), 36(1), 38(1), 39(1)]
1.153 It is likely that many entities that apply fuel to their own use will
be direct emitters. [Part 3, Division 2, clauses 17-19] Where this is the case,
their application to own use will be covered under the direct emitter
provisions (described above in `Liable entities -- direct emitters of
greenhouse gases').
1.154 Application to own use provisions aim to ensure that emissions
from combustion of eligible upstream fuels are covered at all points in the
supply chain and not just imposed on entities that are liable for a facility.
This is particularly important in the case of OTN holders that are not large
direct emitters.
Provisional emissions number
1.155 The provisional emissions number for an entity that applies an
amount of transformed or untransformed eligible upstream fuel to their
own use is equal to the potential greenhouse gas emissions from the
combustion of that fuel. [Part 3, Division 4, clauses 34, 36, 38-39].
1.156 If a particular use of an eligible upstream fuel does not result in
the release of greenhouse gas into the atmosphere (such as feedstock), the
use will not be covered by these provisions. However, if a portion of the
fuel used results in the release of greenhouse gas into the atmosphere, that
portion will be covered. [Part 3, Division 4, clauses 38-39].
Example 1.11: Feedstock user of natural gas
A person receives an amount of natural gas and quotes their OTN
in relation to the supply. The person uses a portion of the natural
gas as a feedstock in a plastic manufacturing process that
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Carbon Pollution Reduction Scheme Bill 2010
completely sequesters the natural gas into the plastic. The person
also uses a portion of the natural gas for heating purposes.
The person will not be liable for the potential emissions from the
portion of gas purchased with an OTN which is used as a feedstock.
However, the person will be liable for greenhouse gas emissions
released from the portion of fuel combusted for heating purposes.
Example 1.12: Manufacturer of coke oven coke
Company T specialises in manufacturing coke oven coke from black
coal. During a financial year Company T:
· quotes an OTN for an annual supply of black coal that embodies
potential greenhouse gas emissions of 100,000 tonnes of CO2-e
· emits greenhouse gases of 20,000 tonnes of CO2-e from the use of
this coal to manufacture coke oven coke, but has no other
emissions from the facility
· supplies coke oven coke to a number of small entities that do not
quote an OTN -- the potential greenhouse gas emissions embodied
in this coke oven coke is 20,000 tonnes of CO2-e
· supplies coke oven coke to one large facility that quotes an OTN --
the potential greenhouse gas emissions embodied in this coke oven
coke is 60,000 tonnes of CO2-e.
Company T:
· is not liable under the direct emitter provisions because total
emissions from the facility are less than 25,000 tonnes of CO2-e
· is liable under the application to own use provisions for 20,000
tonnes of CO2-e of emissions from their own use of black coal
· is liable for 20,000 tonnes of CO2-e for the coke oven coke it
supplies to small entities that do not quote an OTN
· is not liable for 60,000 tonnes of CO2-e for the coke oven coke it
supplies to the facility that quotes an OTN.
Liable entities -- importers, manufacturers and re-suppliers of synthetic
greenhouse gases
1.157 Part 2, Division 3 of the bill sets out the circumstances under
which importers, manufacturers and re-suppliers of synthetic greenhouse
gases -- hydroflurocarbons (HFCs), perfluorocarbons (PFCs) and sulphur
hexafluoride (SF6) -- will be liable for the emissions from downstream
users of these gases.
Liable entity -- import or manufacture of synthetic greenhouse gas
1.158 In general terms, liability will arise where, during an eligible
financial year, a person imports or manufactures synthetic greenhouse gas
and the carbon dioxide equivalence of that gas is 25,000 tonnes or more.
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Chapter 1: Liable entities and covered emissions
This threshold is based on gross imports or manufacture. [Part 3, Division 3,
clauses 26, 27]
1.159 If a person imports or manufactures less than this amount they
will not be a liable entity. [Part 3, Division 3, clause 26(4)], [Part 3, Division 3,
clauses 27(4)]
1.160 Certain synthetic greenhouse gases that are imported or
manufactured do not count towards thresholds or liability.
1.161 Synthetic greenhouse gases imported in manufactured products
that contain synthetic greenhouse gases only because they were used in
the manufacturing process are excluded because it is difficult to
consistently identify such products and estimate the amount of synthetic
greenhouse gas they contain. These products include polyurethane foam
insulation but do not include products such as air conditioners which use
synthetic greenhouse gases in their operation. [Part 3, Division 3, clause 26(5)]
1.162 Synthetic greenhouse gases that are imported on board ships or
aircraft that are exclusively for use in meeting the `reasonable servicing
requirements' of air-conditioning or refrigeration equipment during
international journeys will also not count towards thresholds or an
importer's provisional emissions number. [Part 3, Division 3, clause 26(6)]
This is to avoid imposing liability on emissions that do not count towards
Australia's net national emissions.
1.163 To avoid double counting, recycled synthetic greenhouse gases
are not considered to be manufactured. [Part 3, Division 3, clause 27(5)]
Anti avoidance
1.164 Provisions which address schemes entered into with the
substantial purpose of obtaining the advantage of thresholds are described
in Chapter 11 of the explanatory memorandum. In brief, the benefit of the
threshold provision may be lost. [Part 3, Division 2, clauses 23, 30]
Provisional emissions number
1.165 The provisional emissions number of an importer or
manufacturer of synthetic greenhouse gas is equal to the gross amount, in
CO2-e, of synthetic greenhouse gases imported or manufactured, minus
any `netted-out' numbers of the person for the relevant financial year
[Part 3, Division 3, clause 26(2)] [Part 3, Division 3, clauses 27(2)] [Part 3, Division 3,
clause 27A(1)].
1.166 Netted-out numbers arise where a person exports certain
synthetic greenhouse gases or supplies them to a person that quotes an
OTN. [Part 3, Division 3, clause 27A]
1.167 Where an importer or manufacturer of a particular type of
synthetic greenhouse gas also exports that type of synthetic greenhouse
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Carbon Pollution Reduction Scheme Bill 2010
gas, and where the gas was not supplied to the importer or manufacturer in
Australia, their netted-out number is equal to the lesser of:
· the amount exported (in tonnes of CO2-e), or
· the amount imported or manufactured (in tonnes of CO2-e).
[Part 3, Division 3, clause 27A(2)]
1.168 Limiting the amount that can be netted-out to the lesser of
imports/manufacture or exports prevents the provisional emissions
number from having a negative value.
1.169 The purpose of allowing a `net-out' for amounts exported is to
ensure that gases that do not count towards Australia's national emissions
(including gases re-exported as `heels' in ISO tankers) do not count
towards Scheme liabilities.
Example 1.13: Manufacturer of synthetic greenhouse gas
The total amount of a particular synthetic greenhouse gas
manufactured by a person has a carbon dioxide equivalence of
27,000 tonnes. The total amount of the same type of synthetic
greenhouse gas exported by the person has a carbon dioxide
equivalence of 2,000 tonnes.
· The 2,000 tonnes of CO2-e is netted out from the person's liability.
· The person is liable for 25,000 tonnes of CO2-e (subject to any
other relevant exclusion outlined below).
Example 1.14: Importer of synthetic greenhouse gas
The total amount of a particular synthetic greenhouse gas imported by
a person has a carbon dioxide equivalence of 27,000 tonnes. The total
amount of the same type of synthetic greenhouse gas exported by that
person has a carbon dioxide equivalence of 30,000 tonnes.
· The 27,000 tonnes of CO2-e is netted out from the person's
liability.
· The person is liable for 0 tonnes of CO2-e.
1.170 An importer or manufacturer of synthetic greenhouse gases may
also net-out an amount of synthetic greenhouse gas supplied to another
person who quotes their OTN in relation to the supply. [Part 3, Division 3,
clause 27A(4)] This is consistent with the general principle that liability can
be transferred to a person to whom an amount of synthetic greenhouse gas
or eligible upstream fuel is supplied, where that person quotes an OTN in
relation to the supply.
Liable entity -- re-supplier of synthetic greenhouse gas
1.171 As outlined above, a person who is supplied an amount of
synthetic greenhouse gas by an importer or manufacturer of synthetic
greenhouse gas may assume liability in respect of the gas by quoting their
OTN in relation to the supply. [Part 3, Division 3, clause 28]
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Chapter 1: Liable entities and covered emissions
1.172 Where the person then re-supplies an amount of the synthetic
greenhouse gas to a third person who does not quote an OTN in relation to
the supply, the re-supplier will incur a liability for that amount. [Part 3,
Division 3, clause 28]
1.173 Only entities that re-supply synthetic greenhouse gases to
another re-supplier of synthetic greenhouse gases or to exporters of
synthetic greenhouse gases are permitted to quote an OTN for synthetic
greenhouse gases. A re-supplier of synthetic greenhouse gases is not
permitted to quote an OTN if they intend to re-supply that synthetic
greenhouse gas to another person that will not quote an OTN for that
re-supply.
1.174 The purpose of these provisions is to ensure that Scheme
obligations are not imposed on synthetic greenhouse gases that are
exported, where exporters obtain the gases by way of supply from another
entity in Australia.
Obligation Transfer Numbers
1.175 In general, Scheme obligations for eligible upstream fuels arise
for importers and producers when they supply fuel and for importers or
manufacturers of synthetic greenhouse gases when they import or
manufacture the gases. However in certain situations obligations for
eligible upstream fuels and synthetic greenhouse gases can be transferred
down the supply chain to re-suppliers or end users using the Obligation
Transfer Number (OTN) mechanism. [Part 3, Division 5]. Division 4 of
Part 3 sets out the ways in which liability to surrender eligible emissions
units arises for a person who quotes an OTN.
1.176 Certain types of entities are required to quote an OTN while
others are permitted to do so. This mix of voluntary and mandatory
quotations achieves several objectives:
· OTNs move liability for the combustion of fuels by large
users to the facility level and allow certain people to assume
liability for emissions from the combustion of particular
fuels. [Part 3, Division 5, clauses 52, 56]
· OTNs provide for the appropriate amount of liability to be
applied when all or part of an amount of fuel or synthetic
greenhouse gas is sequestered into a product (that is, used as
feedstock) or used in a way that results in emissions that do
not count towards Australia's national inventory, such as
export. [Part 3, Division 5, clauses 55, 58, 60-64AA]
· In the case of natural gas and liquid petroleum gas, OTNs
move the bulk of Scheme obligations from upstream
suppliers (producers or importers) to re-suppliers who have
access to accurate customer usage information. [Part 3, Division
5, clauses 53-54]
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Carbon Pollution Reduction Scheme Bill 2010
· OTNs prevent double counting where entities transform one
type of fuel into another type of fuel. [Part 3, Division 5,
clause 59]
1.177 Entities are not required or permitted to quote an OTN in
relation to natural gas that they are supplied out of a prescribed wholesale
gas market. [Part 3, Division 5, clauses 52(1)(aa), 53(1)(aa), 56(1)(aa), 56(2)(aa),
58 (aa), 59 (aa), 60 (aa)] The operation of the Scheme in relation to natural
gas traded through prescribed wholesale gas markets is discussed in more
detail in the section above on liability for gas that is re-supplied out of a
wholesale gas market.
1.178 The Government aims to move amendments directed to the
objective of ensuring that fuel is treated as a `fungible' substance -- that
is, one unit of fuel can be substituted by another unit of the same type of
fuel. For example, a tonne of coal that is added to a stockpile should be
fungible with a tonne of coal that is taken out of the stockpile, even
though it is not the same tonne. This will enable the OTN mechanism to
operate in situations where fuel is collected into a stockpile or pool and it
is not practical or necessary to track the OTN status of particular
molecules of fuel.
Issue of an OTN
1.179 An OTN is issued to a person, and is not transferable. [Part 3,
Division 5, clause 48]
1.180 An OTN may be issued either as a result of an application, or on
the Authority's own initiative. [Part 3, Division 5, clause 41]
1.181 Allowing the Authority to issue OTNs without an application is
intended to simplify the process for entities that the Authority can readily
identify as requiring an OTN. For example, the Authority will be able to
identify large fuel users from emissions data reported under the National
Greenhouse and Energy Reporting Act 2007.
1.182 Where the issue of an OTN is by application, the bill specifies
procedures and requirements relating to that application. [Part 3, Division 5,
clauses 42-43]
1.183 Before issuing an OTN, either as a result of an application or on
the Authority's own initiative, the Authority must:
· be satisfied that the person is, or is likely to be, required or
permitted to quote an OTN; and
· have carried out an identification procedure, the details of
which will be set out in the regulations, that enables the
Authority to verify the identity of the person. [Part 3, Division 5,
clauses 44-45]
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Chapter 1: Liable entities and covered emissions
Cancellation or surrender of an OTN
1.184 OTN holders who are not currently required or permitted to
quote their OTN may continue to hold their OTN if they wish, provided
they are likely to be required or permitted to quote it in the future.
1.185 Where a person is unlikely to be required to quote an OTN in the
future the person may surrender their OTN with the written consent of the
Authority. The Authority must only consent if it is satisfied that the
person is not required to quote the OTN and is unlikely to be required to
do so in the future. [Part 3, Division 5, clause 46]
1.186 The Authority may, by written notice, cancel an OTN that is
held by a person that is not permitted or required to quote it and is
unlikely to be permitted or required to do so in the future.
1.187 The Authority may also cancel an OTN if a person has breached
a provision of the bill or an associated provision. It is anticipated that the
Authority may take this step where there is an unacceptably high risk of
further breaches of the bill or associated provisions relating to the use of
that OTN.
1.188 The Authority must cancel an OTN if the person to whom it was
issued has ceased to exist. [Part 3, Division 5, clause 47]
The OTN register
1.189 The Authority must keep an electronic register known as the
OTN register. The OTN register will enable suppliers to confirm that an
OTN is valid, and that it belongs to the person that quotes it. This register
will be available for public inspection on the Authority's website. It will
contain an entry for every current OTN. When an OTN is cancelled or
surrendered the Authority must remove the entry from the register. [Part 3,
Division 5, clause 49]
1.190 An entry in the OTN register will include an OTN, the identity
of the person that was issued with that OTN, that person's last known
address, and their ABN if they have one. This information will assist a
supplier in identifying and confirming an OTN holder, lowering
compliance costs.
1.191 A person with an OTN who changes their name or address as set
out in the register must within 14 days notify the Authority of the change.
A person who fails to meet this requirement may incur a civil penalty.
[Part 3, Division 5, clause 50A ]
Quoting an OTN
1.192 An OTN may only be quoted by the person to whom it was
issued. [Part 3, Division 5, clause 51(1)]
1.193 A person may quote their OTN in relation to a particular supply
(a one-off quotation) or a class of supplies (a standing quotation).
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Carbon Pollution Reduction Scheme Bill 2010
A quotation remains in effect unless it is withdrawn before the supply
occurs (see section on OTN withdrawal, below). [Part 3, Division 5, clause 51]
1.194 A person quotes their OTN in relation to a supply of eligible
upstream fuel or synthetic greenhouse gas by making a statement in
writing. The statement may be included in a contract, order or similar
document and may be in electronic form. [Part 3, Division 5, clause 51A-51B]
1.195 A one off quotation and a standing quotation must both set out:
· the words `quotation of OTN' followed by the OTN,
· the person's name,
· if the person has an ABN, the person's ABN,
· an indication of whether the quotation is voluntary or
mandatory,
· a description of the supply (in the case of a one-off
quotation) or class of supplies (in the case of a standing
quotation) to which the quotation relates. [Part 3, Division 5,
clause 51A-51B]
1.196 A description of a class of supplies could, for example, relate to
all supplies that occur during a specified period, a fixed number of
consecutive supplies, or a volume of fuel to be supplied.
Acknowledgement of OTN quotation
1.197 An OTN quotation must be acknowledged by the supplier in
order for the quotation to come into effect. Acknowledgement takes place
when a supplier notifies the OTN holder in writing. Acknowledgement
ensures that both the OTN holder and supplier understand when an OTN
quotation comes into effect.
1.198 If an OTN holder makes a quotation and they are required to
quote their OTN in relation to the supply, the supplier must acknowledge
the quotation. This ensures that an OTN quotation is in effect when a
person supplies eligible upstream fuel to a person who is required to quote
an OTN for that supply.
1.199 Where the OTN holder makes a quotation and where they are
permitted (but not required) to quote their OTN in relation to the supply,
the supplier may acknowledge the quotation. If the supplier does not
acknowledge the quotation the supplier may still choose to supply to the
OTN holder, however the supply would take place as if the quotation had
not been made. [Part 3, Division 5, clauses 64A-64B]
Withdrawal of OTN quotation
1.200 In certain circumstances an OTN quotation can be withdrawn.
When withdrawn an OTN quotation ceases to be in place.
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Chapter 1: Liable entities and covered emissions
1.201 There are two situations in which an OTN holder may withdraw
a standing OTN quotation by notifying the supplier in writing. The first
situation is where an OTN holder ceases to be required or permitted to
quote their OTN in relation to the classes of supplied to which the
quotation relates.[Part 3, Division 5, clause 51C]
1.202 The second circumstance is where the supplier agrees to the
withdrawal of a standing quotation. [Part 3, Division 5, clause 51D]
1.203 An OTN quotation is deemed to have been withdrawn if a
person's OTN is surrendered or cancelled and a quotation of that OTN
was in effect immediately prior to the surrender or cancellation. [Part 3,
Division 5, clause 51BA]
1.204 In these circumstances the supplier may not be aware of the
withdrawal as it occurs without the OTN holder notifying the supplier.
Therefore, where a supply occurs in the seven days from when the
surrender or cancellation of an OTN takes effect and where the OTN
holder has not notified the supplier of the cancellation or surrender, the
Act will have effect as if the person held an OTN and the OTN had been
quoted in relation to that supply. [Part 3, Division 5, clause 51F-51G]
Quotation of bogus OTN
1.205 A person must not purport to quote a number as their OTN if it
is not their OTN. [Part 3, Division 5, clause 68]
1.206 If a person purports to quote a number as their OTN for a
supply, and that number is not shown in the OTN register as the person's
OTN, the supplier must not supply eligible upstream fuel or synthetic
greenhouse gas to the person. [Part 3, Division 5, clause 68]
1.207 Suppliers will therefore need to check the details in the OTN
register at the time an OTN quotation is made and ensure that the person
quoting it matches the identity details in the register against that OTN.
1.208 Upon application by the Authority, the Federal Court may order
a person to pay the Commonwealth a civil penalty if it decides that the
person has, for example, aided a contravention of the requirement that a
person must not quote a bogus OTN or supply eligible upstream fuel and
synthetic greenhouse gas to a person that quotes a bogus OTN. [Part 3,
Division 5, clause 68(3)-(5)] [Part 21, clause 327]
1.209 For evidentiary purposes the Authority may supply a copy of or
extract from the OTN register certified by an official of the Authority to
be a true copy or true extract. This certified copy or extract will be
admissible as evidence in all courts and proceedings without further proof
or production of the original. [Part 3, Division 5, clause 50]
1.210 If an OTN holder purports to quote a number as their OTN in
relation to a supply and the purported quotation is due to an honest
mistake the Authority may determine that the Act has, and is taken to have
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Carbon Pollution Reduction Scheme Bill 2010
had, effect as if the OTN holder had quoted the OTN holder's OTN in
relation to the supply. A determination by the Authority must be in
writing and must be given to the OTN holder and the supplier. A
determination of this kind is not a legislative instrument. [Part 3, Division 5,
clause 51E]
Rejection of OTN quotation
1.211 In certain circumstances a supplier is required or permitted to
reject an OTN quotation. These circumstances are outlined below.
Rejection of OTN -- re-supply of eligible upstream fuel
1.212 If a person supplies eligible upstream fuel to a second person
who does not quote an OTN for the supply, and the second person then re-
supplies all or part of that fuel to a third person who quotes an OTN, the
second person must reject the OTN quotation. [Part 3, Division 5, clause 65]
1.213 The purpose of this clause is to avoid double counting. In the
absence of this provision, the third person or another person further down
the supply chain could incur liability for an amount of fuel or synthetic
greenhouse gas for which a liability has already been incurred.
1.214 The effect of a supplier rejecting the quotation of a person's
OTN under this clause is that, if the supply occurs, the supply is taken to
have occurred as if the person did not quote their OTN for the supply.
[Part 3, Division 5, clause 65(3)]
1.215 This clause contains ancillary provisions relating to
contravention of the clause. [Part 3, Division 5, clause 65(4)-(5)]
1.216 The purpose of these ancillary provisions is to provide an
incentive for suppliers and recipients of eligible upstream fuel to comply
with the requirement that an OTN be rejected in the circumstance
described. Upon application by the Authority, the Federal Court may, if it
decides that a person has, for example, aided a contravention of the
requirement to reject an OTN in relation to a particular supply, order the
person to pay the Commonwealth a civil penalty. [Part 21, clause 327]
Rejection of voluntary quotation of OTN
1.217 A supplier may reject the quotation of a person's OTN for a
supply of eligible upstream fuel if that quotation is not required. [Part 3,
Division 5, clause 66] The regulations will specify a method for rejection.
1.218 The effect of a supplier rejecting the quotation of an OTN under
this clause is that, if the supply occurs, it is taken to have occurred as if
the person did not quote their OTN for the supply.
1.219 A supplier does not need any particular reason to reject the
quotation of a voluntary OTN. However, circumstances under which a
supplier may wish to reject a voluntary OTN quotation include:
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Chapter 1: Liable entities and covered emissions
· the supplier does not have administrative arrangements that
would allow the netting out of amounts of fuel supplied to
OTN holders,
· for reasons of administrative simplicity, the supplier wishes
to manage Scheme obligations for all fuel that it supplies.
Misuse of OTN
1.220 The mere issue of an OTN does not permit a person to quote it.
When a person quotes an OTN for a particular supply or class of supplies
the person must, at the time of quotation, be required or permitted to do
so. An OTN holder breaches the provisions in the bill if they quote an
OTN in circumstances where they are not required or permitted to do so.
[Part 3, Division 5, clause 67]
1.221 If a person quotes an OTN in circumstances where they are not
required or permitted to do so, the validity of the transaction is not
affected by the breach. That is, the quotation will relieve the supplier of
liability in relation to that supply. However, unlike a quotation which is
permitted or required, a person that misuses their OTN is liable for the
potential greenhouse gases emissions embodied in the fuel supplied or
where the supply relates to synthetic greenhouse gas the carbon dioxide
equivalence of that gas. [Part 3, Division 3, clause 29], [Part 3, Division 4,
clause 40], [Part 3, Division 5, clause 67(4)]
1.222 Upon application by the Authority, the Federal Court may order
a person to pay the Commonwealth a civil penalty, if it decides that the
person has, for example, aided a contravention of the requirement not to
quote an OTN in circumstances where it is not required or permitted.
[Part 3, Division 5, clause 67(2)-(3)] [Part 21, clause 327]
1.223 This provides an incentive for suppliers and recipients of eligible
upstream fuel and synthetic greenhouse gas to comply with the
requirement that an OTN must only be quoted in circumstances where a
person is required or permitted to do so under the bill.
Mandatory quotation of an OTN
1.224 Four types of entities will be required to quote an OTN:
· large users of eligible upstream fuels [Part 3, Division 5,
clause 52]
· re-suppliers of natural gas [Part 3, Division 5, clause 53]
· re-suppliers of liquid petroleum gas [Part 3, Division 5, clause 54]
· feedstock users of liquid petroleum gas, refinery grade
propene and ethene. [Part 3, Division 5, clause 55]
1.225 Each provision that requires quotation of an OTN contains
ancillary provisions relating to contravention of a requirement to quote an
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Carbon Pollution Reduction Scheme Bill 2010
OTN. [Part 3, Division 5, clause 52(2)-(3)] [Part 3, Division 5, clause 53(2)-(3)]
[Part 3, Division 5, clause 54(2)-(3)] [Part 3, Division 5, clause 55(2)-(3)]
1.226 The purpose of these provisions is to provide an incentive for
suppliers and recipients of eligible upstream fuel to comply with the
requirement that an OTN be quoted in relation to a particular supply.
Upon application by the Authority, the Federal Court may, if it decides
that a person aids, procures, induces etc. a contravention of the
requirement to quote an OTN in relation to a particular supply, order the
person to pay the Commonwealth a civil penalty. [Part 21, clause 327]
1.227 An OTN quotation made in circumstances where the quotation is
mandatory must set out a statement to that effect within the quotation.
A person must not, however include a statement to this effect unless the
person is or will be required to quote an OTN in relation to the supply or
class of supplies to which the quotation relates. A breach of this
requirement may result in a civil penalty. [Part 3, Division 5, clause 66A]
Large users of eligible upstream fuels (excluding users of liquid petroleum
fuel)
1.228 The operator of a facility will be required to quote an OTN in
relation to a supply to the facility of an eligible upstream fuel (other than
liquid petroleum fuel) if combustion of that type of fuel contributed
25,000 tonnes of CO2-e or more to the facility's greenhouse gas emissions
in the previous year. Pro-rata thresholds apply for facilities that an entity
operates for part of a year. [Part 3, Division 5, clause 52(1)]
1.229 The holder of a liability transfer certificate for such a facility is
considered to be its operator. [Part 3, Division 5, clause 52(4)]
1.230 Entities will be able to ascertain whether they meet the threshold
for large fuel users on the basis of their previous year's report made under
the National Greenhouse and Energy Reporting Act 2007.
1.231 Large fuel users will not be required to quote an OTN for fuels
that contributed less than 25,000 tonnes of CO2-e to a facility's emissions
in the previous year. This is to ensure that suppliers are not required to net
out small amounts of fuel.
1.232 However in certain circumstances large fuel users will be
permitted to quote their OTN in relation to fuels that contribute less than
25,000 tonnes of CO2-e to a facility's emissions, as explained in the
section below on voluntary quotation of an OTN.
Re-suppliers of natural gas and marketers of liquid petroleum gas
1.233 Natural gas retailers, marketers of liquid petroleum gas and
other entities that carry on a business of re-supplying natural gas, will be
required to quote an OTN. [Part 3, Division 5, clauses 53-54] This will transfer
the bulk of Scheme liabilities for these fuels to the entities that have
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Chapter 1: Liable entities and covered emissions
customer usage information for these fuels and will ensure that these
re-suppliers operate within equivalent market rules.
1.234 Marketers of liquid petroleum gas are those entities that
re-supply liquid petroleum gas that is supplied to them from an import
terminal bulk storage, petroleum refinery bulk storage or liquid petroleum
gas separation plant bulk storage. [Part 3, Division 5, clause 54] Some entities
that the liquid petroleum gas industry commonly considers to be
marketers (those that run vertically integrated operations with bulk storage
facilities) will not meet this definition as `supply' does not include intra-
company transfers. Nevertheless, these entities will have Scheme
obligations for the liquid petroleum gas they supply by way of their status
as producers or importers of this fuel. [Part 3, Division 4, clause 33]
Feedstock users of liquid petroleum gas, refinery grade propene or ethane
1.235 Feedstock users of liquid petroleum gas, refinery grade propene
or ethane will also be required to quote an OTN to their suppliers of these
fuels. [Part 3, Division 5, clause 55]
1.236 Users of these fuels as feedstocks often consume significant
quantities of the fuels, and there are a limited number of suppliers to these
industries. These circumstances present risks that significant Scheme
liabilities could be imposed for large quantities of fuel that will not result
in emissions. As such, feedstock users of these fuels will be required to
quote an OTN.
Voluntary quotation of an OTN
1.237 Seven types of entities will be permitted, but not required, to
quote an OTN in relation to a particular supply of eligible upstream fuel
or synthetic greenhouse gas. [Part 3, Division 5, Subdivision D] These are:
· large users of eligible upstream fuels (including liquid
petroleum fuels) [Part 3, Division 5, clause 56]
· entities that use eligible upstream fuels as feedstock to
manufacture other products, or in ways that do not result in
emissions of greenhouse gases to the atmosphere [Part 3,
Division 5, clause 58]
· entities that transform eligible upstream fuels from one type
into another [Part 3, Division 5, clause 59]
· exporters and intermediate suppliers of certain fuels [Part 3,
Division 5, clauses 60]
· intermediate suppliers of synthetic greenhouse gases [Part 3,
Division 5, clause 63]
· exporters of synthetic greenhouse gases [Part 3, Division 5,
clause 64]
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Carbon Pollution Reduction Scheme Bill 2010
· feedstock users of synthetic greenhouse gases [Part 3,
Division 5, clause 64AA]
Large users of eligible upstream fuels
1.238 A large user of eligible upstream fuel is permitted to make a
voluntary quotation of an OTN for a supply of fuel. A large fuel user is
the operator of a facility that in the previous financial year had greenhouse
gas emissions from combustion of one type of eligible upstream fuel of at
least the amount specified in the regulations. [Part 3, Division 5, clause 56(1)]
1.239 The holder of a liability transfer certificate for such a facility is
considered to be its operator. [Part 3, Division 5, clause 56(9)]
1.240 The threshold that defines a large fuel user for the purposes of
voluntary quotation of an OTN will be prescribed in regulations. [Part 3,
Division 5, clause 56(1)] The Government's intent is to set this threshold
initially at 25,000 tonnes of CO2-e or less.
1.241 Setting the threshold at this level will enable large fuel users that
are required to quote an OTN for one type of fuel supplied to a facility to
quote an OTN for other fuels used at the facility. They will also be able to
quote an OTN when purchasing fuel for other facilities that do not exceed
the single fuel threshold. This will simplify billing arrangements where a
large fuel user obtains more than one type of fuel from a supplier, or
purchases fuel from one supplier for use at more than one facility.
1.242 The Authority may give approval for the quotation of an OTN
by an entity that expects its emissions to exceed the threshold in a
particular year, even though it does not satisfy the threshold test for the
previous year. This may occur, for example, where an entity expects to
increase production at an existing facility or establish a new facility.
1.243 Entities will be able to apply to the Authority to become an
approved person under this provision. The bill specifies procedures and
requirements relating to such an application. The Authority will only
approve an application if satisfied that emissions are likely to exceed the
threshold in the year to which the application relates. [Part 3, Division 5,
clause 56(2)-(8)]
1.244 The threshold may be lowered over time to allow a greater range
of entities to manage their Scheme obligations.
Example 1.15 Large user of eligible upstream fuel with prior
reporting history
Company X has operational control over a coal mine. In 2011
emissions from the coal mine comprise:
· 40,000 tonnes of CO2-e of fugitive emissions
· 30,000 tonnes of CO2-e from use of diesel
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Chapter 1: Liable entities and covered emissions
· 2,000 tonnes of CO2-e from use of petrol.
Company X also has operational control over another mine which is a
facility in its own right. In 2011 emissions from this second mine
comprise:
· 20,000 tonnes of CO2-e of fugitive emissions
· 15,000 tonnes of CO2-e from use of diesel
· 1,000 tonnes of CO2-e from use of petrol.
In 2012 Company X is permitted to quote an OTN for its diesel use at
the first mine because, in 2011, its emissions from diesel use at that
mine exceeded the single fuel threshold specified in the regulations.
Because emissions from one fuel exceeded the threshold, Company X
is also permitted to quote an OTN for its petrol use at that mine.
Company X is also permitted to quote an OTN for its diesel and petrol
use at the second mine, even though emissions attributable to any one
type of fuel used at the second mine do not exceed the single fuel
threshold specified in the regulations.
The company establishes a fuel supply contract with a fuel company
for the diesel and petrol used at both mines. The company makes an
OTN quotation in that contract which is acknowledged by the supplier.
Company X must manage Scheme obligations for all fuel supplied
under this contract.
Example 1.16: Start-up company that expects to be a large
user of eligible upstream fuel
A company is in the process of commissioning a gas fired electricity
plant. It expects to emit 500,000 tonnes of CO2-e of greenhouse gases
in its first year of operation. The company applies to the Authority for
an OTN and submits all information and documents specified in the
regulations. The Authority assesses the application and decides that it
is likely that the company's emissions from natural gas combustion
will exceed the threshold value specified in the regulations. The
Authority, by written notice, declares that the company is an approved
person. The company is permitted to quote an OTN for the natural gas
it purchases for its new electricity plant, and for any other fuel supplied
to it.
Use of fuel in manufacturing other products etc
1.245 A person may quote an OTN if they use eligible upstream fuels
to manufacture products in which all or part of that fuel is sequestered,
such as where a fuel is used as a feedstock to make plastic. Entities that
use fuels in other ways that do not result in emissions of greenhouse gases
to the atmosphere may also quote an OTN. An example of this type of use
is the use of diesel as a flocculent in minerals processing. [Part 3, Division 5,
clause 58]
1.246 The circumstances under which these entities will be permitted
to quote an OTN do not require that the fuel is to be used for a specific
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Carbon Pollution Reduction Scheme Bill 2010
purpose. This recognises that entities permitted to quote an OTN under
this provision commonly combust a portion of the fuel supplied to them.
1.247 To avoid doubt, exempt hydrocarbon solvents are not eligible
upstream fuels. [Part 1, clause 5, definitions of `eligible upstream fuels', `liquid
petroleum fuels' and `exempt hydrocarbon solvent'] As such, no liability will arise
from their supply and the quotation of an OTN is not permitted in relation
to such a supply.
1.248 Scheme obligations will apply for any greenhouse gas emissions
from the use of that fuel. Liability for these emissions arises under the
direct emitter provisions, or under the application to own use provisions
where the direct emitter provisions do not apply. [Part 3, Division 2] [Part 3,
Division 4]
Transformation of fuel
1.249 A person that transforms one type of eligible upstream fuel into
another type of eligible upstream fuel, for example manufacturing coke
oven coke from black coal, will be liable for the supply of the transformed
fuel to entities that do not quote an OTN. [Part 3, Division 4, clause 35]
However, where a fuel transformer obtains pre-transformed fuel from
another entity, liability will be imposed on that supply unless the fuel
transformer is permitted to quote an OTN. [Part 3, Division 4, clause 33]
1.250 For this reason, entities that undertake recognised fuel
transformations will be permitted to quote an OTN. [Part 3, Division 5,
clause 59] Recognised fuel transformation processes are defined in the bill.
[Part 1, clause 5, definition of `recognised transformation'] Additional fuel
transformations that involve transforming one type of eligible upstream
fuel into another type of eligible upstream fuel can be added through the
regulations.
Export or re-supply of eligible upstream fuels
1.251 Intermediaries are present in certain fuel supply chains, such as
the supply chain for black coal. Entities that are permitted or required to
quote an OTN and that are supplied fuel by an intermediary, would not be
able to assume Scheme obligations for fuels unless their supplier is also
permitted to quote an OTN. Furthermore, intermediaries that export fuels
would incur the cost of Scheme obligations if they were unable to quote
an OTN. For these reasons, re-suppliers or exporters of eligible upstream
fuels will be permitted to quote an OTN. [Part 3, Division 5, clauses 60]
Re-supplier of synthetic greenhouse gases
1.252 Re-suppliers of synthetic greenhouse gases will be permitted to
quote an OTN in a limited set of circumstances. This limited application
of an OTN is intended to allow Scheme obligations to be transferred to
exporters of synthetic greenhouse gases.
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1.253 A person who carries on a business re-supplying synthetic
greenhouse gases will only be permitted to quote an OTN where they
intend to re-supply the synthetic greenhouse gas to another person and
then only if that other person is either:
· an exporter who quotes an OTN in relation to the re-supply,
or
· another re-supplier who quotes an OTN in relation to the
re-supply. [Part 3, Division 5, clause 63]
1.254 The limited circumstances under which a re-supplier of synthetic
greenhouse gas is permitted to quote an OTN does not provide for the
re-supplier to quote an OTN in relation to an amount of synthetic
greenhouse gas that will be re-supplied to another person who does not
quote an OTN. They also do not permit the quotation of an OTN for an
amount of synthetic greenhouse gas that will be used by the re-supplier.
Exporter of synthetic greenhouse gases
1.255 As noted above, a person who carries on a business exporting
synthetic greenhouse gases may quote an OTN. For such persons
quotation is permitted for an amount of synthetic greenhouse gas that will
be re-supplied or exported. [Part 3, Division 5, clause 64].
1.256 In practice, an entity that both exports synthetic greenhouse
gases and supplies synthetic greenhouse gases within Australia will be
able to quote an OTN when purchasing synthetic greenhouse gases from
their supplier. However, the entity will only be liable for the portion of
synthetic greenhouse gas re-supplied domestically. [Part 3, Division 3,
clause 28]
Example 1.17: Exporter of synthetic greenhouse gases
A company manufactures air conditioners that contain synthetic
greenhouse gases. The company exports a portion of its product and
supplies the other portion on the domestic market. When purchasing
synthetic greenhouse gas refrigerants from its supplier (an importer of
synthetic greenhouse gases) the company quotes its OTN. The
importer will not be liable for the synthetic greenhouse gas supplied to
the company. The company will be liable for the synthetic greenhouse
gases (in CO2-e) within the air conditioning equipment it supplies to
the domestic market.
Feedstock users of synthetic greenhouse gases
1.257 A person may also quote an OTN if they use synthetic
greenhouse gases as a feedstock; that is, where the synthetic greenhouse
gas is consumed in a chemical process to manufacture a product. [Part 3,
Division 5, clause 64AA]
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Carbon Pollution Reduction Scheme Bill 2010
Reporting requirements
1.258 The National Greenhouse and Energy Reporting Act 2007 will
be amended to allow regulations to specify reporting requirements for
entities that either use or accept the quotation of an OTN. Examples of the
type of information that may be required by regulations are quantities of
different types of fuel supplied to a person under an OTN and re-supplied
to another person including separate amounts supplied to different OTNs.
(See the consequential amendments bill, Schedule 1, Part 2, item 181.)
Liability transfer certificates
1.259 As outlined in the summary of new law section above provisions
relating to the transfer of liability for emissions under a liability transfer
certificates are in Division 6 of Part 3.
1.260 There are two circumstances in which the liability for a
particular facility can be transferred from one entity to another using a
liability transfer certificate.
1.261 The first circumstance applies under Division 6, Subdivision A
which enables the transfer of Scheme liability from a controlling
corporation to one of its subsidiaries. As such this subdivision applies to
corporations only. The transfer of liability to a subsidiary is intended to
allow the triggering of a change of law or carbon cost pass through clause
in a contract that the subsidiary is a party to on the basis that such clauses
would not be triggered if liability was placed on the controlling
corporation. Accessing these clauses may enable a subsidiary to pass
through carbon costs in existing contracts and convey efficient price
signals to end users.
1.262 The second circumstance applies when an entity with financial
control of a facility (for example the owner) is not also the operator of that
facility. In this instance, the entity with financial control may have
influence over emissions reductions in addition to the operator. In line
with the object of the Scheme -- to reduce emissions -- the entity that has
financial control may take on liability in certain circumstances through a
Category B liability transfer certificate. If more than one entity has
financial control, it is intended that the entity with the greatest financial
control would be permitted to apply for a liability transfer certificate.
1.263 To apply for a liability transfer certificate an entity must pass
either the Category A or Category B transfer test as outlined below.
1.264 A liability transfer certificate may only be issued for a single
facility. If a person wants to transfer liability for multiple facilities they
will have to apply for a certificate for each of those facilities. [Part 3,
Division 6, clause 69] [Part 3, Division 6, clause 73]
1.265 A person taking on liability must have a significant connection
to a facility that encompasses the ability to reduce emissions from that
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Chapter 1: Liable entities and covered emissions
facility. For this reason a liability transfer certificate can only be issued by
the Authority and is not transferable. [Part 3, Division 6, clause 80]
1.266 This section also outlines other matters relating to liability
transfer certificates including Category A and Category B transfer tests,
the issuance process, reporting obligations, application process, duration,
surrender and cancellation. [Part 3, Division 6]
Transfer of liability to another member of a controlling corporation's
group -- category A transfer test
1.267 As outlined above, Division 6, Subdivision A enables the
transfer of Scheme liability from a controlling corporation to one of its
subsidiaries. Under Subdivision A, a subsidiary can only apply for a
liability transfer certificate if its controlling corporation gives its consent
for that application to be made. [Part 3, Division 6, clause 70(3)] Where a
certificate is issued the controlling corporation is taken to have given a
statutory guarantee for the payment of any administrative penalty for a
unit shortfall for the relevant financial year and any late payment penalty
for that subsidiary, plus the controlling corporation has a make good
number for the unit shortfall of the subsidiary. [Part 6, Division 4, clause 138
and 142(2)] This provision ensures that there is always a liable entity under
the Scheme for a covered facility and prevents controlling corporations
from avoiding liability by transferring liability to a subsidiary.
Diagram 1.1
Corporation A
Corporation A's group Corporation A is the controlling
consists of subsidiaries X corporation for subsidiaries X and Y
and Y
Subsidiary X Subsidiary Y
X has operational control over Y does not have operational control
facilities 1 and 2 over Facility 1 or 2, but is part of
controlling corporation A's group
Transfer of
liability
certificate issued
to Subsidiary Y
Facility 1 Facility 2
Transfer of liability certificate is issued for Subsidiary Y in relation to
Facility 2.
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Carbon Pollution Reduction Scheme Bill 2010
Subsidiary Y takes on all obligations and liability for Facility 2 under
the Scheme and under the National Greenhouse and Energy Reporting
Act 2007 -- this includes reporting in relation to emissions, energy
production and energy consumption.
Corporation A will not have obligations or liability for Facility 2 under
the Scheme or under the National Greenhouse and Energy Reporting
Act 2007.
Corporation A will, however, have consented to the application for the
transfer and in doing gives a statutory guarantee against liability
incurred by Subsidiary Y.
Facility 2 will continue to form part of Corporation A's group for the
purposes of meeting the National Greenhouse and Energy Reporting
Act 2007 group thresholds.
Transfer of liability to a company that has financial control over a
facility -- Category B transfer test
1.268 As outlined above a Category B liability transfer certificate
(outlined in Division 6, Subdivision B) allows liability to be transferred
from the operator of a facility to another person as long as that other
person has financial control (defined below) over the facility.
1.269 However, transfers are not allowed to certain persons. First, the
person cannot be an individual. This avoids complications that may arise
when an individual is liable, such as death. Second, the person cannot be a
foreign person. This prevents liability from being transferred to a person
overseas to avoid compliance under the Scheme, recognising that it would
be more difficult enforce obligations against a foreign person. Third, the
person cannot be within the same controlling corporation's group as the
operator. This is because an application for a transfer in this instance is
intended to be made under the Category A transfer test.
1.270 In the majority of circumstances liable persons are not expected
to access these provisions. This is because the operator will also be the
owner of a facility and would therefore have financial control of that
facility. However, in some circumstances, for example contract mining
and pipeline operations, the person with financial control of a facility
contracts out the operation of a facility to another person. The operator
will then generally have operational control over the facility and therefore
liability for the facility under the Scheme. As the person with financial
control of a facility may also have an influence over emissions arising
from the facility, it is appropriate to allow that person to take on liability
for the facility with the agreement of the operator of the facility.
1.271 Financial control is intended to encompass a person that has
significant ability to control a facility through financial means only and
therefore give effect to decisions relating to emissions reductions. It is not
intended to include an agent or person acting on behalf of an entity that
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Chapter 1: Liable entities and covered emissions
has financial or operational control of a facility who may not have any
direct influence on emissions reductions. [Part 3, Division 6, clause 81]
1.272 The meaning of financial control recognises that more than one
person may have financial control over a facility. For example several
persons may be participants in a joint venture or partnership that
collectively have financial control of a facility. In these circumstances, the
person with the equal or greatest share in the economic benefits from a
facility will have financial control for the purposes of the Act.
Diagram 1.2
Corporation A
Controlling corporation
Corporation B
Controlling corporation
Subsidiary X -- Subsidiary Y
operator Subsidiary F
F has financial control Subsidiary G
over Facility 1
Facility 1
Subsidiary F, which is part of Controlling Corporation B's group, has
financial control over Facility 1. Subsidiary F (with consent from
Corporation A and Corporation B) applies for a liability transfer
certificate.
A certificate is issued and Subsidiary F takes on takes on all
obligations and liability for Facility 1 under the Scheme and under the
National Greenhouse and Energy Reporting Act 2007 -- this includes
reporting in relation to emissions, energy production and energy
consumption.
Corporation A will not have obligations or liability for Facility 1 under
the Scheme or under the National Greenhouse and Energy Reporting
Act 2007.
Criteria for the issue of a liability transfer certificate
1.273 An entity must also meet the criteria for the issue of a liability
transfer certificate. [Part 3, Division 6, clause 72] [Part 3, Division 6, clause 76]
Criteria have been included to maintain Scheme integrity by ensuring that
an entity has the capacity, access to financial resources and information to
comply with its obligations under the Carbon Pollution Reduction Scheme
Act 2010 as well as the National Greenhouse and Energy Reporting Act
2007.
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Carbon Pollution Reduction Scheme Bill 2010
1.274 The financial criterion ensures that a person does not transfer
liability to a person that cannot meet Scheme obligations in order to avoid
or delay liability. This test is not, however, intended to involve an
exhaustive explanation by the applicant of its financial situation. [Part 3,
Division 6, clause 72] [Part 3, Division 6, clause 76]
Reporting obligations and liability transfer certificates
1.275 Obligations for reporting under the National Greenhouse and
Energy Reporting Act 2007 in relation to the facility for which a liability
transfer certificate has been issued will be transferred to the holder of the
certificate. This includes reporting obligations in relation to greenhouse
gas emissions, energy production and energy consumption. This is given
effect by the consequential amendments bill. (See the consequential
amendments bill, Schedule 1, Part 2, items 175-181)
Application process for a liability transfer certificate
1.276 An application to obtain a liability transfer certificate must be
made in writing in a form approved by the Authority. An application by a
subsidiary must be accompanied by the written consent of its controlling
corporation. The application must also include any information and
documents that are specified in regulations. This is intended to include
information and documents that support an entity's application and
demonstrate that the entity meets the criteria for the issue of a liability
transfer certificate. [Part 3, Division 6, clause 70] [Part 3, Division 6, clause 74]
1.277 The Authority may request further information in relation to an
application within a period specified in a notice given by the Authority.
This is to assist the Authority in its decision-making capacity. The
Authority must ensure that the information requested is relevant to its
consideration of the application and must exercise this power reasonably.
[Part 26, clause 374B] If the applicant does not meet this request within the
time specified, the Authority may refuse to consider the application or
refuse to take any action, or any further action, in relation to the
application. [Part 3, Division 6, clause 71] [Part 3, Division 6, clause 75]
1.278 The Authority is required to take all reasonable steps to ensure
that a decision is made on an application for a liability transfer certificate
within 90 days of receiving an application or within 90 days of being
given further information. The Authority must inform an applicant in
writing if it decides to refuse to issue a liability transfer certificate. [Part 3,
Division 6, clause 72] [Part 3, Division 6, clause 76]
1.279 A certificate may come into force on the start day specified in
the certificate, which must be within the same financial year as the
application for the certificate. This ensures that liability cannot be
transferred from a financial year that has already passed and allows
persons to obtain a certificate for an entire financial year regardless of
when the application is made or the certificate is issued during a financial
year. [Part 3, Division 6, clause 77]
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Chapter 1: Liable entities and covered emissions
1.280 The start date may only be earlier than the day on which the
certificate is issued if the applicant and the relevant parties consent to the
specification of that start day. This ensures that all persons that may be
liable under the Scheme know who is liable for a given period. [Part 3,
Division 6, clause 77]
Duration of a liability transfer certificate
1.281 Once made, a liability transfer certificate remains in force
indefinitely subject to provisions relating to surrender and cancellation of
a certificate. [Part 3, Division 6, clause 77]
Voluntary surrender of liability transfer certificate
1.282 If an entity wishes to surrender a liability transfer certificate it
must obtain written consent from the Authority to do so. The Authority
must not consent to the surrender unless:
· where applicable, the controlling corporation(s) that agreed
to the making of the application for the certificate agrees to
the surrender, and
· the certificate has been in force for at least four years, or
· certificate has been in force for less than four years, but the
Authority is satisfied that there are special circumstances that
warrant the giving of its consent to the surrender.
1.283 It is envisaged that special circumstances is unlikely to include a
change of operator or contract as these changes are considered to be
normal business practice and are foreseeable by a person at the time of
their application for a liability transfer certificate. The four year criterion
supports the Scheme's integrity by ensuring a consistent liable entity and
prevents multiple transfers of liability that may be aimed at avoiding
liability. [Part 3, Division 6, clause 78]
Consultation on cost pass through issues
1.284 The Government proposes to undertake public consultation post
passage with a view to making amendments before July 2011 (the start of
the Scheme) that enhance pass-through of carbon costs under existing
contracts.
1.285 The Government recognises that the proposals relating to
operational subsidiary liability and joint venture liability are aimed at
enhancing pass-through of carbon costs by clarifying the point of liability
and removing the scope for minority shareholders in a facility to veto
investments to reduce emissions for which the controlling corporation is
currently liable.
1.286 There are complex technical and legal issues surrounding cost
pass-through and proposals to move the point of liability could affect a
wide range of parties. Public consultation will ensure that any proposed
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Carbon Pollution Reduction Scheme Bill 2010
amendments meet the needs of a broad range of stakeholders, avoid
unintended consequences and maintain the integrity of the Scheme.
Cancellation of liability transfer certificate
1.287 The Authority must, by written notice, cancel a liability transfer
certificate in the following circumstances:
· if a company ceases to pass a Category A or B transfer test,
· in the case of Category A liability transfer certificate, the
company is no longer a member of the group of the
controlling corporation which consented to the application,
· in the case of a Category B liability transfer certificate, the
holder of the certificate ceases to be a member of the
corporate group of the controlling corporation that consented
to the application,
· if a company has not paid an administrative penalty for a unit
shortfall under clause 133 of the bill,
· if the company has become an externally-administered body
corporate (within the meaning of the Corporations Act 2001),
or
· if regulations specify one or more other grounds for
cancellation and at least one of those grounds is applicable to
the company. [Part 3, Division 6, clause 79]
1.288 The cancellation or surrender of a liability transfer certificate
will result in future obligations and liability returning to the person that
would have had obligations and liability in the absence of the liability
transfer certificate. [Part 3, Division 6, clauses 78-79]
Australian boundaries
1.289 The Scheme will extend to every external Territory. [Part 1, clause
10]. It
will also extend to the coastal sea in accordance with section 15B of
the Acts Interpretation Act 1901.
1.290 It will extend to a matter relating to the exercise of Australia's
sovereign rights in the exclusive economic zone or the continental shelf.
[Part 1, clause 11]
1.291 This means that those responsible for carbon capture and storage
facilities in the exclusive economic zone or the continental shelf will be
responsible under the general provisions of the bill for any emissions from
these facilities.
1.292 However, the Scheme will not apply to the extent that its
application would be inconsistent with the exercise of rights of foreign
ships in the territorial sea, exclusive economic zone or waters of the
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Chapter 1: Liable entities and covered emissions
continental shelf in accordance with the United Nations Convention on the
Law of the Sea. [Part 1, clause 12]
1.293 The Act extends to the Joint Petroleum Development Area
because Australia is responsible for a proportion of the emissions from
this region under the United Nations Framework Convention on Climate
Change and the Kyoto Protocol [Part 1, clause 11A]. The regulations will
specify the percentage of the emissions from facilities in the Joint
Petroleum Development Area and the Greater Sunrise Field which are
subject to the Scheme. These regulations will specify percentages
consistent with Australia's responsibilities under international law [Part 3,
Division 2, clauses 22A -- 22C].
1.294 The express application of the Act to the Joint Petroleum
Development Area -- an agreed joint development area under the Timor
Sea Treaty [2003] ATS 13 -- is consistent with the obligations of
Australia under article 4(1) of the Treaty between Australia and Timor-
Leste on Certain Maritime Arrangements in the Timor Sea [2007] ATS
12.
1.295 Apart from these provisions, reliance is placed on the general
presumption that legislation does not have extraterritorial effect plus
section 21 of the Acts Interpretation Act 1901 to limit the scope of the
legislation.
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Carbon Pollution Reduction Scheme Bill 2010
82
Chapter 2
Scheme caps, gateways and emissions
units
Outline of chapter
2.1 This chapter discusses the national scheme caps and national
scheme gateways, and the nature of the various emissions units (domestic
and international) recognised in the bill. It explains how these units can be
issued and transferred. It also explains which can be surrendered.
2.2 It relates particularly to Part 2 and some clauses in Part 4 of the
bill.
Context
2.3 The Carbon Pollution Reduction Scheme is a cap and trade
scheme. It involves setting a national trajectory (which is referred to in the
objects clause [Part 1, clause 3]), and setting national scheme caps and
gateways. The objects clause is discussed in the General Outline of this
explanatory memorandum. A limited number of emissions units are issued
and liable entities are required to surrender a number of units equal to
their emissions to account for those emissions. The emissions units are
tradable, establishing a carbon market that allows emissions units to be
allocated to the most highly valued uses across the economy. Therefore,
determining the emissions units that can be used for surrender is
fundamental to the operation of the Scheme.
2.4 The Kyoto Protocol is an international agreement on climate
change, providing among other things a framework for an international
cap and trade scheme. Australia has an obligation to retire emissions units,
referred to as Kyoto units, to meet its Kyoto target. The Kyoto Protocol
also establishes three `flexibility mechanisms'. These flexibility
mechanisms result in the issue of Kyoto units which can be traded
between Kyoto Parties and used towards meeting their emission reduction
targets. Kyoto Parties can also allow for legal entities to participate in the
trade of Kyoto units.
2.5 Allowing for Kyoto units to be used for surrender in the Scheme
creates a link between the Scheme and the international market for Kyoto
units. This allows liable entities to access lower cost abatement
opportunities wherever they occur in the world and allows for emission
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Carbon Pollution Reduction Scheme Bill 2010
reduction targets to be achieved in a flexible and cost-effective way,
without reducing the Scheme's environmental integrity.
2.6 The Kyoto Protocol includes a requirement that Australia's use
of the flexibility mechanisms be supplemental to its domestic actions.
This means that Australia must take some meaningful domestic action to
meet its emission reduction target, and cannot rely solely on the flexibility
mechanisms. Projections of Australia's greenhouse gas emissions for the
first Kyoto commitment period (2008 -- 2012) indicate Australia's
reliance on the flexibility mechanisms to meet the target is expected to be
minimal. Australia has undertaken a range of measures to reduce domestic
greenhouse gas emissions, in addition to the Carbon Pollution Reduction
Scheme, and will continue to do so. The price on greenhouse gas
emissions introduced as a result of the Scheme can also be expected to
result in additional action on the part of households and industry to reduce
Australia's greenhouse gas emissions. Collectively, these measures
represent significant domestic action.
Summary
2.7 The national scheme caps and gateways will be set in
regulations. The matters relevant to specifying the Scheme caps and
gateways are listed and discussed in this Chapter.
2.8 Australian emissions units will be created for the purpose of the
Scheme. These will have a number of characteristics which ensure
transparent and secure property rights.
2.9 Australian emissions units will be issued by the Authority on
behalf of the Commonwealth in the Registry. Generally, Australian
emissions units can be transferred between Registry accounts and
surrendered. Restrictions apply to Australian emissions units:
· units issued for a fixed charge are automatically surrendered
for the eligible financial year corresponding to their vintage
year
· units with a vintage year of 2011-12 issued in accordance
with the emissions-intensive trade-exposed assistance
program or in respect of coal-fired electricity generation
assets can only be surrendered in relation to the 2011-12
eligible financial year and, if not surrendered, will be
cancelled on 15 December 2012.
2.10 The bill recognises the emissions units created under the Kyoto
Protocol and sets out how these units can be issued and transferred. Some
types of Kyoto units can be surrendered for compliance purposes while
others cannot. Nonetheless all Kyoto units can be held and transferred
within the Registry.
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Chapter 2: Scheme caps, gateways and emissions units
Detailed explanation of new law
National targets and Scheme caps
2.11 Part 2 of the bill sets out arrangements for national scheme caps
and national scheme gateways. It commences with a simplified outline
[Part 2, clause 13]. The purpose of national scheme gateways is to provide
guidance for longer term cap-setting, while still retaining some flexibility
over where future scheme caps can be set. National scheme caps and
national scheme gateways will exist within a broader policy framework in
relation to national emissions targets, and Australia's international
obligations and objectives.
2.12 The Scheme involves setting a national scheme cap for a
particular year (other than 2011-12) and issuing Australian emissions
units equal to that cap, with further units issued for additional abatement
from synthetic greenhouse gas destruction and reforestation. The scheme
cap for a particular year is a quantity of greenhouse gases that has a
carbon dioxide equivalence of a specified number of tonnes.
2.13 Scheme caps will generally be lower than the emissions path
required to meet any national emissions targets because some emissions
sources are not covered by the Scheme (primarily emissions from
agriculture and deforestation, or some below-threshold emissions from
waste, industrial processes or fugitive emissions). Therefore, the same
factors that the Government takes into account in setting the national
emissions trajectory need to be taken into account when setting caps,
because of the wide coverage of the Scheme.
2.14 Scheme cap numbers for each financial year will be specified in
regulations [Part 2, clause 14]. The Government intends that these be
consistent with the 2020 and 2050 national emissions reduction targets.
The Minister is required to take all reasonable steps to ensure that
regulations specifying the Scheme cap numbers for the first four
full-trading years of the Scheme (2012-13 to 2014-15) are made before
31 December 2011 [Part 2, clause 14(2)]. The purpose of this requirement is
to provide market certainty. In a similar vein, for all subsequent financial
years, the Minister is required to take all reasonable steps to ensure that
regulations declaring the Scheme cap number are in place at least
five years before the end of the relevant year [Part 2, clause 14(3)]. The
phrase `take all reasonable steps' has been adopted in these provisions
because, despite his or her best endeavours, a Minister cannot guarantee
that regulations are made by the Governor-General and not disallowed.
2.15 Consistent with the principles outlined in the previous
paragraph, it has been the Government's intention to set scheme caps for
the initial years of the Scheme before 1 July 2010. The Government still
intends to reach conclusions on Australia's national targets, and hence
scheme caps, as soon as possible. However, to allow for the possibility
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Carbon Pollution Reduction Scheme Bill 2010
that international discussions on a comprehensive global agreement will
take some time, and delays to date in the passage of the CPRS legislative
package, it is the Government's intention that initial scheme caps will be
set no later than the end of 2011. If Australia's international commitments
have not been resolved by then, the Government intends to set initial
scheme caps consistent with its unconditional commitment to reduce
national emissions by 5 per cent compared with 2000 level emissions by
2020. This will provide business certainty for the commencement of the
first year of full trading under the CPRS from 1 July 2012.
2.16 In the event that there is no scheme cap number for a year
beginning on or after 1 July 2016, then the Scheme cap number will be
99 per cent of the Scheme cap number for the previous year, except:
· where this number is greater than the upper bound of the
gateway for the relevant year, the Scheme cap is equal to the
upper bound of the gateway; or
· where this number is less than the lower bound of the
gateway, the Scheme cap is equal to the lower bound of the
gateway [Part 2, clause 14(4)].
2.17 In the above arrangement, the Scheme caps that apply by default
when scheme caps are not prescribed in regulations will always fall within
the Scheme gateways (if any).
2.18 The Minister is required to take all reasonable steps to ensure
that the Scheme caps are within the upper and lower bound of the gateway
(if any) for the relevant year [Part 2, clause 15(3)]. Again, the phrase `all
reasonable steps' is to reflect that, despite his or her best endeavours, a
Minister cannot guarantee that regulations are made by the Governor-
General and not disallowed.
2.19 Further, in making a recommendation to the Governor-General
about scheme cap regulations, the Minister must have regard to
Australia's international obligations under the United Nations Framework
Convention on Climate Change and the Kyoto Protocol [Part 2,
clause 14(5)(a)]. The Scheme will be the primary means through which
Australia will aim to meet its international obligations, and so this is a
mandatory criterion to take into account.
2.20 While taking into account Australia's international obligations
plays a central role in cap-setting, the Minister has discretion to also have
regard to a number of other domestic and international factors.
Specifically, the bill provides that the Minister may have regard to an
additional seven factors.
2.21 The first factor is the most recent report from the independent
reviews conducted under Part 25 of the bill. These reviews, by an expert
advisory committee, will advise on whether national targets relating to
emissions of greenhouse gases should be changed or extended [Part 25,
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Chapter 2: Scheme caps, gateways and emissions units
Division 2, clause 353(1)(b)] and on regulations setting caps and gateways
[Part 25, Division 2, clause 353(1)(c) and (d)].
2.22 The second factor is the principle that fair and effective global
action to stabilise atmospheric concentrations of greenhouse gases at
around 450 parts per million of carbon dioxide equivalence or lower is in
Australia's national interest [Part 2, clause 14(5)(c)(i)]. As discussed in the
General Outline, if Australia has committed to a 2020 target of minus
25 per cent, it will have done so after an independent Ratification Review
had found that the international agreement to which Australia was
considering becoming a party was capable of delivering an outcome of
450 parts per million or lower. If the conditions for accepting a minus
25 per cent target have not been met, either because a new agreement to
which Australia was a party did not meet the conditions for the minus
25 per cent target or because no further agreement was concluded at all,
then the minus 5 to 15 target range is relevant. In this case the Minister
could choose to consider the extent to which a particular target was
consistent with the above principle. In doing so, the Minister may take
into consideration the extent to which taking action within this target
range will help build international confidence and co-operation, move the
economy to a low pollution future and position Australia to support and
participate in more ambitious global action over time, including a
potential future agreement capable of achieving stabilisation at 450 parts
per million or lower.
2.23 The third factor to which the Minister may have regard is
progress towards, and development of, comprehensive global action under
which all major economies commit to substantially restrain emissions and
advanced economies take on reductions comparable to Australia [Part 2,
clause 14(5)(c)(ii)].
2.24 As discussed above and in the General Outline, the Government
has made national emissions reduction target offers that are conditional on
the actions taken by others. Under this criterion, progress on international
negotiations, and how they relate to the conditions associated with certain
targets, can be taken into account.
2.25 The fourth factor to which the Minister may have regard is the
economic implications associated with various levels of national scheme
caps, including implications of the carbon price (that is, the price of
Australian emissions units) [Part 2, clause 14(5)(c)(iii)]. The White Paper
stated that all of the design elements of the Scheme were to take into
account the criteria of minimising implementation risks and the
implications for the competitiveness of traded and non-traded industries.
The economic implications of scheme caps have a bearing on these
factors. Different levels of scheme caps will have different economic
implications, including on likely carbon prices and/or the flow of funds
outside Australia to purchase eligible international emissions units. In
addition, judgements about the appropriate level of the cap may take into
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Carbon Pollution Reduction Scheme Bill 2010
account the carbon price and economic impacts arising from observing the
actual operation of the cap in previous years. The carbon price may be
higher or lower than expected as a result of a number of factors. For
example, technological developments may mean that economic costs are
lower than expected as new unanticipated abatement opportunities come
into play. Conversely, some expected abatement opportunities may be
more costly due to developments in other markets, such as the price of
fuels. It may be appropriate to take these factors into account when
judging where within the overall bounds set by the gateway caps should
be set.
2.26 The fifth factor to which the Minister may have regard is the
extent of actions voluntarily taken to reduce Australia's greenhouse gas
emissions [Part 2, clause 14(5)(c)(iv)]. Voluntary action, including by
Australian households, to reduce greenhouse gas emissions can help
ameliorate the economic implications associated with various levels of
national scheme caps, increasing the likelihood that more stringent caps
can be set over time.
2.27 The Government acknowledges that its target of reducing
national emissions by 5 to 15 or 25 per cent below 2000 levels by 2020 is
exclusive of voluntary action, meaning that the target could be adjusted
beyond 15 or 25 per cent.
2.28 As a matter of policy, the Government is committed to taking
account of the uptake of GreenPower in setting caps. Households and
businesses that purchase accredited GreenPower increase the supply of
renewable energy and assist in the transition to cleaner energy sources. To
recognise individual action in purchasing more GreenPower, the
Government will take all GreenPower purchases into account in setting
future scheme caps. GreenPower purchases will be measured annually
and taken directly into account in setting scheme caps five years into the
future, on a rolling basis. For example, the 2016-17 cap (which will be
prescribed in regulations by June 2012) will be set to reflect 2011
GreenPower purchases, multiplied by a factor to reflect the emissions
saved. This measure will be backed by the cancellation of Kyoto units and
will therefore achieve emissions reductions beyond Australia's national
targets.
2.29 The Government is also committed to taking into account
voluntary reductions in overall household emissions when setting scheme
caps. Specifically, the Government will estimate annual emissions from
household consumption of electricity, gas and transport fuels and compare
it against a baseline of expected household emissions. If total household
emissions are below the baseline, then the difference will be reflected in
more stringent future scheme caps. As for GreenPower, household
emissions will be estimated annually and taken into account in setting
scheme caps five years into the future, on a rolling basis. For example,
the 2016-17 scheme cap will be set in 2012 to reflect the difference
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between the most recent household emissions figures and the relevant
annual baseline. This will be backed by the cancellation of Kyoto units,
to ensure domestic cap reductions are matched by reductions in the
availability of international emissions units.
2.30 The Government will consult on the methodology for estimating
household emissions and establishing the baseline for expected household
behaviour (in the presence of the Scheme and other measures) in 2010.
2.31 The sixth matter to which the Minister may have regard is
estimates of emissions that are not covered (directly or indirectly) by the
Scheme [Part 2, clause 14(5)(c)(v)]. In order to meet national emissions
targets, account may need to be taken of the remainder of emissions that
are not covered by the Scheme. In the White Paper, the Government stated
that it would set Scheme caps based on the difference between the
indicative national emissions trajectory (that is, its proposed path for
national emissions) and the latest projection of emissions that are not
covered by the Scheme. In this way, sufficient `room' is left for uncovered
emissions, and national targets can still be met. When considering
uncovered sector emissions, the Government will need to be mindful of
the extent to which reductions in uncovered sector emissions result in the
creation of Australian emissions units under the offsets provisions in
Part 11A.
2.32 Finally, when setting caps, the Minister may take into account
such other matters (if any) as the Minister considers relevant [Part 2,
clause 14(5)(c)(vi)].
2.33 Assuming a future agreement allows a proportion of the national
target to be met with international purchases, as a matter of policy, the
Government has stated that, as a matter of policy, if a target of minus
25 per cent compared with 2000 level emissions by 2020 is in place, up to
five percentage points of this target could be met through Government
purchases of international Kyoto units. This would imply setting caps
broadly on the basis of a target of up to minus 20 per cent, and entail
using part of the resulting auction revenue to fund the purchase of
international Kyoto units.
2.34 When scheme cap regulations are tabled before a House of the
Parliament under section 38 of the Legislative Instruments Act 2003, the
Minister must, as soon as practicable, cause to be tabled before that House
a written statement setting out the Minister's reasons for making the
recommendation to the Governor-General about those regulations [Part 2,
clause 14(7)]. The Government has indicated that it will, as a matter of
policy, set out in such a statement how voluntary action has been taken
into account.
2.35 To provide further guidance to liable entities and participants in
the carbon market more generally, national scheme gateways may be
prescribed for years beginning on or after 1 July 2016 [Part 2, clause 15].
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Carbon Pollution Reduction Scheme Bill 2010
A gateway is a range, comprising an upper bound and a lower bound of
emissions, expressed in terms of tonnes of carbon dioxide equivalent, for
a particular year. As noted above, the Minister is required to take all
reasonable steps to ensure that the Scheme caps are within the range
specified for the relevant year. The factors to which the Minister must and
may have regard, and the tabling requirements for a written statement of
reasons, are the same as those described above in relation to the setting of
national scheme caps [Part 2, clause 15(4) and (6)].
2.36 Gateways can be used to indicate longer term possibilities for
cap-setting. For example, they could be used to more formally signal a
policy intention for Australia to play its full and fair part in ambitious
global action, including any international agreement capable of delivering
global concentrations of greenhouse gases of 450 parts per million or
lower (in carbon dioxide equivalent terms). The top of the gateway would
define the maximum cap for a particular year, which in turn relates to the
minimum amount of greenhouse gas abatement that would be required in
that year.
Emissions units
2.37 Emissions units are addressed in Part 4 of the bill. It commences
with a simplified outline [Part 4, Division 1, clause 82].
2.38 The units which can be used for surrender are `eligible
emissions units'. This phrase is defined to mean Australian emissions
units and eligible international emissions units [Part 1, clause 5, definition of
`eligible emissions unit'].
2.39 The inclusion of eligible international emissions units provides
for the Scheme to link to international markets. This is achieved by
accepting international emissions units for surrender, referred to as
importing. Eligible international emissions units cannot be surrendered
during the fixed price transition phase period in 2011-12 [Part 6, Division 2,
clause 129(6A)].
2.40 The bill does not include any provisions to limit the number of
eligible international emissions units that can be used for surrender to
meet obligations under the Scheme.
2.41 A unit is an eligible international emissions unit [Part 1, clause 5,
definition of `eligible international emissions unit'] if
it is:
· A certified emission reduction other than a long-term or
temporary certified emission reduction
· An emission reduction unit
· A removal unit
· A prescribed unit issued in accordance with the Kyoto rules
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· A non-Kyoto international emissions unit (which must be
prescribed in regulations).
2.42 Consistent with the Government's policy, not all Kyoto units
(explained below) will be able to be surrendered. For example, assigned
amount units and temporary and long-term certified emission reductions
are not included in the definition of an eligible international emissions
unit. However, the definition of eligible international emissions unit
allows for regulations to prescribe additional types of units that are issued
in accordance with the Kyoto rules. For example, should the Kyoto
Protocol rules include a new type of unit in the future, this provision will
allow for any such unit to be prescribed as an eligible international
emissions unit without an amendment to the Act.
2.43 The definition of eligible international emissions unit also
includes a non-Kyoto international emissions unit (discussed below),
which is defined as a prescribed unit issued in accordance with an
international agreement (other than the Kyoto Protocol) or a prescribed
unit issued outside Australia under a law of a foreign country [Part 1,
clause 5, definition of `non-Kyoto international emissions unit']. This allows for
regulations to add to the types of international emissions units that can be
surrendered without an amendment to the Act.
2.44 Provisions that allow for the future sale and transfer of
Australian emissions units to foreign registries (export) are not included in
the bill. The Government intends to move to full international trading over
time, though any future decision to allow export will require an
amendment to the Act. This is consistent with the Government's policy,
which is that export requires a specific decision of Government.
Government policy is that export will not be provided for in the initial
years of the Scheme and that it will give the market five years' notice of a
decision to allow for export. An exception to this general policy is to be
made for bilateral links (for example, with the New Zealand emissions
trading scheme) where an independent review finds that establishing the
bilateral link will not have a significant impact on the unit charge, and the
Minister decides to waive or shorten the notice period. When allowed, the
outgoing transfer of Australian emissions units will be achieved either by:
· allowing unit holders to convert the unit into an international
emissions unit such as a Kyoto unit which could then be
transferred to a foreign registry; or
· the direct transfer of the unit to a foreign registry.
Australian emissions units
Issue, identification number and vintages
2.45 Australian emissions units will be issued by the Authority on
behalf of the Commonwealth [Part 4, Division 2, clause 83]. To hold an
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Australian emissions unit, a person must have a Registry account. Units
are issued by the Authority making an entry for the unit in the person's
Registry account [Part 4, Division 2, clause 87]. The unit will thus be
represented by an electronic entry in the Registry, rather than by a paper
certificate.
2.46 Each Australian emissions unit will have a unique number
known as the identification number [Part 4, Division 2, clause 84]. The entry
by the Authority in an account when issuing a unit consists of the
identification number of the unit [Part 4, Division 2, clause 87(2)].
2.47 Each Australian emissions unit will have a certain vintage year.
This will be the last four digits of the identification number. The vintage
year of the unit is the financial year that ends on 30 June in that calendar
year. For example, if the last four digits of an Australian emissions unit
identification number are 2012, the vintage year of the unit is the financial
year beginning 1 July 2011 and ending on 30 June 2012 [Part 4, Division 2,
clause 85].
2.48 The Authority may issue an Australian emissions unit with a
particular vintage year at any time before the end of 15 December
following the vintage year [Part 4, Division 2, clause 86]. For example, the
Authority may, at any time before the end of 15 December 2013, issue an
Australian emissions unit with the vintage year that ends on 30 June 2013.
This will allow for an auction of units in the interval between the end of
the relevant financial year and 15 December, the final date for surrender.
2.49 Australian emissions units with a vintage year starting on or
after 1 July 2012 do not have a `use by' date. They can be used for
surrender in their vintage year and thereafter. This is referred to as
`banking'. There is limited capacity to surrender Australian emissions
units which are of the following vintage year (`borrowing') [Part 6,
Division 2, clause 129(4)]. The purpose of allowing banking and limited
borrowing is to allow liable entities to shift the timing of their emissions
and abatement activities to reduce their costs. It will also have the effect
of smoothing the unit price over time. More details, the timetable and
process for surrender are described in Chapter 10 of this explanatory
memorandum.
2.50 For 2011-12 vintage units, as a transitional measure, an
unlimited number of Australian emissions units will be available at a fixed
charge of $10 per tonne. These units will not be able to be banked for use
in future years. Units with a vintage year of 2011-12 issued in accordance
with the emissions-intensive trade-exposed assistance program or in
accordance with Part 9 can only be surrendered in relation to the 2011-12
eligible financial year and, if not surrendered, will be cancelled on
15 December 2012 [Part 4, Division 2, clause 103A] [Part 6, Division 2, clause
129(5A)]. `Borrowing' will not be allowed during the fixed price transition
period (2011-12) [Part 6, Division 2, clause 129(5AA)]. This means that a liable
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entity cannot surrender an Australian emissions unit of a later vintage to
meet its obligations in relation to 2011-12.
2.51 As discussed in Chapter 3 of this explanatory memorandum,
Australian emissions units issued for a fixed charge are automatically
surrendered for the eligible financial year corresponding to their vintage
year [Part 4, Division 2, clause 89(5)]. Accordingly, they cannot be banked.
Circumstances in which Australian emissions units can be issued
2.52 Australian emissions units can only be issued in the following
circumstances:
· As the result of an auction conducted by the Authority
· In accordance with the provisions relating to the issue of
units for a fixed charge
· In accordance with the emissions-intensive trade-exposed
assistance program
· In accordance with Part 9 which relates to coal-fired
electricity generation
· In accordance with Part 10 which relates to reforestation
· In accordance with Part 11 which relates to destruction of
synthetic greenhouse gas.
[Part 4, Division 2, clause 88]
2.53 Details about the procedure for allocation in each of these
circumstances are provided in Chapters 3 to 8 of this explanatory
memorandum.
2.54 Australian emissions units with a particular vintage starting on
or after 1 July 2012 cannot be issued unless there is a national scheme cap
number for the vintage year [Part 4, Division 2, clause 92]. Also, the Authority
must ensure that the sum of Australian emissions units with a particular
vintage year starting on or after 1 July 2012:
· offered at auction;
· issued in accordance with the emissions-intensive
trade-exposed assistance programme; and
· issued in accordance with provisions for assistance to
coal-fired electricity generators,
does not exceed the Scheme cap for that vintage year [Part 4, Division 2,
clause 93]. These provisions do not apply to Australian emissions units with
a vintage year corresponding to the fixed price transition period (2011-12)
as there will be no scheme cap for that year.
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Characteristics of Australian emissions units
2.55 An Australian emissions unit which has been issued by the
Authority is personal property and, subject to the relevant provisions in
the bill, transmissible by assignment, by will and by operation of law [Part
4, Division 2, clause 94].
2.56 The Government's policy intent in adopting this approach in the
bill is to reduce uncertainty for holders of Australian emissions units, and
promote market confidence in and development of the carbon market.
2.57 Nonetheless, it is recognised that while an Australian emissions
unit is always equivalent to one tonne of carbon dioxide equivalent
emissions, the value of that unit is determined by the demand for that unit
in the market. It is envisaged that decisions under the Scheme, such as the
setting of caps and allocation of free Australian emissions units, will
affect the value of units.
2.58 The bill does not affect the creation or enforcement of, or any
dealings with (including transfers of), equitable interests in Australian
emissions units [Part 4, Division 2, clause 98A]. This provision has been
included for the avoidance of doubt. In addition, the bill is not intended to
prevent the taking of security over Australian emissions units.
2.59 Once an Australian emissions unit is surrendered, it is cancelled
[Part 6, Division 2, clause 129(10)]. It is also cancelled if it is offered for
voluntary cancellation [Part 14, clause 282(3)]. Some units are cancelled
following relinquishment [Part 15, Division 2, clause 286]. Surrender,
relinquishment and voluntary cancellation are explained in greater detail
in Chapter 10 of this explanatory memorandum.
Transfer and transmission of Australian emissions units
2.60 The concept of transfer of an Australian emissions unit is
described in the bill. In general, it consists of the removal of an entry for
the unit from the first account and making an entry for the unit in the
second account [Part 4, Division 2, clause 95].
2.61 There is provision for:
· The transfer of Australian emissions units between accounts
within the Australian National Registry, in the name of the
same person [Part 4, Division 2, clause 98]
· Transmission of Australian emissions units by assignment
[Part 4, Division 2, clause 96]
· Transmission of Australian emissions units by operation of
law [Part 4, Division 2, clause 97].
2.62 At its simplest, a transfer is initiated by an electronic instruction
from the transferor transmitted to the Authority, which then removes the
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entry for the unit from one account and makes an entry for that unit in
another account.
2.63 Transmissions by operation of law bring additional issues. An
example is transmission of a unit to a person as the trustee of a deceased
person's estate. In this situation, it is the transferee who needs to establish
evidence of transmission and, if necessary, open a Registry account [Part 4,
Division 2, clause 97].
2.64 The timeframe for a person to provide the Authority with
evidence of the transmission in these circumstances is 90 days, to ensure
that the new owner of the emissions units has ample time to provide the
proof of that ownership. The Authority can also extend that period [Part 4,
Division 2, Subdivision B, clauses 97(2) and (5)] [Part 4, Division 3, clauses 116C(2)
and (5)] [Part 4, Division 3, clauses 112B(2) and (5)].
Kyoto units
2.65 The bill provides for the recognition in Australian legislation of
the emissions units created under the Kyoto Protocol, and sets out how
these units can be issued and transferred [Part 4, Division 3]. The provisions
relating to Kyoto units have been drafted to ensure the Australian
legislation is consistent with the Kyoto Protocol rules.
The Kyoto rules
2.66 The bill defines the Kyoto rules, in summary, to mean:
· the Kyoto Protocol
· a decision of the Meeting of the Kyoto Parties
· a standard or other instrument adopted by the Meeting of the
Kyoto Parties for a purpose relating to:
- the Kyoto Protocol
or
- a decision of the Meeting of the Kyoto Parties
or
· a prescribed instrument that relates to:
- the Kyoto Protocol
or
- a decision of the Meeting of the Kyoto Parties
[Part 1, clause 5, definitions of `Kyoto rules', `Kyoto Protocol' and `decision of the
Meeting of the Kyoto Parties']
2.67 Defining the Kyoto rules in this way allows for all the relevant
elements of the Kyoto Protocol framework to be adopted for various
purposes in the bill. As the Kyoto Protocol itself only provides for the
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Carbon Pollution Reduction Scheme Bill 2010
overarching framework with relevant decisions made by the Meeting of
the Kyoto Parties providing the detail, the definition of Kyoto rules also
encompasses those decisions. For some purposes the Meeting of the
Kyoto Parties has adopted a standard or other instrument which governs
the implementation of the Kyoto Protocol. For example, the data exchange
standards contain the technical specifications for the operation of the
international transaction log and Kyoto registries. Therefore, the definition
of Kyoto rules also includes any such standards or instruments. The
definition also allows for regulations to identify any other instruments that
relate to the Kyoto Protocol or a decision of the Meeting of the Kyoto
Parties to be considered part of the Kyoto rules.
2.68 The various elements of the definition of Kyoto rules are also
intended to accommodate new and amended decisions, standards and
instruments, as well as amendments to the Kyoto Protocol as in force for
Australia. This is intended to allow the flexibility for the legislative
framework to accommodate new changes to the Kyoto rules without
necessarily requiring an amendment to the Act.
Kyoto units in the Australian Registry
2.69 There is a distinction in the bill between the provisions relating
to holding and transferring Kyoto units and those relating to surrender of
eligible international units. While some types of Kyoto units are eligible
international emissions units and can be surrendered, others such as
assigned amount units and temporary and long-term certified emission
reductions, are not eligible international emissions units and therefore
cannot be surrendered. Regardless, all Kyoto units are able to be held and
transferred in the Australian Registry.
2.70 A Kyoto unit is defined for the purposes of the bill to mean an
assigned amount unit, a certified emission reduction, an emission
reduction unit, a removal unit or a prescribed unit issued in accordance
with the Kyoto rules [Part 1, clause 5, definition of `Kyoto unit']. The last
element of this definition allows for the recognition of a new type of
Kyoto unit that could be adopted in the future without an amendment to
the Act.
2.71 Each type of Kyoto unit is also defined for the purpose of the
bill. The form of each definition refers to the relevant provisions of the
Kyoto rules.
2.72 An assigned amount unit is defined to be an assigned amount
unit issued in accordance with the relevant provisions of the Kyoto rules
[Part 1, clause 5, definition of `assigned amount unit']. By way of background,
assigned amount units are issued by an Annex I Party (a developed
country with a target) to the Kyoto Protocol on the basis of its assigned
amount pursuant to Articles 3.7 and 3.8 of the Kyoto Protocol (for
example, Australia will issue assigned amount units equal to its target --
108 per cent of 1990 emissions over the five year period, 2008-2012). As
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Chapter 2: Scheme caps, gateways and emissions units
assigned amount units can be issued by any Annex I Party, the definition
indicates that, for the purposes of the bill, it is immaterial whether the unit
was issued in or out of Australia. This is included in the definition to
make it clear that the general rule in s 21(1)(b) of the Acts Interpretation
Act 1901 does not apply. That rule is that 'references to localities
jurisdictions and other matters and things shall be construed as references
to such localities jurisdictions and other matters and things in and of the
Commonwealth...'
2.73 A certified emission reduction is defined to be a certified
emission reduction issued outside Australia in accordance with the
relevant provisions of the Kyoto rules [Part 1, clause 5, definition of `certified
emission reduction']. By way of background, certified emission reductions
are generated from clean development mechanism projects under Article
12 of the Kyoto Protocol. The clean development mechanism allows
Annex I Parties like Australia to implement emission reduction projects in
developing countries to receive certified emission reductions and use
these towards meeting their Kyoto target.
2.74 Unlike emission reductions from other types of clean
development mechanism projects, those arising from afforestation or
reforestation activities receive either a temporary certified emission
reduction or a long-term certified emission reduction. These units have a
limited life: fewer than two commitment periods for temporary certified
emission reductions and between 20 and 60 years for long-term certified
emission reductions. These Kyoto units are also defined in the bill by
reference to the relevant provisions of the Kyoto rules [Part 1, clause 5,
definition of `certified emission reduction'].
2.75 A removal unit is defined to be a removal unit issued in
accordance with the relevant provisions of the Kyoto rules. It is
immaterial whether the unit was issued in or out of Australia [Part 1,
clause 5, definition of `removal unit']. Removal units are issued by an Annex I
Party on the basis of land use, land-use change and forestry activities
under Articles 3.3 and 3.4 of the Kyoto Protocol.
2.76 An emission reduction unit is defined to be an emission
reduction unit issued in accordance with the relevant provisions of the
Kyoto rules. It is immaterial whether the unit was issued in or out of
Australia [Part 1, clause 5, definition of `emission reduction unit']. By way of
background, emission reduction units are generated by joint
implementation projects under Article 6 of the Kyoto Protocol, where an
Annex I Party like Australia implements a project in the territory of
another Annex I Party and counts the resulting emission reduction units
towards meeting its own Kyoto target. Emission reduction units can be
generated either in another Annex I Party or in Australia. However,
Australia will not host joint implementation projects in the first
commitment period, so it is not expected that any emission reduction units
will be issued in Australia during this period. A decision will be made in
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Carbon Pollution Reduction Scheme Bill 2010
regards to any potential for joint implementation projects in 2013 when
decisions are made about the scope for offsets more generally.
2.77 Kyoto units only exist within the international electronic registry
system established by the Kyoto rules. Each Kyoto unit has a unique serial
number within that electronic registry system that provides the relevant
detail of the unit (such as its type, commitment period, country of origin
and its sequence number) and allows for the unit to be tracked throughout
the registry system. Consistent with the Kyoto rules, the entry for a Kyoto
unit in a Registry account consists of its serial number [Part 4, Division 3,
clause 104].
Issue of Australia's assigned amount units
2.78 As an Annex I Party under the Kyoto Protocol, Australia is
allocated Kyoto units called `assigned amount units' on the basis of its
initial assigned amount, where each assigned amount unit signifies an
allowance to emit one tonne of CO2-e. Australia's calculation of its initial
assigned amount, and the method by which it is calculated, is set out in
Australia's initial report under the Kyoto Protocol. After the initial report
has been reviewed by the Kyoto Protocol expert review team and any
questions of implementation have been resolved, Australia's initial
assigned amount will be recorded in the Climate Change Convention
secretariat's compilation and accounting database and provided to the
international transaction log.
2.79 Australia must then, before any transaction takes place for the
relevant commitment period, issue a quantity of assigned amount units
equivalent to its initial assigned amount in its national registry.
2.80 The bill provides for the issue of Australia's assigned amount
units for a commitment period [Part 4, Division 3, clause 105]. Under this
provision, the Minister may direct the Authority to issue to the
Commonwealth, in accordance with the Kyoto rules, a specified number
of assigned amount units for a specified commitment period. The
Authority must comply where such a direction is given and will issue an
assigned amount unit by making an entry for the unit in the
Commonwealth holding account for the relevant commitment period in
the Registry.
2.81 It is possible that Australia's assigned amount units for the first
commitment period will be issued under the Commonwealth's executive
power before the passing of the legislation. The bill is explicit that it does
not affect the validity of the issue of any such units [Part 4, Division 3,
clause 105(5)].
Issue of Australia's removal units
2.82 Under the Kyoto Protocol, removal units are issued in relation to
net removals of greenhouse gases by Article 3.3 activities (afforestation,
reforestation and deforestation). Australia has elected to report and
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Chapter 2: Scheme caps, gateways and emissions units
publish annual estimates of emissions and removals from activities
identified under Article 3.3. This decision is fixed for the first
commitment period and means that Australia must issue or cancel units
(as appropriate) for the relevant activities on an annual basis. If net
removals do occur, it is expected that Australia will issue a quantity of
removal units in its national registry equivalent to those removals.
2.83 The bill provides for the issue of Australia's removal units in the
Registry [Part 4, Division 3, clause 106]. Under this provision, the Minister
may direct the Authority to issue to the Commonwealth, in accordance
with the Kyoto rules, a specified number of removal units. The Authority
must comply with any such direction. The Authority will issue a removal
unit by making an entry for the unit in the Commonwealth holding
account for the relevant commitment period in the Registry.
Transfers of Kyoto units
2.84 The Kyoto rules allow for Kyoto units to be transferred within
the international electronic registry system. The electronic registry system
comprises: the various national registries of Kyoto Parties; the clean
development mechanism registry in which certified emission reductions
are issued; and the international transaction log that allows for
inter-country transfers of units. Within each of the national registries,
Kyoto units can be transferred between different accounts.
2.85 The bill provides for the meaning of `transfer' in relation to
different types of transfers of Kyoto units [Part 4, Division 3, clause 107].
There are several different types of transfers that have been identified. In
each case a `transfer' of a Kyoto unit will consist of the removal of the
entry of the unit from the initial account and an entry for the unit in the
receiving account.
2.86 The four different types of transfers allow for transfer between
any of the account types in the national Registry (Chapter 12 of this
explanatory memorandum discusses the different types of Registry
accounts). For example, a transfer can be: between holding accounts
including a Commonwealth holding account; between a holding account
and a Commonwealth cancellation account; and between a
Commonwealth holding account and a Commonwealth retirement
account.
2.87 The Commonwealth will need to transfer Kyoto units between
the Commonwealth accounts. The same transfer arrangements will apply
where it is the Commonwealth that wishes to transfer Kyoto units. In this
case the bill provides for the Minister to give a transfer instruction to the
Authority [Part 4, Division 3, clauses 108(5) and 109(7)].
2.88 Regulations can be made for, or in relation to, giving effect to
the Kyoto rules so far as the Kyoto rules relate to the issue of Kyoto units
or the transfer of a Kyoto unit: from a Registry account to a foreign
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Carbon Pollution Reduction Scheme Bill 2010
account; from a foreign account to a Registry account; or from a Registry
account to a Commonwealth Registry account [Part 4, Division 3,
clause 112(1)]. This is intended to give full effect to the relevant Kyoto rules
(including as those rules change from time to time), with regulations
providing the detail for the administration of the Registry as it relates to
Kyoto units. The regulations may prevent, restrict or limit:
· the transfer of Kyoto units from a Registry account to a
foreign or voluntary cancellation account; or
· the transfer of Kyoto units from a foreign account to a
Registry account [Part 4, Division 3, clause 112(2)].
Domestic transfers of Kyoto units
2.89 If a person is a holder of a Kyoto unit they may instruct the
Authority to transfer the unit within the Australian Registry: this is
considered a domestic transfer [Part 4, Division 3, clause 108]. The instruction
to transfer will be by electronic notice and will set out the account number
of the account where the Kyoto unit is held, the account number of the
Registry account to which the unit is being transferred, and other
information as specified in regulations. The regulations may specify
additional information consistent with the administrative requirements of
the Registry.
2.90 The Authority must give effect to the transfer instruction unless
to do so would breach any regulations made to give effect to the Kyoto
rules or the management of the commitment period reserve or regulations
restricting transfers to Commonwealth Registry accounts [Part 4, Divisions 3
and 4, clauses 108(3), 112, 114, 116A].
2.91 Unlike Australian emissions units, the bill does not generally
confer the status of `personal property' on Kyoto units. Nonetheless,
Kyoto units held in the Australian Registry are to be treated as personal
property for the limited purposes of Bankruptcy Act 1966, Chapter 5 of
the Corporations Act 2001 (which deals with external administration), the
law relating to wills, intestacy and deceased estates and any other
prescribed purpose. This is in order to facilitate the transmission (or
disposition) of Kyoto units by operation of law in situations of
bankruptcy, external administration and death. In these situations the
transmission procedures are the same as for Australian emissions units
[Part 4, Division 3, clauses 116B, 116C].
2.92 The bill does not affect the creation or enforcement of, or any
dealings with (including transfers of), equitable interests in Kyoto units
[Part 4, Division 3, clause 116BA]. This provision has been included for the
avoidance of doubt.
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International transfers of Kyoto units
2.93 Under the Kyoto rules, Australia must satisfy a set of eligibility
requirements in order to participate in international emissions trading. If
Australia does not satisfy the set of eligibility requirements, no transfers
of Kyoto units will be allowed between the Australian Registry and a
foreign registry. The international transaction log will block any such
transfers where Australia does not satisfy the eligibility requirements.
Therefore, the ability to transfer Kyoto units from a foreign registry to an
account within the Australian Registry and the ability to transfer Kyoto
units from the Australian Registry to a foreign registry are dependent on
Australia satisfying the eligibility requirements.
2.94 Under the bill, if satisfied that Australia is in compliance with
those eligibility requirements, the Minister must make a written
declaration to that effect. The Minister must, in writing, revoke such
declaration if the Minister is no longer satisfied that Australia is in
compliance with the requirements [Part 4, Division 3, clause 111]. Neither the
instrument of declaration nor revocation is a legislative instrument [Part 4,
Division 3, clause 111(3)]. The policy reason for this is that the Minister does
not have discretion as to whether Australia is eligible or not, so the
declaration should not be subject to potential disallowance. The
enforcement branch of the compliance committee under the Kyoto
Protocol framework is responsible for determining whether an Annex I
Party is not in compliance with the eligibility requirements. In practice,
the Climate Change Convention secretariat maintains a list of Parties that
meet the eligibility requirements and of those Parties that have been
suspended on its website.
2.95 Kyoto units can be transferred from an account in the Australian
Registry to a foreign registry, referred to as an outgoing international
transfer [Part 4, Division 3, clause 109]. A transfer is only possible where there
is a declaration in force that Australia has met the emissions trading
eligibility requirements discussed above [Part 4, Division 3, clauses 109(1)
and 111].
2.96 A holder of a Kyoto unit can initiate an outgoing international
transfer by instructing the Authority by electronic notification to transfer
the Kyoto unit from the holder's Registry account to either a foreign
account kept by another person or a foreign account kept by the holder.
Similar to domestic transfers, the notification will need to specify the
account number from which the units are to be transferred and any other
information as specified in regulations.
2.97 The specific process for administering outgoing international
transfers will be detailed in the regulations made to give effect to the
Kyoto rules. The regulations may require the Authority to remove the
entry for the unit from the relevant Registry account [Part 4, Division 3,
clause 109(4)]. This would be consistent with the normal process of the
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international registry system which is designed to ensure that units can be
appropriately transferred and tracked between different accounts and
national registries.
2.98 The Authority will not give effect to an outgoing international
transfer if the transfer would breach regulations made for the purposes of
the Kyoto rules [Part 4, Division 3, clause 112 and 109(3)(a)(i)] (discussed
above).
2.99 Similarly, the Authority will not give effect to an outgoing
international transfer if the transfer would breach regulations made to
manage the commitment period reserve [Part 4, Division 3, clause 114
and 109(3)(a)(ii)]. By way of background, in order to address concerns that
Annex I Parties could oversell units and subsequently be unable to meet
their own Kyoto target, each Kyoto Party is required to hold a minimum
level of Kyoto units in its national registry. This minimum level is called
the `commitment period reserve'. If the transfer of a Kyoto unit from the
Registry would result in an infringement of the commitment period
reserve, the international transaction log will reject the entire transfer and
direct the Authority to terminate the transfer. It is intended that regulations
will outline the procedures and measures to manage Australia's
commitment period reserve. Such regulations will only be necessary if
and when the Scheme allows for the transfer of assigned amount units by
private entities to other countries (for example, if any future export of
Australian emissions units involves the transfer of assigned amount units).
Until that time, the Commonwealth can manage the commitment period
reserve directly as it will have control over Australia's assigned amount
units.
2.100 Kyoto units can be transferred from a foreign registry to an
account in the Australian Registry, referred to as an incoming
international transfer [Part 4, Division 3, clause 110]. A transfer is only
possible where there is a declaration in force that Australia has met the
emissions trading eligibility requirements [Part 4, Division 3, clauses 110(1)
and 111].
2.101 In practice, an incoming international transfer will be initiated
by a foreign registry. The foreign registry will notify the international
transaction log, which will verify the transaction. The international
transaction log will then notify the Authority of the proposed incoming
transfer. Accordingly, it is the receipt of an instruction from the
international transaction log by the Authority which is the trigger for an
incoming international transfer under the bill [Part 4, Division 3,
clause 110(1)(b)].
2.102 An incoming international transfer will only be allowed where
the Kyoto unit is not specified in the regulations as a unit that cannot be
transferred to a Registry account [Part 4, Division 3, clause 110(1)(c)]. In
accordance with section 13(3) of the Legislative Instruments Act 2003, the
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ability to `specify' a Kyoto unit allows regulations to be made which
identify a class or classes of Kyoto units. This means that regulations can
exclude certain types of Kyoto units from being transferred into the
Registry. These regulations will not affect units already in the Registry.
2.103 This gives effect to the Government's policy position that it
would retain the right to exclude any type of Kyoto unit from being
transferred into the Registry. Currently there is no specific class of Kyoto
unit that has been identified for exclusion by regulation. The regulation-
making power provides flexibility to respond to future circumstances
without the need for an amendment. For example, the White Paper stated
that it is important to retain the right to disallow a certain type of
international unit for compliance in the Scheme at any time to ensure the
environmental integrity of the Scheme. To avoid disadvantaging liable
entities who had bought those units in good faith, they would be able to
use the units for compliance in the current financial year but not
thereafter. This policy is addressed in the surrender provisions [Part 6,
Division 2, clause 129(7)]. However, this potentially raises concerns that the
Scheme could be open to a `flood' of compromised units. Retaining the
right to disallow a type of unit from entering the Australian registry by
specifying it in regulations would stop such a scenario.
2.104 Another example where this regulation-making power may be
used would be in the event that the Kyoto rules changed in a way that
could potentially result in a liability on the Commonwealth associated
with the treatment of Kyoto units held in its registry. The regulations
could specify that such units could no longer enter the Registry.
2.105 An incoming international transfer will also only be allowed
where the transfer would not breach regulations made to give effect to the
Kyoto rules (discussed above) or regulations restricting transfers to
Commonwealth Registry accounts [Part 4, Division 3, clauses 110(1), 112
and 116A].
2.106 Provided these requirements are met, the Authority must make
an entry for the Kyoto unit being transferred in the receiving Registry
account. However, the Authority may refuse to make an entry if it has
reasonable ground to suspect that the instruction forwarded from the
international transaction log is fraudulent [Part 4, Division 3, clause 110(2)].
Carry-over restrictions
2.107 Under the Kyoto Protocol, an Annex I Party may carry over to a
subsequent commitment period (that is, it may bank) certain Kyoto units
that have not been retired for that commitment period, cancelled or
transferred to a Commonwealth replacement account. Under the current
Kyoto rules, the extent to which a Party can carry over units differs
depending on the kind of units involved:
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Carbon Pollution Reduction Scheme Bill 2010
· Emission reduction units (not converted from removal units)
can be carried over up to a maximum of 2.5 per cent of the
Party's initial assigned amount
· Certified emission reductions can be carried over up to a
maximum of 2.5 per cent of the Party's initial assigned
amount
· Assigned amount units can be carried over without restriction
· Removal units, emission reduction units converted from
removal units, temporary certified emission reductions and
long-term certified emission reductions cannot be carried
over.
2.108 Any Kyoto units that are not carried-over must be transferred to
the mandatory cancellation account. This is a strict requirement of the
Kyoto rules and cannot be disregarded by Australia. All Kyoto Parties and
holders of Kyoto units are subject to the same carry over restrictions.
2.109 The bill provides for regulations to be made detailing
arrangements for the carry-over of Kyoto units [Part 4, Division 3, clause 113].
It is intended that the regulations will: identify the units that can be carried
over and any limits or restrictions that are specified; identify the Kyoto
units that cannot be carried over; set out the procedures for the carry-over;
and set out any prohibition on surrender. The regulations will also provide
for the Authority to transfer to the mandatory cancellation account those
Kyoto units that are not carried over.
2.110 Consistent with the Government's policy, those Kyoto units that
are carried over and are eligible international emissions units will be
eligible for surrender at that time. However, those units that are not
carried over will be cancelled in accordance with the carry-over
regulations and therefore will not be available for surrender after that
time.
2.111 For the purposes of managing the Kyoto Protocol carry-over
restrictions, the regulations may prohibit the surrender of certain Kyoto
units during a period specified in the regulations. This is to prevent the
carry-over risk (i.e. the risk that Kyoto units in excess of the Kyoto
Protocol threshold cannot be carried over) transferring to the Government.
Temporary certified emission reductions and long-term certified
emission reductions
2.112 As discussed above, temporary certified emission reductions and
long-term emission reductions generated from forestry-based clean
development mechanism projects have a limited life after which they
expire. Hence these units are non-permanent.
2.113 Temporary certified emission reductions expire at the end of the
commitment period after the one in which they were issued, while
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long-term certified emission reductions expire at the end of the crediting
period of the project. While these certified emission reductions cannot be
surrendered for compliance under the bill, account holders may transfer
and hold these units within the Australian Registry.
2.114 Where either a temporary certified emission reduction or a long-
term certified emission reduction is in a person's Registry account when it
expires, the Authority must, in accordance with the regulations, transfer
the temporary or long-term certified emission reduction to a mandatory
cancellation account. This is required under the Kyoto rules. The
mechanical procedures for such cancellation will be contained in
regulations [Part 4, Division 3, clause 115].
2.115 The Kyoto rules require replacement of long-term certified
emission reductions in certain circumstances. In brief, because long-term
certified emission reductions are valid for long periods, the projects that
generate them must be re-certified by an independent auditor every
5 years to demonstrate that the emission removals have occurred. When a
certification report indicates that the greenhouse gas removals achieved by
a project have been reversed since the last certification (for example
where the trees are cut down), the Kyoto rules require replacement of the
affected long-term certified emission reductions. Replacement is also
required if the clean development mechanism executive board determines
that the required certification report has not been submitted.
2.116 The bill provides for the making of regulations to specify the
requirements for a person to replace long-term certified emission
reductions in their Registry account. The Authority will be required to
transfer long-term certified emission reductions to a mandatory
cancellation account in the event that long-term certified emission
reductions are not replaced in accordance with the regulations. The
meaning of 'replacement' of a long-term certified emission reduction is set
out in the bill [Part 4, Division 3, clause 116].
Transfers to Commonwealth Registry accounts
2.117 Regulations made pursuant to the bill may prevent, restrict or
limit the transfer of Kyoto units to a Commonwealth Registry account
from either an Australian Registry account or a foreign account [Part 4,
Division 3, clause 116A].
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Carbon Pollution Reduction Scheme Bill 2010
2.118 Commonwealth Registry accounts include:
· a retirement account for each commitment period into
which Australia will transfer Kyoto units to comply with
its emission reduction target;
· voluntary and mandatory cancellation accounts for Kyoto
units;
· replacement accounts for replacing temporary and
long-term certified emission reduction; and
· a relinquished unit account, which is discussed in Chapter 3
of this explanatory memorandum [Part 7, Division 3, clause 148].
2.119 There is no need for account holders other than the
Commonwealth to transfer Kyoto units to certain Commonwealth
accounts. Accordingly, the regulations will prevent account holders (for
example, accidentally) transferring to the wrong account and being unable
to recover their units. For example, Kyoto units may not be transferred to
the Commonwealth relinquished units account, as this is only for certain
relinquished Australian emissions units. Kyoto units also may not be
transferred to certain cancellation accounts and replacement accounts.
Non-Kyoto international emissions units
2.120 As discussed above, a non-Kyoto international emissions unit is
defined to mean: a prescribed unit issued in accordance with an
international agreement (other than the Kyoto Protocol); or a prescribed
unit issued outside Australia under a law of a foreign country [Part 1,
clause 5, definition of `non-Kyoto international emissions unit']. A unit would only
be prescribed as a non-Kyoto international emissions unit where the
intention is to add to the types of international units that can be used for
surrender. That is, all non-Kyoto international emissions units will also
come within the definition of `eligible international emissions units'
[Part 1, clause 5, definition of `eligible international emissions units'].
2.121 This is consistent with the policy which allows for the addition
to the types of international units that can be used for compliance where:
· the addition does not compromise the environmental integrity
of the Scheme;
· the addition is consistent with the objective of the Scheme,
including Australia's international objectives; and
· there has been consultation with stakeholders and analysis of
the expected impact on the unit price by an independent
review.
2.122 It is also consistent with the policy in relation to pursuing
bilateral links with the Schemes of other countries, such as New Zealand.
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Chapter 2: Scheme caps, gateways and emissions units
These will be considered on a case-by-case basis. For example, if a
bilateral link were established, the New Zealand unit would be prescribed
as a non-Kyoto international emissions unit and then Australian liable
entities would be able to surrender those units.
2.123 Like Australian emissions units and Kyoto units, an entry for a
non-Kyoto international emissions unit on the Registry will consist of the
serial number of the unit [Part 4, Division 4, clause 117].
2.124 As in the case for Kyoto units, the regulations may prohibit the
surrender of non-Kyoto international emissions units [Part 4, Division 4,
clause 122].
2.125 The bill provides a framework with the detailed arrangements
for transfers of non-Kyoto international emissions units to be specified in
regulations [Part 4, Division 4, clause 123]. This allows the transfer
arrangements of such units to be in accordance with, for example, any
associated treaty or agreement.
Transfers of non-Kyoto international emissions units
2.126 The bill provides for the meaning of `transfer' in relation to
different types of transfers of non-Kyoto international emissions units in
the Registry [Part 4, Division 4, clause 118]. As with other emissions units, a
transfer will involve the removal of the entry of the unit from the registry
account of the person initiating the transfer and the making of an entry for
the unit in the receiving registry account. Several different types of
transfer have been identified. The unit can be transferred from: a registry
account to a registry account of another person; a registry account to
another registry account owned by the same person; a registry account to
an account in a foreign registry owned by the same person; or an account
in a foreign registry to an account in the Australian registry.
2.127 It is possible that the Commonwealth may wish to transfer non-
Kyoto international emissions units. If so, the Minister has the power to
instruct the Authority to undertake the transfer [Part 4, Division 4,
clauses 119(5) and 120(7)]. Otherwise the general provisions for transfers
would apply.
2.128 A person who holds a non-Kyoto international emissions unit
can instruct the Authority to transfer the unit to an account kept by
another person or to another account kept by the same person within the
Registry [Part 4, Division 4, clause 119]. The instruction will be via electronic
notification and will include the account number of the originating
account and the account number of the receiving account and any other
information that is specified in regulations governing the administration of
the registry.
2.129 The bill allows for conditions relating to domestic transfer of
non-Kyoto units to be provided for in regulations. If the Authority
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Carbon Pollution Reduction Scheme Bill 2010
receives an instruction and any such conditions are satisfied then the
Authority must give effect to the transfer [Part 4, Division 4, clause 119].
2.130 The bill makes provision for non-Kyoto international emissions
units to be personal property for limited purposes to facilitate their
transmission in situations of bankruptcy, external administration and death
[Part 4, Division 4, clause 122A, 122B]. (See para.2.89)
2.131 The bill does not affect the creation or enforcement of, or any
dealings with (including transfers of), equitable interests in non-Kyoto
international units [Part 4, Division 4, clause 122AA]. This provision has been
included for the avoidance of doubt.
2.132 Non-Kyoto international emissions units can be transferred
from an account in the Australian registry to an account in a foreign
registry, referred to as an outgoing international transfer of non-Kyoto
international emissions units [Part 4, Division 4, clause 120]. Again the transfer
could be to an account kept by another person or kept by the same person,
with the instruction via electronic notification and containing the relevant
account details and other information.
2.133 Regulations may detail any conditions that may apply to
outgoing international transfers of non-Kyoto international emissions
units. The administrative arrangements for giving effect to the transfer
would also be specified in regulations [Part 4, Division 4, clause 123].
2.134 Non-Kyoto international emissions units can be transferred
from a foreign account to an account in the Registry, referred to as an
incoming international transfer of non-Kyoto international emissions unit
[Part 4, Division 4, clause 121]. In this case the Authority would receive an
instruction from a foreign account and, where the conditions as specified
in the regulations are met, the Authority would make an entry for the non-
Kyoto international emissions unit in the nominated account in the
Australian registry.
2.135 However, the Authority may refuse to affect the transfer if it has
reasonable grounds to suspect that the instruction is fraudulent [Part 4,
Division 4, clause 121(2)].
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Chapter 3
Allocation of units -- introduction, auction
and fixed charge units
Outline of chapter
3.1 This chapter introduces the various ways in which Australian
emissions units are to be allocated and describes two of these: auctions
and the issue of units for a fixed charge.
National target and scheme caps
3.2 As indicated in the General Outline, the Government has
decided to take action towards meeting Australia's targets of reducing
greenhouse gas emissions to 60 per cent below 2000 levels by 2050 and
reducing greenhouse gas emissions to between 5 per cent and 15 per cent
below 2000 levels by 2020, and to do this in a flexible and cost-effective
way. In the event that there is comprehensive international agreement to
which Australia is a party that is capable of stabilising atmospheric
concentrations of greenhouse gases at 450 parts per million CO2-e or
lower, Australia is prepared to adopt a target to reduce greenhouse gas
emissions to 25 per cent below 2000 levels by 2020.These national targets
are set out in one of the objects of the Scheme specified in the bill [Part 1,
clause 3].
3.3 Scheme caps will be set to support national emissions targets
and Australia's international obligations. Scheme caps will generally be
lower than the emissions path required to meet the national targets
because some emissions sources are not covered by the Scheme
(primarily, agricultural and deforestation emissions) and some direct
emissions from facilities are only covered if they exceed specified
thresholds (usually 25,000 tonnes of carbon dioxide equivalence per year).
3.4 Scheme cap numbers will be specified in regulations [Part 2,
clause 14].
3.5 Further discussion about national scheme caps and gateways is
included in Chapter 2 of this explanatory memorandum.
Issue of Australian emissions units
3.6 The circumstances in which the Authority may issue Australian
emissions units are described [Part 4, Division 2, clause 88]. They are:
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Carbon Pollution Reduction Scheme Bill 2010
· as the result of an auction conducted by the Authority
(described in more detail in this chapter)
· in accordance with the provisions governing the issue of
units at a fixed charge (described in more detail in this
chapter)
· in accordance with the emissions-intensive trade-exposed
assistance program (see Chapter 4)
· in accordance with the Coal Sector Adjustment Scheme (see
Chapter 5)
· in accordance with the provisions regarding coal-fired
electricity generation assistance (see Chapter 6)
· for reforestation (see Chapter 7)
· for the destruction of synthetic greenhouse gas (see
Chapter 8)
or
· for the domestic offsets program (see Chapter 9).
3.7 The Authority must not issue an Australian emissions unit with a
particular vintage starting on or after 1 July 2012 unless there is a national
scheme cap number for that vintage year [Part 4, Division 2, clause 92].
(Consistently, there is no obligation to surrender unless there is a national
scheme cap number for the relevant financial year, apart from in the fixed
price transition period (2011-12) [Part 6, Division 4, clause 132].)
3.8 The number of units with a particular vintage year starting on or
after 1 July 2012 offered for issue at auctions and issued in accordance
with the emissions-intensive trade-exposed assistance program, the
provisions regarding coal-fired electricity generation assistance and in
accordance with the Coal Sector Adjustment Scheme must equal the
Scheme cap for the particular year [Part 4, Division 2, clause 93].
Summary
Auctions
3.9 The Government has decided that a large proportion of
Australian emissions units will be auctioned. The primary policy
objectives of the auction are to promote allocative efficiency and efficient
price discovery. Auctions will also raise revenue that can be used for other
policy objectives, such as providing assistance to households and
business.
3.10 The provisions relating to auctions are in Part 4, Division 2
Subdivision C, clauses 99-103 of the bill.
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Chapter 3: Allocation of units -- introduction, auction and fixed charged units
3.11 It is the Government's policy that allocations will, over the
longer term, progressively move towards 100 per cent auctioning, subject
to the provision of transitional assistance for emissions-intensive trade-
exposed industries, compensation for coal-fired electricity generation and
assistance under the Coal Sector Adjustment Scheme.
3.12 The Authority will be required to publish information about the
auction results to assist Scheme participants and financial market analysts
to identify and understand the overall supply and demand conditions for
units, allowing efficient price discovery [Part 12, Division 4, clause 270]. This
is discussed in Chapter 13 of this explanatory memorandum.
Fixed charge units
3.13 In 2011-12, as a transitional measure, an unlimited number of
Australian emissions units will be available to liable entities at a fixed
charge of $10 per unit. This will fix the cost of compliance under the
Scheme, as these fixed price units will be used by liable entities to meet
their Scheme obligations. Liable entities will be able to purchase these
units after their emissions number is known and before the final surrender
date for that particular financial year. These units cannot be traded or
banked for future use. These units cannot create an excess surrender
number.
3.14 Full trading will commence in 2012-13 with a price cap in place
for four years. The price cap will take the form of access to an unlimited
store of additional Australian emissions units, issued at a pre-specified
fixed charge, for financial years 2012-13 to 2015-16. The purpose of the
price cap is to set a maximum cost of compliance for liable entities. Liable
entities will have the option of purchasing these units after their emissions
number is known and before the final surrender date for a particular
financial year. These units cannot be traded or banked for future use.
3.15 From 2012-13, a price cap will be in place for four years, rising
at five per cent a year in real terms (calculated using actual changes in the
Consumer Price Index for the previous 12 month period). The level of the
price cap in the first year of operation will be calculated using the original
White Paper commencement figure of $40 as the base for calculations. It
will be calculated as $40 plus 5 per cent real growth for each of the years
2010-11 and 2011-12. The price cap will continue to rise by 5 per cent in
real terms after this (using the Consumer Price Index). The Government's
intention is that the charge is set high enough so that its probability of use
is low, while providing protection against major price shocks.
3.16 The provisions relating to the issue of Australian emissions units
for a fixed charge are described in Part 4, Division 2, clauses 89-91.
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Carbon Pollution Reduction Scheme Bill 2010
Detailed explanation of new law
Auctions -- issue
3.17 The Authority is empowered to issue Australian emissions units
through auctions [Part 4, Division 2, clause 99].
3.18 It is intended that the detailed policies, procedures and rules for
the conduct of auctions will be included in a legislative instrument to be
made by the Minister [Part 4, Division 2, clause 103].
3.19 If made by the Minister, the determination will be a legislative
instrument for the purposes of the Legislative Instruments Act 2003 and
will be finalised following consultation with stakeholders.
3.20 The legislative instrument may deal with a range of matters.
These include but are not limited to the types of auction, their timing,
participants, entry fees, minimum number of units in bids, deposits,
guarantees, and the timing and method of payment [Part 4, Division 2,
clause 103(2)].
3.21 The instrument can address the detailed policies, procedures and
rules for auctions of units which are to be issued, units which have been
relinquished and units issued without charge which have not been
transferred by the original recipient to another person (see below for a
discussion about secondary market auctions).
3.22 The initial instrument is expected to reflect the policy positions
in the White Paper. These include that:
· auctions will be held 12 times in a financial year
· at least one auction of a year's vintage will be held after the
end of the financial year in the lead-up to the final surrender
date (15 December)
· four years of vintages will be auctioned in each year (the
current vintage plus advance auctions of three future
vintages)
· an ascending clock auction will be the preferred auction type.
In an ascending clock auction, the auctioneer announces a
price for a particular quantity of each vintage and bidders
reveal the amount they wish to buy at that price. The
auctioneer continues to increase the price until the total
demand is equal to or lower than the amount on offer. The
process may be carried out simultaneously with different
vintages of units (simultaneous ascending clock auction)
· bidders will have the option to submit proxy bids in `sealed
bid format' for convenience. Proxy bidding allows bidders to
submit in advance their demand schedule for units at various
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Chapter 3: Allocation of units -- introduction, auction and fixed charged units
prices. The bid is therefore `sealed' before the auction has
even commenced.
3.23 It is the Government's policy that auctions for Australian
emissions units for the vintage years of 2012-13 and onwards will
commence late in 2010-11.
3.24 It is also Government policy that deferred payment
arrangements will be established to provide a transitional measure to
address the working capital costs of participants. Deferred payment will
apply to the advance auction of future vintages of emissions units (but not
current vintages) sold between 1 January 2011 and 31 December 2013
only, and require a 10 per cent deposit at auction to secure rights to units.
Permits will only be received once the final payment is made.
3.25 Should an instrument not be made, the Authority would
determine the arrangements for auctions and auction Australian emissions
units consistently with the concept of an auction as defined by section 5.
3.26 The Authority must not issue a unit as the result of an auction
unless the person pays the charge to the Authority on behalf of the
Commonwealth [Part 4, Division 2, clause 90]. This avoids the need for the
Authority to collect debt owing on units issued following an auction, and
lowers the cost of administering the Scheme.
3.27 If the charge is taxation within the meaning of section 55 of the
Constitution, the charge is not imposed by the bill but by the relevant
charges bill [Part 4, Division 2, clause 91].
3.28 The relevant charges bills are the Carbon Pollution Reduction
Scheme (Charges -- Excise) Bill 2010, the Carbon Pollution Reduction
Scheme (Charges -- Customs) Bill 2010 and the Carbon Pollution
Reduction Scheme (Charges -- General) Bill 2010. There is a separate
explanatory memorandum for each of these bills.
3.29 The Commonwealth does not consider that the charges for the
auction of Australian emissions units are taxes for constitutional purposes.
However, the Government has taken an approach of abundant caution, in
case a court reaches a different view on this question.
3.30 The bill also contains a technical provision to ensure that if the
charges for the auction of Australian emissions units are taxes, those
charges do not contravene the constitutional requirement that taxation
must not be arbitrary [Part 4, Division 2, clause 99].
Auctions -- secondary
3.31 The Authority is also empowered to auction:
· Australian emissions units which have been relinquished in
certain situations [Part 4, Division 2, clause 100]
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Carbon Pollution Reduction Scheme Bill 2010
· On behalf of the holder, Australian emissions units issued
without charge which have not been transferred by the
original recipient to another person [Part 4, Division 2,
clause 101].
3.32 Each of these powers is examined in further detail below.
Auctions of units which have been relinquished
3.33 In certain situations where excess units have been issued, a
person can be required to relinquish units; that is, return them to the
Commonwealth. These situations are described in Chapter 10 of the
explanatory memorandum. They include situations relating to
reforestation, such as the voluntary withdrawal of reforestation projects
from the Scheme; the issue of excess units for emissions-intensive
trade-exposed activities that have ceased; and the issue of units as a result
of fraudulent conduct by the recipient.
3.34 Where units (with a vintage year other than 2011-12) are
relinquished in response to a requirement which is not connected with
reforestation or destruction of synthetic greenhouse gases, the units are
transferred into the Commonwealth relinquished units account [Part 15,
Division 2, clause 286(4)]. These units are then auctioned by the Authority
[Part 4, Division 2, clause 100].
3.35 Units with a vintage year of 2011-12 and units relinquished
under the reforestation provisions or in connection with destruction of
synthetic greenhouse gases are cancelled [Part 15, Division 2, clause 286 (2A)
and (3)]. This is because the units originally issued to the person who
relinquished these units were issued above or outside the Scheme cap:
cancellation ensures that the Scheme cap is not artificially inflated.
Auctions of units issued without charge
3.36 Until 31 December 2013, the Authority is empowered to auction
units with a vintage year commencing on 1 July 2012 or later on behalf of
persons who had received them without charge in connection with:
· The emissions-intensive trade-exposed assistance program
· The Coal Sector Adjustment Scheme
· Coal-fired electricity generation assistance
· Reforestation
· The domestic offsets program
· The destruction of synthetic greenhouse gas.
[Part 4, Division 2, clause 101].
3.37 As a transitional mechanism, this will provide a low-risk,
low-cost and transparent mechanism that encourages entities receiving a
free allocation of units to sell them on the carbon market. This may
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increase the size of the auction and reduce hoarding of units. Auctions of
these units can be combined with auctions of units to be issued for a
charge and of certain relinquished units [Part 4, Division 2, clause 102].
Fixed charge units
3.38 A person with a Registry account can apply to acquire from the
Authority units at a fixed charge from the time when the person's
emissions number for the eligible financial year is entered on the
Information Database until 15 December following each of the five
financial years commencing on 1 July 2011 [Part 4, Division 2, clause 89].
3.39 The bill includes safeguards to prevent liable entities from
acquiring more fixed charge units than they need for compliance
purposes. This is important because, as discussed below, fixed charge
units are automatically surrendered. A person would not be able to recover
such units if it, for example, accidentally applied for more units than it
needed. Accordingly, to avoid the excess surrender of these units, the
fixed charge can only be accessed once the person's emissions number for
the eligible financial year is entered on the Information Database. This is
the point at which the person's liability is known. The Authority must
enter a person's emissions number in the Information Database as soon as
practicable after receiving the person's report under the National
Greenhouse and Energy Reporting Act 2007, which is due on 31 October
[Part 12, Division 2, clause 263].
3.40 Also to prevent excess surrender, the number of units which can
be acquired using the fixed charge mechanism is limited by the formula:
The person's emissions number for the vintage year, less the total
number of eligible emissions units surrendered by the person in
relation to the vintage year [Part 4, Division 2, clause 89(2)].
3.41 The final date for acquiring units in this way, 15 December, is
the date by which surrender is required.
3.42 For 2011-12, units issued for a fixed charge of $10 cannot create
an excess surrender number if more of these units are surrendered in
relation to compliance for the first year of the Scheme than the person's
emission number [Part 6, Division 4, clause 143(3)]. This will ensure that units
issued for a fixed charge of $10 are not, in effect, carried over for use
against a future liability, and is consistent with not allowing banking for
this period.
3.43 The Authority must not issue a unit for a fixed charge unless the
person pays the charge to the Authority on behalf of the Commonwealth
[Part 4, Division 2, clause 90].
3.44 The amount of the fixed charge in 2011-12 will be $10. For
2012-13, the fixed charge will be calculated as $40 plus 5 per cent real
growth for each of the years 2010-11 and 2011-12 (calculated using the
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proportional changes in the Consumer Price Index for the period March
2010 to March 2012) [Part 4, Division 2, clause 89].
3.45 From 2013-14, the price cap will continue to rise by 5 per cent
in real terms (calculated using the proportional change in the Consumer
Price Index for the previous 12 month period). For example, in calculating
the fixed charge in 2013-14, the charge per unit from 2012-13 would be
used as a base. This would then be multiplied by 1.05 (i.e. 5 per cent
growth) plus the proportional change in the Consumer Price Index from
March 2012 to March 2013 (i.e. this takes account of inflation) [Part 4,
Division 2, clause 89(7)].
3.46 The relevant Consumer Price Index number for these purposes is
the All Groups Consumer Price Index number (excluding volatile items),
being the weighted average of the 8 capital cities published by the
Australian Statistician for each quarter [Part 4, Division 2, clause 89(10)].
3.47 To provide liable entities with certainty over the fixed charge, it
is important to publish its exact value in advance of each compliance year
[Part 4, Division 2, clause 89(11)]. This will allow liable entities to determine
the maximum cost of compliance.
3.48 The commentary above, which discusses the provisions included
to address the possibility that the charge is taxation, applies equally to the
fixed charge for units described in this segment.
3.49 Units acquired in this way are taken to have been surrendered
immediately after issue [Part 4, Division 2, clause 89(5)]. Units issued for a
fixed charge cannot be held over (`banked') for use in compliance in
future years. They cannot be transferred or relinquished [Part 4, Division 2,
clause 89(6)].
Special arrangements for Australian emissions units with a vintage year
beginning on 1 July 2011
3.50 Australian emissions units with a vintage year beginning on
1 July 2011 are generally available to liable entities for a charge of
$10 per unit [Part 4, Division 2, clause 89].
3.51 However, special rules apply to those Australian emissions units
with a vintage year beginning on 1 July 2011 issued under the emissions-
intensive trade-exposed assistance program, in accordance with Part 9,
(which deals with coal-fired generation assistance), or in accordance with
Part 8A (which deals with assistance under the Coal Sector Adjustment
Scheme). The rules in respect of these units ensure the integrity of future
scheme caps. These units:
· can only be surrendered in relation to the eligible financial
year beginning on 1 July 2011 [Part 6, Division 2, clause 129(5A)]
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· do not create an excess surrender number if more of these
units are surrendered in relation to compliance for the first
year of the Scheme than the person's emissions number
[Part 6, Division 4, clause 143(3)]
· must be cancelled by the Authority if they have not been
surrendered at the end of 15 December 2012 [Part 4, Division 2,
clause 103A]
· cannot be voluntarily surrendered [Part 14, clause 282(2A)]
· may, on request, be bought-back and cancelled by the
Authority before 1 December 2012 at $10 discounted by a
factor in the regulations which is intended to broadly
represent the present value of those units at the date they are
bought-back [Part 4, Division 2, clause 103B]
· are cancelled if they are relinquished, rather than transferring
to the Commonwealth relinquished units account [Part 15,
Division 2, clause 286(2A)].
3.52 Given that units with a vintage year beginning on 1 July 2011
are available to liable entities for a fixed charge of $10, it is unlikely that
an active market for units of this vintage will develop. However, some
persons will be issued Australian emissions units with a vintage year
beginning on 1 July 2011 through the emissions-intensive trade-exposed
assistance program, or in accordance with Part 9, and who may not wish
to surrender these units against a liability for the eligible financial year
beginning on 1 July 2011. For example, a person may receive units in
respect of the cost increase it faces from its use of electricity in an
emissions-intensive trade-exposed activity, or from the cost increase it
faces that is related to the upstream emissions from the extraction,
processing and transportation of natural gas and its components used as
feedstock in an emissions-intensive trade-exposed activity. This person
may wish to sell these units to receive cash, which can then be used to
offset the increase in monetary costs it faces due to its use of electricity or
natural gas and its components as a feedstock, rather than hold these units
for surrender.
3.53 To ensure that persons who are issued with Australian emissions
units can sell these units when they do not wish to surrender them, the bill
provides for the `buy-back' of these units by the Authority [Part 4,
Division 2, clause 103B(2)]. This facility will be open to requests from 15 July
2011 until 1 December 2012, and allows persons to receive $10 for each
unit they wish to sell back to the Authority, discounted by a factor
specified in the regulations. The factor used to discount the buy-back
amount will broadly reflect the present value of the units at the time they
are sold back. If a person makes a request, the Authority must cancel the
unit on a day specified in the regulations and, as soon as practicable after
that day, pay the relevant amount to the person.
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3.54 The Consolidated Revenue Fund is appropriated for the purpose
of making payments for the buy-back of units under this provision [Part 4,
Division 2, clause 103B(5)]. The appropriation is limited in the sense that the
buy-back facility will, at most, apply to the number of units that can be
issued through the emissions-intensive trade-exposed assistance program,
in accordance with Part 9, or in accordance with Part 8A for the vintage
year beginning on 1 July 2011.
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Chapter 4
Emissions-intensive trade-exposed
assistance program
Outline of chapter
4.1 This chapter outlines the effect of the provisions of Part 8 of the
Carbon Pollution Reduction Scheme Bill 2010 which provide for the
emissions-intensive trade-exposed assistance program to be created by the
regulations and other provisions associated with that program. Part 8 of
the bill allows the Government to make regulations which
administratively allocate Australian emissions units to persons who
conduct emissions-intensive trade-exposed activities. This chapter sets
out:
· the context of the policy framework surrounding the
emissions-intensive trade-exposed assistance program
· a summary of the core provisions in Part 8
· a detailed description of the individual provisions.
Context
4.2 Australia's adoption of a carbon constraint before some other
countries may have a significant impact on the international
competitiveness of its emissions-intensive trade-exposed industries. In
Chapter 12 of the White Paper the Government outlined its commitment
to providing assistance to these industries to reduce the risk of `carbon
leakage' and provide them with some transitional assistance. It committed
to do so in a manner that ensures that these industries contribute to the
national effort to reduce carbon emissions.
4.3 The Government's proposed emissions-intensive trade-exposed
assistance program has been designed to target assistance in as practical
and effective a fashion as possible, to allow for the continued growth in
emissions-intensive trade-exposed industries and to provide a transparent
assistance framework to ensure industry has the clarity and certainty it
needs. It will accommodate growth in these industries by directly linking
allocations to the production levels of existing and new entities
conducting emissions-intensive trade-exposed activities. The program is
based on the expectation that all industries should contribute to the
national emissions reduction effort and provides strong incentives for all
entities to pursue abatement opportunities.
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Carbon Pollution Reduction Scheme Bill 2010
4.4 Accordingly, the Government's support for emissions-intensive
trade-exposed industries will be:
· targeted towards industries that conduct trade-exposed
activities and have the most significant exposure to a carbon
price
· linked to production levels and provided on the basis that
production continues in Australia
· balanced against its objectives for non-assisted sectors and
households
· consistent with Australia's international trade obligations.
4.5 The assistance will be designed to preserve the incentives for
entities conducting emissions-intensive trade-exposed activities to adjust
to a carbon constrained future by:
· providing assistance only in relation to the most emissions
intensive activities carried out by an entity
· providing assistance on the same basis to all entities, new and
existing, conducting a given activity
· providing assistance on the basis of historical information on
the emissions from these activities to ensure that entities have
an ongoing incentive to reduce their emissions relative to
historical performance.
4.6 The linking of assistance to production levels, and not emissions
levels, means that the administrative allocation of free Australian
emissions units will maintain the financial incentives for firms to reduce
their emissions intensity -- that is, the number of emissions generated
per unit of output produced. The proposed assistance framework does not
reduce the number of Australian emissions units a firm needs to surrender
each year in relation to its emissions until an entity receives 100% of its
direct and indirect electricity and steam emissions costs relating to an
EITE activity. Entities conducting emissions-intensive trade-exposed
activities, like all other entities in the economy, will therefore retain the
incentive to pursue abatement opportunities that are cost effective at the
carbon price.
4.7 Assistance will be provided to entities that conduct emissions-
intensive trade-exposed activities through the issuance of free Australian
emissions units by the Authority at the beginning of each compliance
period. The assistance will be provided on an activity basis to ensure that
it is well targeted and is equitably distributed within and across industries.
The assistance will be provided in relation to the following:
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· the direct emissions associated with an activity for which a
Carbon Pollution Reduction Scheme (the Scheme) obligation
will be incurred
· the emissions associated with the use of steam by an activity
· the cost increase associated with the use of electricity by an
activity, which is assessed as resulting from the introduction
of the Scheme
· the cost increase related to the upstream emissions from the
extraction, processing and transportation of natural gas and
its components, such as ethane and methane, used as
feedstock by an activity.
4.8 The Government will target assistance to activities that are
trade-exposed and emissions-intensive. As outlined in the White Paper:
· Trade-exposure is to be assessed in relation to trade shares
being greater than 10 per cent in any one of the years
2004-05, 2005-06, 2006-07 or 2007-08 or there being a
demonstrated lack of capacity to pass through costs due to
the potential for international competition.
· Emissions-intensity is to be assessed in relation to whether
the industry-wide weighted average emissions intensity of an
activity is above a threshold of:
- 1000 tonnes of carbon dioxide equivalent (CO2-e)
per million dollars of revenue
or
- 3000 tonnes of carbon dioxide equivalent (CO2-e)
per million dollars of value added.
4.9 To determine which activities are eligible for assistance under
the emissions-intensive trade-exposed assistance program and should be
listed in the regulations, on 18 February 2009 the Government released a
call for a range of industry information in its Guidance Paper: Assessment
of Activities for the Purposes of Emissions-Intensive Trade-Exposed
Assistance Program. This requires entities to have this information
independently audited. This information will help the Government make
an informed decision on the eligibility of an activity for emission-
intensive trade-exposed assistance and the rate of assistance provided to
the activity.
4.10 In making its decision on the eligibility of activities and the
allocative baselines for eligible activities (that is, the number of free
Australian emissions units that will be issued for each unit of production
of an emissions-intensive trade-exposed activity), the Government will
consider, in addition to data supplied by entities, publicly available
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Carbon Pollution Reduction Scheme Bill 2010
information on pricing, trade and emissions intensity from Australian and
international sources. An expert advisory committee has been established
to provide advice on the definition of activities and the assessment of
eligibility for the emissions-intensive trade-exposed assistance program.
4.11 The emissions-intensive trade-exposed assistance program will
require all entities conducting activities to bear a proportion of the carbon
cost they face and provide assistance at two different rates, reflecting the
need to provide relatively more assistance to relatively more
emissions-intensive activities in order to reduce the likelihood of carbon
leakage.
4.12 Initial assistance to eligible activities will be set in the
regulations at:
· 94.5 per cent of the allocative baseline for activities that have
an emissions intensity above 2000 tonnes of CO2-e/million
dollars of revenue or 6000 tonnes of CO2-e/million dollars of
value added in the specified assessment period
· 66 per cent of the allocative baseline for activities that have
an emissions intensity between 1000 tonnes CO2-e/million
dollars of revenue and 1999 tonnes of CO2-e/million dollars
of revenue or between 3000 tonnes of CO2-e/million dollars
of value added and 5999 tonnes of CO2-e/million dollars of
value added in the specified assessment period.
4.13 However, in situations where a given output is produced from
eligible emissions-intensive trade-exposed activities using either primary
materials or recovered/recycled material as inputs, the same rate of
assistance will be applied to both activities.
4.14 The emissions-intensive trade-exposed assistance program will
deliver Australian emissions units for the first year of the Scheme in the
same manner as subsequent years of the Scheme. However, the units
issued in respect of the first year cannot be banked for use in future years
of the Scheme. In recognition that firms receiving assistance are likely to
want to use the units to meet increased electricity costs, the units are
transferable and the Authority will operate a buy-back mechanism for
these units.
4.15 The regulations will reduce the rates of assistance accorded each
emissions-intensive trade-exposed activity at a pre-announced rate, the
carbon productivity contribution, of 1.3 per cent a year, to broadly ensure
that entities conducting emissions-intensive trade-exposed activities share
in the national improvement of carbon productivity. The application of the
carbon productivity contribution to an activity will be reviewed as part of
the reviews of the Scheme. This is further outlined in Chapter 14.
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4.16 The allocative baselines for each activity will be set in the
regulations taking into account historic emissions and production
information submitted to the Department of Climate Change in 2009 and
2010. Baselines for allocations will not be updated over time for changes
in the emissions intensity of entities conducting emissions-intensive
trade-exposed activities in order to maximise abatement incentives, and
will be used to determine allocations to new and existing entities
conducting a given activity.
4.17 Allocations of assistance to entities conducting
emissions-intensive trade-exposed activities will be directly linked to the
level of production of individual entities conducting an activity. In any
given year, the number of free Australian emissions units to be issued to
an entity will be determined using the previous financial year's production
of the activity by that entity adjusted for any over or under allocation in
the previous year, with the following exceptions:
· with regard to new entrants and significant expansions, the
Authority will be afforded the discretion to determine an
allocation for the expected production in a given year
· entities whose allocation exceeds 100% of their direct and
indirect electricity and steam costs relating to an EITE
activity will only be assisted up to that level
· LNG projects will receive a supplementary allocation to
ensure that they receive an effective rate of assistance at or
above 50 per cent.
4.18 If an entity ceases conducting an emissions-intensive
trade-exposed activity, it will be required to relinquish Australian
emissions units that had been issued to it in respect of production that did
not occur.
4.19 Where an emissions-intensive trade-exposed activity is
conducted at a single facility, the entity which has, or would have, liability
under the Scheme for direct emissions from the facility may apply for
assistance. Where more than one entity has liability or potential liability
under the Scheme (such as where more than one facility is involved),
there must be a joint application from those entities, and that joint
application must specify how they want the assistance allocated.
4.20 The emissions-intensive trade-exposed assistance program will
be reviewed by an expert advisory committee at each five-year review
point under Part 25 of the bill, or at another date at the request of the
Minister. The Government has announced that when conducting their
five-yearly EITE reviews, the expert advisory committee will consider a
number of issues. The commitments made by the Government and their
translation into specific legislative provisions are detailed in Chapter 14 of
the explanatory memorandum.
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Carbon Pollution Reduction Scheme Bill 2010
4.21 The Government also announced in the White Paper a process
for affected firms to request the Government to commission further advice
from the Productivity Commission pertaining to how the Scheme may be
impacting their industry. Such advice would be sought through the
provisions of the Productivity Commission Act 1998.
4.22 The Government has committed to providing five years' notice
of any modifications to the emissions-intensive trade-exposed assistance
program, unless the modifications were required for compliance with
Australia's international trade obligations. The Government may also
reduce or remove the carbon productivity contribution for an activity
immediately after a review.
4.23 The Government has published draft regulations to establish the
program in June and December 2009 and consulted with stakeholders on
their contents. In the December regulations 18 activities were found to be
eligible in accordance with the criteria and process outlined above.
Summary of Part 8
4.24 A simplified outline of Part 8 is included in the bill [Part 8,
Division 1, clause 166].
Introduction
4.25 Division 1 sets out the aims and objects of the Part and
consequently the emissions-intensive trade-exposed assistance program.
As set out in the White Paper, the program recognises the impact that the
Scheme may have on the international competitiveness of
emissions-intensive trade-exposed activities, and its object is to reduce the
risk of carbon leakage and provide transitional assistance to entities
conducting emissions-intensive trade-exposed activities.
Formulation of the program
4.26 Division 2 sets out the core components of the
emissions-intensive trade-exposed assistance program. In particular it
provides for:
· the creation of a program in regulations which involves the
issuance of free Australian emissions units in respect of
activities which are taken to be emissions-intensive
trade-exposed activities and are carried on in Australia during
a particular financial year
· the program to require the persons issued free Australian
emissions units under the program to relinquish units in
specified circumstances. This is intended to be used to
provide for relinquishment of units on the closure of a facility
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· the imposition of reporting and record-keeping requirements
for persons issued free Australian emissions units under the
program. This is intended to be used to ensure the Authority
is aware of potential closures and whether production levels
claimed in assistance applications were actually produced
· the program to set out comprehensive application and
assessment requirements.
Compliance
4.27 Division 3 requires that persons comply with reporting and
record-keeping requirements under the emissions-intensive trade-exposed
assistance program. Failure to comply will incur a civil penalty.
Special information-gathering powers
4.28 Division 4 allows the Minister to request information relevant to
decisions about the formulation of the emissions-intensive trade-exposed
assistance program from constitutional corporations. This information
gathering power is limited to the circumstances where an activity is not
yet listed as an emissions-intensive trade-exposed activity and a party has
requested that the activity be added to the regulations.
Other aspects of the program outside of Part 8
4.29 Part 15 Division 2 sets up the legal architecture around
compliance with the relinquishment requirements which will operate on
the closure of a facility. Accordingly, if a person does not relinquish
Australian emissions units as necessary they will be required to pay a
penalty, in respect of any units not relinquished, of 200 per cent of the
benchmark average auction price of the previous financial year or another
amount specified in regulations. If this is not paid, a penalty of 20 per cent
per annum is payable or another lower rate specified in regulations.
4.30 There are also provisions requiring the Authority to disclose
information about the emissions-intensive trade-exposed assistance
program in Part 12 of the bill. The general enforcement and accountability
framework for the Authority is also relevant to the program.
Detailed explanation of provisions
Division 1 -- Introduction
Aims and objects
4.31 The aim of the Part is set out in the bill [Part 8, Division 1,
clause 165(1)]. It is to recognise issues relating to the impact of the Scheme
on the international competitiveness of emissions-intensive trade-exposed
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Carbon Pollution Reduction Scheme Bill 2010
activities carried on in Australia. As set out above, unless an effective
emissions-intensive trade-exposed assistance program is implemented, the
costs associated with the Scheme may adversely impact the
competitiveness of entities conducting emissions-intensive trade-exposed
activities in Australia in the period before broadly comparable carbon
constraints are applying in other countries at an industry or economy wide
level. This is because these activities would be constrained in their ability
to pass on the costs of the Scheme while competitors do not face similar
costs which may be imposed through market based or regulatory
mechanisms.
4.32 The objects of the Part are set out in the bill [Part 8, Division 1,
clause 165(2)].
4.33 The objects provision outlines the activity focus of the assistance
as the Part is intended to allow the delivery of assistance in respect of
emissions-intensive trade-exposed activities [Part 8, Division 1,
clause 165(2)(a)]. Accordingly, it is the carrying out of defined activities
which creates eligibility for assistance rather than a firm's historic or
future emissions.
4.34 Assistance is provided to reduce the risks of `carbon leakage',
understood in terms of the incentives on businesses to move production to
foreign countries or locate new investment in a foreign country rather than
Australia [Part 8, Division 1, clause 165(2)(b)]. Such incentives may be created
by the treatment of emissions and level of regulation to reduce emissions
in foreign countries.
4.35 Assistance is also to provide transitional support to such
activities when they are carried out in Australia [Part 8, Division 1,
clause 165(2)(c)]. Given the significant differences between the emissions
profiles of industries, the impact of the carbon price will be greater for
some than for others. Transitional assistance is provided through the
administrative allocation of free Australian emissions units under the
emissions-intensive trade-exposed assistance program.
4.36 The objects provision recognises that circumstances may change
such that assistance may no longer be warranted. In particular, it outlines
two distinct circumstances where this may be the case:
· whether sufficient measures to reduce emissions of carbon
dioxide and other greenhouse gases have been implemented
in respect of the markets in which entities conducting
emissions-intensive trade-exposed activities in Australia
compete [Part 8, Division 1, clause 165(2)(d)]
or
· where foreign countries responsible for a substantial majority
of the world's emissions have implemented sufficient
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measures to reduce those emissions [Part 8, Division 1,
clause 165(2)(e)]
4.37 The Government will determine whether the assistance is no
longer warranted based on advice from the expert advisory committee
review on the efficacy and appropriate level of coverage of such
measures. It should be noted that measures to reduce emissions do not
necessarily need to consist of a cap on emissions and other approaches to
reduce emissions are also intended to be considered in the analysis.
Industry-wide emissions could also be controlled through international
sectoral agreements outside the direct control of governments. It will be
important to consider whether all relevant market-based and regulatory
measures, taken together, impose broadly comparable carbon constraints
on either the particular industry or in respect of measures introduced in the
world's major economies. Box 12.16 of the White Paper provides further
explanation of the nature of global carbon constraints which are relevant
to this analysis.
4.38 It is acknowledged that other factors may also come into play
which render the assistance unwarranted in terms of its aim and primary
objective of addressing carbon leakage and providing transitional
assistance [Part 8, Division 1, clause 165(2)(f)]. However, the Government's
intention is that the factors listed in the legislation are the primary
circumstances where assistance may no longer be warranted.
4.39 The five-yearly and special reviews of the Scheme will play an
important role in advising the Government on the consistency of the
emissions-intensive trade-exposed assistance program with these aims and
objects and the likelihood of the assistance becoming unwarranted
because of international developments. When circumstances are arising
which may render the assistance unwarranted, the Government has
committed to providing five years' notice of any modifications to the
emissions-intensive trade-exposed assistance program, unless the
modifications were required for compliance with Australia's international
trade obligations.
4.40 The reviews and policy regarding changes to the carbon
productivity contribution are further set out in Chapter 14.
Division 2 -- Formulation of the emissions-intensive trade-exposed
assistance program
4.41 This Division allows for the creation of the emissions-intensive
trade-exposed assistance program in regulations. The technical aspects of
precisely defining emissions-intensive trade-exposed activities, the
eligibility criteria and relevant production units, and the need for
flexibility to include new activities, make the program appropriate to
locate within regulations rather than the bill itself. After the detail on
emissions, electricity use, revenue and/or valued added has been assessed
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Carbon Pollution Reduction Scheme Bill 2010
for a given activity, the regulations will be able to provide a relatively
simple allocation methodology per unit of production which provides
investment certainty, minimises ongoing compliance costs and reduces the
risk of assistance decisions being subject to lengthy appeal and review
process which may divert resources from more important issues for
business.
Creating the emissions-intensive trade-exposed assistance program
4.42 The central feature of the Part is the ability for the regulations to
create a program which allows the issuance of free Australian emissions
units in respect of emissions-intensive trade-exposed activities as defined
by the program [Part 8, Division 2, clause 167(1)(a)]. Such activities must be
carried on in Australia during an eligible financial year [Part 8, Division 2,
clause 167(1)(b)]. For this purpose, Australia includes external territories, the
exclusive economic zone, the continental shelf and the Joint Petroleum
Development Area. Assistance may be delivered before an activity is
carried on so long as the activity does actually get carried out in the
relevant eligible financial year.
4.43 While the eligibility of activities will be determined by the
Government in decisions on whether or not to list activities in the
regulations, the individual eligibility requirements for the assistance will
be specified in the program [Part 8, Division 2, clause 167(2)(a)]. A registry
account is one prerequisite [Part 8, Division 2, clause 167(2)(b)]. Without a
registry account, it would not be possible for the Authority to issue the
free Australian emissions units. It is intended that eligibility will
essentially rest upon whether a defined emissions-intensive trade-exposed
activity is being carried out, what relevant levels of production have been
achieved and that the person applying is the one ordinarily liable for the
emissions from the relevant activity under the Scheme.
4.44 The Minister must take all reasonable steps to establish the
program before 1 July 2010 [Part 8, Division 2, clause 167(3)]. Activities found
eligible after this point will be added to the program through amendments
to the regulations.
4.45 It is made clear that coal mining is not an emissions-intensive
trade-exposed activity for the first five years of the Scheme, to ensure that
coal mines are not allocated free Australian emissions units under both
Part 8A and Part 8 [Part 8, Division 2, clause 167].
Relinquishment requirement
4.46 The program may provide for the relinquishment of Australian
emissions units [Part 8, Division 2, clause 168]. This is intended to be utilised
in respect of the closure of an activity. Accordingly, where Australian
emissions units are issued early in a financial year attributable to
production that is to take place in that year, and production ceases during
the year (other than for maintenance or similar temporary closures), units
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attributable to the production which did not take place will be required to
be relinquished. As a result, such a requirement may be defined in relation
to events, circumstances or a decision of the Authority according to
criteria in the program [Part 8, Division 2, clause 168(1)(b)]. This provision will
ensure that the assistance is contingent upon continued production by the
activity and will avoid the potential for an entity to receive a windfall gain
from being issued free Australian emissions units in respect of production
which is then closed or moved offshore.
4.47 Relinquishment requirements only apply to persons issued units
under the program [Part 8, Division 2, clause 168(1)(a)] and cannot exceed the
number of units issued to the person under the program [Part 8, Division 2,
clause 168(2)].
4.48 The relinquishment of units to comply with the program can be
done by submitting an electronic notice to the Authority [Part 15, Division 2
clause 286].
Reporting requirements
4.49 The emissions-intensive trade-exposed assistance program can
impose reporting requirements on those persons issued units in
accordance with the program. Such requirements will allow the Authority
to adequately monitor situations where a closure may have occurred and
be alerted to situations where it may need to trigger a relinquishment
requirement [Part 8, Division 2, clause 169].
4.50 Compliance with a reporting requirement is mandatory [Part 8,
Division 3, clause 173(1)].
Record-keeping requirements
4.51 The program can impose record-keeping requirements on those
persons issued units in accordance with the program [Part 8, Division 2,
clause 170]. Such requirements will facilitate monitoring of the closure of
an activity and ensure that the production records which determined
assistance levels are kept for subsequent validation or investigation. As
production levels will be the central factor which determines the levels of
assistance and these levels will not be collected and reported under the
National Greenhouse and Energy Reporting Act 2007, this additional
provision is necessary. The provisions of Part 18 of the bill would also not
be applicable because the program is contained within the regulations
rather than the bill itself. However, it is not intended that the provision be
used to duplicate other reporting mechanisms or significantly increase the
regulatory burden on business.
4.52 Compliance with a record-keeping requirement is mandatory
[Part 8, Division 3, clause 173(2)].
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Carbon Pollution Reduction Scheme Bill 2010
Other matters and ancillary or incidental provisions
4.53 Further details of the emissions-intensive trade-exposed
assistance program will be specified in the regulations [Part 8, Division 2,
clause 171] and [Part 8, Division 2, clause 172]. In particular, the regulations can
contain extensive provisions regarding the applications for assistance.
Given the value of the free Australian emissions units to be issued, it will
be important for the Authority to have sufficient verified information to
support the relevant production levels which determine the level of
number of free Australian emissions units assistance to be issued to a
particular person in a particular year [Part 8, Division 2, clauses 171(1)-(3)].
4.54 These requirements may include that the information be verified
by statutory declaration by a relevant company officer or accompanied by
particular documents or reports such as an assurance report as to whether
the production was actually undertaken in the previous financial year or
engineering reports to demonstrate that a particular activity is in fact
conducted. It is intended that the Authority will establish a single online
portal for these applications.
4.55 The provisions allow the regulations to prescribe in full the
process and procedural requirements for the Authority to deal with
applications. It is anticipated that applications will be made between
1 July and 31 October each year and assessed by the Authority on a case
by case basis. Entities will be able to apply for an extension of this
timeline to allow them to have until 31 December to apply. The Authority
will be able to issue units to applicants as soon as it is sufficiently satisfied
in relation to each application.
4.56 The program can also include ancillary or incidental provisions
[Part 8, Division 2, clause 172].
4.57 It is also intended that the emissions-intensive trade-exposed
assistance program will, where necessary, adopt various industry
standards and confer administrative decision making functions on the
Authority [Part 26, clause 384] and [Part 26, clause 385].
Division 3 -- Compliance with reporting and record-keeping
requirements under the emissions-intensive trade-exposed assistance
program
Compliance with record-keeping and reporting requirements
4.58 There is a direct obligation to comply with any record-keeping
or reporting requirements. Those persons with a direct obligation to
comply with reporting and record-keeping requirements and others
involved in a breach or potential breach of reporting or record-keeping
requirements are liable for their behaviour [Part 8, Division 3, clause 173].
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Chapter 4: Emission-intensive trade-exposed assistance program
4.59 Breaches of these requirements are all civil penalty provisions
and can accordingly be enforced under Part 21 of the bill discussed in
Chapter 11 below [Part 8, Division 3, clause 173(4)].
Division 4 -- Special information-gathering powers
4.60 The simplicity, effectiveness, fairness and timely
implementation of the emissions-intensive trade-exposed assistance
program is significantly facilitated when Government has the necessary
audited information in relation to particular activities to determine that
activity's eligibility and allocative baseline per unit of product. The
Department of Climate Change has already received audited information
with regard to a number of potential activities which is sufficient to make
these decisions. There remain, however, a number of EITE activities
which will still need to be formally assessed. It will be important for the
Government to be certain that all participants in an industry which are
likely to materially impact this assessment have provided information to
the Government so that historical information can be the primary input
into the decision making process. Quality historical information will
reduce the necessity for detailed comparison of international information
to assist in the determination of eligibility and baselines which may
disadvantage parties who have fully complied with the information
request.
4.61 Accordingly, Division 4 deals with the circumstance where an
entity has come forward and requested an assessment of an
emissions-intensive trade-exposed activity and the Government is not able
to make a decision to include that activity in the regulations without
formally requesting information of particular companies who have
information relevant to that assessment. The Minister may accordingly
issue notices to a constitutional corporation to provide information and
audit reports relevant to the policy in the emissions-intensive trade-
exposed assistance program [Part 8, Division 4, clause 173A]. Such a power is
limited to the circumstances where an emissions-intensive trade-exposed
activity is not yet listed in the regulations. It is intended that such a power
would only be exercised as a last resort in circumstances where a potential
recipient of assistance is unwilling to provide the necessary information.
4.62 The Minister's information requests must give at least 30 days
for compliance if only information is requested and 60 days if a report is
also requested to accompany that information [Part 8, Division 4, clauses
173A(3) and 173A(5)].
4.63 Refusal or failure to comply with such a notice will render that
constitutional corporation ineligible for assistance for the first two eligible
financial years which begin after the date of the notice if they were
capable of complying with the notice and the Minister informs the
Authority that the non-compliance was significant [Part 8, Division 4, clause
173B]. This is proportionate to the potential for the withholding of such
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Carbon Pollution Reduction Scheme Bill 2010
information to result in windfall gains for a particular entity over the
course of the emissions-intensive trade-exposed assistance program. The
Minister may also disclose this information to the Authority to assist them
with their functions and powers [Part 8, Division 4, clause 173C].
Part 15, Division 3 -- Compliance with relinquishment requirements
4.64 A financial penalty will be imposed when Australian emissions
units are not relinquished as required under the emissions-intensive
trade-exposed assistance program [Part 15, Division 3, clause 287]. Division 3
of Part 15 of the bill contains a number of provisions relating to the
calculation of the financial penalty, late payment of penalties, recovery of
penalties, set offs and refunds of overpayments. These are similar to the
provisions of Division 4 of Part 6 and are explained in Chapters 10 and 11
below.
Public disclosures relating to emissions-intensive trade-exposed
assistance program
4.65 The public will be informed about Australian emissions units
issued under the emissions-intensive trade-exposed assistance program
[Part 12, Division 4, clause 273] and [Part 12, Division 4, clause 274]. This will
inform the market as to how many units are available for auctioning and
will provide public accountability for the application of the emissions-
intensive trade-exposed assistance program. In particular, the Authority is
required to publish on its website a notice when Australian emissions
units are issued to a person under the program which includes the number
of units issued to that person and the activity for which they were issued
[Part 12, Division 4, clause 273(1)] .
4.66 The total number of Australian emissions units issued during a
particular quarter must be published on the Authority's website [Part 12,
Division 4, clause 274]. This information must also be published in respect of
each activity [Part 12, Division 4, clause 274(b)].
4.67 The total number of Australian emissions units claimed under
the program but for which no decision has been made must also be
disclosed. This will give the market an idea about the potential number of
units which may not be available for auctioning [Part 12, Division 4,
clause 274(c)].
Administration, enforcement and monitoring of the program
4.68 The emissions-intensive trade-exposed assistance program will
be administered by the Australian Climate Change Regulatory Authority
referred to as the Authority for the purposes of the bill. It will be subject
to the governance arrangements in its establishment Act and this bill.
These include the secrecy provisions to protect confidential information
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Chapter 4: Emission-intensive trade-exposed assistance program
submitted in relation to the program set out in the clause 43 of the
Australian Climate Change Regulatory Authority Bill 2010.
4.69 The Authority's decisions on eligibility and delivery of
Australian emissions units under the program will be subject to the review
procedure outlined in Part 24 of this bill. This includes merits review in
the Administrative Appeals Tribunal.
4.70 The Authority will be able to draw upon its enforcement powers
in Parts 17 to 23 of this bill to enforce the requirements of the program.
The intention is to provide clear application requirements so that the
Authority has clear, audited and comprehensive information upfront to
make decisions upon allocations. This should allow a light-handed
risk-based approach to monitoring and enforcement issues associated with
the program.
First-year Australian emissions units
4.71 Persons who are issued units under the emissions-intensive
trade-exposed assistance program for the first year of the Scheme should
note the special nature of the Australian emissions units issued with a
vintage year beginning on 1 July 2011. In particular, they cannot be used
for subsequent years of the Scheme. The limited nature of the carbon
market during the first year of the Scheme means that it is necessary to
implement a buy-back arrangement for Australian emissions units issued
for the first year of the Scheme [Part 4, Division 2, clause 103B]. This will
operate until 1 December 2012 to allow persons to receive $10 for each
unit they wish to sell back to the Authority, discounted by a factor
specified in the regulations. This factor used to discount the buy-back
price will broadly reflect the present value of the units at the time they are
sold back to the Authority.
Review
4.72 As set out in Part 25, the Government may choose to initiate
special reviews on the emissions-intensive trade-exposed assistance
program and the program must be reviewed every five years by the expert
advisory committee [Part 25, Division 2, clause 353(1)(h)]. Details of the review
are described in Chapter 14.
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Chapter 5
Coal mining
Outline of chapter
5.1 This chapter implements the Coal Sector Adjustment Scheme
(CSAS) to provide limited transitional assistance in respect of coal mining
which has significant fugitive emissions of greenhouse gases.
5.2 Certain coal mines will be eligible under the CSAS to receive an
allocation of free Australian emissions units [Part 8A, Division 4].
5.3 The Authority will determine the number of free Australian
emissions units to issue to eligible coal mines and the method for
allocating these units [Part 8A, Division 2] [Part 8A, Division 3].
5.4 The Authority will also make decisions upon emissions
intensities, production levels and other variables required for determining
eligibility under the Scheme [Part 8A, Division 2] [Part 8A, Division 3].
Context of amendments
5.5 The introduction of the Scheme will place a new cost on the coal
mining sector. Mines will incur carbon liability for fugitive methane
emissions released during mining operations.
5.6 To allow operators of highly emissions-intensive mines time to
investigate and implement abatement opportunities, and to ease their
transition to the introduction of the carbon price, the amendments provide
for transitional assistance to the operators of the most emissions-intensive
gassy underground mines.
Summary of new law
5.7 The CSAS is a transitional assistance measure designed to
provide assistance to operators of existing emissions-intensive
underground mines over the first five years of the Scheme. The CSAS
limits eligibility for assistance to those mines that were in operation
during the two year period from 1 July 2007 to 30 June 2009.
5.8 Mines which commenced operations after 30 June 2009 will not
be eligible for assistance.
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Carbon Pollution Reduction Scheme Bill 2010
5.9 The assistance package will be offered to all mines with a
fugitive emissions intensity greater than 0.1 tonnes of CO2-e per tonne of
saleable coal produced.
5.10 Any mine with an emissions intensity lower than this will not be
considered for assistance.
5.11 The total number of free Australian emissions units available to
be provided to eligible emissions-intensive mines under this Part will be
the lesser of 9.72 million Australian emissions units per year or 60 per
cent of fugitive emissions from eligible mines in the 2008-09 financial
year.
5.12 The distribution of this assistance will be based on an above
threshold allocation methodology, where the most emissions-intensive
mines receive proportionally more assistance than less emissions-
intensive mines. This allocation methodology has the effect of
`flattening' the distribution of emissions liabilities across the industry.
The most emissions-intensive mines will still face the highest liability per
tonne of coal after the distribution of assistance. The threshold to be used
for this calculation is 0.1 tonnes of CO2-e per tonne of saleable coal
produced.
5.13 Assistance will be directly linked to production with each mine's
allocation capped at the level of their capped base period production.
Capped base period production is the greater of 2007-08 or 2008-09
saleable coal production levels for a given mine.
5.14 The maximum allocation for an individual mine under an above
threshold allocation methodology is equal to that mine's proportion of all
above threshold emissions in the base year multiplied by the quantum of
assistance available for all mines. The assistance rate per tonne of coal for
a given mine is the total allocation of assistance to that mine divided by
total saleable coal production in 2007-08 or 2008-09 (whichever is
greater). This assistance rate per tonne is then applied to the mine each
year for which assistance is available based on the lesser of the capped
base year production or the previous years' production from that mine.
The effect of the formula will mean that a common rate of assistance is
provided to each mine for their emissions above 0.1 tonnes of CO2-e per
tonne of saleable coal produced.
5.15 Assistance will be provided for the first five years of the
Scheme. The expert advisory committee will examine the impact of the
Scheme on the coal mining sector in the first scheduled review in 2014,
drawing on analysis by the Productivity Commission, and taking into
account advice from the CSIRO on the availability of cost-effective
abatement technology.
5.16 The issue of free Australian emissions units under Part 8A is
expected to have a fiscal impact of $1.23 billion over the five year period.
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Chapter 5: Coal mining
This replaces the $500 million previously allocated to the Climate Change
Action Fund.
Detailed explanation of new law
5.17 Part 8A provides limited transitional assistance in respect of coal
mining which has significant fugitive emissions of greenhouse gases. [Part
8A, Division 1, clause 173D].
Issue of free Australian emissions units in respect of coal mining
5.18 The number of free Australian emissions units issued by the
Authority will be based on the unit entitlement specified in the certificate
of entitlement for coal mine assistance in respect of that coal mining area
[Part 8A, Division 2]. Only persons with a registry account may be issued
units [Part 8A, Division 2, clause 173F(4)].
5.19 A certificate of entitlement must be issued each year [Part 8A,
Division 2, clause 173F(1)] and
the certificate will be dated for the financial
year during which the units are issued [Part 8A, Division 2, clause 173F(3)].
5.20 Mines which have been issued with a certificate of entitlement
will be allocated their units as soon as possible after the certificate has
been issued [Part 8A, Division 2, clause 173F(2)].
Certificate of entitlement to coal mining assistance
Application for certificate of entitlement to coal mining assistance
5.21 A person who wishes to apply to the Authority for coal mine
assistance for an eligible coal mining area must do so within 4 months of
the beginning of each financial year in the five year period [Part 8A, Division
3, clause 173G(1)]. The application must state that the eligible coal mining
area is not intended to close within 12 months [Part 8A, Division 3, subclause
173G(2)] and must also contain the total production (in tonnes of saleable
coal produced) from that area in the previous financial year [Part 8A,
Division 3, clause 173G(3)].
5.22 The application must be in a form determined by the Authority
and be accompanied by relevant information and documents specified in
the regulations [Part 8A, Division 3, clause 173H(1)]. The application may also
need to be accompanied by a statutory declaration or an audit report [Part
8A, Division 3, clause 173H(2)] [Part 8A, Division 3, clause 173H(1)(e)]. The
Authority may request further information [Part 8A, Division 3, clause 173J(1)].
The Authority must ensure that the information requested is relevant to its
consideration of the application and must exercise this power reasonably.
[Part 26, clause 374B] If this information is not provided, the Authority may
refuse to consider the application [Part 8A, Division 3, clause 173J(2)]. This
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Carbon Pollution Reduction Scheme Bill 2010
application process is consistent with other application provisions in the
bill.
Issue of certificate of entitlement to coal mining assistance
5.23 The Authority must issue a certificate of entitlement to coal
mining assistance in respect of an area for the current eligible financial
year if the entity applying meets the eligibility criteria set out in the bill
and regulations [Part 8A, Division 3, clause 173K].
5.24 An applicant is eligible in relation to a coal mining area if:
· the coal mining area is an `eligible coal mining area' [Part 8A,
Division 4, clause 173R]; and
· the applicant is the person ordinarily liable under the Scheme
for the emissions of the mine as assessed at 30 June of the
previous financial year; and
· the eligible area was covered by a coal mining title; and
· coal mining operations occurred in the previous year; and
· they have not breached subsections 11B(2) and 11C(2) of the
National Greenhouse and Energy Reporting Act 2007
relating to operational control.
5.25 The Authority must take all reasonable steps to make its
decision within 90 days of the application being made. If the Authority
requests further information, the decision must be made within 90 days of
the information being received [Part 8A, Division 3, clause 173K(5)]. It must
notify the applicant if the application is refused [Part 8A, Division 3, clause
173K(6)] and must publish a copy of the certificate of entitlement on its
website once one has been issued to the applicant [Part 8A, Division 3, clause
173K(7)].
Unit entitlement
5.26 The number of Australian emissions units distributed in respect
of a mine equals that mine's eligible proportion of available assistance (its
`assistance factor' calculated in subclause 173L(2)) multiplied by the
available quantum of assistance. Where the available assistance is 0.6
multiplied by the `total base period emissions numbers' [Part 8A, Division 3,
clause 173L(1)].
5.27 The `total base period emissions numbers' is equal to the lesser
of all fugitive emissions from eligible mines in the base period [Part 8A,
Division 3, clause 173L(1)(a)] or 16,200,000 Australian emissions units [Part
8A, Division 3, clause 173L(1)(b)], where 16,200,000 equals the Government's
pre-application estimate of all fugitive emissions from eligible mines in
the base period [Part 8A, Division 3, clause 173L(2)].
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Chapter 5: Coal mining
5.28 The assistance factor [Part 8A, Division 3, clause 173L(2)] for a mine
is calculated using the following formula
Adjusted base period
fugitive emissions intensity number × Relevant saleable coal number
for the eligible coal mining area for the eligible coal mining area
Total adjusted base period
fugitive emissions numbers
Where:
the `adjusted base period fugitive emissions intensity number' for a
mine is its fugitive emissions per tonne of coal above the threshold.
For example, if the mine had a fugitive emission intensity in the
base period of 0.5t CO2-e per tonne of saleable coal, its above
threshold emissions intensity would be 0.4t CO2-e per tonne of
saleable coal (0.5-0.1);
the `relevant saleable coal number for the eligible coal mining area'
is the lesser of the capped base period production (the higher of the
2007-08 and 2008-09 financial year) or production in the previous
year, which effectively caps assistance to production levels in the
base period; and
the `total adjusted base period fugitive emissions intensity
numbers' is the sum of `total above threshold emissions' from all
eligible mines in the base period.
5.29 The effect of this calculation is that if production from all
eligible mines is equal to or greater than production in the base period,
then the full quantum of assistance will be allocated with each mine
receiving an allocation proportional to its production and emissions
intensity in the base period, with the most emissions-intensive mines
(those with the most above threshold emissions) receiving the greatest
share. However, as each mine has their individual allocations capped at
base period levels, if a mine does not reach its base period production
levels in a given year, the Australian emissions units not allocated to that
mine will not be redistributed to other mines.
Certificate of entitlement to coal mining assistance is not transferable
5.30 A certificate of entitlement to coal mining assistance is not
transferable [Part 8A, Division 3, clause 173M].
Division 4 - Eligible coal mining area
Application for declaration of eligible coal mining area
5.31 A person who wishes to apply to the Authority for a declaration
that a particular coal mining area is an eligible coal mining area must do
so within 180 days after commencement of the section [Part 8A, Division 4,
clause 173N]. Where an application is submitted after the time limit, it is not
a valid application and the Authority will not be able to issue a certificate
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Carbon Pollution Reduction Scheme Bill 2010
of eligibility for coal mining assistance in relation to the coal mining area
in question.
5.32 An application must:
· be in writing; and
· be in a form approved, in writing, by the Authority; and
· be accompanied by such information as is specified in the
regulations; and
· be accompanied by such documents (if any) as are specified
in the regulations; and
· be accompanied by a prescribed report.
5.33 The application must be in a form determined by the Authority
and be accompanied by relevant information and documents specified in
the regulations and a prescribed report [Part 8A, Division 4, subclause 173P(1)].
The application may also need to be accompanied by a statutory
declaration or an audit report [Part 8A, Division 4, clause 173P(2)]. This is
consistent with other application provisions in the bill.
5.34 It will be important that applications are accompanied by direct
measurement information on the mine's fugitive emissions to allow the
Authority to properly assess each mine's fugitive emissions. As outlined
in the White Paper, underground coal mines will be required to use direct
measurement for liability under the Scheme.
5.35 The Authority may require further information relating to the
application [Part 8A, Division 4, clause 173Q]. The Authority must ensure that
the information requested is relevant to its consideration of the application
and must exercise this power reasonably. [Part 26, clause 374B] If the
applicant breaches the requirement, the Authority may refuse to consider
the application or refuse to take any action, or any further action, in
relation to the application.
Declaration of eligible coal mining area
5.36 The Authority may, by writing, declare that the area of land is an
eligible coal mining area for the purposes of this bill [Part 8A, Division 4,
clause 173R(2)] and must identify, in accordance with the regulations, the
coal mining area, the base period fugitive emissions from the mine, the
base period saleable coal production for the mine, the capped base period
saleable coal production for the mine (the higher of 2007-08 or 2008-09
production), the adjusted base period fugitive emissions intensity number
for the mine and the adjusted base period fugitive emissions number for
the mine [Part 8A, Division 4, clause 173R(3)].
5.37 The calculation methodologies for the relevant numbers to be
included in the declaration are detailed in clauses 173S - 173V [Part 8A,
Division 5, clauses 173S - 173V].
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Chapter 5: Coal mining
5.38 The Authority must not declare that the area of land is an
eligible coal mining area unless the Authority is satisfied that the mine
was operating as a coal mine for all or some of the 2007-08 and 2008-09
financial years, that the applicant had operational control of the mine for
the 2008-09 financial year and any other requirements to be outlined in
regulations are met [Part 8A, Division 4, clause 173R(4)].
5.39 The intention of this structure is that it is the Authority which
determines the final boundaries around a coal mining area in accordance
with the regulations, rather than the applicant. Accordingly, the
Authority's final definition of the relevant coal mining area may differ
from that originally proposed by an applicant if what is proposed is
inconsistent with the requirements of the regulations. This will ensure the
coal mining area is not drawn too narrowly or broadly in a manner which
would undermine the intent of the assistance.
5.40 The Authority must take all reasonable steps to make its
decision within 90 days after the application was made. If the Authority
requests further information, the decision must be made within 90 days
after the applicant provided information requested under clause 173Q(1)
[Part 8A, Division 4, clause 173R(1)].
5.41 A declaration takes effect immediately after it is made and the
Authority must give a copy of the declaration to the applicant and publish
a copy on its website as soon as practicable. [Part 8A, Division 4, clause
173R(2)].
5.42 If the Authority decides to refuse to declare the area of land as
an eligible coal mining area, the Authority must give written notice of the
decision to the applicant [Part 8A, Division 4, clause 173R(9)].
Division 5 - Miscellaneous
5.43 Part 8A, Division 5 defines the calculations required to
determine the emissions and production baselines used in the
determination of the eligibility and unit entitlement of a coal mine in
Part 8A.
5.44 The base period fugitive emissions number [Part 8A, Division 5,
for an eligible coal mining area is equal to the Authority's
clause 173S]
reasonable estimate of the total fugitive emissions from coal mining
operations on the eligible area for the financial year beginning 1 July
2008. This year is the base period for calculating the emissions intensity
of the mine area.
5.45 The base period saleable coal number [Part 8A, Division 5, clause
173T] for an eligible coal mining area is the production of saleable coal
from the eligible area during the financial year beginning 1 July 2008.
This year is the base period for calculating the emissions intensity of the
mine area.
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Carbon Pollution Reduction Scheme Bill 2010
5.46 The capped base period saleable coal number [Part 8A, Division 5,
clause 173TA]in relation to an eligible coal mining area is the greater of
saleable coal production from the financial years 2007-08 or 2008-09.
This number is used to calculate the adjusted base period fugitive
emissions number and to cap the amount of saleable coal that may be used
each year under the Part 8A.
5.47 The adjusted base period fugitive emissions intensity number
[Part 8A, Division 5, clause 173U], which is a mines above threshold emissions
intensity for a mine, is calculated using the following formula
Base period fugitive emissions number
for the area of land
- 0.1
Base period saleable coal number
for the area of land
where the threshold is 0.1t CO2-e per tonne of saleable coal produced.
5.48 The adjusted base period fugitive emissions number for the mine
is calculated using the following formula:
Adjusted base period fugitive
emissions intensity number × Capped base period saleable coal number
for the area of land for the area of land
where the adjusted base period fugitive emissions number represents the
sum of all above threshold emissions from all eligible mines. The
allocation factor for each mine represents its proportion of this total in
each given year.
Coal mining control test
5.49 The coal mining control test is the mechanism by which one
person is identified as eligible for assistance. It ensures that the person
liable under the bill for the direct emissions of the coal mine, as assessed
on 30 June of the previous financial year, is the person eligible to receive
the free Australian emissions units. It mirrors subclause 176(6) [Part 9,
Division 2, clause 176] which applies in relation to coal-fired electricity
generation. Accordingly, the relevant person will be either the controlling
corporation with a member of their group having operational control of
the facility, the non-group entity with operational control or a person with
a liability transfer certificate in respect of the facility.
Example of how Part 8A applies
The following stylised example sets out the operation of the program if
three mines were the only eligible mines in Australia.
Mine A is the smallest mine but has the highest emissions intensity
(0.76 tonnes of fugitive emissions per tonne of saleable coal). Its
production in 2008-09 was 8.5m tonnes but it produced 9.5m in 2007-
08. It had 6.5m tonnes of fugitive emissions in 2008-09.
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Chapter 5: Coal mining
Mine B is a medium sized mine with an average emissions intensity for
a gassy mine (0.35 fugitive emissions per tonne of saleable coal). Its
production in 2008-09 was 16m tonnes and it produced 15m tonnes in
2007-08. It had 5.6m tonnes of fugitive emissions in 2008-09.
Mine C is the largest mine with the lowest emissions intensity (0.2
fugitive emissions per tonne of saleable coal). Its production in both
2008-09 and 2007-08 was 20m tonnes. It had 4m tonnes of fugitive
emissions in 2008-09.
All three mines apply for assistance and the following amounts are
listed in their clause 173R declarations.
· Mine A has:
- Base period fugitive emissions number of 6.5m
- Base period saleable coal number of 8.5m
- Capped base period saleable coal number of 9.5m (using 2007-
08 as it is the highest)
- Adjusted base period fugitive emissions intensity number of
0.66 (calculated by 6.5/8.5 - 0.1)
- Adjusted base period fugitive emission number of 6.3m
(calculated by 0.66 x 9.5m)
· Mine B has:
- Base period fugitive emissions number of 5.6m
- Base period saleable coal number of 16m
- Capped base period saleable coal number of 16m (using 2008-
09 as it is the highest)
- Adjusted base period fugitive emissions intensity number of
0.25 (calculated by 5.6/16 - 0.1)
- Adjusted base period fugitive emission number of 4m
(calculated by 0.25 x 16m)
· Mine C has:
- Base period fugitive emissions number of 4m
- Base period saleable coal number of 20m
- Capped base period saleable coal number of 20m
- Adjusted base period fugitive emissions intensity number of 0.1
(calculated by 4/20 - 0.1)
- Adjusted base period fugitive emission number of 2m
(calculated by 0.1 x 20m)
At that point the total base period fugitive emissions numbers under
subclause 173L(1) can be calculated. The total of the base period
fugitive emissions numbers is 16.1m which is lesser than 16.2m.
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Carbon Pollution Reduction Scheme Bill 2010
Therefore, 16.1m is the total base period fugitive emissions number for
subclause 173L(1).
The total adjusted base period fugitive emissions numbers for
subclause 173L(2) can also be worked out. The total is 12.3m (6.3 + 4
+ 2).
Each mine can then work out an amount of assistance per tonne of
saleable coal they produce each year up to the amount of their cap.
Mine A is assisted at 0.52 free Australian emissions units per tonne
of saleable coal (0.6 x 16.1m x 0.66/12.3)
Mine B is assisted at 0.19 free Australian emissions units per tonne
of saleable coal (0.6 x 16.1m x 0.25/12.3)
Mine C is assisted at 0.08 free Australian emissions units per tonne
of saleable coal (0.6 x 16.1m x 0.1/12.3)
In this scenario the distribution of production and emissions means that
each mine is assisted at 78% of their emissions above 0.1 tonnes of
CO2-e per tonne of saleable coal.
Accordingly, if Mine A produces 9m tonnes of saleable coal in the
2010-11 financial year, it will use this number to apply to the
Authority by 31 October 2011 for the issue of free Australian
emissions units under Part 8A. Its allocation for that year will be 0.6 x
16.1m x 0.66 x 9m/12.3 = 4.67m free Australian emissions units. If it
went on to produce 9m tonnes of coal in 2011-12 at its current
emissions intensity, it would have a liability for 6.84m tonnes of
emissions. In this scenario, 68% of the mine's fugitive emissions
CPRS liability would be provided for under Part 8A.
Administration, enforcement and monitoring of Part 8A
5.50 The CSAS will be administered by the Authority, which will be
subject to governance arrangements including secrecy provisions to
protect confidential information submitted in relation to the program set
out in clause 43 of the Australian Climate Change Regulatory Authority
Bill 2010.
5.51 Specified decisions in Part 8A will be reviewable decisions
under Part 24 of the main bill. The objective of this approach is to ensure
fair treatment of all persons affected by a decision, and to encourage high
quality, consistency, openness and accountability in decisions made by the
Authority [Part 24, clause 346, Table, items 27A to 27H].
Matters related to Part 8A
5.52 The following definitions in section 5 of the main bill are used
in Part 8A:
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Chapter 5: Coal mining
· Adjusted base period fugitive emissions intensity number
· Adjusted base period fugitive emissions number
· Base period fugitive emissions number
· Capped base period saleable coal number
· Certificate of entitlement to coal mining assistance
· Coal mining control test
· Coal mining title
· Eligible coal mining area
· Fugitive emissions
· Saleable coal
· Coal mining title [Part 1, clause 5].
5.53 Apart from `coal mining title', `saleable coal' and `fugitive
emissions', these are explained above.
· `Coal mining title' is defined in relation to any lease, licence
or authority that permits the extraction of coal. These would
include leases under the Mining Act 1992 (NSW) and
Mineral Resources Act 1989 (Qld)
· `Saleable coal' and `fugitive emissions' are to be defined by
the regulations.
5.54 The Australian emissions units issued under Part 8A (freely
issued units) are treated in the same manner as Australian emissions units
issued under the emissions-intensive trade-exposed assistance program
[Part 2, clause 13, note] [Part 4, Division 1, clause 82] [Part 4, Division 2, Subdivision
A, clause 88] [Part 4, Division 2, Subdivision A, clause 93] [Part 4, Division 2,
Subdivision C, clause 101] [Part 4, Division 2, Subdivision D, clauses 103A and 103B]
[Part 6, Division 2, clause 129].
5.55 In relation to Part 8A, the Authority is required to publish on its
website the name of the person to whom the Australian emissions units
were issued, the number of Australian emissions units issued and the
vintage year of those Australian emissions units and the total number of
Australian emissions units issued each quarter must also be published.
These are the same requirements which exist for other free Australian
emissions units [Part 12, Division 4, clauses 273 and 274].
5.56 Definitions needed from revisions to the National Greenhouse
and Energy Reporting Act 2007 can be referred to before those
amendments commence [Part 26, clause 382].
145
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Chapter 6
Coal-fired electricity generation
Outline of chapter
6.1 This chapter outlines the effect of the provisions of Part 9 of the
Carbon Pollution Reduction Scheme Bill 2010, which implement the
Government's Electricity Sector Adjustment Scheme. Part 9, Division 2
and Part 9, Division 3 set out the provisions by which the Authority will
determine the number of free Australian emissions units to issue to
eligible coal-fired electricity generators under the Electricity Sector
Adjustment Scheme.
6.2 Part 9, Division 4 provides that a portion of the Australian
emissions units available to be issued to an eligible coal-fired electricity
generator can be withheld in the event that this asset may be likely to
receive a `windfall gain' under the Electricity Sector Adjustment Scheme,
that is, where the value of assistance a generator receives exceeds the
likely loss in asset value it faces under the Carbon Pollution Reduction
Scheme (the Scheme).
6.3 Part 9, Division 5 requires that no Australian emissions units be
issued to generators that do not comply with the power system reliability
test, to support the reliability of supply in Australia's electricity markets
during Australia's transition to a low carbon economy.
Context and object of Part 9
6.4 The object of Part 9 is to contribute to the maintenance of
investor confidence in the Australian electricity generation sector by
implementing the Electricity Sector Adjustment Scheme. Investor
confidence is central to the continued investment in energy infrastructure.
In turn, ongoing investment in lower emissions generation capacity is
essential to maintain energy security in a carbon constrained future.
6.5 The introduction of the Scheme will impose a new cost on fossil
fuel-fired electricity generators. The general level of electricity prices will
rise as generators include this cost into their offers to supply electricity to
customers.
6.6 However, relatively emissions-intensive generators are likely to
face a greater increase in their operating costs than the general increase in
the level of electricity prices. Competition from relatively less
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Carbon Pollution Reduction Scheme Bill 2010
emissions-intensive generators, which face lower costs under the Scheme,
may cause more emissions-intensive generators to lose profitability.
6.7 The generation of electricity is a capital-intensive process.
Investors in this sector purchase or construct complex and expensive
machinery that can generate large amounts of electricity in a cost-effective
way. To finance the purchase or construction of a generator, investors will
generally borrow money from creditors. Ongoing investment in the
electricity generation sector requires investors to deploy capital based on
their assessment of the risk and return of that investment, with creditors
supplementing this capital with debt finance.
6.8 The risk premium charged by investors and creditors to make an
investment reflects their perceptions of its risk in comparison with
alternative investments. The Scheme will change the relative risk and
return of particular investments based on the amount of greenhouse gas
emissions they produce. However, if investors consider that the regulatory
environment is riskier as a result of the Government having introduced the
Scheme, all investments in the sector could face an increased risk
premium irrespective of the amount of greenhouse gas emissions they
produce, which in turn could affect their cost or timing.
6.9 The Government considers that investors' perceptions of the risk
of investing in the Australian electricity generation sector are likely to be
affected by the extent of any extreme losses in this sector that may arise
under the Scheme. Targeted allocations of free Australian emissions units
to the most affected generators can partially offset these losses of asset
value and thereby reduce the potential impact of the Scheme on investor
confidence.
6.10 Investors who purchase or construct generation assets after the
Commonwealth Government's announcement of its support for a scheme
to reduce pollution caused by emissions of carbon dioxide and other
greenhouse gases are able to factor the impact of such a scheme on their
investments. Providing assistance to these investors would not address a
loss of asset value resulting from Government policy, but would instead
address a loss of asset value resulting from an incomplete risk assessment
by the investor.
6.11 However, the Government considers it appropriate to partially
recognise losses of asset value experienced by investors that were
committed to such investments prior to a clear announcement by the
Commonwealth Government of its support for such a scheme.
6.12 On 3 June 2007, the then Prime Minister announced that
`Australia will move towards a domestic emissions trading scheme, that's
a cap and trade system beginning no later than 2012'. The Electricity
Sector Adjustment Scheme limits eligibility for assistance to those
generation assets that were in operation, or committed to be constructed,
by 3 June 2007.
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6.13 In this way, the Electricity Sector Adjustment Scheme supports
investor confidence in the electricity generation sector, which will
encourage the investment necessary to support energy security during the
transition to a lower carbon electricity generation sector.
6.14 Further, due to the operation of the power system reliability test,
the Electricity Sector Adjustment Scheme provides a period of ten years
during which the transition to a lower carbon electricity sector can occur
with reduced risk of premature retirement of emissions-intensive
generation capacity, protecting energy security.
6.15 The objective of maintaining investor confidence is captured in
the object of Part 9 [Part 9, Division 1, clause 174]. The Government also
recognises the importance of the proper regulation of electricity markets
for continued efficient investment in electricity generation. The
Government is confident that the Electricity Sector Adjustment Scheme
embodied in Part 9 of the bill complements the continued reform of
energy market regulatory frameworks in promoting efficient investment
and reliable supply in Australia's electricity markets.
Summary
6.16 Part 9, Division 1 sets out an objects clause [Part 9, Division 1,
clause 174] anda simplified outline for the Part [Part 9, Division 1, clause 175].
6.17 Part 9, Division 2 requires the Authority to issue a number of
free Australian emissions units in respect of particular generation assets
based on the annual assistance factors specified in various certificates of
eligibility for coal-fired generation assistance in force in respect of those
assets, and clarifies the persons to whom the Authority should provide
these free Australian emissions units.
6.18 Part 9, Division 3 sets out the circumstances under which the
Authority should issue a certificate of eligibility for coal-fired generation
assistance, and determines how the Authority should determine an annual
assistance factor in each of those certificates.
6.19 Part 9, Division 4 provides that the issuing of some free
Australian emissions units available under this Part is subject to the
Minister's power to make a determination withholding those units, in the
event that the Authority finds that the provision of assistance under this
Part is likely to deliver a `windfall gain' in respect of a particular
generation asset.
6.20 Part 9, Division 5 provides that generation assets in respect of
which certificates of eligibility for coal-fired generation assistance are
issued must comply with the power system reliability test in order to be
issued with free Australian emissions units under this Part.
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Detailed explanation of new law
Important definitions used in this Part
6.21 Part 9 is based upon some key concepts defined in the bill.
Assistance under Part 9 is not provided in respect of a particular person,
such as the person making an application for assistance, but rather is
provided in respect of a collection of equipment used for the generation of
electricity known as a `generation asset'. The definition of a generation
asset [Part 1, clause 5, definition of `generation asset'], and the subsidiary
concepts of `generation unit' [Part 1, clause 5, definition of `generation unit'],
`generation complex' [Part 1, clause 5, definition of `generation complex'] and
`generation complex project' [Part 1, clause 5, definition of `generation complex
project'], is essential to understanding the scope of the operation of Part 9.
6.22 The concept of a generation asset [Part 1, clause 5, definition of
`generation asset'] is not the same as the concept of a `facility', which takes
its definition from the National Greenhouse and Energy Reporting Act
2007. Assistance under Part 9 is focused on coal-fired electricity
generators, which must meet certain eligibility criteria. However, a facility
under the National Greenhouse and Energy Reporting Act 2007 could
include, for example, the activities of a co-located coal-fired generator and
coal mine. For this reason, the separate definition of a `generation asset' is
used to capture those elements of a facility that may be eligible for coal-
fired generation assistance.
6.23 For operational reasons, equipment used for the generation of
electricity is often engineered such that, at a given location, there are
multiple sets of equipment that can generate electricity independently of
one another (although they may share some common infrastructure, such
as cooling systems or coal conveyor belts). Under the bill, each
independent set of equipment for the generation of equipment is known as
a `generation unit' [Part 1, clause 5, definition of `generation unit'], whilst one or
more generation units at the same location are known as a `generation
complex' [Part 1, clause 5, definition of `generation complex']. Assistance under
this Part is provided in respect of generation complexes rather than
generation units. There is no requirement on persons applying for
assistance under Part 9 to aggregate multiple generation units at the same
location together to form a single generation complex, although this may
be practical for various reasons. However, a person applying for
assistance under Part 9 should take into account the fact that each
generation unit in a generation complex must satisfy the eligibility criteria
in order for it to pass the generation asset assistance eligibility test in any
decision to aggregate multiple generation units to form a single generation
complex [Part 9, Division 3, clause 181(2)(a)].
6.24 Further, assistance under Part 9 is available to projects to
construct and commission new generation complexes that were fully
committed by their proponents as of 3 June 2007 (see 6.34 below).
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Accordingly, the bill provides the concept of a `generation complex
project' [Part 1, clause 5, definition of `generation complex project'], which is a
project to construct and commission a new generation complex. The
definition of a generation asset includes both generation complexes and
generation complex projects.
Applying for assistance
6.25 A person who wishes to apply to the Authority so that a
certificate of eligibility for coal-fired generation assistance is issued in
respect of a particular generation asset must do so within 180 days of the
commencement of the provision [Part 9, Division 3, clause 177(1)]. However,
the Authority may choose to extend the time limit for some applications
by up to an additional 30 days, provided the application submitted under
the extended time limit is mutually exclusive in its coverage of generation
units in comparison with all other applications [Part 9, Division 3, clause
177(8)]. Where an application is submitted after the time limit (whether
extended or not), it is not a valid application and the Authority will not be
able to issue a certificate of eligibility for coal-fired generation assistance
in relation to the generation asset in question.
6.26 Applications are made in respect of a generation asset, rather
than in respect of the person making the application [Part 9, Division 3, clause
177(1)]. This means that the act of applying for assistance does not entitle
the applicant to receive free Australian emissions units issued in respect of
a given generation asset. Instead, the recipient of assistance is defined by
reference to the relationship of a person to a generation asset, not by
reference to the person who applied for assistance, as provided for by [Part
9, Division 2, clause 176(6)].
6.27 Spurious applications from persons that do not own, operate or
control the generation asset in respect of which the application is made are
prevented [Part 9, Division 3, clauses 177(2)-(3)]. The concept of `owning,
controlling or operating' a generation asset is intended to have the same
meaning as the equivalent terms in laws relating to the regulation of
energy markets that require the registration of electricity generators. The
primary laws (and subordinate instruments) relating to the regulation of
energy markets that are likely to be relevant to the application of this Part
are:
· in relation to the National Electricity Market, the National
Electricity Rules as made and amended under Part 7 of the
Schedule to the National Electricity (South Australia) Act
1996 of South Australia and given force of law in other
jurisdictions through application legislation
· in relation to the Western Australian Wholesale Electricity
Market, the Wholesale Electricity Market Rules provided for
under section 123 of the Electricity Industry Act 2004 of
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Carbon Pollution Reduction Scheme Bill 2010
Western Australia and the Electricity Industry (Wholesale
Electricity Market) Regulations 2004.
6.28 Multiple applications cannot be made in respect of all or part of
a generation asset [Part 9, Division 3, clause 177(4)]. The recognition and
consideration of overlapping applications by the Authority could result in
an excessive issuance of certificates of eligibility for coal-fired generation
assistance and of annual assistance factors, and thereby deliver additional,
unwarranted assistance in respect of some generation assets.
6.29 An application for the issuance of free Australian emissions
units must satisfy a number of requirements [Part 9, Division 3, clause 178]. In
particular, applications in respect of a generation asset that entered service
after 1 July 2004 are required to provide an independent engineering
report [Part 9, Division 3, clauses 178(1)(f) and 178(3)]. This information is
required to assist in the Authority's assessment of the emissions intensity
of such an asset under [Part 9, Division 3, clause 182(4)].
6.30 Regulations may require particular information, documents or
prescribed reports to be provided with an application for coal-fired
generation assistance [Part 9, Division 3, clauses 178(1)(c)-(e)]. The Government
intends to make regulations requiring this information, and these
documents and prescribed reports, to include, amongst other things, an
assurance of the application by an appropriate audit firm and, where
applicable, particular documents relating to the generation asset's
emissions intensity as calculated for the purpose of policies such as the
Commonwealth Government's `Generator Efficiency Standards' program
and the New South Wales Government's Greenhouse Gas Reduction
Scheme. Information may also need to be verified by statutory declaration
[Part 9, Division 3, clause 178(2)]. This upfront provision of information will
assist the Authority in making timely and appropriate decisions on
applications.
6.31 Having received an application, the Authority may consider that
it requires additional information to properly assess it. The Authority is
able to require further information to assist its assessment [Part 9, Division 3,
clause 179]. The Authority must ensure that the information requested is
relevant to its consideration of the application and must exercise this
power reasonably [Part 26, clause 374B].
The Authority's assessment
6.32 Ordinarily, the Authority will use its best endeavours to make an
assessment within a 90 day period from the date of the application [Part 9,
Division 3, clause 180(4)(b)(i)]. However, the Authority is not required to make
any decision until after 210 days after the commencement of the relevant
legislation [Part 9, Division 3, clause 180(4)(b)(ii)]. This is because the
Authority cannot reasonably ensure that a given application is mutually
exclusive in its coverage of generation units until all valid applications
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have been received, which may not have occurred until 210 days after
commencement of the relevant legislation. Further, to ensure that the
Authority has sufficient time to make a decision, it can take an additional
90 days to make its decision on an application where additional
information has been requested [Part 9, Division 3, clause 180(4)(a)]. This may
be an iterative process where the Authority requests information more
than once to clarify the issues involved and the timeframe for the decision
is accordingly extended multiple times. Where more than one request for
information is made, this applies to the latest of those requests. However,
nothing prevents the Authority from making a decision before the end of
the standard or extended period where it is able to do so.
6.33 The Authority's assessment of an application involves two key
elements:
· determining the eligibility of the generation asset in respect
of which the application is made
· determining an annual assistance factor in respect of that
generation asset.
The annual assistance factor is crucial to determining the total number of
free Australian emissions units that will be issued in respect of that
generation asset in accordance with this Part.
Determining eligibility
6.34 The Authority must apply the generation asset assistance
eligibility test to decide whether to issue a certificate of eligibility for
coal-fired generation assistance [Part 9, Division 3, clauses 181(1) and 180(2)]. In
order to issue such a certificate, the Authority must be satisfied that a
generation asset passes this test in one of two ways:
· a generation complex must pass the test by demonstrating
that it was, broadly, `in operation' in June 2007 [Part 9,
Division 3, clause 181(2)]
· a generation complex project must pass the test by
demonstrating, broadly, that it was fully committed as of
3 June 2007 [Part 9, Division 3, clause 181(3)].
6.35 Assistance for coal-fired electricity generators under this Part is
provided to partially address significant declines in the asset values of
generation assets that were invested in before the Commonwealth
Government announcement of support for a scheme to reduce pollution
caused by emissions of carbon dioxide and other greenhouse gases [Part 9,
Division 1, clause 174]. As explained in 6.9 above, this point in time was
3 June 2007.
6.36 Therefore, the generation asset assistance eligibility test seeks to
determine whether a generation complex was `in operation' in June 2007,
or whether a generation complex project was `committed' to be
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constructed as of 3 June 2007. The use of the month of June 2007 for
generation complexes, in contrast to the date of 3 June 2007 for
generation complex projects, simply reflects the practicality of
determining whether a generation unit was in operation at any time during
that month, given that generation units that are `in operation' may be
offline for a period of time for various operational reasons.
6.37 Generation complex projects may receive assistance if, as of
3 June 2007, they were sufficiently committed that the project could not
have been substantially altered in response to the new information about
the Commonwealth Government's climate change policies that emerged at
that time. The Government considers that the definition of a `committed
project' from Rule 11.10A.1 of the National Electricity Rules, which sets
out criteria as to whether a generation project should be considered to be
fully committed by its proponent, is appropriate to replicate here for a
similar purpose [Part 9, Division 3, clause 181(3)(b)].
6.38 Some generation assets are capable of reducing emissions at
relatively low cost by substituting coal in their generation process with an
alternative lower-emissions fuel, such as natural gas. Accordingly, the
Government decided that these assets are not eligible for assistance. To
pass the generation asset assistance eligibility test, generation complexes
must use coal as their primary energy supply, as indicated by 95 per cent
of the electricity it generated in financial year 2006-07 having been
attributable to the combustion of coal [Part 9, Division 3, clause 181(2)(b)].
6.39 The Government has also determined that generation assets must
be connected to an electricity grid of a sufficient size that the asset could
be considered to be exposed to significant competition in order to warrant
assistance under the Electricity Sector Adjustment Scheme. Accordingly,
generation assets must be connected to a grid with a capacity of at least
100 megawatts in order to pass the generation asset assistance eligibility
test [Part 9, Division 3, clause 181(2)(c)]. The capacity of the grid used in the
bill is the same as the threshold size of an electricity grid used in the
Renewable Energy (Electricity) Act 2000 to determine those sales of
electricity that will be liable to the provisions of that Act. The method for
calculating the capacity of a grid used in the bill is also the same as under
the Renewable Energy (Electricity) Act 2000 and regulations made under
that Act, in that it excludes standby and privately-owned domestic
generation sources [Part 9, Division 3, clause 181(4)].
6.40 In relation to generation complex projects, the Authority must
make assessments of whether a particular generation asset proposed to use
coal as its primary energy supply as of 3 June 2007, and whether it was
proposed to be connected to an electricity grid of a sufficient size that it is
exposed to significant competition as of 3 June 2007 [Part 9, Division 3,
clauses 181(3)(c)-(d)].
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6.41 If the Authority refuses to issue a certificate of eligibility for
coal-fired generation assistance, the Authority must notify the applicant of
this decision [Part 9, Division 3, clause 180(5)].
Determining the annual assistance factor
6.42 A certificate of eligibility for coal-fired generation assistance
must include an annual assistance factor [Part 9, Division 3, clause 180(3)].
This factor is used to determine the correct number of Australian
emissions units to issue in respect of a particular generation asset [Part 9,
Division 2, clause 176(2)]. The annual assistance factor can be zero, in which
case no Australian emissions units would be issued in respect of that
generation asset, even though it passed the generation asset assistance
eligibility test.
6.43 The determination of an appropriate annual assistance factor
involves some estimation and uncertainty. Therefore, the bill specifies that
the annual assistance factor is the Authority's reasonable estimate of the
number calculated in accordance with this clause, rather than a precise
calculation of such a number [Part 9, Division 3, clause 182(1)].
6.44 The two key elements used in the formula to determine the
annual assistance factor for a generation asset are:
· its historical energy
· its emissions intensity.
[Part 9, Division 3, clause 182]
These elements are combined such that the annual assistance factor for a
generation asset is the product of its historical energy and the difference
between its emissions intensity in kilotonnes of carbon dioxide
equivalence of emissions per gigawatt hour of electricity and a `threshold'
level of emissions intensity of 0.86 kilotonnes of CO2-e per gigawatt hour
of electricity generated. The manner in which the figure of 0.86 kilotonnes
of CO2-e per gigawatt hour of electricity generated was reached was
described at pages 13-24 to 13-26 of the White Paper.
Historical energy
6.45 Ideally, the measure of historical energy used for a generation
asset would be its actual output over the three year period from 1 July
2004 to 30 June 2007. This measure is used for generation complexes that
entered service on or before 1 July 2004 [Part 9, Division 3, clause 182(1)(a)].
However, using this measure for generation assets that entered service
after 1 July 2004 would unfairly reduce their annual assistance factor, and
consequently the number of free Australian emissions units they receive.
Therefore, for generation complexes or generation complex projects that
entered service after 1 July 2004, the `nameplate rating' of the generation
asset is used to calculate a proxy for its likely energy output over a
notional three year period [Part 9, Division 3, clauses 182(1)(b)-(c)].
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Carbon Pollution Reduction Scheme Bill 2010
6.46 The nameplate rating of a generation asset is its maximum
continuous electrical generation capacity as registered with the
appropriate energy market operator [Part 1, clause 5, definition of `nameplate
rating']. Accordingly, the output of the asset can be estimated by
considering the likely `capacity factor' of the asset, that is, the percentage
of its maximum output that an asset produces on average over a period of
time. Multiplying the nameplate rating of the generation asset in
megawatts by 21.024 approximates the energy output (in gigawatt hours)
of such a generation asset over a notional three year period if it operates at
an 80 per cent capacity factor over that period, that is, if its average output
over the period is 80 per cent of its maximum output. The number 21.024
has been worked out by firstly calculating the number of hours in a three
year period, which is the number of days in a year (assuming it is not a
leap year), 365, multiplied by the number of hours in a day, 24, multiplied
by the number of years in the period, three. This number is then multiplied
by 0.8 to reflect the assumed 80 per cent capacity factor of the generation
asset. Lastly, this number is divided by 1000 to convert a number that
approximates the generation asset's output in megawatt hours to a number
that approximates its output in gigawatt hours, as required by the formula.
Emissions intensity
6.47 Broadly, the emissions intensity of a generation asset is the
emissions produced by the asset divided by the amount of electricity it
generates. These two elements of emissions intensity could be either
estimated from the historical performance of an asset or from its likely
future performance. Therefore, as for historical energy, the bill uses
different methods to estimate a generation asset's emissions intensity
depending on whether or not it had entered service on or before 1 July
2004.
6.48 For a generation asset that entered service on or before 1 July
2004, the emissions intensity is estimated by reference to the actual
emissions and actual energy output of the asset over the three year period
from 1 July 2004 to 30 June 2007 [Part 9, Division 3, clause 182(2)].
Importantly, these emissions must be `emitted from the combustion of
fuel in the generation complex' and therefore do not include, for example,
emissions from the combustion of fuel to operate mining equipment.
Further, the combustion of fuel must be for `the purposes of the
generation of electricity' and therefore does not include, for example,
emissions created for the purposes of the production of steam in a
cogeneration plant. The energy output of the generation asset, described as
the gigawatt hours of electricity generated, is exactly the same number as
in [Part 9, Division 3, clause 182(1)(a)].
6.49 For a generation asset (whether a generation complex or a
generation complex project) that entered service after 1 July 2004, the
Authority has a broad discretion to estimate its emissions intensity [Part 9,
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Division 3, clause 182(4)].
For example, the Authority might use design
documents to estimate the thermal efficiency of the generation asset, that
is, how efficiently it turns a quantity of fuel into electricity, and fuel
contracts to estimate the emissions released from the combustion of a
given quantity of the fuel used or intended to be used in the generation
asset. These two elements could allow the Authority to estimate the
theoretical emissions intensity of a generation asset, whether or not it has
yet entered service. These estimates should be supported by the
independent engineering report that is required to be provided with an
application in respect of a generation asset that entered service after
1 July 2004 [Part 9, Division 3, clause 178(1)(f)].
6.50 The Authority may have regard to an estimate of the emissions
intensity of the generation asset based on its actual performance during
the period it has been in service, but the Authority is not required to adopt
this estimate as the emissions intensity of the asset [Part 9, Division 3, clause
182(4)(c) and 182(5)]. If the period the asset has been in service is short,
estimates of emissions intensity based on this period may be misleading
due to the small sample size of measurements of, for example, coal
quality. Further, the initial period of operation of a new generation asset
can involve activities that might cause estimates of the asset's emissions
intensity over this period to be unrepresentative of its likely general level
of performance. For example, a generation asset's early period of
operation might involve testing the asset's ability to operate at output
levels above or below its most efficient level of operation, or starting and
stopping the asset an unusually high number of times. These uncertainties
support the high level of discretion afforded the Authority in estimating
emissions intensity in this circumstance. The Authority will weigh up the
strength and veracity of the information presented in the application and
its own analysis in making its decision.
6.51 The definition of emissions intensity used for generation assets
that entered service after 1 July 2004 differs from that used for generation
assets that entered service on or before 1 July 2004 in being non-specific
in the period of time over which the estimate is made [Part 9, Division 3,
clause 182(5)]. For example, if a generation asset entered service on
1 July 2005, the Authority may be able to estimate the emissions intensity
of the asset over a period of operation spanning from 1 July 2005 to
around 1 January 2010. However, for a generation asset that did not enter
service until 1 July 2008, the Authority may only have a period from
1 July 2008 to around 1 January 2010 from which to consider
performance data.
6.52 Where the Authority's estimate of emissions intensity is less
than 0.86, the emissions intensity used in the annual assistance factor
formula is taken to be 0.86 [Part 9, Division 3, clauses 182(3) and 182(6)]. This
means that the annual assistance factor for such a generation asset will be
zero and, in turn, that no free Australian emissions units will be issued to
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Carbon Pollution Reduction Scheme Bill 2010
such an asset under [Part 9, Division 2, clause 176(2)]. These provisions prevent
the calculation of an annual assistance factor that is below zero, which
would distort the allocation methodology applied under [Part 9, Division 2,
clause 176(2)].
How annual assistance factors are calculated
Example 6.1: A generation asset that entered service on or
before 1 July 2004
To estimate the historical energy of a generation asset that entered
service on or before 1 July 2004, the applicant should provide, and the
Authority should assess, historical data relating to the generation of
electricity by that generation asset over the period from 1 July 2004 to
30 June 2007. The Authority could verify this data through comparison
with data publicly available from independent bodies such as the
market operator in the market in which the generation asset operates.
For example, this investigation might find that the historical energy of
the generation asset over the three year period in question was
22,950 gigawatt hours.
To estimate the emissions intensity of a generation asset that entered
service on or before 1 July 2004, the applicant should provide, and the
Authority should assess, historical information relating to the coal
usage and coal quality of the generation asset over the period from
1 July 2004 to 30 June 2007. For example, this investigation might find
that the generation asset used approximately 28,500,000 tonnes of coal,
with an average energy content of 11 gigajoules per tonne. Historical
analyses of coal quality might indicate that the combustion of the coal
produced, on average, 0.093 tonnes of CO2-e per gigajoule of fuel
combusted. These estimates indicate that the generation asset produced
approximately (28 500,000 × 0.093 × 11) tonnes of CO2-e, or
29,155.5 kilotonnes of CO2-e, over the three year period in question.
Based on these estimates, the Authority's reasonable estimate of the
generation asset's emissions intensity would be 29,155.5 ÷ 22,950
kilotonnes of CO2-e per gigawatt hour, or 1.270 kilotonnes of
CO2-e per gigawatt hour.
Accordingly, the Authority would find the generation asset's annual
assistance factor to be 22,950 × (1.270 -- 0.86), or 9,409.500.
Example 6.2: A generation asset that entered service after
1 July 2004
To estimate the historical energy of a generation asset that entered
service after 1 July 2004, the applicant should provide the Authority
with the nameplate rating of the generation asset as registered with the
relevant market operator. For example, the generation asset's
nameplate rating might be 500 megawatts. This being the case, the
Authority would estimate the historical energy of the generation asset
over a notional three year period to be (500 × 21.024), or
10,512 gigawatt hours.
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To assist the Authority to estimate the emissions intensity of a
generation asset that entered service after 1 July 2004, the applicant
should provide an independent engineering report setting out an
estimate of the emissions intensity of the generation asset. This report
might show, and the Authority might verify, facts such as:
· the thermal efficiency of the generation asset, for example, that the
generation asset is, on average, capable of converting
11.5 gigajoules of fuel into 1 megawatt hour of electricity
· analyses of the quality of the coal that have been or will be supplied
to the generation asset under its established fuel contracts, for
example, that the combustion of this coal produces approximately
0.089 tonnes of CO2-e per gigajoule of fuel combusted.
The Authority can use estimates to calculate an estimated emissions
intensity of the generation asset. For example, the estimates above
would indicate that the generation asset in question would release
(11.5 × 0.089), or 1.024, tonnes of CO2-e per megawatt hour of
electricity generated. This is also equivalent to 1.024 kilotonnes of
CO2-e per gigawatt hour of electricity generated.
The Authority could verify these estimates by comparison with the
actual performance of the generation asset over its period of operation,
if this data is available over a sufficient period of time to offer reliable
and representative additional information.
Based on these estimates, the Authority would find the generation
asset's annual assistance factor to be 10,512 × (1.024 -- 0.86), or
1,723.968.
Issuing assistance
6.53 The Authority must decide whether or not to issue a certificate
of eligibility for coal-fired generation assistance in relation to each
individual application it receives and, if so, what the annual assistance
factor in the certificate should be [Part 9, Division 3, clause 180]. These
decisions are individually subject to the reconsideration and merits review
provisions of Part 24. In other words, the eligibility of, and annual
assistance factor calculated in respect of, each individual generation asset,
is determined independently of every other generation asset, and are
individually subject to the review processes in Part 24.
6.54 However, the number of free Australian emissions units that
should be issued in respect of a generation asset is a function of not only
the annual assistance factor specified in respect of that generation asset,
but also all other annual assistance factors specified in respect of all other
generation assets [Part 9, Division 2, clause 176(2)].
6.55 This is the case because the Authority must take the annual
assistance factor in each certificate of eligibility for coal-fired generation
assistance and divide it by the sum of all annual assistance factors in all
such certificates (the `total annual assistance factors for that eligible
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Carbon Pollution Reduction Scheme Bill 2010
financial year'). This number, which must be less than 1, is then
multiplied by the `generation assistance limit for that eligible financial
year' to determine the share of each year's pool of free Australian
emissions units that should be issued in respect of that generation asset for
that year (subject to the rounding provisions of [Part 9, Division 2,
clause 176(3)]).
6.56 In this way, the available pool of free Australian emissions units
per year is distributed amongst all eligible recipients of these units in each
of the first ten years of the Scheme, and the Government's policy of
`capping' the total number of free Australian emissions units to be issued
under the Electricity Sector Adjustment Scheme is achieved. Units will be
issued on 1 September in each of the first ten eligible financial years of
the Scheme [Part 9, Division 2, clause 176(2)].
Example 6.3: Calculating the number of free Australian
emissions units to issue to particular generation assets
Example 6.1 and Example 6.2 outlined the calculation of annual
assistance factors for two hypothetical generation assets. These
generation assets, which we shall call `Generation asset A' and
`Generation asset B', had annual assistance factors of 9 409.500 and
1 723.968 respectively.
Other generation assets are likely to be found to be eligible for
assistance, and to be issued certificates of eligibility for coal-fired
generation assistance containing annual assistance factors. For
example, these annual assistance factors, including those of Generation
asset A and Generation asset B, might add up to 69 100.000.
In this case, Generation asset A and Generation asset B would receive
the following number of free Australian emissions units in each of the
first, second, fourth and fifth years of assistance (provided they comply
with the power system reliability test and that the Minister has not
made a declaration in respect of those generation assets):
· Generation asset A = (9 409.500 ÷ 69 100.000) × 26,140,000
= 3 559 541.679
= 3 599 500 (after rounding)
· Generation asset B = (1 723.968 ÷ 69 100.000) × 26,140,000
= 652 163.871
= 652 200 (after rounding)
In the third year, the number of free Australian emissions units issued
to these generation assets would depend on the number of additional
units issued as a result of review events. In the event that no successful
reviews of annual assistance factors were concluded prior to
1 September 2013, these generation assets would receive the number
of units calculated above in the third year of assistance.
In the sixth, seventh, eighth, ninth and tenth years of the allocations to
Generation asset A and Generation asset B would be as follows
(provided they comply with the power system reliability test and that
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the Minister has not made a declaration in respect of those generation
assets):
· Generation asset A = (9 409.500 ÷ 69 100.000) × 19,600,000
= 2 668 975.398
= 2 669 000 (after rounding)
· Generation asset B = (1 723.968 ÷ 69 100.000) × 19,600,000
= 488 998.159
= 489 000 (after rounding)
6.57 Ordinarily, a review that changes the annual assistance factor
determined in respect of a generation asset would change the `total annual
assistance factors for that eligible financial year' and so would change the
number of free Australian emissions units that should have been issued in
respect of all other generation assets with a certificate of eligibility for
coal-fired generation assistance. This situation would create significant
uncertainty for recipients of assistance as it could, for example, involve
the relinquishment of incorrectly issued units to the Authority. To prevent
this circumstance from requiring alterations to all previous issuances of
assistance, the definition of the `total annual assistance factors for that
eligible financial year' includes certificates purportedly issued by the
Authority, that is, it includes annual assistance factors in certificates that
were found to have been issued incorrectly by the Authority through a
review process [Part 9, Division 2, clause 176(2)]. This means that the `total
annual assistance for that eligible financial year' cannot change after
1 September of each financial year and that previous issuances of
assistance to a given generation asset cannot be altered due to a review of
an annual assistance factor determined in respect of a different generation
asset.
6.58 However, a review could require the issuance of additional free
Australian emissions units in respect of the generation asset that was the
subject of the review. In this event, the fact that other allocations are not
adjusted could mean that the number of units issued in a given financial
year could exceed the Government's cap for that year. The Government
has committed to issue 228,700,000 free Australian emissions units over
the first ten years of the Scheme, with a different number of Australian
emissions units to be issued in each of the first five years of the Scheme
than will be issued in each of the sixth, seventh, eighth, ninth and tenth
years of the Scheme. The number of units to be issued (the generation
assistance limit for that eligible financial year) for the first, second, fourth
and fifth years of the Scheme is set at 26,140,000. Further, the number of
units to be issued (the generation assistance limit for that eligible financial
year) for the sixth, seventh, eighth, ninth and tenth years of the Scheme is
set at 19,600,000 [Part 9, Division 2, clause 176(2)]. However, the generation
assistance limit for that eligible financial year is adjusted in the third year
of the Scheme to ensure that the number of units issued over the first three
years of the Scheme does not exceed 78,420,000 (or three times
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Carbon Pollution Reduction Scheme Bill 2010
26,140,000) when taking into account the 26,140,000 units issued on each
of 1 September 2011 and 1 September 2012, and any additional units that
may have been issued as a result of a review [Part 9, Division 2, clauses 176(2)
and 176(4)]. The adjustment also takes into account units withheld as a
result of a generation complex failing the power system reliability test
[Part 9, Division 5, clause 188]. This adjustment mechanism ensures that the
Government's overall cap is not breached as a result of any reviews of
annual assistance factors that are resolved prior to 1 September 2013.
However, the Government's overall cap could be breached in the unlikely
event that a review of a generation asset's annual assistance factor did not
conclude until after 1 September 2013.
6.59 The Authority's allocation decisions under clause 176 are not
subject to the review processes in Part 24 as they simply involve the
mechanical application of a formula to determine the correct number of
free Australian emissions units to issue in respect of a particular
generation asset, and the correct application of the provisions that
determine the correct recipient of assistance in respect of that generation
asset [Part 9, Division 2, clause 176(6)]. Judicial review is available if, for
example, the incorrect number of units is issued in respect of a generation
asset or units are issued to the wrong recipient.
6.60 The Authority must publish each certificate of eligibility for
coal-fired generation assistance as soon as practicable after it is issued
[Part 9, Division 3, clause 180(6)]. This is important because, as outlined above,
the number of free Australian emissions units issued in respect of a
generation asset, is a function of not only the annual assistance factor
specified in the certificate of eligibility for coal-fired generation assistance
issued in respect of that asset, but also all other annual assistance factors
specified in respect of all other generation assets. Accordingly, the public
disclosure of the issue of all certificates of eligibility for coal-fired
generation assistance, and the annual assistance factors in those
certificates, is important to ensure that all potential recipients of assistance
have access to information that impacts on the allocation of units under
this Part.
6.61 Free Australian emissions units that are issued in respect of a
particular generation asset are issued to the entity that was liable for the
emissions created from the operation of that asset as of the end of the
previous financial year. To achieve this, it is assumed that the generation
asset was a facility, and that this facility created sufficient greenhouse gas
emissions to meet the Scheme's threshold for liability. The provisions of
the bill that determine liability for emissions under the Scheme are then
applied to identify the person who would be liable for the emissions from
the generation asset given those assumptions. This person is the recipient
of assistance [Part 9, Division 2, clause 176(6)]. In this way, the recipient of
assistance identified under this clause is one of three possible persons:
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· the controlling corporation of a group where one or more
members of the group has operational control of the
generation asset
· the non-group entity with operational control of the
generation asset
or
· the person with a liability transfer certificate in relation to the
facility that includes the generation asset (for example, a
company with financial control of the facility).
6.62 The issue of units under Part 9 is subject to all of the following:
· the person in receipt of those units must make a submission
to the Authority about whether or not the generation asset in
question is likely to receive a `windfall gain' (see below) due
to the provision of free Australian emissions units before
30 September 2017
· the generation asset must not be the subject to a windfall gain
declaration and a determination by the Minister following the
assessment of whether or not a windfall gain is likely
· the generation asset must comply with the power system
reliability test.
[Part 9, Division 2, clause 176(9)]
Windfall gain review
6.63 The issuance of free Australian emissions units in respect of any
given generation asset is subject to the provisions of Part 9, Division 4.
This Division implements the Government's policy that recipients of
coal-fired generation assistance must subject themselves to a review to
minimise the prospect of them receiving a `windfall gain' in respect of a
generation asset. This review applies individually to each generation asset
in respect of which free Australian emissions units are issued under this
Part.
6.64 The introduction of a scheme to reduce pollution caused by
emissions of carbon dioxide and other greenhouse gases would ordinarily
be expected to reduce the value of a generation asset that produces a large
amount of greenhouse gases. However, the introduction of such a scheme
could provide a generation asset with a `windfall gain' where, as part of
the introduction of the Scheme, the Government provides assistance in
respect of that asset and the value of the assistance exceeds the negative
impact of the introduction of the Scheme on the value of the asset.
6.65 However, it is impossible to precisely estimate the impact of the
introduction of the Scheme on the value of a generation asset. This is
particularly the case for projections of the likely impact of the Scheme on
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Carbon Pollution Reduction Scheme Bill 2010
a generation asset into the future, but also applies to estimations of the
impact of the Scheme on a generation asset made after the event as it can
be difficult to know in retrospect what would have occurred had the
Scheme never been introduced. These inherent uncertainties in the
windfall gain review are reflected in the design of the review as set out
below.
Decision-making process of the review
6.66 The decision-making structure of the windfall gain review
reflects the inherent uncertainty of the assessment at hand. The first step
of the process requires the Authority to apply the `windfall gain test' to
each generation asset in respect of which coal-fired generation assistance
is provided [Part 9, Division 4, clause 187]. This test essentially requires the
Authority to make an assessment of whether it is likely that the value of
assistance provided in respect of a given asset under the Part will exceed
the impact of the Scheme on the value of that asset (see 6.94 for more
detail). The test requires a judgement of a windfall gain being `likely',
because such an assessment will be probabilistic rather than deterministic
in nature. If the Authority is satisfied that a windfall gain is likely, that is,
the asset in question is assessed to pass the windfall gain test, the
Authority must make a `windfall gain declaration' in respect of that asset
[Part 9, Division 4, clause 186(2)(a)]. Conversely, if the Authority is not
satisfied that the generation asset passes the windfall gain test, the
Authority must refuse to make a windfall gain declaration [Part 9, Division 4,
clause 186(2)(b)].
6.67 The Authority must consult on a draft of any windfall gain
declaration, and consider any submissions received within the time limit
specified for consultation on this draft [Part 9, Division 4, clauses 186(3)(a)-(b)].
The time limit specified cannot be less than 30 days [Part 9, Division 4, clause
186(3A)]. The Authority is also required to consult with the Australian
Energy Regulator, Australian Energy Market Commission and appropriate
energy market operators, to ensure that it has accessed relevant energy
market expertise in making its assessments [Part 9, Division 4, clauses
186(3)(c)-(da)].
6.68 In deciding whether or not to make a windfall gain declaration,
the Authority may make such estimates and consider such matters as it
considers reasonable and relevant [Part 9, Division 4, clause 186(4)]. The
making of such estimates and consideration of such matters must be
relevant to the decision of the Authority under this section, namely the
Authority's consideration of whether or not a particular generation asset
passes or does not pass the windfall gain test, as provided for by [Part 9,
Division 4, clause 186(2)]. The Authority cannot make estimates and consider
matters not relevant to deciding whether or not the windfall gain test is
passed or not. For example, the Authority could not consider the effect of
the Scheme on the generation asset outside of the 15-year period specified
in the windfall gain test in clause 187.
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6.69 The Authority must provide a copy of a windfall gain
declaration and a report setting out the Authority's reasons for making the
declaration to the person who made a submission to the windfall gain
review in respect of that asset at least 14 days before providing the
declaration and report to the Minister, or publishing them [Part 9, Division 4,
clause 186(9)]. Amongst other things, this will give the affected person an
opportunity to request the Authority to remove commercial-in-confidence
information from the report, as provided for by [Part 9, Division 4,
clause 186(8)].
6.70 A decision to make a windfall gain declaration, or to refuse to
make a windfall gain declaration, in respect of a generation asset, is
subject to the review process in Part 24 of the bill. This allows affected
persons to fully argue their position in respect of whether a windfall gain
is likely to occur. The significance of a windfall gain declaration is also
such that clause 35(3)(b) of the Australian Climate Change Regulatory
Authority Bill 2010 prohibits such a decision from being delegated.
6.71 The bill clarifies that a windfall gain declaration is not a
legislative instrument, and is therefore not subject to Parliamentary
disallowance [Part 9, Division 4, clause 186(10)]. This is appropriate as a
windfall gain declaration is an administrative decision applicable to one
entity, rather than a legislative decision of general application. Further, a
windfall gain declaration is subject to both merits review (as noted above)
and judicial review (for example, as provided by the Administrative
Decisions (Judicial Review) Act 1977).
6.72 The second step of the windfall gain review provides the
Minister administering the Act with discretion to make, or not make, a
determination that halves the number of free Australian emissions units
that may be issued to a generation asset that is subject to a windfall gain
declaration during the final three years for which coal-fired generation
assistance is available [Part 9, Division 4, clause 183(1)]. However, the
Minister cannot make such a determination if a windfall gain declaration
is not in force in respect of this asset [Part 9, Division 4, clause 183(2)].
6.73 The broad discretion afforded the Minister reflects the need for
judgement as to whether withholding assistance under this clause
undermines the policy objective of providing assistance, or whether the
provision of only partial assistance for the remaining three years is likely
to prove effective in supporting that objective and withholding the
remaining portion is a necessary measure to avoid providing the
generation asset in question a windfall gain. As the Ministerial decision is
in effect another form of review of the Authority's finding, which already
has an extensive merits review process, it is inappropriate to subject it to
another merits review process. Judicial review is available in respect of
the Minister's decision, for example, as provided by the Administrative
Decisions (Judicial Review) Act 1977.
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Carbon Pollution Reduction Scheme Bill 2010
6.74 The bill clarifies that a determination made by the Minister
under this clause is not a legislative instrument, and is therefore not
subject to Parliamentary disallowance [Part 9, Division 4, clause 183(5)]. This
is appropriate as a determination is an administrative decision applicable
to one entity, rather than a legislative decision of general application.
6.75 If a windfall gain declaration is over-turned by a court or
through a review process under Part 24, the Minister must declare in
writing that the Act has effect as if the determination made or purportedly
made is revoked [Part 9, Division 4, clauses 184(1)-(2)].
6.76 Similar to determinations made under clause 183, the Ministerial
declaration is not a legislative instrument and is not subject to
Parliamentary disallowance [Part 9, Division 4, clause 184(3)].
6.77 A declaration made under clause 184(2) has the effect of
ensuring that the Australian emissions units that were withheld as a result
of a determination being made or purportedly made are issued 10 business
days after the declaration was made [Part 9, Division 4, clause 184A]. This
clause applies separately to each occasion on which a reduced number of
Australian emissions units are issued in respect of a generation asset. For
example, if a Ministerial determination was revoked on 1 December 2019,
it would apply twice: once in respect of the reduced allocation of
Australian emissions units issued on 1 September 2018 and a second time
in respect of the reduced allocation issued on 1 September 2019.
6.78 The number of Australian emissions units issued under this
clause is equal to the reduced number of free Australian emissions units
that were issued [Part 9, Division 4, clause 184A(2)]. This ensures that a further
50 per cent of the allocation is issued under clause 184A, returning the
allocation to the full number of Australian emissions units that would
have been issued had the determination not been made or purportedly
made.
6.79 The Australian emissions units issued under this clause will have
a vintage year of the year in which they are issued [Part 9, Division 4, clause
184A(3)]. This is necessary because Australian emissions units may be
issued under clause 184A after the last auction of Australian emissions
units of the vintage year of the eligible financial year in which the reduced
number of Australian emissions units were issued.
6.80 For example, if a reduced number of Australian emissions units
were issued on 1 September 2018, and a Ministerial determination was
revoked on 1 January 2020, it is unlikely that there would be any
Australian emissions units of the eligible financial year beginning on
1 July 2018 remaining for issue. Therefore, the Authority would need to
issue Australian emissions units with a vintage year of the eligible
financial year beginning on 1 July 2019.
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6.81 This provision will ensure that the Authority complies with
requirements relating to the total number of Australian emissions units of
a particular vintage year that are auctioned or issued [Part 4, Division 2,
Subdivision A, clause 93].
6.82 This provision cannot result in a double entitlement to free
Australian emissions units [Part 9, Division 4, clause 184A(6)].
The effect of the review
6.83 The effect of a windfall gain declaration being made in respect
of a generation asset is that the number of Australian emissions units
available to be issued in respect of that asset is halved for the last three of
the ten years for which assistance is provided under this Part [Part 9,
Division 4, clause 183(1)].
6.84 This design of the windfall gain review supports energy security
by ensuring that generators will have some incentive to comply with the
power system reliability test for the ten year period over which assistance
is delivered under this Part, even if the incentive is reduced in the last
three years due to a determination having been made in respect of a given
generation asset.
6.85 Part 9, Division 4 provides for only two distinct outcomes: if a
Ministerial determination is made under clause 183, the number of units
must be halved for all of the final three years for which assistance is
available; alternatively, if a determination is not made, the full number of
units is available for all these years (subject to the power system reliability
test). In other words, the windfall gain review does not provide for a
spectrum of outcomes, such as allowing the number of units provided to
be halved for only one or two years. The windfall gain review is not
designed to allow the amount of assistance that is withheld to be
calibrated closely to the particular circumstances of a particular generation
asset. Designing the review in this way would not reflect the inherent
uncertainty in the extent of lost value for a given asset, and therefore the
uncertain amount of assistance that would offset this loss whilst avoiding
a windfall gain. Further, the intent of providing coal-fired generation
assistance was not to fully offset losses in asset value, but to partially
offset extreme losses in order to support investor confidence in the sector.
Within this context, the Minister will be able to consider, in respect of
each individual generation asset, whether withholding the full amount of
Australian emissions units that are subject to the review is appropriate
where this will mean that the assistance provided falls significantly short
of the loss of value in respect of that asset.
Information for the purposes of the review
6.86 The person issued units on 1 September 2017 must make a
submission to the Authority about whether or not a windfall gain is likely
[Part 9, Division 4, clauses 185(1)-(2)]. This is to be in a form approved by the
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Carbon Pollution Reduction Scheme Bill 2010
Authority and containing information and documents specified by the
Authority in a legislative instrument [Part 9, Division 4, clause 185(3)]. The
Authority is best placed to determine what information is required to
apply the windfall gain test and so has been delegated the responsibility
for setting these out in a legislative instrument. The Legislative
Instruments Act 2003 contains relevant provisions which govern the
making of these instruments, including the consultation requirements set
out in Part 3 of that Act.
6.87 While it will be important for the Authority to take into account
information from recipients of assistance and consider their views on the
likelihood of their generation assets receiving a windfall gain, it is
unlikely that this legislative instrument will require submissions to include
the outcomes of a modelling exercise indicating the likelihood of a
windfall gain. Many of the parameters affecting the likelihood of a
windfall gain for a given generation asset will be common to many
generation assets, such as the level of carbon prices or electricity prices.
As outlined below in 6.89, the implementation of the windfall gain test
may be best applied through a common modelling exercise undertaken by
the Authority in respect of all generation assets, rather than through
various separate modelling exercises undertaken by recipients of
assistance. The latter approach would involve inconsistent assumptions
and methodologies between generation assets, creating issues of fairness
in terms of how the windfall gain test was applied between different
generation assets.
6.88 The Authority will also be able to draw upon information from
other regulatory bodies, such as the Australian Energy Regulator, through
its information sharing provisions.
6.89 Failure to make a submission that complies with the necessary
requirements will result in all assistance being withheld for the remaining
three years of the Electricity Sector Adjustment Scheme [Part 9, Division 4,
clause 185(4)].
The windfall gain test
6.90 As set out above, the windfall gain test essentially requires the
Authority to make an assessment of whether it is likely that the value of
assistance provided in respect of a given generation asset under the Part
will exceed the loss of value experienced by that asset under the Scheme.
6.91 The extent of any loss of asset value experienced under the
Scheme must be assessed through a `with or without analysis', that is, an
analysis that looks at the value of the asset under the Scheme and its value
in the event the Scheme was not implemented. The value of an asset can
be determined by looking at the revenue the asset is likely to earn over the
period in question from generating electricity, and costs the asset is likely
to incur in generating that electricity. The difference between the revenue
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earned by an asset and the costs it occurs in operating are described as the
asset's `net revenue' throughout Part 9, Division 4.
6.92 The Authority is likely to perform this analysis through detailed
modelling of the electricity generation sector. Typically this modelling
involves simulating the behaviour of existing and hypothetical new
entrant generators in the wholesale electricity market under various
conditions. These conditions could include different demand scenarios,
different scenarios for the price of various inputs to the generation process
(such as the cost of coal or natural gas, or the capital cost of new
generating equipment) or scenarios based on different projected carbon
prices (including a projection of an absence of any carbon price).
Sensitivity testing of different assumptions, or the use of different models
employing the same assumptions, can be used to analyse the range of
plausible outcomes in the electricity market under different circumstances,
and give indications of the likelihood of different scenarios. Necessarily
such an analysis requires a simplification of the real technical and
commercial constraints on the behaviour of existing and new generators in
the electricity market, and so can only give a broad simulation of the
impact of different scenarios on a given commercial entity.
6.93 The Authority must perform the analysis over a 15 year period
beginning on 1 July 2011 [Part 9, Division 4, clauses 187(4)-(7)]. Accordingly,
this analysis will encompass both a historical period (that is, the period
from 1 July 2011 until the analysis is performed in 2017 or 2018), and a
future period (that is the period from 2017 or 2018 until 30 June 2025).
The modelling of future periods necessarily involves simulating possible
future outcomes for generators, such as their output, the costs they incur in
operating and the general level of electricity prices they can earn in the
electricity market. By contrast, modelling equivalent outcomes for a
historical period of time could involve simulating hypothetical outcomes
using known parameters, or could involve using observed data in place of
modelling where possible. However, not all data relevant to the windfall
gain test will be available for a given historical period of time. For
example, whilst the actual electricity output of a generator might be
known for a historical period, the costs incurred by the generator in
producing that output may not be. In practice, it is possible that the
Authority will use a combination of observed inputs (such as the observed
level of electricity and carbon prices) and modelling simulations to apply
the windfall gain test to a historical period. Using modelling to simulate
outcomes for generators over a historical period also reduces the risk that
the windfall gains test will provide incentives for generators to alter their
behaviour in that period to alter the outcome of the test.
6.94 To undertake the windfall gain test, the Authority must firstly
determine the value of the projected net revenue from the operation of the
generation asset, or the proposed generation complex, during the 15-year
period beginning on 1 July 2011 [Part 9, Division 4, clauses 187(4)-(7)]. This
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Carbon Pollution Reduction Scheme Bill 2010
analysis requires the Authority to look at the projected net revenue of the
generation asset or proposed generation complex under known policy
settings, such as the fact that the bill has been enacted to implement the
Scheme and that the Renewable Energy (Electricity) Act 2000 was
amended on 20 August 2009 to implement the Government's expanded
national Renewable Energy Target. By contrast, the alternative case
requires the Authority to assume that the bill was never enacted and that
the Renewable Energy (Electricity) Act 2000 as in force at the start of
3 June 2007 was never amended [Part 9, Division 4, clauses 187(4)-(7)]. In this
way, the windfall gain test is structured to take into account the effect of
both the Scheme and the expanded national Renewable Energy Target on
generation assets. The difference between these two scenarios will
determine whether a generation asset experiences a projected long-term
net revenue loss or a projected long-term net revenue gain. As noted
earlier, given the inherent uncertainties involved in such an analysis, the
Authority's assessments of the extent of a projected long-term net revenue
loss or a projected long-term net revenue gain should be broad and
probabilistic, rather than involving the calculation of a single, precise
value.
6.95 It is possible that the cost impact of the Scheme on a relatively
less emissions-intensive coal-fired generator could be smaller than the
increase in revenue enjoyed by that generator under the Scheme as its
competitors face relatively larger increases in costs. This circumstance
would result in an increase in the value of the asset under the Scheme. It is
also possible that the increase in revenue enjoyed by a generator is
approximately the same as the cost impact it faces, and that the asset is
essentially indifferent to the introduction of the Scheme. Under these
circumstances, a generation asset can be considered to experience a
projected long-term net revenue gain as a result of the Scheme, and the
provision of any assistance in respect of this asset can be considered to
constitute a windfall gain. Accordingly, the Authority must firstly
determine whether a generation asset (whether a generation complex or a
generation complex project) is likely to experience a projected long-term
net revenue gain [Part 9, Division 4, clauses 187(6)-(7)]. Where an asset is likely
to enjoy a `projected long-term net revenue gain' under the Scheme, the
asset is deemed to pass the windfall gain test [Part 9, Division 4,
clause 187(2)(b)].
6.96 Conversely, where the cost impact of the Scheme on a coal-fired
generator is greater than the increase in revenue it enjoys under the
Scheme, that generator faces a `projected long-term net revenue loss'. The
Authority must determine both whether a projected long-term net revenue
loss is likely to occur for a generation asset (whether a generation
complex or a generation complex project), and the extent of that projected
long-term net revenue loss [Part 9, Division 4, clauses 187(4)-(5)].
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6.97 Where an asset faces a projected long-term net revenue loss
under the Scheme, the outcome of the windfall gain test relies on a
comparison of the extent of this loss with the `total value of assistance'
provided in respect of that asset. The total value of assistance includes the
value of assistance that has not yet been provided but will be provided
subject to the windfall gain review [Part 9, Division 4, clause 187(3)]. If it is
likely that the total value of assistance will exceed the projected long-term
net revenue loss, the generation asset is deemed to pass the windfall gain
test and the Authority must make a windfall gain declaration in respect of
that asset [Part 9, Division 4, clause 186(2)(a)]. This generation asset is then
subject to the Minister's power to make a determination withholding a
portion of the Australian emissions units that could be issued in respect of
that asset. As noted earlier, the effect of such a determination is to
withhold all units that are subject to the review, which reflects the policy
intent that providing coal-fired generation assistance was not to fully
offset losses in asset value. The Government considers that partially
offsetting extreme losses in asset value is sufficient to support investor
confidence in the electricity generation sector.
6.98 The windfall gains test focuses on projected long-term net
revenue losses and gains in respect of generation assets. For reasons of
fairness, it is important that the Authority will focus on the costs incurred
by and revenue available to generation assets, as opposed to the costs
incurred by and revenue available to the owners of generation assets.
Owners of generation assets (`equity-holders') will typically hold loans on
these generation assets, and therefore a cost incurred by equity-holders
includes interest payments made to creditors. Accordingly, the net
revenue earned by generation assets will be apportioned between
providing a return to equity-holders (profit) and to make interest payments
and repaying the principal of these loans. However, the profit earned by
equity-holders will vary according to the level of debt held on an asset and
the rate of interest charged on those loans, and may not be able to be fairly
compared between assets for the purpose of a transparent and equitable
application of the windfall gain test. Further, capital structures change
over time for a range of reasons, and it would be problematic to assume
either a constant capital structure over the period assessed under the
windfall gain test, or to make assumptions about what capital structure
may have applied to a generation asset in the absence of the Scheme being
implemented. These choices could bias the outcome of the review if it
focused only on the impact of the Scheme on returns to equity-holders,
rather than on the net revenue available to the generation asset itself (and
ignoring the distribution of that net revenue between creditors and equity-
holders). Accordingly, the windfall gain test should only be applied to
generation assets, and not look at particular impacts on equity-holders or
creditors.
6.99 The total value of assistance provided in respect of a generation
asset and the extent of a projected long-term net revenue loss or projected
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long-term net revenue gain must be calculated in `net present value'
terms. That is, these losses or gains in value might occur at different
points in time, and accordingly have a different impact on a notional
investor. For example, a cost borne or a benefit received today has a
greater impact on a notional investor than one borne or received in the
future, as the money lost or received could be used for or deprived from
an alternative purpose that provides a stream of benefits over time. To
truly compare the impact of these changes in value on a notional investor,
a net present value analysis `discounts' costs and benefits that occur over
a period of time to their value at the `present' time. This calculation
involves both a `discount rate' and a point in time to use as the present. In
this context, a discount rate is the extent to which a notional investor
prefers to receive a benefit or avoid a cost today rather than in the future,
so it can use the money received or cost avoided to make a new
investment earlier rather than later, and earn a return on that investment
earlier rather than later. To give greater certainty as to how these different
elements of the net present value calculation will be performed, the
Authority must publish a legislative instrument setting this out [Part 9,
Division 4, clause 187(8)(a)].
6.100 Similarly, the Authority must set out how it will determine the
market value and the projected market value of Australian emissions units
[Part 9, Division 4, clauses 187(8)(a)-(b)], to clarify its calculation of the total
value of assistance and to estimate the impact of the Scheme on the
operating costs of generation assets. For example, the instrument might set
out how the Authority will use data relating to the trading of Australian
emissions units on a public exchange to determine the market value or
projected market value of these units. Finally, the Authority must set out
how it will determine net revenue and projected net revenue for the
purposes of determining whether there is a projected long-term net
revenue loss or projected long-term net revenue gain for an asset. For
example, this instrument might set out what costs will be deducted from
the revenue of a generation asset to determine its net revenue or projected
net revenue.
6.101 The Government has decided that the Authority's considerations
in the windfall gain test should incorporate the effect of contracts entered
into prior to 3 June 2007. Such contracts, where they allow a generation
asset to pass a greater portion of its costs under the Scheme onto its
customers than its economic position in the market might otherwise allow,
could increase the likelihood of a generator receiving a windfall gain
through the Electricity Sector Adjustment Scheme. Accordingly, the
legislative instrument will set out how the Authority must take these
contracts into account when setting out how it will calculate the net
revenue or projected net revenue of generation assets [Part 9, Division 4,
clause 187(9)]. The Government expects that this instrument will set out
how the Authority will assess the extent of carbon cost pass through under
particular contracts, and adjust the net revenue and projected net revenue
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calculations for generation assets in light of this and other elements of
contracts.
6.102 However, the extent of the matter is limited to the specific
consideration of individual contracts entered into before 3 June 2007. The
Authority could take into account the general market value of electricity
sold by generators in assessing the net revenue and projected net revenue
of generators under the windfall gain test. This assessment could be
informed by considering prevailing prices for electricity reflected in hedge
contracts or direct supply contracts entered into after 3 June 2007.
However, such contracts have been, and will be, made with full
knowledge of the potential impact of the Scheme on the respective parties
to the contract. The intent is that the Authority does not take into account
the specific terms of individual contracts entered into after 3 June 2007,
but is not prevented from considering the general level of electricity prices
as revealed through activity in markets for hedge contracts or direct
supply contracts. This approach does not give generators an incentive to
enter into disadvantageous or perverse contractual arrangements to distort
the effect of the windfall gain review, whilst allowing the Authority to
generally consider revealed prices in contract markets as a useful input
into its assessments of net revenue and projected net revenue.
6.103 To ensure proper consultation on this legislative instrument, the
Authority is required to publish a draft and invite submissions [Part 9,
Division 4, clause 187(10)]. The Authority is also required to consider
submissions provided within the time limit specified for consultation,
which must not be less than 30 days [Part 9, Division 4, clauses 187(10)(b) and
187(11)]. To give sufficient time for applicants to consider these matters
before making a submission (which must occur by 30 September 2017),
the Authority must take all reasonable steps to ensure that the draft and
final instruments are published before 1 January 2017 and 1 July 2017
respectively [Part 9, Division 4, clause 187(12)].
6.104 The nature of this legislative instrument is that it sets out a
manner in which certain values and parameters must be calculated by the
Authority. It is not intended that the instrument would set out the value
that the Authority will use as the market value or projected market value
of Australian emissions units over the period of the test. Instead, the
instrument should set out a manner in which this value is to be
determined. Similarly, the instrument should set out a manner in which
the Authority will calculate the net revenue or projected net revenue for
various generation assets, but should not set out a value for the net
revenue or projected net revenue of a given generation asset in the
instrument. In relation to net present value calculations, it is possible that
the instrument might set out not only the mathematical formula the
Authority will use to discount a stream of costs and benefits over time to a
net present value, but also the discount rate it will apply when doing so.
This would be appropriate as, for reasons of fairness, the discount rate
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applied should be consistent for all generation assets. Given the
consultation requirements in place, this legislative instrument would
appear to be an appropriate method by which the Authority may
determine and set out the discount rate to apply in the windfall gain test in
a transparent and up-front manner.
6.105 If, in undertaking a windfall gain test, the Authority took into
account the fact that the owner of a generation asset had, for example,
modified the asset to improve its efficiency, or planned to do so, its
calculation of the projected long-term net revenue loss of the asset would
be likely to be lower (reflecting its improved efficiency) and therefore
would be more likely to be less than the total value of assistance provided
in respect of that asset. Therefore, if actual, planned or possible upgrades
to generation assets were taken into account as part of the windfall gain
test, the test itself would discourage efficiency improvements or other
modifications to generation assets that might reduce emissions of
greenhouse gases. This, in turn, would undermine the overall objective of
the Scheme. Therefore, the Authority is required to not take these into
account in undertaking the windfall gain test [Part 9, Division 4,
clauses 187(13)-(14)].
6.106 In undertaking the windfall gain test, the Authority is required to
assume that all Australian emissions units are issued in respect of each
generation asset [Part 9, Division 4, clause 187(15)]. This is because the
windfall gain test is designed to consider what the impact of the Scheme,
and the assistance provided under this Part, would be if the full amount of
Australian emissions units available in respect of each generation asset
were issued to that asset. The windfall gain test is not designed to consider
what would happen in the event that units are withheld under the windfall
gain review or the power system reliability test (which is set out in Part 9,
Division 5). If this approach were adopted, the windfall gain review
would become circular.
Power system reliability test
6.107 The Government has designed the provision of assistance to
coal-fired generators under this Part in a way that minimises the risk of
recipients altering their future production decisions in response to the
provision of assistance. However, to protect energy security over the first
ten years of the operation of the Scheme, the Government has imposed
conditions on the provision of assistance. This conditionality is designed
to reduce the risk of unexpected behaviour from owners, controllers or
operators of generation assets (or their creditors) from affecting the
reliability of supply in Australia's electricity markets. An example of such
unexpected behaviour might be where a reduction in asset value of a
generator causes its creditors to force it to shut down even though it is still
required to operate to maintain sufficient supply in an electricity market.
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6.108 Part 9, Division 5 requires generation assets to comply with the
`power system reliability test' in order to receive assistance available
under this Part. In this way, the power system reliability test uses the
value of Australian emissions units available under this Part to influence
the decisions of some owners, operators or controllers of generation assets
in respect of which assistance is available about when to withdraw
generating capacity from Australia's electricity markets, in order to
promote the secure supply of electricity. Depending on circumstances in
the electricity market, a decision to withdraw generating capacity from a
market could affect energy security by reducing the maximum amount of
electricity that can be generated and supplied below the level that is
required to reliably meet peak demand. Accordingly, the power system
reliability test focuses on changes to a generation complex's `nameplate
rating' because the reliability of a power system depends, in part, on the
maximum continuous electrical output of all the generators connected to
the system being sufficient to supply the maximum likely demand for
electricity within the system, whilst also allowing for contingencies such
as malfunctions of generators and technical constraints on the safe
operation of the system.
6.109 The power system reliability test is structured around concepts
and processes established outside the bill in laws relating to the regulation
of energy markets. The primary laws (and instruments made under those
laws) that are likely to be applied in the Authority's assessments of the
power system reliability test are:
· in relation to the National Electricity Market, the National
Electricity Rules
· in relation to the Western Australian Wholesale Electricity
Market, the Wholesale Electricity Market Rules.
6.110 These laws require generators to register with the operator of the
energy market in which they operate. Rule 2.2 of the National Electricity
Rules requires the person who engages in the activity of owning,
controlling or operating a generator in the National Electricity Market to
register with the Australian Energy Market Operator (AEMO), unless it is
the subject of an exemption. Similarly, Regulations 14 and 19 of Western
Australia's Electricity Industry (Wholesale Electricity Market)
Regulations 2004 require a person who engages in the activity of owning,
controlling or operating a generator in the Western Australian Wholesale
Electricity Market to register with the Independent Market Operator of
Western Australia, subject to exemptions and a minimum capacity
requirement. Registration as a generator under these two laws requires
compliance with a range of technical and operational conditions. In turn,
compliance with these conditions supports the reliable and safe operation
of the National Electricity Market and Western Australian Wholesale
Electricity Market, and gives the respective energy market operators
powers necessary to manage system security.
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6.111 Accordingly, by using the value of assistance available under
this Part to create incentives that influence the decision of a recipient of
assistance to cease its registration as a generator, or reduce its nameplate
rating, the power system reliability test supports the reliable and safe
operation of the National Electricity Market and Western Australian
Wholesale Electricity Market. A generation complex's nameplate rating is
defined in the bill as its maximum continuous electrical output in
megawatts of the generation complex, as registered with the appropriate
energy market operator. The National Electricity Rules and the Western
Australian Wholesale Electricity Market Rules require registered
generators to register various parameters relating to the generating
capacity of their various generation units and generation complexes. Of
these various parameters, the Authority will need to determine which
registered parameter most closely fits the definition of the nameplate
rating in the bill, and therefore which parameter must be considered when
applying the power system reliability test. Where a particular parameter is
provided in relation to individual generation units, the various values
might need to be aggregated to the level of the generation complex in
respect of which assistance is provided for the purpose of the power
system reliability test.
6.112 For example, Schedule 3.1 of the National Electricity Rules
requires a person classified as a scheduled generator to register the `full
load' in megawatts for each `generating unit', and the `total station
registered capacity' in megawatts for a `power station' with AEMO.
Either of these parameters could be considered by the Authority to be the
nameplate rating of a generation complex (although the full generating
load of a generating unit may need to be aggregated to be consistent with
the boundaries of the generation complex in question). Whilst the
National Electricity Rules separately defines the concept of a `nameplate
rating', this parameter is not registered with AEMO under the National
Electricity Rules, and so would not fit the definition of a nameplate rating
under the bill. Clause (b)(ii) of Appendix 1 of the Western Australian
Wholesale Electricity Market Rules requires a scheduled generator to
register its nameplate capacity in megawatts with the Independent Market
Operator of Western Australia. The nameplate capacity registered in this
way could be considered by the Authority to be the nameplate rating of a
generation complex, once appropriately aggregated.
6.113 The power system reliability test does not apply to generation
complex projects [Part 9, Division 5, clause 188(1)(b)]. Assistance can be
provided in respect of generation assets that were generation complex
projects as of 3 June 2007. However, a generation asset that was a
generation complex project as of 3 June 2007 may, at some later point in
time, become a generation complex (when the project to construct and
commission the generation complex is completed). Therefore, it may be
that a generation asset that was a generation complex project as of 3 June
2007 has become a generation complex as of 1 September 2011, or as of 1
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September as of a subsequent year when the power system reliability test
is applied. In that event, the power system reliability test would apply to
that asset on that date.
6.114 Free Australian emissions units are not to be issued in respect of
a generation complex where it does not meet the power system reliability
test [Part 9, Division 5, clause 188(2)]. This test must be applied to each
generation complex individually each time Australian emissions units are
issued in respect of that asset [Part 9, Division 2, clauses 176(2) and 176(9)].
6.115 A generation complex can pass the power system reliability test
in three broad ways:
· The nameplate rating of the generation complex is not
reduced over time, meaning that it continues to contribute to
power system reliability
· The nameplate rating of the generation complex is reduced
over time, but the appropriate energy market operator
certifies that, despite these reductions, there is unlikely to be
a breach of relevant power system reliability standards within
two years (the `certification approach')
· The nameplate of the generation complex is reduced, but the
person that is registered as a generator in respect of that
generation complex also constructs new `replacement
capacity' that complies with relevant requirements set out in
the bill and regulations (using the `Low Emissions Transition
Incentive').
6.116 A generation complex passes the power system reliability test if
the nameplate rating of that generation complex remains the same as, or
exceeds, the level it was on 3 June 2007 or when it was first registered
[Part 9, Division 5, clauses 189(2)(a)-(b)]. Under this circumstance, the
generation complex in respect of which assistance is provided under this
Part has not reduced its maximum continuous generation capacity, and so
has not reduced its ability to contribute to satisfying the maximum likely
demand for electricity within the system. Further, the generation complex
that is registered with this capacity is, through the act of remaining
registered, required to comply with technical and operational requirements
that improve the likelihood that it will be physically capable of supplying
that amount of electricity at times of high demand when it is most
required. Therefore, breaches of relevant power system reliability
standards cannot be reasonably attributed to the actions of generation
complexes that comply with these clauses, but are more likely to be due to
insufficient investment in new generation capacity to satisfy growth in
demand for electricity.
The certification approach
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6.117 It is possible that the Scheme will change the relative cost of
different generators within a given energy market such that the owner,
operator or controller of a generation complex will seek to retire all or part
of that generation complex from service. Generally such a retirement is
necessary to ensure a gradual transition to a lower emissions electricity
generation sector. However, such a retirement would be concerning if it
were to be likely to lead to a breach of relevant power system reliability
standards, and thereby jeopardise energy security.
6.118 Given this, the certification approach to passing the power
system reliability test allows a generator to reduce the nameplate rating of
a generation complex where there is unlikely to be a breach of relevant
power system reliability standards within two years after that event, taking
into account the reduction in generation capacity from the generation
complex in question [Part 9, Division 5, clause 189(2)(c)]. The power system
reliability test also allows a generator to cease its registration where there
is unlikely to be a breach of relevant power system reliability standards
applicable to the energy market in which it operates within two years,
taking into account the removal of the generation capacity of the
generation complex in question from the market [Part 9, Division 5, clause
189(2)(d)].
6.119 Both the National Electricity Rules and the Western Australian
Wholesale Electricity Market Rules set out various power system
reliability standards that assess the likelihood of the system being able to
satisfy the maximum likely demand within the system. However, not all
of these power system reliability standards will be relevant to an
assessment of whether a change in the nameplate rating of a generation
complex will affect energy security. Assessing whether the reduction in
the nameplate rating of a generation complex is likely to breach power
system reliability standards, and which power system reliability standards
are relevant to that assessment, are best performed by the appropriate
energy market operator, that is, AEMO as the energy market operator in
relation to the National Electricity Market and the Independent Market
Operator of Western Australia in relation to the Western Australian
Wholesale Electricity Market, rather than the Authority. For this reason,
the Authority is required to rely on an appropriate certification by the
appropriate energy market operator, rather than on its own judgement of
the circumstances [Part 9, Division 5, clauses 189(2)(c)-(d)]. These provisions
require owners, operators or controllers of generation assets in respect of
which assistance is provided to obtain appropriate documentation from the
Australian Energy Market Operator or the Independent Market Operator
of Western Australia to the satisfaction of the Authority in the event that
they wish to cease their registration as a generator or reduce the nameplate
rating of a generation complex.
6.120 A person who owns, controls or operates a generation complex
may apply to the appropriate energy market operator for a certification to
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the effect that a reduction in the generation complex's nameplate rating, or
a cessation of its registration, would pass the power system reliability test
[Part 9, Division 5, clauses 189A and 189B]. The appropriate energy market
operator may consider a range of power system reliability standards that
might be affected by a reduction in a generation complex's nameplate
rating, or the cessation of a generator's registration, in considering
whether to provide such a certification and make a judgement as to which
power system reliability standards are relevant to the assessment because
they are directly impacted by changes to the nameplate rating of the
generation complex in question. The appropriate energy market operator
may choose not to certify positively or negatively in response to the
application. If, within 120 days after the application, the appropriate
energy market operator has not certified positively or negatively in
response to the application, the Authority must take the energy market
operator to have certified that the reduction or cessation is unlikely to
breach relevant power system reliability standards within two years of the
reduction or cessation [Part 9, Division 5, clauses 189A(4) and 189B(4)]. This
places an effective time limit on the considerations of the appropriate
energy market operator, giving recipients of assistance certainty that their
applications for certifications in respect of the power system reliability
test will be considered in a timely manner.
6.121 Nothing prevents a person who owns, controls or operates a
generation complex from applying to the appropriate energy market
operator for a certification in writing after a reduction in a generation
complex's nameplate rating has already taken place, or after a cessation of
its registration has occurred. However, if the certification is not received
before 1 September of a given eligible financial year, that person would
face the risk that Australian emissions units available to be issued in that
year in respect of the generation complex in question might be withheld
under the power system reliability test.
The Low Emissions Transition Incentive
6.122 As an alternative to the certification approach, a generator may
also seek to reduce the registered capacity of a generation complex, or
cease its registration, using the Low Emissions Transition Incentive. This
approach allows recipients of Electricity Sector Adjustment Scheme
assistance to invest in new low emissions replacement capacity whilst
continuing to receive the available assistance. It sharpens incentives for
these generators to undertake such investments by allowing them to
receive direct credit when assessing compliance with the power system
reliability test. This approach allows Electricity Sector Adjustment
Scheme recipients to retire existing emissions-intensive generation
capacity without relying on a certification from the appropriate energy
market operator, which takes into account a range of factors in the energy
market that are beyond the control of the recipient of assistance (such as
growth in demand and retirement of other generation units). As a result,
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the Low Emissions Transition Incentive supports a smooth and timely
transition to a lower carbon generation sector, whilst protecting energy
security.
6.123 To use the Low Emissions Transition Incentive the generator
that is registered in respect of a generation complex subject to a certificate
of eligibility for coal-fired generation assistance must also be registered in
respect of one or more new generation units that satisfy a range of
conditions set out in the bill and therefore constitute replacement capacity
for the purpose of the incentive [Part 9, Division 5, clauses 189(2)(e), 189AA and
189AB].
6.124 The bill also provides that if a generation complex has
previously passed the power system reliability test using the Low
Emissions Transition Incentive and satisfies particular conditions in
subsequent years, the generation complex is deemed to pass the power
system reliability test [Part 9, Division 5, clauses 189(2)(f)-(g)].
6.125 In particular, if a generation complex has previously reduced its
nameplate rating, has been found to have passed the power system
reliability test using the Low Emissions Transition Incentive and has not
subsequently reduced its nameplate rating, it is deemed to pass the power
system reliability test [Part 9, Division 5, clause 189(2)(f)]. This reflects the fact
that the passing of the test in the earlier year occurred through the full
replacement of the retiring generation capacity at that time, protecting
energy security, and that no reductions in the capacity of the generation
complex have occurred since that time.
6.126 Similarly, if a generation complex has previously ceased its
registration and has been found to have passed the power system
reliability test under the Low Emissions Transition Incentive, it is deemed
to pass the power system reliability test [Part 9, Division 5, clause 189(2)(g)].
This reflects the fact that the generation complex was fully retired from
service on the cessation of its registration, and that capacity was fully
replaced at that time. As the nameplate rating of a retired generation
complex cannot reduce any further, the generation complex can
appropriately be considered to pass the power system reliability test in all
future years.
6.127 It is not necessary to consider the existence of replacement
capacity if a particular generation complex passes the power system
reliability test because it has never reduced its nameplate rating [Part 9,
Division 5, clauses 189AA(2)-(3)].
6.128 In the event that replacement capacity is required to achieve
passage of the power system reliability test, the generation unit(s) that
provide the replacement capacity must be registered by the same person
who is registered in respect of the generation complex that is subject to a
certificate of eligibility for coal-fired generation assistance [Part 9, Division
5, clause 189AA(4)]. Replacement capacity must also have been nominated
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by that person for the purposes of this section [Part 9, Division 5, clause
189AA(4)(a)]. Therequirements for nomination are set out in [Part 9, Division
5, clause 189AB].
6.129 Replacement capacity must not be part of the generation
complex that is subject to a certificate of eligibility for coal-fired
generation assistance [Part 9, Division 5, clause 189AA(4)(b)]. If this was not the
case the replacement capacity would be counted twice for the purpose of
the power system reliability test: once as part of the nameplate rating of
the generation complex that is subject to a certificate of eligibility for
coal-fired generation assistance [Part 9, Division 5, clause 189AA(5)(a)] and
again as replacement capacity [Part 9, Division 5, clause 189AA(5)(b)].
However, this does not mean that generation units providing replacement
capacity cannot be co-located with the generation complex that is subject
to a certificate of eligibility for coal-fired generation assistance. A new
generation unit built at the same location should not be considered to form
part of the generation complex that is subject to a certificate of eligibility
for coal-fired generation assistance because the extent of this generation
complex was defined at the time the certificate was issued. Therefore, a
new generation unit can be built at the same location without being
considered to be part of the original generation complex.
6.130 Replacement capacity must also be connected to the same
interconnected electricity system as the generation complex that is subject
to a certificate of eligibility for coal-fired generation assistance [Part 9,
Division 5, clause 189AA(4)(c)] and, if the market relating to that system is
divided into regions, in the same region [Part 9, Division 5, clause 189AA(4)(d)].
This requirement exists because retiring capacity can only be replaced in a
way that maintains power system reliability when the new generation unit
or units supply electricity to the same interconnected electricity system.
Further some electricity markets, such as the National Electricity Market,
are divided into regions. The shape of these regions generally reflects
physical constraints on the transmission of electricity between different
parts of the system. Replacement capacity that was located in a different
region to the retiring capacity would be unlikely to be able to provide the
same amount of electricity to that region at times of high demand because
of transmission constraints. Accordingly, replacement capacity must be
located in the same region to maintain energy security.
6.131 To maintain energy security, the bill requires replacement
capacity to enter service on or before 1 December of a given financial
year [Part 9, Division 5, clause 189AA(4)(e)]. This is because extreme peaks in
electricity demand are most likely to occur on very hot summer days when
air-conditioning loads peak. The difficulty of satisfying these summer
peaks is compounded by the fact that some generation units cannot
produce their maximum electrical output on very hot days. This feature of
the power system reliability test allows a generator to retire capacity after
1 April of a given year (1 April being the date against which the power
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system reliability test is assessed) and bring replacement capacity into
service on or before 1 December of that same calendar year (the
subsequent eligible financial year). This replacement capacity would then
be assessed on the subsequent 1 April for the purpose of determining
whether Australian emissions units should be issued in respect of a given
generation complex on the subsequent 1 September under [Part 9, Division 5,
clause 176(2)]. The concept of entering service is defined in [Part 9, Division 5,
clause 189AA(8)].
6.132 Finally, it is essential that the generation capacity of the
replacement capacity fully equals or exceeds the amount of capacity that
is being retired so as to maintain energy security. If this is not the case,
there is a risk of shortfalls to supply that may jeopardise energy security.
This broad requirement can be fulfilled in a range of ways set out in the
bill [Part 9, Division 5, clause 189AA(5)].
6.133 This assessment relies on looking at the amount of generation
capacity that a particular generator must provide to the system at a
particular point in time in order to not jeopardise energy security. The key
component of this amount is the nameplate rating of the generation
complex in respect of which a certificate of eligibility for coal-fired
generation assistance has been issued, and this will be assessed on the
various days on which the power system reliability test is applied, that is,
1 April of a particular eligible financial year [Part 9, Division 5, clause
189AA(5)(a)]. If this nameplate rating has not reduced since the previous 1
April, there would be no need for replacement capacity because the
generation complex would pass the power system reliability test in
another way [Part 9, Division 5, clauses 189(2)(a), 189(2)(b), 189(2)(c) and
189(2)(f)(iii)]. Where this is not the case, the nameplate rating of the
generation complex will reflect some reduction in generating capacity that
must be made up with replacement capacity. This reduced nameplate
rating is summed with the replacement capacity that satisfies the various
requirements set out in the bill [Part 9, Division 5, clause 189AA(5)(b)].
Replacement capacity can only be taken into account once for the purpose
of the power system reliability test [Part 9, Division 5, clause 189AA(4)(g)]. The
nameplate rating of the generation complex can also be summed with any
`relevant excess megawatts', where this is an amount of replacement
capacity that was excess to requirements when the Low Emissions
Transition Incentive was used previously [Part 9, Division 5, clause
189AA(5)(c)].
6.134 To pass the power system reliability test using the Low
Emissions Transition Incentive, the amounts summed at [Part 9, Division 5,
clauses 189AA(5)(a)-(c)] must equal or exceed the lowest of three different
`target' generation capacities [Part 9, Division 5, clauses 189AA(5)(d)-(f)]. These
target generation capacities reflect the minimum amount of generation
capacity that must be retained in the system (consisting of both the
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original generation capacity and some replacement capacity) to maintain
energy security under three difference circumstances, these being:
· When the nameplate rating of the generation complex is
reduced for the first time [Part 9, Division 5, clause 189AA(5)(d)]
· When the nameplate rating of the generation complex has
previously been reduced but the generation complex has
satisfied the power system reliability test under the
certification approach [Part 9, Division 5, clause 189AA(5)(e)]
· When the nameplate rating of the generation complex has
previously been reduced but the generation complex has
satisfied the power system reliability test using the Low
Emissions Transition Incentive [Part 9, Division 5, clause
189AA(5)(f)].
6.135 When the nameplate rating of the generation complex is reduced
for the first time, the sum of the (reduced) nameplate rating as of the most
recent 1 April and the nameplate rating of all generation unit(s) that
constitute replacement capacity must equal or exceed the original
nameplate rating to maintain energy security [Part 9, Division 5, clause
189AA(5)(d)]. In that case, the reduction in capacity has been fully replaced
and energy security has been maintained. Where the original nameplate
rating is exceeded, the excess constitutes the relevant excess megawatts
and can be used subsequently, if needed [Part 9, Division 5, clause 189AA(5)].
6.136 When the nameplate rating of the generation complex has
previously been reduced and the generation complex has satisfied the
power system reliability test under the certification approach, to maintain
energy security it is only necessary for the sum of the (reduced) nameplate
rating as of the most recent 1 April, the nameplate rating of all generation
unit(s) that constitute replacement capacity and any relevant excess
megawatts to equal or exceed the reduced nameplate rating that applied at
the most recent time the certification was awarded [Part 9, Division 5, clause
189AA(5)(e)]. In that event, the replacement capacity will overcome the
reduction in capacity that has occurred since the appropriate energy
market operator last certified that power system reliability standards were
not likely to be breached, and therefore maintain that situation.
6.137 When the nameplate rating of the generation complex has
previously been reduced and the generation complex has satisfied the
power system reliability test using the Low Emissions Transition
Incentive, to maintain energy security it is only necessary for the sum of
the (reduced) nameplate rating as of the most recent 1 April, the
nameplate rating of all generation unit(s) that constitute replacement
capacity and any relevant excess megawatts to equal or exceed the
reduced nameplate rating that applied following the most recent
retirement and replacement of capacity [Part 9, Division 5, clause 189AA(5)(f)].
In that event, the replacement capacity will overcome the reduction in
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capacity that has occurred since that prior reduction, thereby maintaining
energy security.
6.138 The structure of the power system reliability test adopted
involves the `target' nameplate rating required to maintain energy security
being `reset' after each successful passage of the power system reliability
test using the certification approach or the Low Emissions Transition
Incentive. In turn, once replacement capacity has been used to pass the
test once using the Low Emissions Transition Incentive, this capacity has
contributed to lowering the `target' nameplate rating used in subsequent
assessments of the test, and so should not be considered again.
Accordingly, the bill provides that replacement capacity can only be
counted once under the Low Emissions Transition Incentive [Part 9,
Division 5, clause 189AA(4)(f)]. This is illustrated in Example 6.4 below.
Example 6.4: Complying with the power system reliability
test using the certification approach and the Low Emissions
Transition Incentive
A generation complex, "Hillside A", is a coal-fired electricity
generator consisting of four units of 400 MW each. It is located in the
National Electricity Market region of New South Wales. It is owned
and operated by the company Hillside Electricity.
Following the introduction of the Carbon Pollution Reduction Scheme,
Hillside Electricity decide to progressively retire units of Hillside A
from service due to their high emissions intensity.
Hillside Electricity seeks a certification from the Australian Energy
Market Operator that a reduction in Hillside A's nameplate rating from
1600 MW to 1200 MW on 2 April 2013 (reflecting the retirement of
one unit) will be unlikely to cause a breach of power system reliability
standards in the two year period ending on 2 April 2015.
The Australian Energy Market Operator certifies that application in
accordance with clause 189A(3), and so Hillside Electricity reduces
Hillside A's nameplate rating to 1200 MW on 2 April 2013. On
1 September 2014, the Australian Climate Change Regulatory
Authority assesses whether or not Hillside A complied with the power
system reliability test on 1 April 2014. The Authority finds that, by
virtue of the certification, Hillside A does comply with the test and so
Hillside Electricity can continue to receive Electricity Sector
Adjustment Scheme assistance in respect of the Hillside A generation
asset.
In the meantime, Hillside Electricity has progressed development of
three 180 MW open cycle gas turbine generation units that are
necessary to meet increasing peaking demand in New South Wales.
The gas turbines are not co-located with Hillside A, but remain within
the National Electricity Market region of New South Wales.
Anticipating this development, Hillside Electricity retires a second
generation unit at Hillside A from service on 2 April 2014, reducing
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the nameplate rating of Hillside A to 800 MW. Hillside Electricity
progresses development of the three open cycle gas turbine generation
units such that they enter service during November 2014.
Before 1 April 2015, Hillside Electricity nominates these three units
under clause 189AB(2). On 1 September 2015, the Australian Climate
Change Regulatory Authority considers whether or not Hillside A
passed the power system reliability test on 1 April 2015.
The Authority finds that Hillside A did pass the power system
reliability test because:
· The three new open cycle gas turbine generation units satisfied the
conditions set out in 189AA(4) and so constitute replacement
capacity of 540 MW
· The sum of the nameplate rating of Hillside A as of 1 April 2015
(800 MW) and the nameplate rating of the three new generation
units (540 MW) is 1340 MW
· This sum exceeds the nameplate rating of Hillside A on 1 April
2014 (1200 MW), and so satisfies clause 189AA(5)(e).
In this circumstance, Hillside Electricity would continue to receive
Electricity Sector Adjustment Scheme assistance in respect of the
Hillside A generation complex, and would enjoy a `relevant excess
megawatts' amount of 140 MW as provided for by clause 189AA(5).
Hillside Electricity does not reduce the nameplate rating of Hillside A
between 1 April 2015 and 1 April 2016. Therefore, Hillside A passes
the power system reliability test under clause 189(2)(f).
Hillside Electricity subsequently retires a third unit at Hillside A on 2
April 2016 while it constructs and commissions a new combined cycle
gas turbine generation unit of 500 MW at the same site. This new
generation unit enters service during November 2016. Hillside
Electricity nominates this new unit under clause 189AB(2) before 1
April 2017.
On 1 September 2017, the Australian Climate Change Authority finds
that Hillside A passed the power system reliability test as of 1 April
2017 because:
· The new combined cycle gas turbine generation unit satisfies the
conditions set out in 189AA(4) and so constitutes replacement
capacity of 500 MW
· The sum of the nameplate rating of Hillside A as of 1 April 2017
(400 MW), the nameplate rating of the new generation unit (500
MW) and the relevant excess megawatts (140 MW) is 1040 MW
· This sum exceeds the nameplate rating of Hillside A on 1 April
2016 (800 MW), and so satisfies clause 189AA(5)(f).
Accordingly, Hillside Electricity continues to receive Electricity Sector
Adjustment Scheme assistance in respect of the Hillside A generation
complex, and holds a relevant excess megawatts amount of 240 MW.
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Carbon Pollution Reduction Scheme Bill 2010
Hillside Electricity retires the last remaining unit at Hillside A on 2
April 2017 and ceases the registration of Hillside A. It also builds a
fourth 180 MW open cycle gas turbine generation unit, which enters
service during November 2017. Hillside Electricity nominates this new
unit under clause 189AB(2) before 1 April 2018.
On 1 September 2018, the Australian Climate Change Authority finds
that Hillside A still passes the power system reliability test because:
· The new gas turbine generation unit satisfies the conditions set out
in 189AA(4) and so constitutes replacement capacity of 180 MW
· The sum of the nameplate rating of Hillside A as of 1 April 2018 (0
MW), the nameplate rating of the new generation unit (180 MW)
and the relevant excess megawatts (240 MW) is 420 MW
· This sum exceeds the nameplate rating of Hillside A on 1 April
2017 (400 MW), and so satisfies clause 189AA(5)(f).
Hillside A is now fully retired and its registration as a generation
complex has ceased. Accordingly, in all subsequent financial years,
Hillside A will be able to pass the power system reliability test under
clause 189(2)(g) and Hillside Electricity will continue to receive ESAS
assistance in respect of that generation complex.
Under these provisions generators will be able to use the certification
approach and the Low Emissions Transition Incentive in combination
to progressively retire and replace emissions-intensive generation
capacity, whilst continuing to receive Electricity Sector Adjustment
Scheme assistance. In this example, Hillside Electricity has replaced
1600 MW of coal-fired generation capacity with 500 MW of combined
cycle gas turbine generation capacity and 720 MW of open cycle gas
turbine generation capacity, whilst also retiring 400 MW without
replacement as allowed by the Australian Energy Market Operator.
6.139 The bill provides that replacement capacity may be required to
comply with further conditions as set out in the regulations [Part 9, Division
5, clause 189AA(6)].
6.140 The replacement capacity provisions consider new generation
units separately, rather than considering combinations of generation units
as a generation complex. Accordingly, for the purpose of these provisions,
the term `nameplate rating' is defined with respect to generation units [Part
9, Division 5, clause 189AA(7)]. By contrast, the definition of nameplate rating
generally applies with respect to generation complexes throughout the bill
[Part 1, clause 5, definition of `nameplate rating'].
6.141 To make clear that a particular generation unit is being used to
provide replacement capacity, the person who owns, controls or operates
that generation unit (the `first person') must nominate it for this purpose
[Part 9, Division 5, clauses 189AB(1)(a) and (2)].
6.142 The first person must also have been registered as a generator in
respect of that generation unit when it was first registered under a law
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Chapter 6: Coal fired electricity generation
relating to the regulation of energy markets [Part 9, Division 5, clauses
189AB(1)(a) and (c)].
This provision is intended to ensure continuity of
registration from the time the generation unit is first registered until it is
used as replacement capacity, thereby increasing the coordination between
the decision to develop the new generation unit and the decision to retire
existing generation capacity. If this provision was not in place, new
generation units developed by persons who are not potential recipients of
Electricity Sector Adjustment Scheme assistance would be able to be
transferred into the control of a person registered in respect of a
generation complex that is subject to a certificate of eligibility for coal-
fired generation assistance and then used as replacement capacity. In such
an instance, the new generation unit could not be genuinely considered to
have been developed for the purpose of replacing a particular quantum of
generation capacity, and so would not support the objectives of
sharpening incentives for Electricity Sector Adjustment Scheme recipients
to invest in new low emissions capacity to replace existing emissions-
intensive capacity.
6.143 To provide replacement capacity, a generation unit must have
been first registered on or after 1 January 2010 [Part 9, Division 5, clause
189AB(1)(b)]. Further, if the generation unit was under construction as of 1
January 2010, this project should not have been fully committed as of that
date having regard to a range of factors reflecting the definition of a
`committed project' set out in the National Electricity Rules [Part 9, Division
5, clause 189AB(1)(d)]. These provisions ensure that the replacement capacity
was genuinely new capacity and had not been committed to be
constructed prior to the announcement of the Low Emissions Transition
Incentive.
6.144 To maintain energy security, replacement capacity must have
output that is readily predictable and not significantly dependent on
factors beyond the control of the operator [Part 9, Division 5, clause
189AB(1)(e)]. If these conditions are not satisfied, there is a significant risk
that the replacement capacity will not be able to generate electricity near
its maximum output at times of peak demand when it is most needed to
maintain energy security. These conditions broadly reflect the definitions
of `intermittent' generation in the National Electricity Rules and Western
Australia's Wholesale Electricity Market Rules, such that the replacement
capacity must not be intermittent. Accordingly, the bill will prevent some
technologies from being used as replacement capacity, most likely wind
generation and some solar and hydro technologies. However, solar or
hydro generation with significant storage capability could be considered
to be suitable as replacement capacity if the storage capacity allows its
output to be readily predicable and significantly within the control of the
operator. Generally it is expected that gas-fired generation technologies
would be able to satisfy these conditions and be used as replacement
capacity.
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Carbon Pollution Reduction Scheme Bill 2010
6.145 To ensure that the Low Emissions Transition Incentive supports
a transition to a lower emissions generation sector, replacement capacity
must also have an emissions intensity lower than the emissions intensity
of current best-practice coal-fired generation capacity in Australia. This
emissions intensity is set at the level of 0.80 kilotonnes of carbon dioxide
equivalence of emissions per gigawatt hour of electricity generated [Part 9,
Division 5, clause 189AB(1)(f)]. This is mathematically equivalent to 0.80
tonnes of carbon dioxide equivalence of emissions per megawatt hour of
electricity generated. To substantiate that this condition is satisfied, a
nomination must be accompanied by a report setting out an independent
estimate of the likely emissions intensity of the replacement capacity over
the two year period beginning when the generation unit enters service [Part
9, Division 5, clauses 189AB(3)-(4)]. The requirements of this report are
substantially similar to those applying to reports that must accompany an
application for Electricity Sector Adjustment Scheme assistance in respect
of a generation complex that had entered service on or after 1 July 2004
[Part 9, Division 3, clauses 178(1)(f) and (3)]. However, in this case the report
must focus on the generation unit's likely emissions intensity over a
defined two-year period because longer-term technological developments
(such as carbon capture and storage) or fuel substitutions (such as gas for
coal) could substantially alter the emissions intensity of a particular
generation unit. Accordingly, this assessment is focused on the more
immediate technical characteristics of the generation unit in question and
cannot take into account more uncertain longer-term developments.
6.146 Within 60 days of receiving an nomination the Authority must
take all reasonable steps to inform the person of whether or not the
Authority is satisfied that the nomination or purported nomination is
validly made [Part 9, Division 5, clause 189AC]. This will give generators
greater certainty as to whether their nomination is likely to be valid, and
therefore greater certainty to pursue plans to retire existing generation
capacity.
Dealing with intermediaries
6.147 Compliance with the power system reliability test requires a
person who owns, controls or operates the generation complex to be
registered as a generator under a law of the Commonwealth, a State or
Territory relating to the regulation of energy markets. This primarily
applies to registration under the National Electricity Law and National
Electricity Rules.
6.148 In respect of some generation complexes, an `intermediary' may
be registered instead of the owner, controller or operator of an asset.
Therefore, there may be legal doubt as to whether the intermediary either
operates or controls the generation asset. This applies particularly in
relation to intermediaries registered under rule 2.9.3 of the National
Electricity Rules as well as intermediaries created by jurisdictional
derogations (such as rule 9.34.6 of the National Electricity Rules).
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6.149 The bill removes the legal doubt for these situations by making
it clear that the provisions apply as if the intermediary controlled the
generation complex [Part 9, Division 5, clause 189C]. Accordingly, a
generation complex that is registered in the name of the intermediary
under a law of the Commonwealth, a State or a Territory relating to the
regulation of energy markets will be able to comply with one of the
necessary conditions of the power system reliability test [Part 9, Division 5,
clauses 189(2)(a)(i), 189(2)(b)(i), 189(2)(c)(ii), 189(2)(d)(ii) and 189AA(4)].
6.150 This deeming provision will not have effect for other purposes,
such as the application for assistance elsewhere under the Part [Part 9,
Division 3, clauses 177(2)-(3)].
6.151 To make the power system reliability test operate correctly in
respect of the first eligible financial year of the Scheme (which begins on
1 July 2011), it is necessary to assume that the financial year beginning on
1 July 2010 is also an eligible financial year [Part 9, Division 5, clause 189D].
First-year Australian emissions units
6.152 Persons who are issued units under Part 9 for the first year of the
Scheme should note the special nature of the Australian emissions units
issued with a vintage year beginning on 1 July 2011. In particular, units
cannot be used for subsequent years of the Scheme. The limited nature of
the carbon market during the first year of the Scheme means that it is
necessary to implement a buy-back arrangement for Australian emissions
units issued for the first year of the Scheme [Part 4, Division 2, clause 103B].
The facility will be open to requests from 15 July 2011 until 1 December
2012, and allows persons to receive $10 for each unit they wish to sell
back to the Authority, discounted by a factor specified in the regulations.
The factor used to discount the buy-back amount will broadly reflect the
present value of the units at the time they are sold back. If a person makes
a request, the Authority must cancel the unit on a day specified in the
regulations and, as soon as practicable after that day, pay the relevant
amount to the person.
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Chapter 7
Reforestation
Outline of chapter
7.1 This Chapter describes the rules in Part 10 of the bill for issuing
free Australian emissions units for eligible reforestation projects. The
Chapter also sets out the circumstances in which emissions units must be
relinquished and the requirement to maintain forests if units are not
relinquished.
Context
7.2 Forests sequester carbon dioxide as they grow. Issuing free
units, in addition to the Scheme cap, for net increases in greenhouse gas
removals creates an incentive for reforestation. It will also allow the
Scheme cap to be achieved at lower cost than would otherwise be
possible.
Summary of reforestation scheme
7.3 A project manager (who in many cases may be the carbon
sequestration right holder) may apply to the Authority for the issue of a
certificate of reforestation that entitles the carbon sequestration right
holder to receive free units for net increases in greenhouse gas removals
from an eligible reforestation project [Part 10, Division 3, clause 192]. The
Authority will issue the certificate to the carbon sequestration right holder
if all relevant requirements under the reforestation scheme in Part 10 have
been met.
7.4 A certificate of reforestation is issued, broadly, on the basis that
the manager of a project that meets scheme requirements has reported a
net increase in greenhouse gas removals resulting from the project.
7.5 The Authority will issue a notice of relinquishment to the project
manager if units have been issued in excess of the unit limit for the project
or if the project is, in effect, withdrawn from the Scheme [Part 10, Division
10, clauses 232, 233].
7.6 If the requisite number of units is not relinquished by the project
manager, generally, the Authority has the power to declare the land on
which the reforestation project was carried out will become subject to a
forest maintenance obligation. This prevents a person from reducing the
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Carbon Pollution Reduction Scheme Bill 2009
amount of carbon that was stored by the forest at the time that the
obligation was declared [Part 10, Division 9, clause 226].
7.7 The following diagram provides a broad outline of the various
requirements and processes involved in the reforestation scheme under
Part 10. Part 10 also includes a simplified outline [Part 10, Division 1,
clause 190].
Detailed explanation of reforestation scheme
Becoming a scheme participant
Recognised reforestation entities
7.8 A project manager must be a `recognised reforestation entity' to
participate in the reforestation scheme under Part 10 of the bill.
Application process
7.9 A person (whether an individual, a body corporate or a body
politic such as a State or a Territory) may apply to the Authority to
become a recognised reforestation entity [Part 10, Division 4, clause 198].
7.10 Applications for recognition of reforestation entities or
applications for declarations of an eligible reforestation project cannot be
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Chapter 7: Reforestation
made in the period between the commencement of the bill and 1 July 2011
(or a date specified in the Regulations, whichever is earlier) [Part 10,
Division 4, clause 198(2)] [Part 10, Division 5, clause 205(2)] .
7.11 Persons intending to undertake reforestation projects will not be
disadvantaged by not being able to submit their applications during this
period. With the agreement of the applicant, the date of effect of a
decision by the Authority to declare that a reforestation project is an
`eligible reforestation project' may be backdated to 1 July 2010 [Part 10,
Division 5, Subdivision A, clause 209(7)]. In such cases, a person may choose to
submit their first report on, and apply for, the issue of free Australian
emissions units relating to an eligible project shortly after becoming a
recognised reforestation entity and having the project declared eligible.
7.12 The regulations will specify any information or documents that
will be required to accompany an application [Part 10, Division 4, clause 199].
7.13 The regulations may specify an application fee [Part 10, Division 4,
clause 199]. The
purpose of the fee is to enable the Authority to recover
costs associated with processing the application. An application fee is
considered appropriate given that participation in the reforestation scheme
under Part 10 will be voluntary, and will deliver financial benefits.
Moreover, the Authority will incur costs in the process of determining
whether the person is a `fit and proper person'.
7.14 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
enable a decision to be made on an application. The Authority must
ensure that the information requested is relevant to its consideration of the
application and must exercise this power reasonably. [Part 26, clause 374B]
Where that information is not provided within the time frame specified in
the notice the Authority may refuse to consider or take any further action
in relation to the application [Part 10, Division 4, clause 200].
7.15 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days of the making of the
application or, where relevant, the receipt of further information. If the
Authority refuses the application, the applicant must be given written
notice of this [Part 10, Division 4, clause 201].
Criteria for recognition
7.16 The Authority may recognise the applicant as a reforestation
entity if satisfied that, among other things, the applicant is a fit and proper
person. In making this assessment the Authority must have regard to
matters that include any convictions the applicant has under a law of the
Commonwealth, a State or a Territory relating to dishonest conduct,
breaches by the applicant of the Scheme legislation or the associated
provisions and any other matters the Authority considers relevant. The
Authority must also have regard to any orders made by the Australian
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Carbon Pollution Reduction Scheme Bill 2009
Competition and Consumer Commission under section 76 of the Trade
Practices Act 1974. In addition, the Authority must be satisfied that the
applicant, where an individual, is not an insolvent under administration or,
where a body corporate, is not under external administration [Part 10,
Division 4, clause 201].
7.17 The regulations may specify additional criteria, such as a
requirement that the applicant has some other type of approval or licence
under a Commonwealth, State or Territory law that is relevant to
reforestation.
7.18 The application of a fit and proper person test seeks to minimise
the risk of any fraudulent, deceptive or unfair conduct by entities involved
in the reforestation scheme.
7.19 The Authority will have the power to cancel a person's
recognition as a reforestation entity where the Authority is no longer
satisfied that the person remains a fit and proper person, assessed against
the same criteria as for recognition, or no longer meets one or more other
requirements [Part 10, Division 4, clause 202].
7.20 A person may surrender their recognition as a reforestation
entity by written notice to the Authority [Part 10, Division 4, clause 203].
7.21 If an entity is a recognised reforestation entity, the entity's
recognition is not transferable [Part 10, Division 4, clause 204].
Project manager
7.22 A project manager for a reforestation project is the person who
accepts responsibility for complying with any obligations that may be
imposed under the bill [Part 10, Division 3A, clause 197A]. In most cases the
project manager will also be the carbon sequestration right holder in
relation to the project.
Forestry right
7.23 Clause 241 defines the term `forestry right', for the purposes of
the bill. In order to be the holder of the `forestry right' in relation to an
area of land, a person must generally have a legal estate or interest in the
area of land which gives the person the exclusive legal right to establish,
maintain and manage a forest on that area of land [Part 10, Division 14,
clause 241].
7.24 For the purposes of Part 10 the definition of the forestry right in
relation to an area of land will be important for various reason including
consent requirements in relation to a project declaration (under
clause 209), a project variation (under clause 202) and notification of a
forest maintenance obligation or forest restoration order (under
clauses 226, 226A and 226C). There may be more than one forestry right
holder in relation to a reforestation project.
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7.25 Under the bill, generally only a proprietary estate or interest in
land can result in the holder having a `forestry right' -- a personal right
such as a licence or a mere contractual right is not enough. It should be
noted, however, that some State legislation deems certain forestry-related
rights to be estates or interests in land, and rights that are subject to such
legislation can be `forestry rights', for the purposes of the bill.
7.26 Various kinds of estates or interests in an area of land may give
a person the `forestry right' in that area. For example:
· in relation to an area of Torrens system land, the person who
holds the estate in fee simple will have the forestry right
unless he or she has granted to another person an interest in
the land (such as, for example, a lease) which gives them that
right
· a lease over an area of Torrens system land under which the
lessee has exclusive possession of the area will generally
give the lessee the forestry right (unless the lessee has
granted it to someone else -- for example, a sublessee)
· where a reforestation project is carried out on an area of
Crown land in a State or Territory, the State or Territory
itself will hold the forestry right, unless that right has been
granted to someone else (for example, under a lease).
7.27 In a case where land on which a person carries out a
reforestation project is Torrens system land, the person's estate or interest
or right will only be a `forestry right' if it is registered on the certificate of
title.
7.28 It is important to realise that the reforestation scheme in Part 10
does not itself create forestry rights (or any other kind of rights) in relation
to land. Rather, the legislation simply sets out the characteristics that a
right held by a person must have in order to be a `forestry right', for the
purposes of the reforestation scheme.
Carbon sequestration right
7.29 The concept of a `carbon sequestration right' is central to the
operation of the reforestation scheme in Part 10 of the bill. This is
because, under that Part, the only person who can obtain free units in
respect of an eligible reforestation project is the person who holds a right
that comes within the definition of `carbon sequestration right'.
7.30 It should be noted that, as with forestry rights, the legislation
will not itself create carbon sequestration rights. Rather, the Scheme will
enable a person to obtain free units in respect of an eligible reforestation
project if the person already has the carbon sequestration right in relation
to the project.
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Carbon Pollution Reduction Scheme Bill 2009
7.31 A person will only hold the carbon sequestration right in relation
to a reforestation project if the person holds a particular kind of right in
relation to the area or each of the areas of land on which the project is (or
is to be) carried out [Part 10, Division 14, clause 239A]. The definition in clause
240 sets out the characteristics a right must have in order to be a `carbon
sequestration right' in relation to an area of land, for the purposes of the
bill [Part 10, Division 14, clause 240].
7.32 In essence, a carbon sequestration right is the exclusive legal
right to obtain the benefit of sequestration of carbon dioxide by trees on
an area of land which is part of a reforestation project. As with a forestry
right, various kinds of estates or interests in land on which eligible
reforestation projects may be carried out can give the holder of the estate
or interest the exclusive legal right to obtain that benefit. For example:
· in relation to an area of Torrens system land, the holder of
the estate in fee simple will have the carbon sequestration
right unless he or she has granted to another person an
interest in the land (such as, for example, a lease) which
gives them that right
· a lease over an area of Torrens system land under which the
lessee has exclusive possession of the area will generally
give the lessee that right.
7.33 It is likely that, in many cases, the person who holds the forestry
right in relation to an area of land will also be the holder of the carbon
sequestration right. For example, a person who is to carry out an eligible
reforestation project on an area of land might do so under a lease which
gives the person the right to establish, maintain and manage a forest on
that land -- that is, the `forestry right' in relation to the project. Unless the
lessee has granted to another person the exclusive legal right to obtain the
benefit of carbon sequestration by trees involved in the project, the lessee
will be the holder of the `carbon sequestration right'.
7.34 However, the definition of `carbon sequestration right' also
allows for the possibility that the two rights might be separate and held by
different persons. The diagram below (adapted from a diagram provided
by Landgate, Government of Western Australia) illustrates a range of
property rights that can exist with respect to an area of land.
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Chapter 7: Reforestation
7.35 There are, however, certain requirements that must be satisfied
to hold the carbon sequestration right. First, if the right relates to an area
of Torrens system land, the right must be registered or at least noted on
the certificate of title. The right must also be one that runs with the land
-- that is, it must be such that successors in title to estates or interests in
the land will take those estates or interests subject to that right. If a carbon
sequestration right itself arises from an estate or interest in the land in
question -- for example, a registered lease -- then, by virtue of the State
or Territory Torrens system legislation, it will run with the land. But, in
certain cases, such a right may run with the land even if it is not an estate
or interest in the land. This will be so in a case where State or Territory
carbon property rights legislation deems the right to be such an estate or
interest in land, or otherwise has the effect that such a right runs with the
land.
7.36 It should be noted that, while Part 10 of the bill will allow for
eligible reforestation projects to be carried out on Torrens system land and
Crown land (whether Torrens system land or not), the reforestation
scheme will not apply so as to allow a person to obtain free units in
respect of projects carried out on general law land, i.e. land that is neither
Torrens system land nor Crown land. (State and Territory legislation
provides for the conversion of general law land to Torrens system land.)
Scheme obligation transfer agreement
7.37 A scheme obligation transfer agreement is an agreement
between a former project manager (who may also be the carbon
sequestration right holder) and another person (the transferee) [Part 10,
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Carbon Pollution Reduction Scheme Bill 2009
Division 3A, clause 197B]. The transferee then becomes the new project
manager.
7.38 To allow a project manager (who is not the holder of the carbon
sequestration right) to apply for a declaration of an eligible reforestation
project on behalf of the carbon sequestration right holder, scheme
obligations can be transferred before a reforestation project has been
declared eligible under clause 209.
7.39 Clause 197B (6) of the bill clarifies that a scheme obligation
transfer agreement is not a legislative instrument. This provision is simply
to assist readers, as the instrument is not a legislative instrument within
the meaning of section 5 of the Legislative Instruments Act 2003, and
therefore the procedures in that Act, including for example disallowance,
do not apply [Part 10, Division 3A, clause 197B(6)].
Requirements for a scheme obligation transfer agreement
7.40 Clause 197B sets out the conditions that must be satisfied if an
agreement is to constitute a scheme obligation transfer agreement in
relation to a reforestation project:
· the agreement must state that the transferee accepts
responsibility for complying with any scheme obligations
(such as reporting obligations or the obligation to relinquish a
number of Australian emissions units)
· the Authority must approve of the agreement in writing
· the transferee must provide to the Commonwealth any
security that the Authority requires in relation to potential
relinquishment requirements
· the holder of the carbon sequestration right has consented to
the agreement or is party to the agreement
· such other conditions as may be specified in the regulations.
Criteria for approval of agreement
7.41 Under clause 197B the Authority must not approve the
agreement unless:
· the transferee is a recognised reforestation entity
· if the transferee does not hold the carbon sequestration right,
the transferee is not an individual and the Authority is
satisfied that the transferee has control of the reforestation
project
· the Authority is satisfied that the transferee has the capacity
and financial resource to meet scheme requirements
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· if a penalty has been imposed under clause 287 of the CPRS
bill in respect of the reforestation project, for failing to
relinquish Australian emissions units, this penalty including
any late penalty has been paid in full.
7.42 A person has control of a reforestation project if the person is
the holder of a forestry right in relation to the project area or project areas
or can demonstrate through a contract or arrangement, as specified in the
regulations, that they have the right to establish, manage and maintain a
forest on the project area or areas [Part 1, Clause 5, definition of `control'].
Duration of agreement
7.43 A scheme obligation transfer agreement comes into effect when
the agreement is approved or at a later specified time. The agreement
remains in force until:
· the transferee ceases to exist (including through death)
· the agreement is replaced by another scheme obligation
transfer agreement.
7.44 The holder of the carbon sequestration right may also cancel the
agreement and elect to assume scheme obligations from the project
manager [Part 10, Division 3A, clause 197C]. This may occur, for example,
because the project manager is no longer a recognised reforestation entity
or because the project manager no longer has control of the reforestation
project. This ensures the carbon sequestration right holder has the option
of taking over scheme obligations so that Australian emissions units can
continue to be issued for the project.
7.45 The carbon sequestration right holder may only elect to assume
scheme obligations if they are also a recognised reforestation entity.
Eligible reforestation projects
7.46 Under the reforestation scheme in Part 10, free units can only be
obtained in respect of a reforestation project that has been declared by the
Authority, under clause 209, to be an `eligible reforestation project'. A
declaration that a proposed project is an eligible reforestation project can
only be made if the proposed project meets the requirements of the
Scheme. A declaration made under clause 209 must identify the `project
area' or areas involved in the project -- that is, the area or areas of land
on which the project will be carried out -- and any other project attributes
as may be specified in the regulations [Part 10, Division 5, clause 209(3)].
7.47 The bill clarifies that a declaration of an eligible reforestation
project is not a legislative instrument [Part 10, Division 5, clause 209(11)]. This
provision is simply to assist readers, as the instrument is not a legislative
instrument within the meaning of section 5 of the Legislative Instruments
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Act 2003, and therefore the procedures in that Act, including for example
disallowance, do not apply.
Application process
7.48 A person may apply to the Authority to have a reforestation
project declared to be an eligible reforestation project [Part 10, Division 5,
clause 205].
7.49 Applications for recognition of reforestation entities or
applications for declarations of an eligible reforestation project cannot be
made before 1 July 2011 or a date specified in the Regulations, whichever
is earlier [Part 10, Division 4, clause 198(2)] [Part 10, Division 5, clause 205(2)].
7.50 Persons intending to undertake reforestation projects will not be
disadvantaged by not being able to submit their applications during this
period. With the agreement of the applicant, the date of effect of a
decision by the Authority to declare that a reforestation project is an
`eligible reforestation project' may be backdated to 1 July 2010 [Part 10,
Division 5, Subdivision A, clause 209(7)].
7.51 The regulations will specify any information and documents that
must accompany an application [Part 10, Division 5, clause 206].
7.52 The regulations may specify an application fee [Part 10, Division 5,
clause 206].
The purpose of the fee is to enable the Authority to recover
costs associated with processing the application.
7.53 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. The Authority must ensure that the
information requested is relevant to its consideration of the application
and must exercise this power reasonably. [Part 26, clause 374B] Where that
information is not provided within the time frame stated in the notice the
Authority may refuse to consider or take any further action in relation to
the application [Part 10, Division 5, clause 207].
7.54 An application can be withdrawn at any time before the
Authority has made a decision on the application [Part 10, Division 5,
clause 208]. This might occur where, after an application has been made, it
is considered that changes should be made to the proposed project to
ensure Scheme eligibility requirements will be satisfied.
7.55 If an application is withdrawn, the Authority is required to
refund any application fee that has been paid [Part 10, Division 5, clause 208].
7.56 The withdrawal of an application does not prevent the applicant
from making a fresh application in relation to the same or a similar project
[Part 10, Division 5, clause 208].
7.57 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days. If a declaration is
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made, the Authority must give the applicant and the carbon sequestration
right holder (if not the same person as the applicant) a copy of it. If the
Authority decides to refuse to make the declaration sought, the applicant
must be notified of this in writing [Part 10, Division 5, clause 209(10)].
Criteria for declaration
7.58 An application for a declaration of an eligible reforestation
project must relate to a `reforestation project'. The term `reforestation
project' is defined to mean a project for the establishment,
management -- including harvest -- and maintenance of one or more
`forest stands' or the management and maintenance of one or more
existing forest stands [Part 1, clause 5, definition of `reforestation project' and
`management'].
7.59 The definition of `forest stand' in clause 5 of the bill
incorporates the various elements of Australia's definition of a forest for
reforestation and afforestation purposes under the Kyoto Protocol. It also
recognises regrowth on deforested land, consistent with the Kyoto
Protocol [Part 1, clause 5, definition of `forest stand']. A `forest stand' is a stand
of forest that:
· has been established by direct human-induced methods (as
defined in the regulations)
· has trees (as defined in the regulations) with a potential
height of at least two metres
· has trees with a potential crown cover (as defined in the
regulations) of at least 20 per cent of the area occupied by the
stand
· occupies an area of land of 0.2 hectares or more
· is either:
- on land that, as at 31 December 1989, was clear of trees
with a potential height of at least two metres and a
potential crown cover of at least 20 per cent (afforestation
or reforestation); or
- the area occupied by the stand was lawfully cleared of
trees during the period beginning at the start of 1 January
1990 and ending at the end of 31 December 2008
(regrowth on deforested land).
· meets any other requirements specified in regulations.
7.60 In relation to regrowth on deforested land, the cut-off date of
31 December 2008 was selected to ensure that there is no incentive for
landowners to clear land to establish a reforestation project. The
Government is confident that no clearing would have taken place prior to
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31 December 2008 in anticipation of regrowth forests being included in
the CPRS Bill.
7.61 For regrowth forest to meet the definition of `forest stand', it
must have been `lawfully cleared'. This will be a matter for the Authority
to assess at the time an application is made under clause 209 for the
declaration of a project as an eligible reforestation project. If an applicant
falsely states that land was lawfully cleared, it would be open to the
Authority to subsequently revoke the declaration [Part 10, Division 5, clause
218(1)(b)(i)]. The project manager would then be required to relinquish
emissions units equal to the number of units issued in respect of the
project [Part 10, Division 10, clause 232]. Criminal penalties may also apply
under sections 136 or 137 of the Criminal Code Act 1995 for false and
misleading statements.
7.62 It is envisaged that the regulations will specify requirements for
the purpose of estimating and reporting net greenhouse gas removals,
including that the trees comprising a forest stand be established at the
same time within a single encompassing boundary (and excluding all non
forest stand areas) and are of the same (set of) species (for example, a
mixed species planting or a single species plantation) and are subject to
the same management regime.
7.63 The definition of a `project area' in clause 5 of the bill refers to
an area of land that is occupied or will be occupied by a single forest stand
[Part 1, clause 5, definition of `project area'].
7.64 The Authority may declare that a reforestation project is an
`eligible reforestation project' provided that certain requirements are met:
· the project manager must be a recognised reforestation entity
· the applicant must be the project manager for the project
· a single person (who may be the applicant) holds the carbon
sequestration right in relation to the project
· if the applicant is not also the carbon sequestration right
holder in relation to the project then the carbon sequestration
right holder has consented, in writing, to the making of the
application
· the `project area' or areas must be Torrens system land, or
Crown land (whether or not Torrens system land)
· the project area or each project area cannot be general law
land (i.e. land that is neither Torrens system nor Crown land),
or land that is excluded by the regulations
· if the project area or areas are State or Territory Crown land
(and the applicant for the declaration is not the Crown), the
State or Territory must have certified that person identified in
the application as the `carbon sequestration right holder' in
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relation to the project holds that right, and that the State or
Territory will not deal with the land in a way that would
defeat or otherwise be inconsistent with that right
· the project must satisfy any other eligibility requirements
specified in the regulations
· the holders of eligible interests in the land on which the
project is to be carried out (and any other persons as may be
specified in the regulations) must have consented to the
making of the application for the declaration of the
reforestation project
· all regulatory approvals have been obtained for the project
[Part 10, Division 5, clause 209(4)].
7.65 The consent of eligible interest holders is a precondition to the
declaration of a project as an eligible reforestation project because, in
some limited circumstances, an area of land involved in a project can
become subject to the forest maintenance obligation or forest restoration
order (explained in paragraphs 161 -- 176 below). Depending on the
circumstances, that obligation may have to be satisfied by a person other
than the applicant for the declaration of a project as an `eligible
reforestation project'. Therefore, it is important to ensure that persons who
could be subject to, or have their interests in land affected by, the forest
maintenance obligation or forest restoration order, has agreed to the land
being brought into the reforestation scheme.
7.66 Consent may also be required from other persons specified in
regulations. The purpose of this regulation making power is to ensure that
consent is obtained from further categories of persons (if any) whose
interests may be affected by the application of a forest maintenance
obligation.
7.67 Clause 241A defines eligible interests in relation to an area of
Torrens system land. All legal estate or interests registered under a
Torrens system of registration are `eligible interests' for the purposes of
Part 10 of the bill. Other `eligible interests' are forestry rights (as defined
in clause 241) and mortgages or charges over other eligible interests
where those mortgages or charges are registered under the Torrens land
title system [Part 10, Division 14A, clause 241A].
7.68 In relation to an area of Crown land that is not Torrens system
land, the Crown Lands Minister of the State or Territory is taken to hold
an eligible interest with respect to an area of land [Part 10, Division 14A,
clause 241B]. Provisions enabling the Minister to delegate the power to
consent are explained in Chapter 15 of the explanatory memorandum.
7.69 Other eligible interests in Crown land that is not Torrens system
land are forestry rights and legal estates or interests in an area of land. A
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mortgagee or charge of a forestry right or other legal estates or interests is
also deemed to have an `eligible interest' in an area of land.
7.70 As noted above each person with an eligible interest is required
to give consent to an application for a declaration of an eligible
reforestation project and a variation of a project declaration.
7.71 The consent of eligible interest holders must be in a form
approved by the Authority. This allows the Authority to ensure that the
consent form alerts eligible interest holders to potential scheme
obligations [Part 10, Division 5, clause 209(5A)].
7.72 The need to obtain the consent of eligible interest holders creates
an opportunity for negotiation between the person who would obtain a
direct benefit under the Scheme (i.e. the carbon sequestration right holder)
and those other interest holders.
Example 7.1: Consent of farmer
A farmer has the freehold in an area of land. Five years ago he granted
a lease over the land for a certain price.
The lessee (who holds the carbon sequestration right) wants to bring a
reforestation project on the leased land into the reforestation scheme
(by having it declared to be an `eligible reforestation project'). She
needs to obtain the farmer's consent to do this.
As the farmer could potentially become subject to the forest
maintenance obligation, he might refuse to consent to this.
Alternatively, the farmer might give consent in return for a fixed sum,
or a proportion of any units that might be issued under the Scheme in
respect of the reforestation project.
7.73 As noted above, one eligibility criterion is that all `regulatory
approvals' have been obtained for the project. This is intended to ensure
that land use and environmental approvals are in place before a project
can be declared an eligible reforestation project. The term `regulatory
approval' is defined in clause 5 [Part 1, clause 5].
7.74 In order to further enhance the environmental outcomes from the
Scheme, the Government proposes to introduce amendments to ensure
that forests earning emissions units have adequate water entitlements.
Amendments to achieve this outcome are more complex than those
relating to regulatory approvals. The Government will consult States,
Territories and stakeholders before introducing these amendments.
When a declaration takes effect
7.75 A declaration made under clause 209 takes effect either
immediately after it is made or, with the applicant's consent, on an earlier
date specified in the declaration. The declaration cannot take effect before
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1 July 2010, and cannot be backdated more than 5 years prior to the day
on which the application was made [Part 10, Division 5, clause 209(7) and (8)].
7.76 Australian emissions units can be issued for net greenhouse gas
removals from the date that the eligible project declaration takes effect.
Allowing a declaration to be backdated gives small forest growers time to
assess the merits of scheme participation following forest establishment.
Reforestation projects on Indigenous land
7.77 Further amendments are needed to allow `eligible reforestation
projects' on land granted under Commonwealth, State or Territory land
rights legislation (or held for the benefit of Aboriginal peoples or Torres
Strait Islanders under Commonwealth, State or Territory legislation) and
land subject to native title rights, including in relation to providing for
group ownership of carbon sequestration rights.
7.78 Arrangements for reforestation projects on Indigenous held land,
particularly on land subject to native title rights, are complex and require
the input of indigenous stakeholders. To facilitate this, further draft
amendments will be released for public consultation.
Reforestation unit limit
7.79 As soon as practicable after declaring a project to be an eligible
reforestation project, the Authority will issue to the project manager a
notice specifying the reforestation unit limit for the project [Part 10, Division
6, clause 220].
7.80 The unit limit represents the maximum total number of units that
can be issued, over time, in respect of an eligible reforestation project.
7.81 The unit limit will be based, in part, on calculations of net
greenhouse gas removals resulting from the individual forest stands within
the project. It is intended that, in accordance with the regulations, this
calculation will be based on an average of cumulative net greenhouse gas
removals over the time period specified in regulations. These regulations
may be amended from time to time, following a period of notice, to reflect
changes in the accounting rules and the estimation methodology.
7.82 To enable the calculation of the unit limit, the project manager
will be required to provide information on:
· forest management actions, intended and actual (e.g. forest
establishment date, species planted and any harvesting
events).
· natural disturbances such as fire and wind-throw (if and
when they occur).
7.83 The calculation of the unit limit will also take into account the
2008 carbon stock number for the project and any sale of abatement from
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the reforestation project to schemes or projects outside of the Carbon
Pollution Reduction Scheme (the non-CPRS greenhouse gas removals
sales number).
7.84 The unit limit for an eligible reforestation project can be
increased [Part 10, Division 6, clause 221] or decreased [Part 10, Division 6,
clause 222] to reflect changes in circumstances resulting in an increase or
decrease in net greenhouse gas removals arising from the project or a
change in the sale of abatement from the reforestation project to schemes
or projects outside of the Scheme.
7.85 The Authority must notify the project manager in relation to the
reforestation project of the components of the unit limit or the varied unit
limit that is:
· the projected net greenhouse gases removals number
· the non-CPRS greenhouse gases removal sales number
· the 2008 carbon stock number for the project
7.86 It is envisaged that the regulations will mandate the use of an
updated version of the National Carbon Accounting Toolbox (computing
program) for estimating emissions and removals from reforestation
projects.
7.87 The bill clarifies that neither a declaration of a reforestation unit
limit, nor a notice of an increase or decrease in that limit, is a legislative
instrument [Part 10, Division 6, clauses 220(5), 221(5), 222(5)]. These provisions
are simply to assist readers, as the instruments are not legislative
instruments within the meaning of section 5 of the Legislative Instruments
Act 2003, and therefore the procedures in that Act, including for example
disallowance, do not apply.
Obtaining Australian emissions units
Reforestation reports
7.88 The project manager in respect of an eligible reforestation
project must submit a reforestation report to the Authority in the manner
and form and be accompanied by such documents (if any), specified by
regulations [Part 10, Division 8, clause 225]. This is a civil penalty provision.
7.89 The regulations may, for instance, specify the data that will be
required in reports, for example, information on forest establishment date,
forest species, harvesting and thinning schedules (if any) and natural
disturbance events (if any). The information may relate to a matter arising
before, during or after the reporting period.
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7.90 It is intended that the regulations will specify that reforestation
reports need to include information on all forest stands included in the
reforestation project.
7.91 Record-keeping arrangements relating to information provided
to the Authority under Part 10 of the bill are explained in Chapter 11 of
the explanatory memorandum.
7.92 Making of false and misleading statements in a reforestation
report may be an offence under the Criminal Code.
Reforestation reporting periods
7.93 The project manager in relation to an eligible reforestation
project must submit the first reforestation report in respect of the project
within 5 years but not earlier than 12 months after the project declaration
takes effect [Part 10, Division 7, clause 223].
7.94 Subsequent reforestation reports must be submitted within
5 years but not earlier than 12 months after the previous report was
submitted [Part 10, Division 7, clause 224].
7.95 A reporting period for a project does not need to be nominated
in advance. A reporting period is, in effect, nominated when a report is
submitted [Part 10, Division 7, clauses 223, 224].
Additional notification requirements
7.96 The regulations may specify additional notification requirements
on the project manager. It is intended that these will specify matters such
as ceasing to control a reforestation project and clearing a forest stand
[Part 10, Division 11, clause 235A]. This is a civil penalty provision.
Issue of Australian emissions units
7.97 The Authority will issue to the holder of a certificate of
reforestation the number of free Australian emissions units specified in the
certificate. Units will be issued as soon as practicable after the certificate
has been issued.
7.98 The financial year in which the units are issued will be the
vintage year of the units other than the eligible financial year beginning on
1 July 2011. Australian emissions unit issued to the holder of a certificate
of reforestation during the financial year beginning on 1 July 2011 are to
have a vintage year beginning on 1 July 2012 [Part 10, Division 2, clause 191].
No units will be issued in the first year of the Scheme because a
reforestation report can only be submitted 12 months after the initial
declaration. The reason for issuing vintages beginning on 1 July 2012 for
sequestration that occurred in 2010-11 is that 2011-12 vintage units will
be issued for a fixed charge of $10 which is expected to be lower than the
prices of later vintages. Further 2011-12 vintage units cannot be banked
for use in future years.
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7.99 Units can only be issued if the entity has a Registry account
[Part 10, Division 2, clause 191].
Certificate of reforestation
7.100 A certificate of reforestation specifies the number of free
Australian emissions units that will be issued to the certificate holder. A
certificate of reforestation will only be issued to the holder of the carbon
sequestration right in respect of the project.
7.101 If the Authority issues a certificate of reforestation to the carbon
sequestration right holder and that person is not also the project manager
the Authority must give a copy of the certificate to the project manager.
7.102 Under the reforestation scheme, only project managers will be
eligible to apply for a certificate of reforestation [Part 10, Division 3, clause
192].
7.103 A certificate of reforestation is not transferable [Part 10, Division 3,
clause 197].
Application process
7.104 An application for a certificate of reforestation can be made if
the project manager has submitted a reforestation report to the Authority
-- that is, a report relating to an eligible reforestation project [Part 10,
Division 3, clause 192].
7.105 An application must be in a form approved by the Authority
[Part 10, Division 3, clause 193].
7.106 The regulations may specify an application fee [Part 10, Division 3,
clause 193]. The purpose of the fee is to enable the Authority to recover
costs associated with processing the application.
7.107 An application may be set out in the same document as the
reforestation report [Part 10, Division 3, clause 192].
7.108 It is anticipated that all Scheme documents will be available, and
able to be completed and submitted electronically, via the internet.
7.109 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. The Authority must exercise this
power reasonably. [Part 26, clause 374B] Where that information is not
provided within the time frame specified in the notice, the Authority may
refuse to consider or take any further action in relation to the application
[Part 10, Division 3, clause 194].
7.110 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days of being given the
application or, where relevant, further information. If the Authority
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refuses to issue a certificate, written notice of this must be given to the
applicant [Part 10, Division 3, clause 195].
Criteria for issuance
7.111 Following submission of a reforestation report, the Authority
must issue the certificate to the carbon sequestration right holder in
relation to the eligible reforestation project for the reporting period if the
following conditions are met:
· the Authority is satisfied that the applicant is a recognised
reforestation entity and is the project manager in relation to
the eligible reforestation project
· the applicant is not subject to a requirement under Part 10 to
relinquish units in relation to a reforestation project
· the applicant is not subject to an outstanding requirement to
pay an administrative penalty in relation to a reforestation
project
· over the period covered by the report, the reforestation
project has resulted in a net increase in greenhouse gas
removals of at least one tonne
· the total net total number of tonnes of greenhouse gases
removed by the project are greater than the net total number
of units issued in respect of the project
· units have not yet been issued up to the unit limit for the
project
· the carbon stock number for the project is greater than the
2008 carbon stock number
· the Authority is satisfied that, if the regulations specify any
additional eligibility requirements, those requirements have
been met [Part 10, Division 3, clause 195].
7.112 Australian emissions units cannot be issued in respect to net
greenhouse gas removals from a forest stand that is situated wholly or
partly on Torrens system land until notification of the existence of a
reforestation project is included on the title register under clause 236 of
the bill [Part 10, Division 3, clause 195(3A)]. This is designed to ensure that all
persons with a prospective interest in the land are alerted to the existence
of an eligible reforestation project before units are issued.
7.113 Regulations will specify the way in which the `net total number
of tonnes of greenhouse gases removed' as a result of a reforestation
project is to be worked out. It is envisaged that the regulations will
mandate the use of an updated version of the National Carbon Accounting
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Toolbox for estimating emissions and removals from reforestation
projects.
7.114 The `net total number of Australian emissions units issued in
relation to the project' is calculated by subtracting from the total number
of units that have been issued for the project the total number of units that
have already been relinquished in relation to the project [Part 10, Division 15,
clause 242].
Unit entitlement
7.115 The unit entitlement for a reforestation reporting period to be
specified in a certificate of reforestation will be the lesser of [Part 10,
Division 3, clause 196]:
· the net total number of tonnes of greenhouse gases removed
by the forest stand or stands in the project less the net total
number of units issued in relation to the project; or
· the reforestation unit limit less the net total number of units
issued in relation to the project.
7.116 Units will only be issued for net greenhouse gas removals that
occur after the date on which the forest stand was included as part of an
eligible reforestation due either through the initial declaration of the
reforestation project or a subsequent variation to the declaration of the
reforestation project [Part 10, Division 3, clause 196(3A)].
7.117 The intention is that the calculation of the unit entitlement will
be undertaken using information provided by the project manager on:
· forest management actions (e.g. forest establishment date,
species planted and any harvesting events)
· natural disturbances such as fire and wind-throw.
7.118 Units will only be issued as net greenhouse gas removals occur,
not in advance.
Variation and revocation of an eligible reforestation project
Voluntary variation
7.119 A person can apply to vary the boundaries of the area or areas of
land involved in the project [Part 10, Division 5, clause 210]. If accepted, such
a variation would be effected by means of the variation of the declaration
of the project as an eligible reforestation project.
7.120 It is intended that an application for a variation could be made at
the same time as a reforestation report on the project is submitted.
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7.121 An application must be in the approved form and must be
accompanied by the information and documents (if any) specified in the
regulations [Part 10, Division 5, clause 210].
7.122 The regulations may specify an application fee. The purpose of
the fee is to enable the Authority to recover costs associated with
processing the application.
7.123 The criteria on which the Authority is to decide an application
for variation of a project (set out in clause 212) are the same as those that
apply where the Authority is considering whether to declare a
reforestation project to be an `eligible reforestation project' (see clause
209). The Authority cannot make the variation requested by the person
unless satisfied that the project (as varied) will meet those criteria [Part 10,
Division 5, clause 212].
7.124 An application for variation of a project can be withdrawn at any
time before the Authority has made a decision on the application [Part 10,
Division 5, clause 211].
7.125 If an application is withdrawn, the Authority is required to
refund any application fee paid by the applicant [Part 10, Division 5,
clause 211].
7.126 Withdrawal of an application does not prevent the applicant
from making a fresh application for variation of the project boundaries
[Part 10, Division 5, clause 211].
7.127 The Authority must take all reasonable steps to ensure that a
decision is made on an application for variation within 90 days of the
application or, if the applicant was required to provide further information
in connection with the application, receipt of that information [Part 10,
Division 5, clause 212]. The Authority must ensure that any information
requested is relevant to its consideration of the application and must
exercise its powers reasonably. [Part 26, clause 374B]
7.128 A variation made under clause 212 takes effect either
immediately after it is made or, with the applicant's consent, on an earlier
date specified in the variation. The declaration must relate to the first day
of a reforestation reporting period for the project, cannot take effect before
1 July 2010, and cannot be backdated more than 5 years prior to the day
on which the application for variation was made [Part 10, Division 5, clause
212].
7.129 If the Authority decides to refuse to make the requested
variation, the applicant must be given written notice of this [Part 10,
Division 5, clause 212].
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Unilateral variation
Clearing of part of a forest
7.130 In certain circumstances, the Authority will be required to vary
the declaration of a project as an eligible reforestation project.
7.131 Under clause 213 and 213A, such a variation must be made if a
part of a project area or the whole of a project area (in a multiple area
project) involved in the project has remained clear of a forest stand for a
continuous period of at least 5 years [Part 10, Division 5, clause 213, 213A].
7.132 In these circumstances, the Authority must, in writing, vary the
declaration so as to exclude the area of land that has remained clear of a
forest stand [Part 10, Division 5, clause 213, 213A].
· This will reduce the scope for `gaming' in relation to the unit
limit for a project by means of the inclusion in the project of
areas of land on which it is not in fact intended that a forest
will be established.
Eligibility criteria not met
7.133 Under clause 214 and 214A the Authority may unilaterally vary
the declaration of a project as an eligible reforestation project if a part of a
project area or the whole of a project area (in a multiple area project)
involved in the project ceases to meet one or more of the eligibility
criteria relating to eligible reforestation projects [Part 10, Division 5,
clause 214, 214A].
· This could occur, for example, if it were determined that the
vegetation established for the purposes of a reforestation
project is comprised of species that do not have the potential
to reach a height of at least 2 metres.
7.134 Before varying a declaration on this basis, the Authority must
inform the relevant person of the proposed variation, and invite that
person to make a submission about the proposal. If such a submission is
made, the Authority must consider this in deciding whether to vary the
declaration.
Ceasing to hold the carbon sequestration right
7.135 Under clause 214B and 214C the Authority must unilaterally
vary the declaration of a project as an eligible reforestation project if a
person ceases to hold the carbon sequestration right in relation to a part of
the project area or a whole of a project area (in a multiple area project)
[Part 10, Division 5, clause 214B, 214C].
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Project area variations - notification requirements
7.136 The Authority must notify the project manager and the carbon
sequestration right holder (if not the same person as the project manager)
in relation to a project as soon as practicable after varying a declaration of
eligible reforestation project [Part 10, Division 5, clause 212(7), 213(3), 213A
(3),214(5), 214A(5), 214B(3), 214C(3)].
Project area variations - effect on project managers
7.137 A variation to the project declaration will not affect a person's
status as the project manager so long as other scheme eligibility criteria
(including that there is only a single carbon sequestration right holder in
relation to the project) continue to be met [Part 10, Division 3A, clauses
197A(2)&197B(5)].
Voluntary revocation
7.138 The project manager in relation to a reforestation project may
apply to the Authority for the revocation of the declaration that declares
the project to be an eligible reforestation project.
7.139 In effect, this provision allows a project manager to `opt out' of
the reforestation scheme.
7.140 If an applicant for such a revocation has relinquished the net
total number of units (if any) that have been issued in relation to the
project, the Authority must revoke the declaration [Part 10, Division 5,
clause 215, 216].
7.141 An application must be in the approved form [Part 10, Division 5,
clause 215, 216].
7.142 As soon as practicable after revoking the declaration, the
Authority will give the project manager and the carbon sequestration right
holder (if not the same person as the project manager) in relation to the
project a copy of the revocation [Part 10, Division 5, clause 215, 216].
Unilateral revocation
Forest cleared
7.143 If the whole of the project area (or areas) involved in a project
has remained clear of a forest stand for a continuous period of at least
5 years, the Authority must revoke the declaration of the project as an
eligible reforestation project [Part 10, Division 5, clause 217].
· This could occur because, for example, the reforestation
project was not undertaken, or the forests involved in the
project are cleared and not re-established. If units have been
issued in respect of the project, a relinquishment notice
would be issued following such a revocation.
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Eligibility criteria not met
7.144 The Authority may unilaterally revoke the declaration of a
project as an eligible reforestation project if satisfied that the project does
not satisfy one or more reforestation scheme eligibility requirements
[Part 10, Division 5, clause 218].
· This could occur where, for example, the forest involved in
the project was harvested and subsequent re-establishment
used a species that did not have the potential to reach a height
of at least 2 metres, or establishment was not properly carried
out and, as a result, the vegetation did not have the potential
to attain a crown cover of at least 20 percent.
7.145 Before revoking a declaration on this basis, the Authority must
inform the carbon sequestration right holder of the proposed revocation,
and invite that person to make a submission about the proposal. If such a
submission is made, the Authority must consider this in deciding whether
to revoke the declaration.
Ceasing to be a recognised reforestation entity
7.146 The Authority may revoke the declaration of a project as an
eligible reforestation project where the project manager is not a
recognised reforestation entity for a period of at least 90 days (if the
project manager is the carbon sequestration right holder) or, if the project
manager is not also the carbon sequestration right holder, 90 days after the
carbon sequestration right holder is notified that the project manager is not
a recognised reforestation entity [Part 10, Division 5, clause 218A].
· This could occur, for example, because the Authority has
cancelled the project manager's recognition as a reforestation
entity under clause 202 of the bill or the project manager has
surrendered their recognition as a recognised reforestation
entity under clause 203 of the bill.
Transfer of carbon sequestration right
7.147 The Authority must revoke the declaration of a project as an
eligible reforestation project where the person who held the carbon
sequestration right (and was also the project manager) in relation to the
project ceases to hold that right, and, within 90 days of that occurrence,
there was no `scheme obligation transfer agreement' in force [Part 10,
Division 5, clause 219].
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7.148 A person may cease to hold a carbon sequestration right for a
number of reasons, for example:
· The carbon sequestration right has been sold to another
person.
· The carbon sequestration right resulted from the person
holding an interest in the relevant area of land -- for
example, a lease -- for a fixed period of time, and that period
has expired.
· The carbon sequestration right has passed to a beneficiary
under a will.
7.149 If the person who held the carbon sequestration right in relation
to the project ceases to hold that right, the person must, within 90 days
after the cessation occurs, notify the Authority [Part 10, Division 11,
clause 235]. This is a civil penalty provision.
7.150 If there is a project manager in place (who is not also the carbon
sequestration right holder), then neither that person's status as the project
manager nor the continuity of the Scheme obligation transfer agreement
will be affected by a transfer of the carbon sequestration right [Part 10,
Division 3A, clauses 197A(2)&197B(4)].
7.151 These provisions will apply so long as other scheme eligibility
criteria (including that there is only a single carbon sequestration right
holder in relation to the project) continue to be met.
Project manager ceases to control reforestation project
7.152 The Authority must revoke the project declaration if a project
manager (who does not also hold the carbon sequestration right) ceases to
have control of the reforestation project [Part 10, Division 5, clause 219A].
However, the Authority must only revoke the declaration if 90 days have
passed since the Authority notified the carbon sequestration right holder
that the project manager ceased to control the forest. This gives the carbon
sequestration right holder the opportunity to assume scheme obligations
under clause 197C and cancel the Scheme obligation transfer agreement.
7.153 A person may cease to have control of the forest for a number of
reasons, for example:
· the forestry right has been sold to another person
· the forestry right was for a fixed period of time, which has
expired
· a contract that conferred on the person the control of the
forest has expired.
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Project revocation - notification requirements
7.154 The project manager and the carbon sequestration right holder
(if not the same person as the project manager) in relation to a project will
be notified as soon as practicable of a revocation of the declaration of
eligible reforestation project [Part 10, Division 5, clause 215(4), 216(4), 217(3),
218(5), 218A(3), 219(3), 219A(3)].
Variations and revocations are not legislative instruments
7.155 The bill clarifies that the instruments which vary and revoke a
declaration of an eligible reforestation project are not legislative
instruments [Part 10, Division 5, clauses 212(10), 213(5), 213A(5), 214(7),214A(7)
214B(5), 214C(5), 215(5), 216(5), 217(4), 218(6),218A(4), 219(4), 219A(4)]. These
provisions are simply to assist readers, as the instruments are not
legislative instruments within the meaning of section 5 of the Legislative
Instruments Act 2003, and therefore the procedures in that Act, including
for example disallowance, do not apply.
Relinquishment of Australian Emissions Units
Relinquishment -- revocation of eligible project
7.156 The Authority will issue a notice of relinquishment to the project
manager in relation to a project if the declaration of the project as an
eligible reforestation project has been revoked and units have been issued
for the project [Part 10, Division 10, clause 232].
7.157 The notice of relinquishment will be for the net total number of
units issued in relation to the reforestation project.
7.158 The Authority must not issue such a notice if 100 years have
passed since the first units were issued in relation to the project or, if the
project has been varied, at the end of 100 years after the last occasion on
which the declaration was varied [Part 10, Division 10, clause 232]. Enforcing
scheme obligations for a period of 100 years is consistent with
`permanence' obligations under existing greenhouse gas mitigation
schemes.
Relinquishment -- decrease in reforestation unit limit
7.159 The Authority will issue a notice of relinquishment to the project
manager in relation to an eligible reforestation project if there is a
decrease in the unit limit for the project and the number of units that have
already been issued exceeds this decreased number.
7.160 The notice must specify the number of units that must be
relinquished, which will be the difference between the net total number of
units issued and the new (lower) unit limit for the project.
7.161 The Authority must not issue such a notice if 100 years have
passed since the first units were issued for the project or, if the project has
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been varied, at the end of 100 years after the last occasion on which the
declaration was varied [Part 10, Division 10, clause 233].
7.162 Clause 197A(3) makes clear that if a project manager is issued
with a notice to relinquish units (under clause 232 or clause 233) and then
ceases to be the project manager the requirement to relinquish Australian
emissions units does not cease.
Penalties for failing to relinquish
7.163 Chapter 11 of the explanatory memorandum contains a detailed
discussion of the penalties for failure to comply with a requirement to
relinquish Australian emissions units.
Restructure of reforestation projects
7.164 The bill allows a project area or a part of a project area to be
transferred to other projects, both where the transfer:
· creates a new project [Part 10, Division 6A, clause 222A]
· adds the area to an existing project [Part 10, Division 6A, clause
222B]
7.165 A transfer can only occur where there is a scheme obligation
transfer agreement in place and where the declaration is varied (under
clause 214B or 214C) because the carbon sequestration right is transferred
in relation to part of a project area or a whole of a project area.
7.166 In both transfer circumstances, the Authority will determine the
numbers associated with the relevant area and then add these numbers to
those of the new of receiving project when it:
· issues a certificate of reforestation
· calculates the net total number of units issued.
7.167 In both transfer circumstances, the Authority will also determine
the numbers associated with the relevant area and then deduct those
numbers from those of the old project whenever it:
· issues a certificate of reforestation
· calculates the net total number of units issued.
7.168 In making these determinations, the Authority will comply with
the regulations that specify how these numbers from reforestation projects
are to be calculated.
Forest maintenance obligation
7.169 In very limited circumstances, a person may become subject to a
forest maintenance obligation in relation to an area of land that is or was a
project area involved in an eligible reforestation project.
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Carbon Pollution Reduction Scheme Bill 2009
7.170 The forest maintenance obligation under clause 226 is designed
to preserve the environmental integrity of the Scheme; that is, to ensure
that reforestation activities for which scheme units have been issued
provide long term carbon storage. This is a civil penalty provision.
7.171 A forest maintenance obligation may be declared by the
Authority where:
· A relinquishment notice was issued to the person who is, or
was, the project manager but that person has not complied
with the notice within 90 days
· The Authority is satisfied a relinquishment notice has been
issued or is likely to be issued to the project manager and it is
likely that this person will not comply with the notice within
90 days [Part 10, Division 9, clause 226].
7.172 The forest maintenance obligation will come into force when a
copy of the declaration is issued to the project manager [Part 10, Division 9,
clause 226(10)].
7.173 A forest maintenance obligation will apply against all project
areas within the reforestation project [Part 10, Division 9, clause 226].
7.174 If a forest maintenance obligation applies to an area of land, a
person must not engage in conduct that has or is likely to have the result
that a forest stand or forests stands will be removed from the area or that
the amount of carbon stored in the forest stand or forest stands is less than
the amount that was present on the site at the time the obligation was
applied [Part 10, Division 9, clause 226(7)].
7.175 For each area of land, the Authority may specify permitted forest
activities, including the manner in which the activity can be performed
[Part 10, Division 9, clause 226(3)]. These activities can be tailored to each area
or areas of land to reflect, for example, differences in geographical
location, species or prior management history. This will allow harvest
forests to be maintained (cleared and re-established) while an area is
subject to a forest maintenance obligation.
7.176 The Authority must take all reasonable steps to ensure that a
copy of the forest maintenance obligation declaration is given to the
project manager, the carbon sequestration right holder (if they are not also
the project manager), the relevant land registration official and each
person who holds an eligible interest in the project area or project areas,
for example a separate landholder or forestry right holder [Part 10, Division
9, clause 226(5)].
7.177 A person may apply to the Authority to vary or revoke the forest
maintenance obligation. The Authority may vary or revoke the forest
maintenance obligation on its own initiative or in response to such an
application [Part 10, Division 9, clause 226A].
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Chapter 7: Reforestation
7.178 The forest maintenance obligation will cease when:
· it is revoked by the Authority (either on the Authority's own
initiative, on application made to the Authority by a person
or because a person voluntarily relinquishes a number of
Australian emissions units that is equivalent to the total net
number of units issued in relation to the project [Part 10,
Division 9, clause 226A&226B].
· all outstanding penalties associated with the project
manager's failure to comply with relinquishment are paid
· at the end of 100 years after the first Australian emissions
unit was issued in relation to the project or if the project was
varied, at the end of 100 years after the last occasion on
which the project was varied [Part 10, Division 9, clause 226].
7.179 It should be noted that the cessation of the forest maintenance
obligation will not mean that the forest can be dealt with contrary to any
other obligations or requirements that may apply under other legislative
regimes, such as, for example, State or Territory planning or vegetation-
related laws.
Forest restoration order
7.180 A forest restoration order may only be made by the Authority if
a forest maintenance obligation is in force and a person has contravened
or is contravening that forest maintenance obligation [Part 10, Division 9,
clause 226C]. This is a civil penalty provision.
7.181 The Authority may order a person to manage and maintain a
forest stand in accordance with the requirements specified in the forest
restoration order or, if no forest stand exists on the area or areas of land,
require the person to establish one or more forests stands and then manage
and maintain those forest stands in accordance with the requirements
specified in the order [Part 10, Division 9, clause 226C(2)].
7.182 The Authority must take all reasonable steps to ensure that a
copy of the restoration order is given to the project manager, the carbon
sequestration right holder (if they are not also the project manager), the
relevant land registration official and each person who holds an eligible
interest in the project area or areas, for example, a separate landholder or
forestry right holder [Part 10, Division 9, clause 226C(5)].
7.183 The Authority may vary or revoke the forest restoration order on
its own initiative or another person may apply to the Authority to vary or
revoke the order [Part 10, Division 9, clause 226D].
7.184 The forest restoration order will cease if revoked by the
Authority or at the end of the period of the forest maintenance obligation
[Part 10, Division 9, clause 226C(7)].
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Carbon Pollution Reduction Scheme Bill 2009
Declarations are not legislative instruments
7.185 A declaration or variation of the forest maintenance obligation
or the forest restoration order are not legislative instruments [Part 10,
Division 9, clause 226(11), 226A(8), 226C(11), 226D(8)]. These provisions are
simply to assist readers, as the instruments are not legislative instruments
within the meaning of section 5 of the Legislative Instruments Act 2003,
and therefore the procedures in that Act, including for example
disallowance, do not apply.
Injunctions
7.186 The Authority may apply to the Federal Court for an injunction
requiring a person to do or not do something to ensure the forest
maintenance obligation or forest restoration order is complied with [Part
10, Division 9, clause 227, 230, 231].
7.187 The Federal Court may grant an interim injunction before
considering the application for an injunction [Part 10, Division 9, clause 228].
7.188 The Federal Court may discharge or vary any injunction granted
with respect to a forest maintenance obligation or a forest restoration
order [Part 10, Division 9, clause 229].
Register of Reforestation Projects
7.189 The Authority must keep a public, electronic register of
reforestation projects [Part 10, Division 13, clause 238].
7.190 The Register will contain information about eligible
reforestation projects including :
· the project boundaries
· the name of the person who is the carbon sequestration right
holder and the project manager in relation to the project
· the unit limit for the project
· the number of units that have been issued in relation to the
project and the person or persons to whom they have been
issued
· the number of units (if any) that have been relinquished in
connection with the project
· whether the land involved in the project is subject to a forest
maintenance obligation
· additional information included at the request of the project
manager, for example describing the project's biodiversity
values
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Chapter 7: Reforestation
· such further information (if any) relating to the reforestation
project as the Authority considers appropriate [Part 10, Division
13, clause 239]
7.191 The register will serve two purposes. The first is to provide
information to prospective buyers of interests in the land on which an
eligible reforestation project is being, or was, carried out about potential
scheme benefits, as well any liabilities that have arisen in connection with
the project. The second is to provide information to the market about the
number of units likely to be issued in respect of net greenhouse gas
removals resulting from eligible reforestation projects.
7.192 Any additional information included on the register at the
request of the project manager will facilitate the sale of units from projects
that also deliver additional benefits at a premium. The regulations will
specify the kind of additional information that can be included in the
register and it is intended that this include only factual information that
has been substantiated by relevant documentation.
Entries in title registers
7.193 Clause 236 of the bill is concerned with the making of entries
by State or Territory Registrars of Title (or similar) in land titles registers
in relation to eligible reforestation projects that are, or were, carried out on
areas of land included in those registers [Part 10, Division 12, clause 236].
7.194 Such entries will ensure that, if an area of land is the subject of
an eligible reforestation project, prospective purchasers of interests in the
land are made aware of that fact and can then ascertain what, if any,
implications this may have under the reforestation scheme.
7.195 Clause 237 is specifically concerned with the making of entries
in land titles registers to ensure that, where an area of land included in
such a register is subject to a forest maintenance obligation under the
reforestation scheme, prospective purchasers' attention is drawn to that
fact [Part 10, Division 12, clause 237].
7.196 It is intended that the Authority will have administrative
arrangements in place to ensure that State and Territory land titles
officials receive timely notification of the declaration of eligible
reforestation projects, variations and revocations of such declarations, and
when land becomes subject to a forest maintenance obligation.
Transitional provisions
7.197 The bill provides transitional arrangements for forests that have
received carbon credits under existing schemes for sequestration that
occurred prior to the commencement of the Scheme. This enables forest
permanence obligations that were created under existing schemes to be
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Carbon Pollution Reduction Scheme Bill 2009
enforced through the Scheme, thereby removing a barrier to winding up
these existing schemes.
7.198 A person who has applied for a declaration of eligible
reforestation project may apply for a determination in relation to transition
of a reforestation project from a non-CPRS reforestation scheme [Part 10,
Division 16, clause 243].
7.199 A request for determination can only be made for a period of
two years after the reforestation component of the Scheme begins. A time
limit is appropriate given these are transitional arrangements designed to
facilitate the winding up of existing, duplicative greenhouse gas
abatement schemes.
7.200 The request must be in a form approved by the Authority and be
accompanied by such information and documents as specified in the
regulations [Part 10, Division 16, clause 243A].
7.201 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. Where that information is not provided
within the time frame stated in the notice the Authority may refuse to
consider or take any further action in relation to the application [Part 10,
Division 16, clause 243B].
7.202 If requested, the Authority can make a determination that for a
project area that was or is covered by an existing greenhouse gas
abatement scheme (referred to as a prescribed non-CPRS reforestation
scheme), a specified number of units will be added to the maximum
number of units that may be required to be relinquished for the project
[Part 10, Division 16, clause 243C]. In making the determination, the Authority
must comply with the regulations.
7.203 Whether or not project managers will request such a
determination will depend, in part, on the requirements of existing
greenhouse gas abatement schemes.
7.204 It is intended that the regulations will specify that the
Greenhouse Gas Reduction Scheme and Greenhouse Friendly are
prescribed non-CPRS reforestation schemes. It is also intended that the
regulations will specify that the Authority will seek advice from the
administrators of the Greenhouse Gas Reduction Scheme and Greenhouse
Friendly to determine the number of units to be added to the maximum
relinquishment requirement under the CPRS.
7.205 A determination in relation to transition of a reforestation project
from a non-CPRS reforestation scheme is not a legislative instrument [Part
10, Division 16, clause 243C(6)]. This provision is simply to assist readers, as
the instrument is not a legislative instrument within the meaning of
section 5 of the Legislative Instruments Act 2003, and therefore the
procedures in that Act, including for example disallowance, do not apply.
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Chapter 8
Destruction of synthetic greenhouse
gases
Outline of chapter
8.1 This chapter describes the circumstances under which free
Australian emissions units may be issued for the destruction of synthetic
greenhouse gases.
8.2 The chapter explains how an application for a certificate of
eligible synthetic greenhouse gas destruction is to be made, pursuant to
which free Australian emissions units will be issued. The chapter also
outlines the process of recognising a person as a synthetic greenhouse gas
destruction customer -- one type of entity eligible to apply for a
certificate of eligible synthetic greenhouse gas destruction.
Context of new law
8.3 As outlined in Chapter 1, liability for synthetic greenhouse gas
emissions is imposed on entities which import or manufacture synthetic
greenhouse gases, based on the carbon dioxide equivalence of these gases.
Applying liability in this way assumes that gases are emitted. However a
portion of these gases may be recovered from the equipment in which they
are employed, and may be destroyed in high temperature incineration
devices.
8.4 Free Australian emissions units will be issued to companies that
destroy, or arrange for the destruction of, synthetic greenhouse gases in
accordance with scheme verification requirements. This will provide an
incentive for the recovery and disposal of these gases. It will also enable
persons to recoup the cost of scheme liability imposed on gases that are
subsequently recovered and destroyed. By increasing available abatement
options, this will enable the Scheme cap to be achieved at a lower cost
than would otherwise be possible.
Summary of new law
8.5 The Authority may, upon application by an eligible entity, issue
a certificate of eligible synthetic greenhouse gas destruction. [Part 11,
Division 3, clause 246] A certificate may be issued to a recognised synthetic
greenhouse gas destruction customer or the operator of an approved
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Carbon Pollution Reduction Scheme Bill 2010
synthetic greenhouse gas destruction facility and is issued, broadly, on the
basis that the customer or facility has destroyed or arranged for the
destruction of eligible synthetic greenhouse gases in accordance with
scheme requirements.
8.6 The certificate must state that a specified number is the unit
entitlement in respect of the certificate. [Part 11, Division 3, clause 249] The
Authority must issue, to the holder of a certificate of eligible synthetic
greenhouse gas destruction, a number of free Australian emissions units
equal to the number specified in the certificate as the unit entitlement for
that certificate. [Part 11, Division 2, clause 245]
8.7 A simplified outline is included in Part 11 of the bill. [Part 11,
Division 1, clause 244]
Detailed explanation of new law
Eligibility to apply for a certificate of eligible synthetic greenhouse gas
destruction
8.8 Only recognised customers of synthetic greenhouse gas
destruction facilities and operators of an approved synthetic greenhouse
gas destruction facility will be eligible to apply for a certificate of eligible
synthetic greenhouse gas destruction, in respect of which free Australian
emissions units may be issued. [Part 11, Division 3, clause 246]
Approved customers of SGG destruction facilities
8.9 A company that is not an operator of an approved synthetic
greenhouse gas destruction facility will need to be recognised as a
synthetic greenhouse gas destruction customer before it is entitled to make
an application for a certificate of eligible synthetic greenhouse gas
destruction. A company must apply to the Authority to become a
recognised synthetic greenhouse gas destruction customer. [Part 11,
Division 4, clause 253]
8.10 The regulations will specify information and documents (if any)
that a person will be required to submit as part of an application. The
purpose of such information and documents is to enable the Authority to
make a decision on an application. [Part 11, Division 4, clause 254]
8.11 The Authority may, by written notice, require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. The Authority must ensure that the
information requested is relevant to its consideration of the application
and must exercise this power reasonably. [Part 26, clause 374B] In the event
that information is not provided within the time frame stated on the notice,
the Authority may refuse the application. [Part 11, Division 4, clause 255]
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Chapter 8: Destruction of synthetic greenhouse gases
8.12 The regulations may specify an application fee. The purpose of
the fee is to enable the Authority to recover costs associated with
processing the application. An application fee is considered appropriate
given that participation in destruction under the Scheme will be voluntary,
open to any company, and will deliver financial benefits. Moreover, the
Authority will incur costs in the process of conducting fit and proper
person tests. [Part 11, Division 4, clause 254]
8.13 The Authority may recognise a company as a synthetic
greenhouse gas destruction customer if satisfied that the company is a fit
and proper person. In making this assessment the Authority must have
regard to matters that include any convictions against a law of the
Commonwealth, State or Territory relating to dishonest conduct, breaches
of this Act or the associated provisions, and whether the company is under
external administration. The Authority may also consider such other
matters (if any) that it considers relevant. [Part 11, Division 4, clause 256]
8.14 The regulations may specify additional eligibility criteria, such
as a requirement that the applicant have some other type of approval or
licence under a Commonwealth, State or Territory law that is relevant to
synthetic greenhouse gas destruction.
8.15 The application of a fit and proper person test seeks to minimise
the risk of any fraudulent activity in relation to destruction of synthetic
greenhouse gases under the Scheme.
8.16 The Authority will have the power to cancel a company's
recognition where the Authority is no longer satisfied that the company
remains a fit and proper person having regard to the same criteria. [Part 11,
Division 4, clause 257]
8.17 A recognised synthetic greenhouse gas destruction customer
may surrender the customer's recognition by written notice to the
Authority. [Part 11, Division 4, clause 258]
8.18 If a company is a recognised synthetic greenhouse gas
destruction customer, the company's recognition is not transferable.
[Part 11, Division 4, clause 259]
Approved SGG destruction facilities
8.19 The term `approved synthetic greenhouse gas destruction
facility' is defined by reference to the meaning it is proposed it be given in
the Ozone Protection and Synthetic Greenhouse Gas Management
Regulations 1995. [Part 1, clause 5, definition of `approved synthetic greenhouse gas
destruction facility'] This definition anticipates amendments to the Ozone
Protection and Synthetic Greenhouse Gas Management Regulations 1995
that will provide for the approval of synthetic greenhouse gas destruction
facilities.
8.20 It is anticipated that the approval process would build on
existing processes in place to approve `refrigerant destruction facilities'
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Carbon Pollution Reduction Scheme Bill 2010
and `extinguishing agent destruction facilities' and involve, amongst other
things, the applicant:
· demonstrating that the facility can destroy one or more of the
three classes of synthetic greenhouse gas --
hydrofluorcarbons (HFCs), perfluorocarbons (PFCs) and
sulphur hexafluoride (SF6)
· passing a fit and proper person test similar to that required of
recognised customers of synthetic greenhouse gas destruction
facilities.
Certificate of eligible synthetic greenhouse gas destruction
Application process
8.21 Applications for a certificate of eligible synthetic greenhouse
gas destruction can be made within 4 months of the end of a financial
year. [Part 11, Division 3, clause 246] An application must be in an approved
form and must be accompanied by such information and documents (if
any) as specified in the regulations. [Part 11, Division 3, clause 247]
8.22 The Authority may, by written notice require an applicant to
give further information in respect of an application. If the applicant fails
to provide the required information within the period specified in the
notice the Authority may refuse to consider the application or refuse to
take any action, or any further action in relation to the application. [Part 11,
Division 3, clause 248]
8.23 An application must specify one or more synthetic greenhouse
gas destruction events. [Part 11, Division 3, clause 246]
8.24 A synthetic greenhouse gas destruction event means an event
that consists of the destruction of a particular quantity of a particular kind
of synthetic greenhouse gas. [Part 1, clause 5, definition of `synthetic greenhouse
gas destruction event']
8.25 An application may be made by a person in the person's
capacity as an approved synthetic greenhouse gas destruction facility, or a
recognised customer of a synthetic greenhouse gas destruction facility, but
not both. [Part 11, Division 3, clause 246]
8.26 Allowing approved synthetic greenhouse gas destruction
facilities, or recognised customers of synthetic greenhouse gas destruction
facilities, to apply for a certificate of eligible synthetic greenhouse gas
destruction will increase opportunities for this form of abatement. This
also enables destruction facilities and their customers to determine the
most efficient option for submitting applications for synthetic greenhouse
gas destruction.
8.27 A test based on entitlement to receive consideration under a
contract is used to distinguish between:
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· when a destruction facility contracts a recognised customer to
supply the destruction facility with waste synthetic
greenhouse gas that the destruction facility subsequently
destroys, and
· when a recognised customer contracts a destruction facility to
provide a destruction service.
[Part 11, Division 3, clause 250(2)] [Part 11, Division 3, clause 250(3)]
8.28 To be eligible for free Australian emissions units, an application
must also be for a minimum amount of synthetic greenhouse gas
destruction. The purpose of this threshold is to ensure that the Authority is
not burdened by a large number of applications for small destruction
events or a large number of applications from small operations. This will
also increase the efficiency of synthetic greenhouse gas destruction.
Issue of certificate to recognised synthetic greenhouse gas destruction
customer
8.29 The Authority may issue a certificate to a recognised synthetic
greenhouse gas destruction customer who makes an application in that
capacity where:
· the Authority is satisfied that the following conditions are
met in relation to each synthetic greenhouse gas destruction
event specified in the application:
- the event occurred during the relevant financial year
- the applicant was a recognised synthetic greenhouse gas
destruction customer at the time the event occurred
- the synthetic greenhouse gas was destroyed at an
approved synthetic greenhouse gas destruction facility
under a contract between the applicant and the operator of
the facility
- the applicant incurred expenditure under the contract in
respect of the destruction
- the approved synthetic greenhouse gas destruction facility
was authorised under the Ozone Protection and Synthetic
Greenhouse Gas Management Regulations 1995 to carry
out the destruction of the synthetic greenhouse gas
- the destruction complied with the Ozone Protection and
Synthetic Greenhouse Gas Management Regulations 1995
- the gas was eligible waste.
· the total quantity of synthetic greenhouse gas destroyed
exceeds the quantity specified in the regulations.
[Part 11, Division 3, clause 250 (2)]
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Carbon Pollution Reduction Scheme Bill 2010
Issue of certificate to operator of an approved synthetic greenhouse gas
destruction facility
8.30 The Authority may issue a certificate to the operator of an
approved synthetic greenhouse gas destruction facility who applies in that
capacity, where:
· the Authority is satisfied that the following conditions are
met in relation to each synthetic greenhouse gas destruction
event specified in the application:
- the event occurred during the relevant financial year
- the synthetic greenhouse gas was destroyed at an
approved synthetic greenhouse gas destruction facility
operated by the applicant
- the destruction of the synthetic greenhouse gas was not
carried out under a contract between the applicant and
another person
- the applicant was not entitled to receive any consideration
for carrying out the destruction of the synthetic
greenhouse gas
- the approved synthetic greenhouse gas destruction facility
was authorised under the Ozone Protection and Synthetic
Greenhouse Gas Management Regulations 1995 to carry
out the destruction of the synthetic greenhouse gas
- the destruction complied with the Ozone Protection and
Synthetic Greenhouse Gas Management Regulations 1995
- the gas was eligible waste.
· the total quantity of synthetic greenhouse gas destroyed
exceeds the quantity specified in the regulations.
[Part 11, Division 3, clause 250(3)]
Destruction of synthetic greenhouse gases in accordance with the Ozone
Protection and Synthetic Greenhouse Gas Management Regulations
1995
8.31 It is anticipated that amendments to the Ozone Protection and
Synthetic Greenhouse Gas Management Regulations 1995 will require
destruction facilities, when operating as approved synthetic greenhouse
gas destruction facilities, to destroy synthetic greenhouse gases in
accordance with certain verification requirements. These will be designed
to enable verification of quantities and kinds of synthetic greenhouse
gases destroyed during synthetic greenhouse gas destruction events.
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Chapter 8: Destruction of synthetic greenhouse gases
Eligible waste
8.32 Regulations will be made to define the types of waste that will
be eligible under the Scheme. The intent of these regulations is to ensure
that there are no perverse incentives to stockpile synthetic greenhouse
gases prior to Scheme commencement for the purpose of destroying them
to gain Australian emissions units.
Issue of certificate of eligible synthetic greenhouse gas destruction
8.33 If the Authority is satisfied that a recognised synthetic
greenhouse gas destruction customer or operator of an approved synthetic
greenhouse gas destruction facility meets the relevant eligibility criteria,
and the amount of gas specified in the application exceeds a threshold
specified in the regulations, the Authority may issue a certificate of
eligible synthetic greenhouse gas destruction. [Part 11, Division 3, clause 250]
8.34 The issue of a certificate of eligible synthetic greenhouse gas
destruction entitles the holder of a certificate to a unit entitlement -- a
specified number of free Australian emissions units. [Part 11, Division 3,
clause 249]
8.35 A certificate of eligible synthetic greenhouse gas destruction is
not transferable. [Part 11, Division 3, clause 252]
8.36 As soon as practicable after the day on which a certificate of
eligible synthetic greenhouse gas destruction was issued the Authority
must issue a number of free Australian emissions units equal to the
number specified in the certificate as the unit entitlement for that
certificate. [Part 11, Division 2, clause 245]
8.37 The unit entitlement will be determined by calculating a
provisional number for each synthetic greenhouse gas event to which the
certificate relates and adding together those provisional numbers. Each
provisional number will be calculated by multiplying the amount of
synthetic greenhouse gas submitted for destruction in the destruction
equipment (in tonnes of carbon dioxide equivalence) by a destruction
efficiency factor for the approved destruction facility at which the event
took place. [Part 11, Division 3, clause 251]
8.38 The application of a destruction efficiency factor recognises that
the efficiency of destruction may vary for different types of destruction
equipment and different classes of synthetic greenhouse gases.
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Chapter 9
Domestic Offsets Program
Outline of chapter
9.1 This Chapter describes the domestic offsets program for the
issue of free Australian emissions units for eligible offset projects. It also
describes the mechanism for making determinations relating to the
methodologies for estimating abatement from offset projects. Reporting
and compliance provisions are also described.
Context
9.2 Providing offsets will create incentives to reduce greenhouse gas
emissions that are not covered by the Scheme. This abatement will be
paid for by the entities that purchase the offsets. In most cases this will be
liable entities whose emissions will be covered by the Scheme.
9.3 Giving liable entities access to additional sources of low-cost
abatement will reduce the cost of achieving emissions reduction targets.
Summary of domestic offsets program
9.4 The domestic offset program will provide for the issue of free
Australian emissions units in respect of offset projects that the Authority
has declared eligible under the program [Part 11A , Division 2, clause 259B(1)].
9.5 The Authority will generally issue Australian emissions units to
a person in respect of eligible projects, provided that the person is a
recognised offset entity, meets the requirements specified in the program
and has a registry account [Part 11A, Division 2, clause 259B(2)]. The number
of units issued will be calculated in accordance with the applicable offset
methodology [Part 11A , Division 2, clause 259B(3)].
9.6 The Authority may declare a domestic offset project to be
eligible provided that the project meets the requirements of the Scheme
and is undertaken in Australia and in accordance with an eligible domestic
offset methodology [Part 11A , Division 2, clause 259B(4)].
9.7 Domestic offset project methodologies will set out the methods
and procedures for establishing (assumed) baseline emissions and for
estimating abatement relative to the baseline. Offset methodologies must
meet internationally accepted principles, which are designed to ensure that
offset projects deliver real abatement [Part 11A, Division 4, clause 259K].
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Carbon Pollution Reduction Scheme Bill 2010
9.8 A Domestic Offsets Integrity Committee will be constituted to
assess offset methodologies. An important part of its duties will be to
advise the relevant Minister on domestic offset methodologies [Part 25A,
Division 1, clause 373A] [Part 25A, Division 1, clause 373B].
9.9 The Committee will also advise the Secretary of the Department
on matters that relate to offsets projects and are referred by the Secretary,
such as offset methodologies for the voluntary market under the National
Carbon Offset Standard [Part 25A, Division 1, clause 373B].
Detailed explanation of the domestic offsets program
9.10 The domestic offsets program is set out in Part 11A (Domestic
offsets program) of the main bill. The establishment of the Domestic
Offsets Integrity Committee is set out in Part 25A of the main bill.
Formulation of the domestic offsets program
9.11 The domestic offsets program will be formulated in regulations.
It will provide for the declaration of eligible offset projects and the issue
of free Australian emissions units in respect of such projects [Part 11A,
Division 2, clause 259B].
Issue of Australian emissions units
9.12 The program provides for a person to apply for free Australian
emissions units in respect to an eligible domestic offset project [Part 11,
Division 2, clause 259B].
9.13 The regulations may provide for the Authority to approve the
application form. The regulations may also specify the information and
documentation that must accompany the application. Statements in
applications may also need to be verified by statutory declaration [Part 11A,
Division 2, clause 259F].
9.14 It is envisaged that the regulations will specify that applications
for Australian emissions units must be accompanied by a report on the
project in respect of the relevant reporting period [Part 11A, Division 2, clause
259C(2)].
9.15 A report on an offsets project must be accompanied by a
prescribed audit report [Part 11A , Division 2, clause 259C(4)]. It is envisaged
that the audit report will be prepared by a registered greenhouse and
energy auditor as defined in the National Greenhouse and Energy
Reporting Act 2007.
9.16 The Authority must not issue units to a person unless they are a
recognised offset entity, have a registry account and have met other
program requirements that may be specified in regulations [Part 11A ,
Division 2, clause 259B(2)].
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9.17 The number of units that will be issued will be calculated in
accordance with the eligible offset methodology that is applicable to the
project [Part 11A, Division 2, clause 259B(3)]. Units will only be provided for
abatement that has already occurred and not for abatement that is expected
to occur in the future [Part 11A, Division 4, clause 259J(1)(c)].
Declaration of eligible offset projects
9.18 A person, who is a recognised offsets entity, may apply to the
Authority for a declaration of an eligible domestic offset project [Part 11A ,
Division 2, clause 259B(4)(b)].
9.19 The regulations may specify the form of the application and the
accompanying information and documentation [Part 11A, Division 2, clause
259F(1)]. The regulations may specify an application fee. Statements in
applications may be verified by statutory declaration [Part 11A, Division 2,
clause 259F(2)].
9.20 A recognised offsets entity cannot apply to the Authority for a
declaration of an eligible offset project before 1 July 2011 [Part 11A,
Division 2, clause 259B(5)]. This is to prevent the Authority from having to
accept or consider applications before the Scheme commences.
9.21 The regulations may provide that an application for an eligible
project declaration must be accompanied by a prescribed audit report [Part
11A, Division 2, clause 259F(3)]. It is envisaged that the regulations will
prescribe that the project application be accompanied by an audit report
confirming that the project is being undertaken in accordance with an
applicable methodology, and that the audit report is by a registered
greenhouse and energy auditor as defined in the National Greenhouse and
Energy Reporting Act 2007.
9.22 The Authority must not declare a project to be an eligible
domestic offsets project unless the Authority is satisfied of certain matters
[Part 11A, Division 2, clause 259B(4)]. The project must:
· be carried on in Australia
· be covered by a domestic offset methodology determination
· undertaken consistently with the applicable domestic offset
methodology determination
· meet other such requirements specified in the program
· not involve, or use material obtained from, clearing or
harvesting of native forest, as defined in regulations.
9.23 The last condition is to prevent the destruction of native forests
for offset projects such as for the creation of biochar. A biochar project
could not be declared eligible until this abatement is counted towards
Australia's international climate change targets (see principles for
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Carbon Pollution Reduction Scheme Bill 2010
domestic offset methodologies below). However, such a project could be
approved following changes to international accounting rules and
provided that there is an applicable domestic offset methodology
determination. A similar provision is not required for reforestation
projects under Part 10 as such projects cannot be established on land
cleared after 31 December 1989.
9.24 A project declaration may be revoked if the project fails to meet
any of the requirements indicated above or if the project proponent is no
longer a recognised offset entity [Part 11A, Division 2, clause 259B(9)].
Revocation of a declaration would prevent the project proponent from
receiving further Australian emissions units but does not trigger a
requirement to surrender units that have already been received.
9.25 The Authority will specify the duration of the declaration [Part
11A, Division 2, clause 259B(6)].
This is commonly referred to as the
`crediting period'. Offset projects are generally credited for limited
periods because it is very difficult to make assumptions about baseline
emissions (used to calculate abatement) a long time into the future.
9.26 A declaration may take effect immediately after it was made
[Part 11A, Division 2, clause 259B(6)(a)].
9.27 Alternatively, the applicant may apply to have the
commencement of the declaration apply from a specified date [Part 11A,
Division 2, clause 259B(6)(b)]. This date may be in the past to allow units to
be issued for abatement before the declaration was made.
9.28 Once the Scheme commences, a declaration can be backdated
but only to 1 July 2011 [Part 11A, Division 2, clause 259B(6)(b)(iii)]. This
backdating may be done at any time, but the earliest date that the
backdating may take effect is 1 July 2011.
9.29 This allows abatement to be credited from the commencement of
the Scheme. Backdating is likely to be very limited in practice because
projects must achieve `additional' abatement (see offset principles below);
that is, abatement that would not have occurred in the absence of
Australian emissions units issued under this Part.
9.30 A recognised offsets entity may apply for a renewal of the
project declaration. This allows baseline emissions scenarios to be
reassessed and for the Authority to declare the project eligible for a further
period [Part 11A, Division 2, clause 259B(8)].
9.31 A declaration (or a revocation of a declaration) of an eligible
domestic offsets project is not a legislative instrument [Part 11A, Division 2,
clauses 259B(10) and (11)]. This is because the declaration is an
administrative decision applicable to one entity, rather than a legislative
decision of general application. This provision is simply to assist readers
as the instruments are not legislative instruments within the meaning of
section 5 of the Legislative Instruments Act 2003, and therefore that the
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Chapter 9: Domestic offsets program
procedures in that Act, for example Parliamentary disallowance, do not
apply.
9.32 Further, it is intended that the declaration will be subject to both
merits review (refer to Chapter 15) and judicial review (for example, as
provided by the Administrative Decisions (Judicial Review) Act 1977).
Recognised offset entity
9.33 A person must be a `recognised offset entity' to receive
Australian emissions units in relation to an eligible offset project.
Application process
9.34 A person (including an individual, a body corporate or a body
politic such as a State or a Territory) may apply to the Authority to
become a recognised offsets entity [Part 11A, Division 5, clause 259L(1)].
9.35 A person is not entitled to make an application before 1 July
2011 [Part 11A, Division 5, clause 259L(2)]. This is to prevent the Authority
from having to assess and recognise offsets entities before the Scheme
commences.
9.36 The regulations may specify any information or documents that
must accompany an application [Part 11A, Division 5, clause 259M].
9.37 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
enable a decision to be made on an application [Part 11A, Division 5, clause
259N(1)]. The Authority must ensure that the information requested is
relevant to its consideration of the application and must exercise this
power reasonably. [Part 26, clause 374B]
9.38 Where that information is not provided within the time frame
specified in the notice the Authority may refuse to consider or take any
further action in relation to the application [Part 11A, Division 5, clause
259N(2)].
9.39 The regulations may specify an application fee [Part 11A, Division
5, clause 259M(1)(e)].
The purpose of the fee is to enable the Authority to
recover costs associated with processing the application. An application
fee is considered appropriate given that participation in the offsets scheme
under Part 11A will be voluntary, open to any entity, and will deliver
financial benefits.
9.40 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days of the making of the
application or, where relevant, the receipt of further information. If the
Authority decides to refuse the application, the applicant must be given
written notice of this [Part 11A, Division 5, clause 259P(6)]. A decision to
refuse recognition of the applicant is reviewable under Part 24 of the main
bill.
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Criteria for recognition
9.41 The Authority may recognise the applicant as an offsets entity if
satisfied that, among other things, the applicant is a fit and proper person.
In making this assessment the Authority must have regard to matters that
include any convictions the applicant has under a law of the
Commonwealth, a State or a Territory relating to dishonest conduct,
breaches by the applicant of the Scheme legislation or the associated
provisions and any other matters the Authority considers relevant. The
Authority must also have regard to any orders made against the applicant.
9.42 In addition to considering whether the applicant is a fit and
proper person, the Authority must be satisfied that the applicant, where an
individual, is not an insolvent under administration or, where a body
corporate, is not under external administration [Part 11A, Division 5, clause
259P(3)].
9.43 The regulations may specify additional criteria, such as a
requirement that the applicant have some other type of approval or licence
under a Commonwealth, State or Territory law that is relevant to offsets.
9.44 The application of a fit and proper person test seeks to minimise
the risk of any fraudulent, deceptive or unfair conduct by entities involved
in the offset program.
9.45 The Authority will have the power to cancel a person's
recognition as an offsets entity where the Authority is no longer satisfied
that the person remains a fit and proper person, assessed against the same
criteria as for recognition, or no longer meets one or more other
requirements [Part 11A, Division 5, clause 259Q]. Cancellation of recognition
is a reviewable decision under Part 24 of the main bill.
9.46 A person may surrender their recognition as an offsets entity by
written notice to the Authority [Part 11A, Division 5, clause 259R].
9.47 If an entity is a recognised offsets entity, the entity's recognition
is not transferable [Part 11A, Division 5, clause 259S].
Reporting requirements
9.48 The program may require the proponent of an offset project to
provide a written report in relation to their project [Part 11A, Division 2,
clauses 259C(1) and (2)].
9.49 It is envisaged that written reports will be required to
accompany applications for Australian emissions units.
9.50 The regulations may also specify the frequency of the report
[Part 11A, Division 2, clause 259C(3)].
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Chapter 9: Domestic offsets program
9.51 The frequency of reports - and hence applications for Australian
emissions units - will be determined by regulations and must not be
shorter than 12 months [Part 11A, Division 2, clause 259C(3)(b)].
9.52 For projects to remove or store greenhouse gases, for example,
avoided deforestation projects, it is envisaged that there would be a
continuing requirement to provide reports after Australian emissions units
are no longer being issued for the project. This is because the Authority
may need to ensure that such projects comply with the requirement that
removal or storage of greenhouse gases is not reversed, including when
Australian emissions units are no longer being issued for the project.
9.53 The regulations may also require that a project report be
accompanied by a prescribed audit report. It is envisaged that the audit
report will be made by a registered greenhouse and energy auditor as
defined in the National Greenhouse and Energy Reporting Act 2007 [Part
11A, Division 2, clause 259C(4)].
9.54 Civil penalty provisions may apply if reporting requirements are
not met [Part11A, Division 3, clause 259H(1)].
9.55 Further, civil penalty provisions may apply where a person aids,
abets, counsels or procures a contravention of the reporting requirement,
or induces another person, or is knowingly concerned in or conspires, to
contravene the reporting requirements [Part 11A, Division 3, clause 259H(3)].
Record keeping requirements
9.56 The proponent of an eligible offset project may be required to
make and retain records in relation to the project for five years after the
record was made [Part 11A, Division 2, clauses 259D(1) and (2)].
9.57 It is envisaged that the regulations will require the keeping of
sufficient records to enable offset projects to be audited for compliance
and enforcement purposes.
9.58 Civil penalty provisions may apply if record keeping
requirements are not met [Part 11A, Division 3, clause 259H(2)]. Further, civil
penalty provisions may apply where a person aids, abets, counsels or
procures a contravention of the record-keeping requirements, or induce
another person or is knowingly concerned in or conspires to contravene
the record keeping requirements [Part 11A, Division 3, clause 259H(3)].
Relinquishment requirement
9.59 The program may provide that a project proponent be required
to relinquish units if units have been issued for the project and:
· the application for a declaration of the project contained false
or misleading information and the issue of any or all of the
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Carbon Pollution Reduction Scheme Bill 2010
units was directly or indirectly attributable to that
information [Part 11A, Division 2, clause 259E(1)]
· a report has been provided on the project, the project report
contains false or misleading information and the issue of any
or all of the units is directly or indirectly attributable to that
information [Part 11A, Division 2, clause 259E(1)].
9.60 There is no requirement that false or misleading information be
the result of any dishonesty. For example, a discrepancy between
reported and actual abatement may result from human error or
malfunction of estimation or monitoring equipment but may still result in
a project report being false or misleading.
9.61 The number of units that would have to be relinquished cannot
exceed the number of units that have been over-allocated as a result of the
false or misleading information. The over-allocation would be calculated
in accordance with the project.
9.62 The relinquishment obligation will apply to the person who is
taken, under the regulations, to be the project proponent. This will be the
case even if this person has not received units in respect of the project, for
example because the project has been transferred to another entity.
9.63 Part 13 of the main bill will apply if there has been a conviction
for fraud in relation to a project report or application. Under this Part, if a
person is convicted of an offence relating to fraudulent conduct, and the
use of Australian emissions units is attributable to the commission of the
offence, a court may order the person to relinquish a specified number of
Australian emissions units.
9.64 The program may also provide that a project proponent will be
required to relinquish units if the project involves the removal or the
reduction and storage of greenhouse gases and there has been a complete
or partial reversal of the removal or reduction [Part 11A, Division 2, clause
259E(3)]. An avoided deforestation project is an example of a project that
would involve the reduction and storage of greenhouse gases.
9.65 The number of units that would have to be relinquished cannot
exceed the number of units that have been issued which are attributable to
the removal or reduction by the project and will be calculated in
accordance with the program.
Domestic offsets project methodology determinations
9.66 Offset methodology determinations will be applicable to
specified types of abatement activities or offset projects. They will set out
requirements that must be met for an offset project to be declared eligible,
including the methods and procedures for establishing (assumed) baseline
emissions for the project and for estimating abatement relative to the
baseline [Part 11A, Division 4, clause 259J(1)].
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Chapter 9: Domestic offsets program
9.67 An offset methodology determination will be made by the
Minister and is a legislative instrument. This provision is simply to assist
readers as the instruments are legislative instruments within the meaning
of section 5 of the Legislative Instruments Act 2003, and therefore that the
procedures in that Act, for example Parliamentary disallowance, will
apply.
9.68 The Minister must not make or amend a determination unless
advised to do so by the Domestic Offsets Integrity Committee [Part 11A,
Division 4, clause 259J(2)]. The Minister may only accept or reject - and not
modify - recommendations of the Committee. This is to prevent the
Minister from being lobbied on the methodological details.
9.69 The Minister may revoke a determination at any time, without
obtaining advice from the Committee [Part 11A, Division 4, clause 259J(3)].
This ensures that the Minister can act swiftly for example, if there were a
change in circumstances, such as a change in the international accounting
rules such that continuation of the particular methodology without
amendment would potentially expose the taxpayer to financial risk, or
where particular types of offset activities had impacts on the environment
or biodiversity which had not been considered.
9.70 Domestic offset project methodologies must not be inconsistent
with the principles set out in clause 259K [Part 11A, Division 4, clause 259J(4)].
Projects must achieve abatement (whether by reducing emissions below
levels that would otherwise have been expected or by permanently
removing greenhouse gases from the atmosphere), which counts towards
Australia's international climate change targets and is not covered by the
Scheme [Part 11A, Division 3, clause 259K(1)].
Emissions counted towards Australia's international climate change
targets
9.71 Emissions sources that are currently counted towards Australia's
international targets (in the Kyoto Protocol or any successor) and not
covered by the Scheme include:
· non carbon dioxide emissions from:
- livestock
- manure management
- fertiliser use
- savanna burning
- burning of agricultural residues
- rice cultivation
· emissions from deforestation
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Carbon Pollution Reduction Scheme Bill 2010
· emissions from waste deposited in landfill facilities before
1 July 2011 (`legacy waste')
· emissions from waste in landfill facilities that closed prior to
1 July 2008
· emissions from de-commissioned coal mines.
Emissions sources and sinks not counted towards Australia's
international climate change targets
9.72 As a matter of policy, abatement activities associated with
emissions sources and sinks that are not currently counted towards
Australia's international targets could generate offsets for sale in the
voluntary market only under the National Carbon Offset Standard
(NCOS). These include abatement activities involving:
· agricultural soils (grazing and crop land management)
including bio-sequestration through soil carbon and biochar
· forest management
· revegetation and vegetation management
· feral animal management.
9.73 Part 11A has been designed so that the domestic offsets program
can be flexible. If international accounting rules change to enable these
emissions sources to be counted towards Australia's international climate
change targets, Part 11A allows for methodology determinations to be
made and eligible offsets projects to be declared with respect to these.
Accordingly, Part 11A allows provision to be made for removal projects,
such as forest management and revegetation, even though these projects
would not currently be eligible under the program. Part 10 will provide
for free Australian emissions units to be issued for projects to remove
emissions through reforestation and will be amended to allow for
regrowth of land cleared since 1990 to be included.
9.74 A proponent of an offset project accredited under the NCOS
could apply to the Authority to be a recognised offset entity and to have
their project declared eligible once abatement achieved by the NCOS
project is internationally recognised and there is an applicable domestic
offset methodology determination.
9.75 To facilitate this, NCOS offset methodologies will be assessed
by the same expert Committee responsible for advising the Minister on
offset methodology determinations.
Emissions covered by the Scheme
9.76 The Scheme has broad coverage of emissions, including those
from combustion of fossil fuels, industrial processes, new waste deposited
in landfill facilities and fugitive emissions. Some scope 1 emissions that
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Chapter 9: Domestic offsets program
are covered by the Scheme are emitted by small facilities that fall below
the threshold for scheme liability.
9.77 It will not be possible for a methodology determination to relate
to covered emissions sources, even though some emissions from these
sources may be emitted by sub-threshold facilities that do not have
obligations under the Scheme [Part 11A, Division 4, clause 259K(1)(d)]. This
will prevent offset projects based on sub-threshold facilities, which would
exacerbate the potential for competitive distortions between facilities
above and below the threshold for Scheme obligations.
9.78 Fugitive emissions from landfill facilities are covered by the
Scheme. However, methodology determinations - and therefore offset
projects - will be possible with respect to emissions from waste that has
already been deposited ("legacy emissions") in landfill facilities that are
above the threshold for scheme participation, and closed landfill facilities
which no longer receive waste [Part 11A, Division 4, clause 259K(3)].
9.79 Some projects will reduce emissions from both uncovered and
covered sources. Methodology determinations could only apply to the
component of abatement that relates to uncovered emissions. As a
consequence, projects to capture methane from landfill facilities to
produce renewable energy, which reduce landfill and energy-related
emissions, could only receive Australian emissions units for the abatement
of landfill emissions. Reductions in energy related emissions will be
accounted for within the Scheme and therefore cannot be counted as part
of an offset project.
9.80 Offset methodology determinations may apply to fugitive
emissions from decommissioned coal mines. Regulations made for the
purposes of paragraph 10(2A)(a) of the National Greenhouse and Energy
Reporting Act 2007 will not declare these emissions to be scope 1
emissions covered by the Scheme [Part 11A, Division 4, clause 259K(1)(d)].
9.81 The project must not be a reforestation project for which
Australian emissions units have or have the potential to be issued under
Part 10. This requirement is not intended to preclude an offset
methodology determination from applying to projects to avoid emissions
from deforestation that include forests that meet the definition of a
reforestation project, provided that Australian emissions units have not
been or could not be issued for these forests under Part 10.
9.82 The project must not be a project for the destruction of synthetic
greenhouse gases. Part 11 provides for free Australian emissions units to
be issued in respect of these projects.
Integrity requirements
9.83 Domestic offset projects must also meet the integrity
requirements that are designed to ensure that projects deliver real
abatement of greenhouse gases [Part 11A, Division 4, clause 259K(1)(c)].
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9.84 Abatement, whether a reduction in expected emissions or a
removal of greenhouse gases from the atmosphere, must be measureable
and capable of being verified [Part 11A, Division 4, clauses 259K(2)(a) and (b)].
9.85 The project must be one that would not have been proposed or
carried out in the absence of the issue of Australian emissions units under
the domestic offsets project [Part 11A, Division 4, clause 259K(2)(c)]. This is
commonly referred to as an `additionality' requirement. A project may be
additional because it would not be commercially viable in the absence of
the revenue from Australian emissions units or because there are other
barriers to the project.
9.86 If the project removes or stores emissions from the atmosphere,
then the removal must not be likely to be reversed in whole or in part [Part
11A, Division 4, clauses 259K(2)(d) and (e)]. This is commonly referred to as a
`permanence' requirement.
An example of a project to store carbon is an avoided deforestation
project. In this example, a reversal would occur if rates of deforestation
were to increase above the level previously achieved by the project.
9.87 The abatement from emissions reductions or removals must not
be offset by emissions outside the project [Part 11A, Division 4, clauses
259K(2)(f) and (g)]. This is commonly referred to as `leakage'.
For example, there would be leakage if, in an avoided deforestation
project, rates of deforestation in one location were offset by an increase
in rates of deforestation in another location.
9.88 Some offset projects may result in some increases in transport or
energy emissions. These increases would not need to be taken into
account as part of the project or when assessing whether or not there are
offsetting emissions from the project. This is because emissions covered
by the Scheme will be subject to a carbon price. As a consequence, any
increase in covered emissions as a result of an offset project will be
matched by abatement elsewhere in the Scheme.
Information about eligible domestic offsets projects
9.89 As soon as possible after the Authority declares an eligible
domestic offsets project, the Authority must publish information about the
project on its website [Part 12, Division 8, clause 278H]. This information
must include:
· a description of the project
· the location of the project
· the name of the person who applied for the declaration
· the name of the person who is the current project proponent
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· any Australian emissions units issued for the project and the
person to whom they have been issued
· the name of the applicable offset methodology determination
· other information that the Authority considers appropriate.
9.90 Publishing this information will promote transparency and the
environmental integrity of the Scheme. It will also provide information to
the market about the number of units likely to be issued for offset projects.
Domestic Offsets Integrity Committee
Establishment and functions of the Domestic Offsets Integrity
Committee
9.91 A Domestic Offsets Integrity Committee will be constituted to
assess and advise the relevant minister on matters relating to the making
or amending of domestic offset methodology determinations [Part 25A,
Division 1, clause 373A] [Part 25A, Division 1, clause 373B(1)].
9.92 The Committee will also advise the Secretary of the relevant
department about matters that relate to offset projects and are referred to
the Committee by the Secretary [Part 25A, Division 1, clause 373B(1)(b)]. It is
envisaged that the Secretary will refer to the Committee offset
methodologies that relate to abatement of emissions that are not counted
towards Australia's international climate change commitments. These
methodologies would not be eligible under the Scheme but could be
approved by the department for use in the voluntary market only under the
National Carbon Offset Standard.
9.93 The Committee may also do anything incidental or conducive to
the performance of its specified functions [Part 25A, Division 1, clause
373B(1)(c)]. For instance, this allows the Committee to consider
methodologies proposed by members of the public.
9.94 However, it is not intended that the Committee will be required
to consider methodologies that do not relate to its work program or
priorities. This ensures that the resources of the Committee are not
diverted towards consideration of methodologies that are not prospective
or cost effective.
9.95 If the Committee initially refuses to consider a methodology, the
Secretary may refer it back to the Committee for consideration [Part 25A,
Division 1, clause 373B(1)(b)(ii)].
9.96 In advising the Minister, the Committee will also be required to
consider the costs and benefits of making or amending the determination
and any other matters that the Committee considers relevant [Part 25A,
Division 1, clause 373B(2)]. This will promote the development of
consolidated methodologies that apply broadly to particular types of
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activities as it is unlikely to be cost-effective to make a determination that
would apply only to a specific individual project.
Consultation by the Committee
9.97 Before advising the Minister to make or amend a determination,
the Committee will be required to publish a draft of the determination on
its website and invite public submissions on the draft [Part 25A, Division 1,
clause 373C(1)(a)].
9.98 The Committee must allow at least 60 days for the public to
make submissions and must consider any submissions made during this
period [Part 25A, Division 1, clauses 373C(1) and (2)].
9.99 Providing the public with an opportunity to review and comment
on draft determinations provides additional assurance regarding the
environmental integrity of offset methodology determinations.
9.100 At least once each financial year, the Committee must publish its
draft work program and priorities and invite public submissions on these
[Part 25A, Division 1, clause 373C(3)].
9.101 The period for making submissions on the draft work program
must be at least 60 days [Part 25A, Division 1, clause 373C(4)].
9.102 Providing the public with an opportunity to review and comment
on the Committee's draft work program will help to ensure that the
Committee identifies and prioritises the development of methodologies for
activities that have the greatest abatement potential. It will also help to
ensure that there is a balance between the priority given to methodologies
for the Scheme and the voluntary market.
9.103 If international accounting rules change, the Committee may
give priority to considering whether relevant NCOS offset methodologies
could form the basis of draft offset methodology determinations for use in
the Scheme.
Appointment of members
9.104 The Committee must have five to six members, including the
Chair [Part 25A, Division 2, clause 373D].
9.105 The Minister must be satisfied that anyone appointed to the
Committee has substantial expertise or knowledge, and significant
standing, in at least one field that is relevant to the functions of the
Committee [Part 25A, Division 2, clause 373E(2)]. Relevant fields of expertise
include, for instance, environmental science, emissions estimation, and
knowledge and experience of other offset schemes. As the Committee's
overarching function is to ensure the environmental integrity of the offset
program, it is envisaged that a person with strong general environmental
credentials will be appointed to the Committee.
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9.106 The Minister must ensure that at least one member of the
Committee holds an executive level two position or is a Senior Executive
Service employee of the Department [Part 25A, Division 2, clause 373E(5)].
The main purpose of including a departmental officer on the Committee is
to ensure that due consideration is given to whether the proposed
methodology allows abatement to be counted towards Australia's
international climate change targets, which are compiled by the
Department.
9.107 However, the Minister must ensure that the majority of members
are not employees of the Commonwealth, or employees of an authority of
the Commonwealth , or people who hold full-time offices of the
Commonwealth [Part 25A, Division 2, clause 373E(4)].
9.108 It is envisaged that the Department will provide secretariat
functions for the committee.
9.109 It is also envisaged that the Departments of Climate Change and
Agriculture, Fisheries and Forestry will assist in the development of offset
methodologies. This is because development of offset methodologies is
likely to be costly, requiring considerable scientific and emissions
estimation expertise.
9.110 The Minister may terminate the appointment of a member for
misbehaviour or physical or mental incapacity. The Minister may also
terminate the appointment of a committee member in other circumstances,
including if the member becomes bankrupt [Part 25A, Division 2, clause 373Q].
Disclosure of interests
9.111 A member of the Committee with interests, pecuniary or
otherwise, that conflict or may conflict with the member's functions on
the Committee must disclose these interests to both the Minister and the
Committee [Part 25A, Division 2, clause 373J] [Part 25A, Division 2, clause 373K].
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Chapter 10
Assessment, surrender, relinquishment
and voluntary cancellation
Outline of chapter
10.1 This chapter describes how liability is calculated, advisory
assessments of an entity's emissions number, the obligation to surrender
and shortfalls. It also describes the surrender, relinquishment and
voluntary cancellation mechanisms.
10.2 It relates to Parts 5, 6, 14 and 15 of the bill.
Context
10.3 The Carbon Pollution Reduction Scheme imposes obligations on
liable entities in relation to the emissions or potential emissions for which
they are responsible. Details of these concepts are provided in Chapter 1
of this explanatory memorandum.
10.4 Liable entities will be required to report emissions or potential
emissions under the National Greenhouse and Energy Reporting Act
2007, which is to be amended. The proposed amendments to that Act are
described in a separate explanatory memorandum on the proposed Carbon
Pollution Reduction Scheme (Consequential Amendments) Bill 2010 (the
consequential amendments bill).
10.5 This chapter focuses on the mechanisms within the main bill for
assessment and surrender of eligible emissions units. It also addresses the
mechanisms for:
· relinquishment of units by, for example, the recipient of units
under the emissions-intensive trade-exposed assistance
program
· voluntary cancellation of units.
Summary
The emissions number
10.6 A liable entity is required to surrender one eligible emissions
unit for each tonne of emissions for which the entity is responsible. The
total quantity of emissions for which the entity is responsible is known as
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the `emissions number'. This number is calculated using the following
formula:
Entity's emissions number = the sum of its provisional emissions
numbers - the excess surrender number + the make good number.
10.7 Each of these concepts is explored in the Detailed Explanation
section below.
10.8 Part 5 of the bill relates to emissions numbers. It includes a
simplified outline [Part 5, clause 124].
Assessments
10.9 The Scheme is based on a self-assessment approach where liable
entities calculate their own emissions numbers and report them under the
National Greenhouse and Energy Reporting Act 2007, which will be
amended.
10.10 The Authority may issue assessments of the emissions number
to a liable entity if no report of its greenhouse gas emissions was lodged in
accordance with the requirement in the National Greenhouse and Energy
Reporting Act 2007 or if the Authority has reasonable grounds to believe
that the emissions number specified in the report is incorrect.
10.11 These assessments are advisory in nature. An assessment does
not make an entity liable. Liability arises from, for example, the emission
of greenhouse gas from the operation of a facility, and does not
necessarily involve assessment by the Authority.
Surrender
10.12 Each liable entity is required to surrender sufficient eligible
emissions units to meet its obligation for a financial year, by
15 December of the following financial year.
10.13 An entity has a shortfall if it has not surrendered sufficient
eligible emissions units to meet its obligation by 15 December.
10.14 The penalty for a shortfall is a monetary penalty and a `make
good' requirement. The monetary penalty is due and payable on
31 January in the following year. It is an administrative penalty. If it is not
paid by that date, a late payment penalty applies and the Authority may
take action to recover the debt. A `make good' requirement means that the
entity will be required to surrender additional units in relation to the
following year, equivalent to the number that it failed to surrender in
relation to the initial year. The aim of this mechanism is to reinforce the
environmental integrity of the Scheme. Failure to surrender sufficient
units in the following year will, in turn, result in a further administrative
penalty and make good number. These and other penalties are addressed
in Chapter 11 of this explanatory memorandum.
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10.15 The Authority is empowered to make an assessment of unit
shortfall.
10.16 Part 6 of the bill relates to surrender. It includes a simplified
outline [Part 6, Division 1, clause 128].
10.17 There are special rules for the surrender, relinquishment and
voluntary cancellation of Australian emissions units of the 2011-12
vintage. They are described in Chapter 3 of this explanatory
memorandum.
Relinquishment
10.18 The process for relinquishment is separate but comparable to
that for surrender. Persons will be required to relinquish units in the
following situations:
· in the emissions-intensive trade-exposed assistance program,
where, for example, planned production ceases during a year
· various situations where Australian emissions units have
been issued in connection with reforestation -- for example,
where the person ceases to hold the carbon sequestration
right in relation to a reforestation project and a scheme
obligation transfer agreement is not in force
· where a court has ordered relinquishment following
conviction under specified provisions of the Criminal Code
relating to fraudulent conduct, including those relating to
false or misleading statements in information given to the
Authority.
10.19 The situations in which a person is required to relinquish units
are described in Chapters 4, 7, 9 and 10 of this explanatory memorandum.
This chapter addresses the mechanism and the consequences of
non-compliance, which are provided by Part 15 of the bill. Part 15
includes a simplified outline [Part 15, Division 1, clause 285].
Voluntary cancellation
10.20 A registered holder of Australian emissions units, Kyoto units or
non-Kyoto international emissions units may request the Authority to
cancel one or more of those units. The mechanism is included in Part 14
of the bill and is described in this chapter. Part 14 includes a simplified
outline [Part 14, clause 281].
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Detailed explanation of new law
Emissions number
10.21 Liability will be based on the emissions number which liable
entities must include in their report to the Authority, in accordance with
proposed amendments to the National Greenhouse and Energy Reporting
Act 2007. (See the consequential amendments bill, Schedule 1, Part 2,
Item 181).
10.22 The emissions number is calculated using the following formula
[Part 5, clause 125]:
Entity's emissions number = the sum of its provisional emissions
numbers - its excess surrender number + its make good number
10.23 The following paragraphs describe the concepts which make up
this formula: the provisional emissions number, excess surrender number
and make good number.
10.24 A provisional emissions number represents the emissions which
give rise to liability under the Scheme. Part 3 of the bill describes the
situations which result in a provisional emissions number. These include
the emission of greenhouse gases from facilities by direct emitters or
holders of liability transfer certificates relating to such facilities (Part 3,
Division 2); the import, manufacture and supply of synthetic greenhouse
gas (Part 3, Division 3); the import, production, supply or use of eligible
upstream fuel (Part 3, Division 4); and the receipt of eligible upstream
fuels by persons quoting an OTN (Part 3, Division 4).
10.25 An excess surrender number can arise because the liable entity
surrendered an excess number of emissions units for the previous financial
year [Part 6, Division 4, clause 143(1)]. It only benefits the entity in the
following financial year and does not carry over beyond the following
financial year.
10.26 An excess surrender number cannot arise from excess surrender
of units with the following year's vintage (`borrowing'). An entity can
only surrender borrowed units when its emissions number is entered on
the Authority's Information Database [Part 6, Division 2, clause 129(5)]. An
entity can only surrender the number of borrowed units up to 5 per cent of
its emissions number [Part 6, Division 4, clause 143(2)]. If, despite this, an
entity surrenders more borrowed units than is permitted, then the excess
units are extinguished but the excess does not form part of the entity's
excess surrender number in the following year [Part 6, Division 4, clause
143(3)]. `Borrowing' will not be allowed during the fixed price transition
period (2011-12) [Part 6, Division 2, clause 129(5AA)].
10.27 The make-good number reflects the unit shortfall of the liable
entity for the previous financial year [Part 6, Division 4, clause 142(1)].
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10.28 The purpose of including a `make good' requirement is to ensure
that liable entities are required to surrender eligible emissions units to
meet their obligations, not simply pay a financial penalty. It thus
safeguards the environmental integrity of the Scheme. For more detail on
the `make good' requirement see Chapter 11 of this Explanatory
Memorandum.
10.29 In cases where liability is transferred from a controlling
corporation to a member of its group (through the issue of a liability
transfer certificate by the Authority) and the group member which holds
the certificate incurs a unit shortfall, then that shortfall is reflected in the
make-good number of the controlling corporation rather than that of the
member of the group [Part 6, Division 4, clause 142(2)].
Example 10.1: Calculation of emissions number
In 2014-15, Company A is a controlling corporation of a group that
contains two other entities B and C.
Company B has operational control of a facility that emits less than
25,000 tonnes of carbon dioxide equivalence and the facility is
therefore exempt from the Scheme.
Company C has operational control of a facility that emits
530,000 tonnes.
Company A's provisional emissions number is therefore 530,000.
In the previous financial year (2013-14), Company A surrendered
insufficient units and incurred a shortfall of 5,000 units. Company A
therefore has a make good number of 5,000.
Company A's emissions number is 530,000 + 5,000 = 535,000.
Example 10.2
Entity Y imports synthetic greenhouse gases with a carbon dioxide
equivalence of 30,000 tonnes. It re-supplies the gas to customers who
do not quote an OTN.
Its provisional emissions number is therefore 30,000.
It surrendered an excess of 2,000 units for the previous financial year
2,000.
Entity Y's emissions number is 30,000 -- 2,000 = 28,000.
Assessment
10.30 There are two circumstances in which the Authority may make
an assessment of the person's emissions number for a financial year and
provide the person with written notice of it:
· when a liable entity has provided a report under section 22A
of the National Greenhouse and Energy Reporting Act 2007
(see the consequential amendments bill, Schedule 1, Part 2,
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Item 181) by 31 October but the Authority has reasonable
grounds to believe that the number specified in the report as
the person's emissions number is incorrect [Part 5, clause 126].
· where no such report has been provided by 31 October and
the Authority has reasonable grounds to believe that the
person is a liable entity for the financial year [Part 5,
clause 127].
10.31 In both cases the assessment must be accompanied by a
statement setting out the effect of clause 132 (the obligation to surrender
sufficient emissions units) [Part 5, clauses 126(3) and 127(3)].
10.32 Each of these assessments may be amended by the Authority at
any time. If this is done, then written notice of it must be provided [Part 5,
clauses 126(4), 126(5), 127(4), 127(5)].
10.33 The original and any amended assessments are advisory in
nature [Part 5, clauses 126(7) and 127(7)]. This underlines that the obligation to
surrender eligible emissions units stems from the emissions number, not
from any action taken by the Authority.
Surrender
The obligation to surrender
10.34 Liable entities must surrender sufficient units by 15 December to
ensure they do not have a `unit shortfall' for the preceding financial year
[Part 6, Division 4, clause 132].
What is a unit shortfall
10.35 If a liable entity has surrendered no eligible emissions units by
15 December, then its unit shortfall [Part 6, Division 3, clause 130] is the same
as its emissions number [Part 6, Division 3, clause 130(2)]. Similarly, if the
liable entity has surrendered some eligible emissions units in the period
ending 15 December, then the unit shortfall is its emissions number less
the number of surrendered units [Part 6, Division 3, clause 130(3)].
10.36 If surrendered Australian emissions units representing more than
5 per cent of the emissions number are `borrowed' (that is, their vintage
year follows the relevant financial year to which the surrender relates),
then the excess number of units over the 5 per cent are not regarded as
surrendered for the relevant financial year [Part 6, Division 3, clause 130(4)].
Example 10.3: Calculation of shortfall
On 31 October 2018, a liable entity submits its report under the
National Greenhouse and Energy Reporting Act 2007 for the financial
year 2017-18. The report indicates that the entity's emissions number
is 100,000. On 15 December 2018, the liable entity transmits a notice
to the Authority specifying the surrender of the following units for the
financial year 2017-18:
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Vintage of units Number of units
2015-16 10,000
2016-17 10,000
2017-18 70,000
2018-19 10,000
Total 100,000
The surrender of units with vintages belonging to the current year and
previous financial years will be accepted. However, only 5 per cent of
100,000 units, or 5,000 units, with a 2018-19 vintage may be
surrendered for the year 2017-18. The liable entity will therefore have
a unit shortfall of 5,000 for the financial year 2017-18.
Which units are eligible emissions units
10.37 Only `eligible emissions units' can be used for surrender. This
phrase is defined to mean Australian emissions units and eligible
international emissions units [Part 1, clause 5, definition of `eligible emissions
unit'].
10.38 Australian emissions units of the current or earlier vintage years
may be surrendered [Part 6, Division 2, clause 129(4)]. This in effect allows for
`banking' of units.
10.39 As indicated above, there is a limit on the number of `borrowed'
units (that is, units of the next vintage year) which can be used for
surrender [Part 6, Division 3, clause 130(4)]. In addition, `borrowed' units can
only be surrendered within a specified period when the entity's emissions
number is known [Part 6, Division 2, clause 129(5)].
10.40 A unit is an eligible international emissions unit [Part 1, clause 5,
definition of `eligible international emissions unit'] if
it is:
· a certified emission reduction other than a temporary
certified emission reduction or a long-term certified emission
reduction
· an emission reduction unit
· a removal unit
· a prescribed unit issued in accordance with the Kyoto rules
· a non-Kyoto international emissions unit.
10.41 Certified emission reductions, emission reduction units, and
removal units are specific types of units established under the Kyoto
Protocol. An explanation of the reasons for framing this definition in this
way is included in Chapter 2 of this explanatory memorandum.
10.42 Eligible international units cannot be surrendered in the fixed --
price period. The fixed price period is intended to provide certainty over
the price for Australian emissions units for the 2011-12 financial year.
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Should the international price fall below the fixed price the ability to
surrender eligible international emissions units would be contrary to
providing certainty over the price. It is more likely that the international
price will be above the fixed price in which case the ability to surrender
eligible international emissions units would not offer any benefit to liable
entities [Part 6, Division 2, clause 129(6A)].
10.43 An Australian emissions unit with a vintage year beginning on
1 July 2011, which was issued in accordance with the emissions-intensive
trade-exposed assistance program or Part 9 (which relates to coal-fired
electricity generation) can only be surrendered with respect to that year
[Part 6, Division 2, clause 129(5A)].
10.44 Kyoto units must not be surrendered if the surrender would
breach regulations made for the purpose of clause 113 (carry-over
restrictions) [Part 6, Division 2, clause 129(6)]. The carry-over restrictions are
explained in Chapter 2 of this explanatory memorandum.
10.45 Regulations may specify that an eligible international emissions
unit must not be surrendered in relation to a particular year [Part 6,
Division 2, clause 129(7)]. In making a recommendation to the
Govenor-General about such regulations, the Minister may have regard to:
· Australia's international objectives and its obligations under
the Climate Change Convention the Kyoto Protocol;
· the environmental integrity of the Scheme; and
· such other matters (if any) as the Minister considers relevant
[Part 6, Division 2, clause 129(7A)].
Including these provisions is consistent with the policy that a type of
eligible international emissions unit can be disallowed for surrender at any
time to ensure the environmental integrity of the Scheme and consistency
with Australia's international objectives. However, the regulation-making
power is restricted in that it cannot specify a past year or the current year.
10.46 In addition:
· Certain removal and emission reduction units may only be
surrendered in relation to the first three years of the Scheme
[Part 6, Division 2, clause 129(8)].
· A non-Kyoto international emissions unit must not be
surrendered if this would breach the surrender restrictions
[Part 6, Division 2, clause 129(9)].
How are eligible emissions units surrendered
10.47 A person may surrender eligible emissions units by electronic
notice transmitted to the Authority [Part 6, Division 2, clause 129(1)].
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10.48 What constitutes an `electronic notice transmitted to the
Authority' is described in clause 8 of the bill. This allows the Authority to
require the use of particular information technology requirements [Part 1,
clause 8].
10.49 The notice must specify the eligible emissions units being
surrendered, the financial year to which the surrender relates and the
person's relevant account number [Part 6, Division 2, clause 129(2)].
When must eligible emissions units be surrendered
10.50 As indicated above, eligible emissions units must be surrendered
by 15 December. However, to provide for the remote possibility that
entities cannot gain computer access to the Authority in the period shortly
before the deadline, the Authority is empowered to extend the deadline by
legislative instrument [Part 6, Division 5, clause 143A].
What happens when a unit is surrendered
10.51 When an Australian emissions unit is surrendered, it is cancelled
and the Authority must remove the entry for the unit from the Registry
account of the person who has surrendered it [Part 6, Division 2,
clause 129(10)].
10.52 However, different processes are required in relation to eligible
international emissions units. When an eligible international emissions
unit is surrendered, the Authority must remove the unit from the Registry
account of the person who has surrendered it. In addition:
· If the unit is a Kyoto unit, the Authority must make an entry
for the unit in a Commonwealth holding account [Part 6,
Division 2, clause 129(11)]. This enables the Commonwealth to
use the Kyoto unit to meet Australia's emissions reduction
target under the Kyoto Protocol.
· If a non-Kyoto international emissions unit is surrendered,
then the action required of the Authority will be specified in
the regulations [Part 6, Division 2, clause 129(12)].
10.53 It is necessary to provide that this action will be specified in the
regulations because the concept of a `non-Kyoto international emissions
unit' provides for units issued under future international agreements and
units issued outside Australia under a law of a foreign country [Part 1,
clause 5, definition of `non-Kyoto international emissions unit']. It therefore seeks
to provide for future recognition of new and additional units without
amending the Act.
Assessment of unit shortfall
10.54 The Authority is empowered to make an assessment of a
person's unit shortfall and give notice of this to the person [Part 6,
Division 3, clause 131].
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10.55 The Authority can do this at any time if it had reasonable
grounds to believe that the person had made a false or misleading
statement to the Authority which is relevant to ascertaining the person's
unit shortfall that year, or otherwise engaged in relevant fraudulent
conduct [Part 6, Division 3, clause 131(2)].
10.56 In other circumstances the Authority can only make such an
assessment during the four years after the relevant financial year [Part 6,
Division 3, clause 131(3)]. This period is broadly consistent with amendment
periods under current business tax provisions for entities with complex
affairs.
10.57 The Authority can amend such assessments [Part 6, Division 3,
clause 131(5) and (6)].
It can also rely on a report provided by the person
under proposed section 22A of the National Greenhouse and Energy
Reporting Act 2007 in making an assessment [Part 6, Division 3, clause 131(4)].
10.58 An assessment of unit shortfall is of an advisory character [Part 6,
Division 3, clause 131(9)].
What happens if there is a unit shortfall
10.59 If a person has a shortfall as at 15 December following the
relevant financial year, then the person will have a make-good number
[Part 6, Division 4, clause 142] which is discussed above, and is liable to pay
an administrative penalty [Part 6, Division 4, clause 133]. The administrative
penalty is worked out using the formula:
[Number of units in the unit shortfall] x [prescribed amount for the
current financial year].
10.60 The amount mentioned in the second part of the formula is
$11 in relation to the financial year beginning on 1 July 2011. In relation
to later years it is expected to be specified in regulations. In that case, the
maximum prescribed amount (and the default amount if no regulations are
made) is 110 per cent of the `benchmark average auction price' [Part 6,
Division 4, clause 133].
10.61 The `benchmark average auction price' for a particular financial
year is the greater of: the average auction price of units issued as the result
of auctions at all auctions in the financial year or the average auction price
of units issued at the last auction conducted in the financial year [Part 6,
Division 4, clause 141]. It must be calculated and published by the Authority
as soon as practicable after the end of each financial year [Part 6, Division 4,
clause 133(3)].
10.62 The administrative penalty becomes due and payable on
31 January following the relevant financial year [Part 6, Division 4,
clause 134].
10.63 From this time, a late payment penalty will accrue at a rate of
20 per cent per annum (or a lower rate if prescribed in regulations). The
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Authority may remit the late payment penalty in whole or part [Part 6,
Division 4, clause 135].
10.64 The administrative penalty and the late payment penalty are a
debt due to the Commonwealth which can be recovered by the Authority
in a court with the relevant jurisdiction [Part 6, Division 4, clause 136].
10.65 Amounts of a kind specified in regulations and due from the
Commonwealth may be set off against the amount due to the
Commonwealth in respect of the administrative or late payment penalty
[Part 6, Division 4, clause 137]
10.66 Overpayments of the administrative penalty or late payment
penalty can be refunded [Part 6, Division 4, clause 139].
10.67 Where liability has been transferred to another member of a
corporate group under a liability transfer certificate, the controlling
corporation which consented to the transfer is taken to have guaranteed
the payment of the administrative and late payment penalty [Part 6,
Division 4, clause 138].
Relinquishment
When is relinquishment required
10.68 The situations in which relinquishment of Australian emissions
units can be required are discussed in other parts of this explanatory
memorandum. In brief, persons will be required to relinquish units in the
following situations:
· in the emissions-intensive trade-exposed assistance program,
where, for example, units are provided at or before the
beginning of each financial year but planned production
ceases during a year. Relinquishment is required to prevent
both windfall gains from units associated with production
that does not take place and reductions in the supply of units
that would otherwise be available for auction.
· various situations where Australian emissions units have
been issued in connection with reforestation -- for example,
where an area of land that was the subject of a reforestation
project has remained clear of a forest stand for a period of at
least 5 years
· where a court has ordered relinquishment following
conviction under specified provisions of the Criminal Code,
including those relating to false or misleading statements in
information provided to the Authority. In this case,
relinquishment is required because the units would not have
been issued if fraudulent conduct had not occurred.
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How are Australian emissions units relinquished
10.69 A person who holds Australian emissions units can relinquish
them by electronic notice transmitted to the Authority. The notice must
specify, among other things, the reason for relinquishment [Part 15,
Division 2, clauses 286(1) and (2)].
What happens to relinquished units
10.70 Those units relinquished in connection with reforestation or
destruction of synthetic greenhouse gases are cancelled and the Authority
removes the entry from the person's registry account [Part 15, Division 2,
clauses 286(3) and (6)].
10.71 If the relinquishment is for a reason other than reforestation or
destruction of synthetic greenhouse gases, then the Authority must
transfer the relevant units to the Commonwealth relinquished units
account and property in the unit is transferred to the Commonwealth [Part
15, Division 2, clauses 286(4) and (5)]. These are then auctioned [Part 4, Division
2, clause 100].
10.72 The auction process is described in Chapter 3 of this explanatory
memorandum.
10.73 Australian emissions units issued with a vintage year of 2011-12
which are relinquished (irrespective of which relinquishment requirement
applies) will be cancelled. This is because 2011-2012 Australian
emissions units are not issued based on a scheme cap, and so should be
cancelled in all circumstances (and not transferred to the Commonwealth
relinquished units account to be auctioned).
Failure to comply with relinquishment requirements
10.74 The consequences of a failure to comply with a relinquishment
requirement are comparable to the consequences of a unit shortfall
described above [Part 15, Division 3, clauses 287-291].
10.75 The significant differences are:
· There is no `make good' requirement
· The maximum and default amount of the administrative
penalty is 200 per cent of the benchmark average auction
price [Part 15, Division 3, clause 287(2)].
10.76 The reason for this approach is that the entity may no longer be
in the business nor be liable in the future.
10.77 Special provision is made for relinquishment requirements
arising before 1 July 2012. If the requirement arose under the
emissions-intensive trade-exposed assistance program before
31 July 2012, then the administrative penalty is $10 per unit of shortfall. If
the requirement arose before 1 July 2012, but is not connected with the
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emissions-intensive trade-exposed program, then the administrative
penalty is $20 per unit of shortfall.
Voluntary cancellation
10.78 The bill provides for the voluntary cancellation of Australian
emissions units, Kyoto units and non-Kyoto international emissions units
[Part 14, clauses 282, 283 and 284]. This implements the Government's policy
that voluntary cancellation allows individuals and organisations to
contribute to stronger national climate change mitigation, regardless of
whether they have obligations under the Scheme, by reducing the supply
of eligible emissions units.
10.79 Australia emissions units issued in the fixed-price period, that is
with a vintage year commencing on 1 July 2011, are not able to be
voluntarily cancelled [Part 14, clause 282(2A)]. One implication of the fixed
price period is that there is an unlimited number of Australian emissions
units. There is no clear relationship between these units and Australia's
Kyoto units. It is therefore not appropriate to allow for the cancellation of
such units.
10.80 For units that may be subject to voluntary cancellation, the
registered holder of the emissions units transmits an electronic notice to
the Authority requesting the Authority to cancel the units. The notice must
specify the units to be cancelled and the person's relevant Registry
account(s).
10.81 The action to be taken by the Authority varies depending on the
type of unit.
10.82 If the request relates to an Australian emissions unit, then the
unit is cancelled and removed from the person's registry account, and the
Minister must direct the Authority to transfer a Kyoto unit from the
Commonwealth holding account to a voluntary cancellation account
before the end of the `true-up period' for the relevant Kyoto commitment
period [Part 14, clause 282(3)]. The `true-up period' is the period following
each Kyoto commitment period during which Kyoto units from the
relevant commitment period can be transferred and acquired for the
purposes of meeting Annex 1 countries' emissions reduction targets.
· For example, an Australian emissions unit with a vintage year
2012-13 corresponds to emissions in the second commitment
period and will be backed at the national level by a Kyoto unit for
the second commitment period. Therefore, when a 2012-13
Australian emissions unit is cancelled it will be the corresponding
second commitment period Kyoto unit that is transferred to the
voluntary cancellation account for that period.
10.83 This provision implements the Government's policy which
recognises that in order for the voluntary cancellation of an Australian
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emissions unit to lead to additional global abatement, a Kyoto unit needs
to be voluntarily cancelled within the relevant commitment period.
10.84 If the request relates to a Kyoto unit, and if the Authority is
satisfied that the transfer would not breach the regulations made for the
purposes of implementing the Kyoto rules or the regulations made to
comply with the commitment period reserve, then it must transfer the unit
to a voluntary cancellation account [Part 14, clause 283(3)]. Again, this
implements the Government's policy on voluntary cancellation and allows
private entities to cancel Kyoto units, which means they cannot be used by
Australia or another Kyoto Party for the purposes of meeting their
emission reduction targets and therefore leads to additional global
abatement.
10.85 If the request relates to a non-Kyoto international emissions unit,
further action by the Authority is dependent on the regulations [Part 14,
clause 284]. The bill provides for the voluntary cancellation of non-Kyoto
units but the detailed arrangements will be specified in regulations which
would not be made until an international unit has actually been prescribed
as a non-Kyoto international emissions unit. Chapter 2 discusses
arrangements for non-Kyoto international emissions units more generally.
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Chapter 11
Compliance and enforcement
Outline of chapter
11.1 This Chapter addresses the various mechanisms provided in the
bill which relate to compliance and enforcement. These include
information gathering, record keeping, monitoring, liability of company
officers, administrative penalties, the make good requirement, criminal
and civil penalties, enforceable undertakings and the anti-avoidance
provisions.
11.2 The relevant provisions are in Parts 13, and 17 to 23 of the bill.
The provisions relating to avoidance of thresholds are clauses 23 and 30.
The provisions relating to the administrative penalty and make good
requirement are in Parts 6 and 15.
Context
11.3 The Authority is responsible for ensuring compliance with the
Scheme. Effective enforcement arrangements are vital to achieving the
objectives of the Scheme. Non-compliance with obligations could bring
the Scheme into disrepute and undermine its environmental integrity.
Appropriate compliance and enforcement mechanisms are therefore
essential.
Summary
11.4 The bill provides a series of mechanisms needed to ensure
compliance and for enforcement.
11.5 They are listed below with references to the simplified outlines
or provisions:
· Information-gathering powers [Part 17, clause 295]
· Requirements to keep records [Part 18, clause 301]
· Monitoring powers [Part 19, Division 1, clause 305]
· Provisions relating to liability of officers of bodies corporate
[Part 20, clause 323]
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· Administrative penalties and the make good requirement
[Part 6, Division 4, clauses 133 and 142] [Part 15, Division 3, clause 287]
· Civil penalties [Part 21, clause 326]
· Various criminal penalties including offences relating to
administrative penalties and fraudulent conduct [Part 13,
clause 279] [Part 22, clause 339]
· Enforceable undertakings [Part 23, clause 342]
· Anti-avoidance provisions [Part 3, Division 2, clause 23] [Part 3,
Division 3, clause 30].
11.6 The possibility of a court order to relinquish units following
conviction for various offences under the Criminal Code connected with
the Scheme can also be seen as an enforcement mechanism. The
relinquishment mechanism is addressed in Chapter 10 of this explanatory
memorandum, as are the situations in which relinquishment can be
ordered.
11.7 The other mechanisms referred to above, for example
information gathering and monitoring, are standard for a regulator with
functions comparable to those which the Authority has.
Detailed explanation of new law
Information-gathering powers
11.8 If the Authority believes on reasonable grounds that a person has
information or a document that is relevant to the operation of the Act or
associated provisions, the Authority will be empowered to require, by
written notice, that person to give information or documents, or to provide
copies [Part 17, clause 296].
11.9 The phrase `associated provisions' is defined to include the
proposed Carbon Pollution Reduction Scheme Regulations, the proposed
provisions in the National Greenhouse and Energy Reporting Act 2007
relating to liable entities (including registration and reporting), and
specified provisions of the Criminal Code in so far as those sections relate
to the Scheme [Part 1, clause 5, definition of `associated provisions'].
11.10 The written notice must provide at least 14 days' notice [Part 17,
clause 296(3)].
11.11 This is a civil penalty provision, as are the ancillary
contraventions. General provisions relating to civil penalties, including the
pecuniary penalties are included in Part 21 of the bill.
11.12 Inspection, copying and retention of documents produced to the
Authority are addressed [Part 17, clause 298]. Compensation for a
requirement to provide copies is also addressed [Part 17, clause 297].
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11.13 The Authority may retain possession of documents produced for
as long as is necessary. However, provision is made for supply of a
certified copy to the person otherwise entitled to possession [Part 17,
clause 299].
11.14 A person is not excused from giving information or producing a
document following notice from the Authority on the ground that it might
incriminate them or expose them to a penalty. However, the information
given or document produced, the giving of the information or document
and any information, document, or thing obtained as a consequence is not
admissible in evidence against an individual in specified circumstances:
· civil proceedings for the recovery of other than
administrative penalties and late payment penalties in respect
of failure to surrender or relinquish units
· criminal proceedings, unless the proceedings are for an
offence that relates to information-gathering by the
Authority, involving the provision of false or misleading
information or documents.
[Part 17, clause 300].
Self-incrimination is addressed in more detail below, in
connection with clause 312.
Record-keeping requirements
11.15 Records will need to be kept by various Scheme participants to
support the information which they provide under the Scheme. This will
enable the Authority and, where relevant, inspectors and auditors, to
check the accuracy and completeness of information provided to the
Authority, for example information provided in applications leading to the
administrative allocation of Australian emissions units.
11.16 The capacity to audit emissions data is essential to monitoring
compliance and ensuring the integrity of the Scheme. Record keeping
obligations already apply to reports under the National Greenhouse and
Energy Reporting Act 2007. These obligations are expanded by
amendments included in the consequential amendments bill.
11.17 The detailed record-keeping obligations where the information is
relevant to the bill will be specified in the regulations [Part 18, clause 302].
11.18 Record-keeping obligations are also imposed on:
· suppliers where a recipient quotes its OTN in relation to the
supply [Part 18, clause 303]
· suppliers where the recipient has quoted its OTN but the
supplier has rejected the quotation [Part 18, clause 304]
· persons who have prepared a reforestation report [Part 18,
clause 304A].
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11.19 These provisions require the records to be kept for five years and
are civil penalty provisions. This period is consistent with obligations
under the taxation system.
11.20 These requirements and the ancillary contraventions are civil
penalty provisions [Part 18, clauses 302-304A].
Monitoring powers
Introduction
11.21 In brief, Part 19 provides for the appointment of inspectors who
may enter premises for the purpose of determining whether the CPRS Act
or associated provisions have been complied with or substantiating
information provided under the Act or associated provisions. The most
usual duties of an inspector are expected to be examining documentation,
for example records held by liable entities and operators of facilities
covered by the Scheme. Entry must be with the consent of the occupier of
the premises or under a monitoring warrant. An inspector who enters
premises may exercise monitoring powers. He or she may be assisted by
other persons if that assistance is necessary and reasonable. The rights and
responsibilities of the occupier of the premises are also described.
Appointment of inspectors
11.22 The Authority may appoint a member of its staff or a member of
the Australian Federal Police as an inspector for the purposes of the Act.
The staff member may be at the SES level (or acting SES level) or at the
APS Executive Level 1 or 2, or equivalent (or performing these
functions). It is envisaged that inspectors will require detailed knowledge
of the Scheme and the ability to identify and interpret technical data, such
as data used in the measurement of emissions at the facility or
organisational level, which are used to calculate a liable entity's emissions
number. For this reason, it is necessary to allow for APS Executive Level
1 and 2 staff to be appointed as inspectors, as well as SES level staff. The
person must have suitable qualifications and experience, and comply with
any direction of the Authority. If such a direction is given in writing, it is
not a legislative instrument [Part 19, Division 2, clause 306]. This provision is
included to assist readers, as the instrument is not a legislative instrument
within the meaning of section 5 of the Legislative Instruments Act 2003.
11.23 The Authority is required to issue an identity card which must be
carried by the inspector. The form of the card is to be prescribed. Failure
to return the card is an offence [Part 19, Division 2, clause 307].
Powers of inspectors
11.24 An inspector can enter premises and exercise monitoring powers
to determine whether this Act or the associated provisions have been
complied with or for the purpose of substantiating information provided
under the Act or associated provisions. The inspector can only enter
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premises with the consent of the occupier or under a monitoring warrant
[Part 19, Division 3, clause 308].
11.25 The monitoring powers of the inspector are specified. They
include the power to search the premises and to inspect any document on
the premises. An inspector may operate electronic equipment to see
whether it contains relevant information. The inspector may also secure
things for up to 24 hours if entry to the premises was under a monitoring
warrant. This period can be extended by a magistrate [Part 19, Division 3,
clause 309].
11.26 Inspectors may be assisted by other persons if this is necessary
and reasonable. A person assisting an inspector may enter the premises
and exercise monitoring powers in relation to them but only in accordance
with a direction given by the inspector. The relevant provision states that
if such a direction is in writing, it is not a legislative instrument. This is to
assist readers, as the instrument is not a legislative instrument within the
meaning of section 5 of the Legislative Instruments Act 2003 [Part 19,
Division 3, clause 310].
11.27 Where the inspector has entered the premises with the consent of
the occupier, then he or she may ask the occupier to answer relevant
questions or produce relevant documents. When entry was under a
monitoring warrant, the inspector may require the occupier to answer
relevant questions or produce relevant documents. It is an offence not to
comply with such a requirement. The penalty is up to 6 months'
imprisonment or 30 penalty units, or both [Part 19, Division 3, clause 311].
11.28 It is not an excuse from giving an answer or producing a
document in response to such a requirement if the answer or production of
the document might tend to incriminate the person. However, in the case
of an individual, the answer or document, the giving of the answer and
producing the document, and any information, document or thing obtained
as a consequence is not admissible in evidence in specified circumstances
[Part 19, Division 3, clause 312]. The circumstances are the same as in the self-
incrimination provision in the information gathering powers [Part 17, clause
300].
11.29 Provisions under which a person may be required to answer
questions or to produce information or documents are a common
enforcement mechanism in Commonwealth legislation. These provisions
are appropriate when such powers will assist in the administration of
Commonwealth legislation.
11.30 Clauses 300 and 312 override an individual's privilege against
self incrimination, but provide an individual with immunity such that self-
incriminatory disclosures cannot be used against the person who makes
the disclosure, either directly in court (known as `use' immunity) or
indirectly to gather other evidence against the person (known as
`derivative use' immunity) with limited exceptions [Part 17, clause 300]
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[Part 19, Division 3, clause 312].
However, the information could be used
against a third party, such as an accomplice.
11.31 The effective administration of the Scheme is an issue of major
public importance with a significant impact on the Australian community
and business. Non-compliance could undermine the Scheme's capacity to
drive cuts in greenhouse gas emissions to meet Australia's international
climate change obligations, result in unfair competition between
compliant and non-compliant businesses, and reduce auction revenues
which are used to assist households and businesses adjust to the Scheme.
Clauses 300 and 312 enhance the ability of the Authority to monitor and
ensure compliance with the Scheme in a way that is consistent with the
views of the Scrutiny of Bills Committee, as well as Commonwealth legal
policy regarding the privilege against self-incrimination [Part 17, clause 300]
[Part 19, Division 3, clause 312].
11.32 Part 19 also addresses:
· Consent of the occupier, including limitations and
withdrawal of consent [Part 19, Division 4, clause 313]
· The announcement that must be made by an inspector before
entering premises under a monitoring warrant [Part 19,
Division 4, clause 314]
· The need to be in possession of the warrant to execute it
[Part 19, Division 4, clause 315]
· The requirement that the inspector provide a copy of the
warrant to the occupier who is present and inform him or her
of the rights and responsibilities of the occupier [Part 19,
Division 4, clause 316]
· Using expert assistance to operate electronic equipment
[Part 19, Division 4, clause 317]
· Compensation for damage to electronic equipment [Part 19,
Division 4, clause 318].
11.33 The occupier is entitled to observe the execution of a monitoring
warrant, but not if he or she impedes the execution [Part 19, Division 5,
clause 319].
11.34 The occupier must provide the inspector and persons assisting
the inspector with all reasonable facilities and assistance where there is a
monitoring warrant applying to the premises. Failure to do so is an
offence. The penalty is a maximum of 30 penalty units [Part 19, Division 5,
clause 320].
Monitoring warrants
11.35 The requirements for the issue of a monitoring warrant by a
magistrate and the content of the warrant are specified [Part 19, Division 6,
clause 321].
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11.36 The power to issue a monitoring warrant is conferred on a
magistrate in his or her personal capacity. It need not be accepted but
when it is exercised the magistrate has the same protection and immunity
as if he or she were exercising the power as a member of the court of
which the magistrate is a member [Part 19, Division 7, clause 322].
Liability of executive officers of bodies corporate
11.37 Where a body corporate contravenes a civil penalty provision,
and its executive officer knew that (or was reckless or negligent as to
whether) the contravention would occur, the officer will be subject to a
civil penalty if he or she was in a position to influence the conduct of the
body corporate, in relation to the contravention, but failed to take all
reasonable steps to prevent it [Part 20, clause 324].
11.38 The phrase `executive officer' is defined to mean a director,
chief executive officer, chief financial officer or secretary of the body
corporate [Part 1, clause 5, definition of `executive officer'].
11.39 The terms `reckless' and `negligent' are explained for the
purpose of this provision [Part 20, clause 324(2) and (3)]. This is necessary
because the provisions are civil penalty provisions.
11.40 The court may have regard to all relevant matters in determining
whether an executive officer failed to take all reasonable steps. These
matters may include what action (if any) the officer took directed towards
ensuring (to the extent that the action is relevant to the contravention) that
the body corporate arranges regular professional assessments of its
compliance with civil penalty provisions. The word `professional' refers
to the qualifications and experience of the person undertaking the
assessment and does not require, on every occasion, that the assessment
be undertaken by a person outside the organisation [Part 20, clause 325].
11.41 Extended accessorial liability is appropriate in this context. The
aim is to ensure that compliance with obligations under the Scheme is
taken seriously at a high level within liable entities. Liability is not being
imposed simply because the person is an officeholder at the relevant time
but requires a degree of blame before a civil penalty can be imposed.
Example 11.1
A director or chief executive officer may be aware that his or her
company was failing to comply with its forest maintenance obligation
and was in a position to influence this conduct, but failed to take all
reasonable steps to prevent this contravention.
Example 11.2
A chief financial officer could be aware that the company was quoting
a bogus OTN and receiving fuel without a carbon price, and was in a
position to influence this conduct, but failed to take all reasonable steps
to prevent this.
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Administrative penalties and make good requirements
Unit shortfall
11.42 A liable entity may be liable because it is responsible for a
facility which has more greenhouse gas emissions than the threshold
amount in a particular year and for potential emissions from the fuel it
supplies as an upstream fuel supplier.
11.43 Each of these will generate a provisional emissions number.
11.44 In the first year of the Scheme, the sum of a liable entity's
provisional emissions numbers will be the entity's emissions number.
11.45 If the liable entity does not surrender any or sufficient units by
15 December to meet its emissions number, then it will have a unit
shortfall [Part 6, Division 3, clause 130].
Administrative penalty and make good number -- unit shortfall
11.46 An administrative penalty is imposed for a unit shortfall [Part 6,
Division 4, clause 133]. This is explained in more detail in Chapter 10 of this
explanatory memorandum. The entity will also have a `make good'
number for the following financial year [Part 6, Division 4, clause 142]. This
means that it will be required to surrender additional units in relation to
the following year, equivalent to the number that it failed to surrender in
relation to the initial year. The aim of this mechanism is to reinforce the
environmental integrity of the Scheme. Failure to surrender sufficient
units in the following year will, in turn, result in a further administrative
penalty and make good number.
11.47 The administrative penalty, referred to above, is $11 with
respect to the 2011-12 financial year [Part 6, Division 4, clause 133].
11.48 After that, it is calculated in accordance with the formula:
[Number of units in the unit shortfall] x [prescribed amount for the
current eligible financial year]
11.49 The amount referred to in this formula is expected to be
prescribed by regulations. The maximum and default amount is 110 per
cent of the benchmark average auction price for the previous financial
year [Part 6, Division 4, clause 133].
11.50 The benchmark average auction price is calculated by the
Authority and published on its website as soon as practicable after the end
of each financial year [Part 6, Division 4, clause 133(3)]. It is the higher of (a)
the average auction price for units issued at all auctions in the relevant
year and (b) the average auction price for units issued at the last auction in
the relevant year [Part 6, Division 4, clause 141].
11.51 The administrative penalty is due and payable on 31 January
[Part 6, Division 4, clause 134] and from that date, a late payment penalty will
start accruing [Part 6, Division 4, clause 135]. The late payment penalty will be
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calculated on the basis of 20 per cent per annum (or if a lower rate is
prescribed, that amount) of the amount that is unpaid. The rate of the late
payment penalty is likely to be set at a rate higher than the standard bank
lending rate [Part 6, Division 4, clause 135(1)].
11.52 The Authority is empowered to remit the late payment penalty in
part or in whole if it is satisfied that certain criteria are met. An example
of the criteria included is that there are special circumstances that make it
reasonable to remit some or all of the penalty [Part 6, Division 4,
clause 135(2)].
11.53 Other aspects of the surrender process are addressed in
Chapter 10 of this explanatory memorandum.
Administrative penalty -- relinquishment
11.54 The relinquishment mechanism is also described in Chapter 10
of this explanatory memorandum.
11.55 Failure to relinquish units as required also results in an
administrative penalty [Part 15, Division 3, clause 287]. The administrative
penalty, referred to above, is calculated in accordance with the formula:
[Number of units required to be relinquished - number of
relinquished units] x [prescribed amount for the relevant financial
year]
11.56 As in the case of the administrative penalty for a unit shortfall,
special provision is made for relinquishment requirements arising before
1 July 2012. If the requirement arose under the emissions-intensive
trade-exposed assistance program before 31 July 2012, then the
administrative penalty is $10 per unit of shortfall. If the requirement arose
before 1 July 2012, but is not connected with the emissions-intensive
trade-exposed program, then the administrative penalty is $20 per unit of
shortfall [Part 15, Division 3, clause 287(3)].
11.57 In relation to other years, the penalty provisions refer to a
maximum and default amount. This is 200 per cent of the benchmark
average auction price for the previous financial year [Part 15, Division 3,
clause 287(3)]. The reason for having a higher multiple than for a unit
shortfall is that there is no make good requirement following a failure to
relinquish. A make good requirement is only appropriate where there is an
expectation that the entity will be a liable entity with respect to the next
financial year. Relinquishment may be required in situations where no
liable entity is involved, for example where a person has been issued units
for the destruction of synthetic greenhouse gases on the basis of false
information.
11.58 The administrative penalty is due and payable 30 days after the
compliance deadline [Part 15, Division 3, clause 287(4)].
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11.59 From this point a late payment penalty will accrue [Part 15,
Division 3, clause 288]. The Authority is empowered to remit the late
payment penalty in part or in whole if it is satisfied that certain criteria are
met. An example of the criteria included is that there are special
circumstances that make it reasonable to remit some or all of the penalty
[Part 15, Division 3, clause 288(2)].
11.60 Other aspects of the relinquishment mechanism are addressed in
Chapter 10 of this explanatory memorandum.
Civil penalties
Which provisions are civil penalty provisions?
11.61 The majority of penalty provisions in the Scheme legislation are
civil penalty provisions. Ancillary contraventions, such as aiding a
contravention, are also civil penalty provisions.
List of civil penalty provisions
50A Notification of change of name or address of OTN holder
52 Mandatory quotation of OTN -- large user of fossil fuels
53 Mandatory quotation of OTN -- retailer of natural gas
54 Mandatory quotation of OTN -- liquid petroleum gas marketer
55 Mandatory quotation of OTN -- use of liquid petroleum gas as
a feedstock
65 Rejection of quotation of OTN -- re-supply of eligible
upstream fuel
66A Unauthorised mandatory quotation of OTN
67 Misuse of OTN
68 Quotation of bogus OTN
163 Use and disclosure of information obtained from the Registry
164 Regulations about the Registry
173 Compliance with EITE reporting and record-keeping
requirements
225 Reforestation reports
226 Forest maintenance obligations
226C Forest restoration order
235 Notification requirement -- ceasing to hold carbon
sequestration right
235A Requirement under regulations imposing notification
requirements
293 Notification of significant holding -- controlling corporation of
a group
294 Notification of significant holding -- non-group entity
296 Regulator may obtain information and documents
302 Record-keeping requirements -- general
303 Record-keeping requirements -- quotation of OTN
304 Record-keeping requirements -- rejection of quotation of OTN
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304A Recordkeeping requirements -- preparation of reforestation
reports
324 Civil penalties for executive officers of bodies corporate
11.62 The first reason for choosing to make these civil penalty
provisions is that contraventions of these provisions do not involve
conduct of such serious moral culpability that criminal prosecution is
warranted. Further, as most liable entities are expected to be bodies
corporate, financial disincentives provided by civil penalties are likely to
be most useful and effective.
Civil penalty orders -- jurisdiction and amount
11.63 Both the Federal Court and competent State and Territory courts
can make civil penalty orders [Part 21, clause 326A].
11.64 It is for the Court to determine whether a person has contravened
a civil penalty provision and to order the person to pay a penalty [Part 21,
clause 327].
11.65 The maximum amount of the pecuniary penalty is specified, as
are the matters which the court is required may have regard to in
determining the amount of the penalty [Part 21, clauses 327(3) and (4)].
11.66 They include the nature and extent of the contravention,
previous contraventions, and, in the case of a body corporate, whether it
has exercised due diligence to avoid the contravention. These factors
reflect the approach indicated in A Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Powers. They follow the
Australian Law Reform Commission Report 95: Principled Regulation:
Federal Civil and Administrative Penalties in Australia.
11.67 For the majority of civil penalty provisions, the maximum is
10,000 penalty units for a body corporate and 2,000 penalty units for other
persons [Part 21, clause 327(4)(d) and (6)(c)]. The phrase `penalty unit' is
defined by reference to section 4AA of the Crimes Act 1914 [Part 1,
clause 5, definition of `penalty unit']. Currently, a penalty unit is $110.
11.68 Exceptions to the above maximum penalty level are:
· the penalty for quotation of a bogus OTN [Part 3, Division 5,
clause 68(1) and (2)]) -- the greater of
- 10,000 penalty units for a body corporate or three times
the total value of the benefits obtained from the
contravention [Part 21, clause 327(5)]
- 2,000 penalty units for a person that is not a body
corporate [Part 21, clause 327(6)].
· The penalty for failure by an OTN holder to notify a change
or name or address [Part 3, Division 5, clause 50A]
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- 500 penalty units for a body corporate [Part 21,
clause 327(4)(b)]
- 100 penalty units for other persons [Part 21, clause 327(6)(b)].
· the penalty on the supplier who accepts the quotation of an
OTN which is not on the register (a bogus OTN) [Part 3,
Division 5, clause 68(3) and (4)]
- 500 penalty units for a body corporate [Part 21, clause
327(4)(b)]
- 100 penalty units for other persons [Part 21, clause 327(6)(a)].
· the penalty for contravening provisions relating to `spam',
based on information obtained from the Registry (clause 163)
- 500 penalty units for a body corporate [Part 21, clause
327(4)(c)]
- 100 penalty units for other persons [Part 21, clause 327(6)(a)].
11.69 Adherence to requirements for reporting emissions and the use
of obligation transfer numbers (which determine whether an entity has a
liability under the Scheme for fuel it receives), for example, will be
essential to maintaining the integrity of the Scheme and ensuring that
Australia meets current and future emissions reduction targets in
accordance with its international obligations.
11.70 Substantial penalties are therefore required to provide an
adequate deterrent against inaccurate record keeping or reporting, and
misuse of obligation transfer numbers. Substantial financial gains are
expected to be able to made from contravention of the obligations under
the Scheme. For example, the maximum penalty of 10,000 penalty units
(or $1,100,000) is equivalent to 44,000 emissions units at $25 per unit,
which may be a small proportion of the emissions number of many liable
entities covered by the Scheme.
11.71 The possible penalty for a body corporate for quoting a bogus
OTN is three times the total benefits that are reasonably attributable to the
contravention [Part 21, clause 327(5)]. The purpose is to ensure that the
penalty directly reflects the considerable profit that could be made from
quoting a bogus OTN, acquiring fuel without a carbon price, selling it on
the basis that the carbon price has been paid and not surrendering units to
the Authority as a holder of an OTN would usually be required to do. The
financial advantage to the entity quoting the bogus OTN is thus at the
expense of the Commonwealth.
11.72 Lower penalties apply to a supplier of fuel who fails to check an
obligation transfer number (as there is a greater onus on the user of the
OTN, ie the recipient of fuel supplies) and for the misuse of information
obtained from the registry [Part 21, clause 327(4)(b) and (6)(a)].
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11.73 Amendments to the civil penalties included in the National
Greenhouse and Energy Reporting Act 2007 are included in the
consequential amendments bill. They reflect the significance of the
reporting and auditing regime for the Carbon Pollution Reduction Scheme
as a whole.
Evidential burden
11.74 There are two civil penalty provisions which are framed in such
a way as to alter the usual evidential burden.
11.75 The first is clause 163 which addresses misuse of information
obtained from the registry. It is framed as a broad prohibition with
exceptions to achieve the aim of restricting the uses to which this
information can be put [Part 7, Division 6, clause 163].
11.76 The second is clause 336 which relates to a mistake of fact and,
in general terms, provides that a person is not liable to have a civil penalty
order made against him for a contravention of a civil penalty provision if
the person considered whether or not facts existed and was under a
mistaken but reasonable belief about those facts and had those facts
existed, the conduct would not have constituted a contravention of the
civil penalty provision. A person who wishes to rely on the relevant
subsections bears an evidential burden in relation to that matter [Part 21,
clause 336].
11.77 This approach is justified where a matter is peculiarly within the
defendant's knowledge and not available to the prosecution. This is
particularly the case in mistake of fact and misuse of information from the
registry.
Continuing contraventions
11.78 A person who contravenes specified civil penalty provisions
which involve, for example, a requirement to do something within a
particular period, commits a separate contravention on each of the days on
which it fails to comply [Part 21, clause 338].
11.79 Generally, the penalty is limited to 5 per cent (each day) of the
penalty for the initial contravention. However, in the case of a
contravention of a requirement by the Authority to provide information or
documents [Part 17, clause 296(4)] the penalty is up to 10 per cent (each day)
of the penalty for the initial contravention [Part 21, clause 338(3)].
11.80 Other examples of provisions in relation to which continuing
contraventions can occur are those dealing with compliance with the
record-keeping requirements [Part 8, Division 3, clause 173] and a failure to
comply with a requirement from the Authority to provide information or
documents [Part 17, clause 296].
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11.81 The Australian Climate Change Regulatory Authority needs to
have access to sufficient information to assess compliance. These
provisions will assist in achieving this.
Other provisions about civil penalties
11.82 While the Crown in each of its capacities is bound by the Act,
the Crown is not liable to a pecuniary penalty. This protection does not
apply to authorities of the Crown or to administrative penalties or late
payment penalties [Part 1, clause 9].
11.83 Other aspects of the civil penalty regime are also addressed in
Part 21. Of particular significance are:
· Only the Authority may apply for a civil penalty order
[Part 21, clause 328]
· A requirement that the rules of evidence and procedure for
civil matters be applied when hearing proceedings for a civil
penalty order [Part 21, clause 331]
11.84 Other provisions address the grouping of proceedings [Part 21,
clause 329], the 6 year time limit on initiating civil penalty proceedings
[Part 21, clause 330] and the relationship between civil and criminal
proceedings initiated with respect to the conduct which is substantially the
same [Part 21, clauses 332 to 335].
11.85 The provisions also address the situation where the person who
contravenes the civil penalty provision was, for example, under the
mistaken belief about facts which, if true, would mean that there would
not have been a contravention of the civil penalty provision [Part 21,
clause 336].
11.86 Special provision is made for the state of mind of a person who
does not comply with a requirement of the Authority under clause 296(4),
for example, to give the Authority particular information [Part 21,
clause 337]. The reason for this provision is that it is reasonable to expect
those subject to the provision will take steps to guard against any
inadvertent contravention.
Criminal provisions
11.87 As indicated above, the provisions in the bill which are criminal
offences are only those involving such culpability that criminal penalties
are justified.
Criminal provisions
160 Making a false entry in the Registry
161 Falsified documents
307 Identity cards for inspector
311 Inspector may ask questions and seek production of documents
320 Occupier to provide inspector with facilities and assistance
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340 Scheme to avoid existing liability to pay administrative penalty
341 Scheme to avoid future liability to pay administrative penalty
11.88 Those few provisions in this Bill which are framed as criminal
offences generally relate to behaviour which involves dishonest or
fraudulent conduct, or could involve considerable harm to society or the
environment.
11.89 Thus making a false entry in the Registry [Part 7, Division 6,
clause 160]includes hacking into the registry and moving emissions units
from account to account, or making entries for non-existent units. It could
have a profound impact on specific account holders and impact on the
functional integrity and reputation of the Scheme. The maximum penalty
is 7 years or 2,000 penalty units, or both.
11.90 Liable entities are likely to have far more information about
their emissions than the Australian Climate Change Regulatory Authority,
particularly if they have failed to report. It is therefore essential for the
operation of the Regulator that the information gathering and monitoring
powers are adequate and that the requirements of inspectors are complied
with [Part 19, Division 3, clause 311] [Part 19, Division 5, clause 320]. The
maximum penalty for contravention of clause 311 (which relates to a
failure to answer questions or produce documents to an inspector) is
6 months imprisonment or 30 penalty units or both. The maximum penalty
for contravention of clause 320 (which relates to assistance to an inspector
under a monitoring warrant) is 30 penalty units.
11.91 Entering into schemes aimed at ensuring that a body corporate
or trust will, for example, be unable to pay an existing or future liability to
pay an administrative penalty is a criminal offence [Part 22, clauses 340
and 341]. These provisions are comparable to those which apply in relation
to various taxes. They are aimed at artificial schemes involving, for
instance, `asset-stripping'.
11.92 The maximum penalties specified in these provisions are
10,000 penalty units or 10 years imprisonment, or both. The maximum
penalties are justified by the considerable financial incentive to avoid
payment of liabilities under the Scheme.
11.93 In general, the penalties are designed to ensure there is an
adequate penalty for the worst possible case.
11.94 The evidential burden is altered in one provision which relates to
the failure of an inspector to return his or her identity card promptly after
ceasing to be an inspector [Part 19, Division 2, clause 307]. This is justified
because the punishment is a fine of 1 penalty unit; the approach taken is
likely to significantly enhance the effectiveness of the enforcement regime
in deterring offences and it will place those appointed as inspectors on
notice to guard against the possibility of any contravention.
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11.95 Ancillary contraventions, such as aiding a contravention, are
addressed by the Criminal Code.
11.96 As indicated above, the Crown in each of its capacities will be
bound by the Act, but the Crown is not liable to be prosecuted for an
offence. This protection does not apply to an authority of the Crown
[Part 1, clause 9].
11.97 In addition to the specific criminal provisions listed above,
conduct in relation to the Scheme may constitute contravention of
provisions of the Criminal Code. Conviction for an offence against
specified provisions of the Criminal Code is one of the preconditions for a
court order to relinquish units [Part 13, clause 280]. The offences specified
include making a statement in information provided to the Authority or in
an application for a benefit (such as free Australian emissions units),
knowing that it is false. An example is a false statement in an application
for a registry account or an obligation transfer number.
11.98 The specified provisions in the Criminal Code are also included
in the list of `associated provisions' [Part 1, clause 5, definition of `associated
provisions'].
11.99 Contravention of these provisions is therefore relevant to
recognition as a synthetic greenhouse gas destruction customer and
recognition as a reforestation entity. It is also relevant to the breadth of the
information gathering and monitoring powers of the Authority, and to the
matters which may be addressed in enforceable undertakings.
Enforceable undertakings
11.100 The Authority is empowered to accept enforceable undertakings
[Part 23, clause 343].
A person may, for example, undertake to take specified
action directed towards ensuring that the person complies with the Act.
11.101 Such undertakings are published on the Authority's website
[Part 23, clause 343(5)].
11.102 They are enforceable by the Authority in the Federal Court. The
Court has a wide discretion as to the orders it can make. These include an
order directing the person to comply with the undertaking [Part 23,
clause 344].
11.103 Enforceable undertakings are useful mechanisms for the
Authority to help ensure compliance without necessarily taking court
action. This power could be used when a liable entity has lodged
inadequate emissions reports and is found to have inadequate internal
systems to produce adequate reports to meet its obligations. It may be
willing to enter into an enforceable undertaking specifying the processes
which it would implement so that it can produce adequate reports in the
future.
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Anti-avoidance provisions
11.104 While provisions referred to above address `asset-stripping',
other provisions address the avoidance of liability under the Scheme by
artificial schemes aimed to bring facilities or activities below thresholds.
A significant threshold which appears in a number of provisions in the bill
is 25,000 tonnes of greenhouse gas emissions per facility for direct
emitters.
11.105 Artificial schemes aimed at obtaining the benefit of this
threshold are addressed generally [Part 3, Division 2, clause 23] and in the
context of the synthetic greenhouse gas provisions [Part 3, Division 3,
clause 30].
11.106 The schemes to which these provisions refer are those entered
into or commenced after 15 December 2008, when the White Paper was
released.
Court orders to relinquish units
11.107 Following conviction for an offence against certain specified
provisions of the Criminal Code, the court may order that the offender
relinquish a specified number of Australian emissions units [Part 13,
clause 280]. Before making such an order, the court must be satisfied that
the issue of any or all of the units was attributable to the offence. The
provisions in the Criminal Code which are specified include section 137.1
which relates to giving false or misleading information to a
Commonwealth entity.
11.108 A person is required to comply with such an order even if he or
she is not the registered holder of any Australian emissions units [Part 13,
clause 280(5)].
11.109 The procedure for relinquishment is addressed in Part 15 of the
bill and Chapter 10 of this explanatory memorandum.
Example 11.3
SXG Ltd is a synthetic greenhouse gas destruction customer
recognised under the Scheme. In November 2012, SXG applies to the
Authority for a certificate of eligible synthetic greenhouse gas
destruction, and knowingly includes false information in the
application, regarding the quantity of synthetic greenhouse gas
destroyed. As a result, the Authority issues to SXG a certificate and
200 more emissions units than SXG is entitled to.
The fraudulent conduct is discovered and SXG is found guilty of the
offence. SXG is exposed to the criminal penalty under section 136.1
(False or misleading statements in applications) of the Criminal Code.
The court also orders the company to relinquish 200 emissions units.
The Authority cancels the recognition of the company under
clause 257(1)(a).
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Carbon Pollution Reduction Scheme Bill 2010
SXG then fails to relinquish the units by the specified time, and is
further exposed to an administrative penalty under clause 287 of the
bill. The relevant benchmark average auction price is $26. The
`prescribed amount' for calculating the penalty is 200 per cent of this
price. The penalty is therefore $52 x 200 units = $10,400.
278
Chapter 12
The Australian National Registry of
Emissions Units
Outline of chapter
12.1 This chapter outlines the purposes and functions of the
Australian National Registry of Emissions Units (the Registry), the rules
for opening and closing accounts in the Registry, and the different types
of Registry accounts. The chapter also outlines the circumstances in which
an entry in the Registry may be corrected or rectified and outlines general
rules in relation to the Registry contained in Part 7 of the bill.
Context
12.2 The Registry serves two primary purposes:
· to track the issuance, holding, transfer, surrender,
cancellation, and retirement of emissions units under the
Scheme (emissions units are discussed in detail in Chapter 2
of this explanatory memorandum)
· to meet Australia's obligations under the Kyoto Protocol.
12.3 To hold and surrender units, a person must have an account in
the Registry. The Authority will be able to open an account in the Registry
for any person subject to their identity being confirmed.
12.4 Access to the Registry will be online. The Registry will enable
companies and individuals holding accounts to:
· view unit holdings
· receive units purchased at primary auctions or received via
allocation
· transfer units to other account holders
· surrender or relinquish units to meet Scheme obligations
· cancel units in order to help reduce emissions on a voluntary
basis.
12.5 Some information held in the Registry will be published on the
Authority's website and on the Liable Entities Publication Information
Database. (Public information is discussed in detail in Chapter 14 of this
explanatory memorandum.)
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Carbon Pollution Reduction Scheme Bill 2010
12.6 Participants may trade in units for reasons other than compliance
with the Scheme. They will be able to hold and transfer any type of Kyoto
unit, regardless of whether it can be surrendered to meet Scheme
obligations.
12.7 Australia is required, as part of its obligations under the Kyoto
Protocol and other Kyoto rules, to have a national registry to ensure
accurate accounting of the issuance, holding, transfer, acquisition,
cancellation, and retirement of Kyoto units. Australia's Registry, with
functionality required to meet Kyoto obligations, was established and
linked to the international Kyoto Protocol registry system in December
2008 and is now operational.
12.8 The continued existence of the Registry in the context of the
commencement of the bill is provided for in Part 7. [Part 7, Division 2,
clause 145] The remainder of this chapter outlines the provisions in Part 7
of the bill that will govern the Registry.
Summary
12.9 The Registry will be maintained by electronic means by the
Authority. The Registry will have a dual function -- namely, to act as a
registry for Australian emissions units and Australia's national registry for
Kyoto units.
12.10 A person will be able to open an account in the Registry where
they can hold Australian emissions units, Kyoto units and, when
prescribed, non-Kyoto international emissions units.
12.11 The Commonwealth will also have a number of accounts for the
purposes specified by the Kyoto rules.
12.12 A simplified outline of the Registry provisions is provided in
clause 144 of Part 7. [Part 7, Division 1, clause 144]
Detailed explanation of new law
Registry
12.13 The Registry which is established under the Commonwealth's
executive power before the commencement of the legislation will
continue in existence after commencement of the legislation. [Part 7,
Division 2, clause 145]
12.14 The Registry will have a dual function -- namely, to act as a
registry for Australian emissions units and Australia's national registry for
Kyoto units. [Part 7, Division 2, clause 145]
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12.15 The Registry must be maintained by electronic means by the
Authority. This is consistent with Kyoto rules, which requires that a Party
to Kyoto's national registry be in the form of a `standardized electronic
database which contains, inter alia, common data elements relevant to the
issuance, holding, transfer, acquisition, cancellation and retirement of
Kyoto units.' [Part 7, Division 2, clause 145(2)-(3)]
12.16 The Registry must set out the total amount of Australian
emissions units in each Registry account that have the same vintage year.
[Part 7, Division 3, clause 151]
Registry accounts
12.17 The rules in relation to Registry accounts are contained in
Division 3 of Part 7 of the bill. A person must have a Registry account in
order to hold Australian emissions units or Kyoto units, as emissions units
only exist within the electronic registry system. As the administrator of
the Registry, the Authority will open registry accounts in the name of a
particular person.
General rules
12.18 Each Registry account will be identified by a unique number,
known as the `account number' of the Registry account. [Part 7, Division 3,
clause 146]
12.19 A person may have one or more Registry accounts. [Part 7,
Division 3, clause 146 (4)]
12.20 The intention is to allow 2 or more persons to hold an account
jointly.
12.21 A Registry account, held immediately before the
commencement of the bill, will continue in existence after
commencement. This ensures that a person's Registry account, and the
units contained in the account, will be recognised under the bill when it
commences. (See Item 95, Part 1, Schedule 1 of the consequential
amendments bill.)
Opening accounts -- general
12.22 The Authority may, upon the request of a person, open a
Registry account in the name of that person. This allows the Authority to
identify the legal entity who wishes to open an account and will be
responsible for the units held in that account.
12.23 The Authority may open an account in the name of a particular
person where:
· the person requests the Authority to open a Registry account
in the person's name in accordance with the relevant
requirements contained in regulations, and
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Carbon Pollution Reduction Scheme Bill 2010
· that request is accompanied by the fee (if any) that is
specified in a legislative instrument made by the Authority
for the purposes of that application, and
· the Authority has carried out the `applicable identification
procedure' in respect of the person.
[Part 7, Division 3, clause 147]
12.24 Applicable identification procedure will have the meaning as
specified in the regulations. [Part 1, clause 5, definition of `applicable
identification procedure'] The purpose of requiring the Authority to carry out
an identification procedure is to ensure that the Authority can be satisfied
of a particular person's identity before opening an account for that person.
12.25 Once a person has opened an account, the registry is designed to
allow that person to designate agents to act on its behalf in relation to that
account. Examples of agents include employees of a company that have
the statutory power to act on behalf of that company, brokers that have a
contract with a person to act on that person's behalf and a person that has
the power of attorney for the person that holds the account.
Closure of accounts -- general
12.26 The Authority must close a person's Registry account if:
· there are no entries for any Australian emissions units, Kyoto
units and non-Kyoto units in the account, and
· the person requests the Authority to close the account.
[Part 7, Division 3, clause 152]
12.27 Australian emissions units, Kyoto units and non-Kyoto
international emissions units only exist electronically within the Registry
system. That is, they will always be in a registry account within the
(Australian) Registry or a foreign registry while they exist. Consistent
with this it will not be possible to close accounts that continue to hold any
units as such units cannot exist without the Registry account.
Change of a person's name
12.28 If a Registry account holder changes their name, they can apply
in writing to the Authority to have their name changed in the Registry. If
satisfied that the person's name has changed, the Authority must make the
necessary alterations in the Registry. [Part 7, Division 4, clauses 153-154]
Opening Commonwealth Registry accounts
12.29 This section outlines Australia's obligations regarding the
opening of Commonwealth Registry accounts. It does not apply to
companies or individuals.
12.30 The Kyoto rules stipulate that each Party's registry must contain
several specific types of accounts to facilitate the tracking of units and
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Chapter 12: National Registry of Emissions Units
registry transactions by the international transaction log. The mandatory
account types for each national registry are:
· holding account(s): each registry must contain at least one
account for holding the Party's Kyoto Protocol units. If, like
Australia has, the Party has authorised legal entities to
participate in the Kyoto mechanisms, then the registry must
also contain a separate holding account for each legal entity
· a retirement account into which the Party must transfer units
that it intends to use to meet its Kyoto target
· cancellation accounts: each registry must contain four
distinct types of cancellation accounts:
- a net source cancellation account that is reserved for units
that the Party cancels to account for net emissions for
forestry activities under Articles 3.3 and 3.4 of the Kyoto
Protocol
- a non-compliance cancellation account reserved for
transfer of units when the Compliance Committee
determines that the Party is in non-compliance with its
Article 3.1 commitment under the Kyoto Protocol
- a voluntary cancellation account for voluntary
cancellation of units not required by the Kyoto Protocol
rules
- a mandatory cancellation account for cancellation of
invalid units.
· replacement accounts: each registry must also contain at least
four replacement accounts:
- a temporary certified emission reduction replacement
account to receive units used to replace expired temporary
certified emission reductions
- a long-term certified emission reduction replacement
account to receive units used to replace expired long-term
certified emission reductions
- a long-term certified emission reduction replacement
account to receive units to account for emissions where a
long-term certified emission reduction has been subject to
a reversal of storage
- a long-term certified emission reduction replacement
account to receive units used to replace long-term
certified emission reductions for which a required
certification report has not been submitted.
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Carbon Pollution Reduction Scheme Bill 2010
12.31 The replacement of Kyoto units is discussed in more detail in
Chapter 2 of the explanatory memorandum.
12.32 The bill provides for Commonwealth Registry accounts with
designations for each of the mandatory accounts. In the event that the
Kyoto rules require a further mandatory account at some point in the
future it can be added to the designated Commonwealth account by
regulations. [Part 7, Division 3, clause 148]
12.33 New Commonwealth registry accounts can be opened at the
direction of the Minister. [Part 7, Division 3, clause 149]
12.34 Transitional provisions relating to Commonwealth registry
accounts are included in the consequential amendments bill.
12.35 Kyoto units that have been transferred to a retirement account, a
cancellation account, or a replacement account cannot be transferred
further. For example, a Party would only transfer a Kyoto unit to the
retirement account if it intended to use that unit to meet its Kyoto target.
This is because it would undermine the compliance regime of the Kyoto
Protocol if Kyoto units that had been retired could then be transferred for
an additional use. Similarly, Kyoto units transferred to a cancellation
account are for all intents and purposes cancelled, and therefore cannot be
transferred to a further account. Consistent with this, the bill provides that
Kyoto units in Commonwealth accounts designated as a retirement
account, cancellation account, or replacement account, cannot be
transferred or surrendered. [Part 7, Division 3, clause 150]
Correction and rectification of Registry
Clerical errors / obvious defects
12.36 The Authority may alter an entry in the Registry for the purposes
of correcting a clerical error or obvious defect. [Part 7, Division 5, clause 155]
Examples of clerical errors or obvious defects include a typographical
error or an entry which is clearly incorrect. The purpose of the provision is
to allow the Authority to make a correction of an uncontroversial nature
without having to consult the affected parties.
Kyoto units and non-Kyoto international emissions units
12.37 The Authority may also make such alterations to the Registry as
the Authority considers appropriate for the purposes of ensuring that the
relevant provisions of the Kyoto rules or the relevant provisions of an
international agreement, to the extent that the agreement relates to a
non-Kyoto international emissions unit, are complied with. [Part 7,
Division 5, clauses 157-158]
12.38 The Authority may make the alterations as a result of a request
by a person to alter the Registry, or on the Authority's own initiative.
[Part 7, Division 5, clause 157-158(2)]
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Chapter 12: National Registry of Emissions Units
12.39 In these circumstances, the Authority is not required to consult
with persons whose interests could be affected by the alteration.
12.40 Where the Authority alters the Registry under these provisions,
the Authority must publish a notice on the Authority's website setting out
the details of the alteration. [Part 7, Division 5, clause 157-158(3)]
Rectification of Registry
12.41 A decision of the Authority to correct an entry in the Registry is
a `reviewable decision'. This means that, if the decision is made by a
delegate of the Authority, a person may apply to the Authority for review
of that decision in the first instance, and may also apply to the
Administrative Appeals Tribunal if the Authority affirms or varies the
decision. [Part 24, clauses 346-348 and 350]
12.42 A person aggrieved by one of the following matters may make
an application for rectification of the Registry to the Federal Court in
respect of:
· the omission of an entry
· an entry made without sufficient cause
· an entry wrongly existing
· an error or defect in an entry
· an entry wrongly removed.
12.43 The Authority may also apply to the Federal Court for a
rectification order if the Authority is concerned about any of those
matters. This is designed to provide a mechanism for the Authority to
resolve problems with entries in the Registry which go beyond its powers
to resolve clerical errors or obvious defects.
12.44 The Authority must comply with an order of the court directing
rectification of the Registry. The purpose of this provision is to allow a
person to apply directly to the Federal Court for an order for rectification
of the Registry. [Part 7, Division 5, clause 159]
Miscellaneous provisions
12.45 A person commits an offence if the person makes causes or
concurs in the making of an entry in the Registry which the person knows
is false. [Part 7, Division 6, clause 160] It is also an offence to tender in
evidence a document which falsely purports to be a copy or extract from
an entry in the Registry or of an instrument given to the Authority under
Part 7. [Part 7, Division 6, clause 161]
12.46 The purpose of these provisions is to maintain the integrity of
the Registry and to ensure that it accurately reflects unit holdings and
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Carbon Pollution Reduction Scheme Bill 2010
actions such as transfers. The rationale for penalties applying to these
offences is provided in Chapter 11 of this explanatory memorandum.
12.47 The Authority may supply a copy of or extract from the Registry
or any instrument lodged with the Authority under Part 7, certified by an
official of the Authority, which will be admissible in all courts and
proceedings without further proof of the original. This facilitates
proceedings by avoiding the need to produce an original. [Part 7, Division 6,
clauses 162-163]
12.48 A person must not use or disclose information obtained from the
Registry about another person to contact or send material to them, unless
the information is relevant to the holding, or rights associated with the
holding of, Australian emissions units or Kyoto units recorded in the
Registry. This is a civil penalty provision and is analogous to the
limitation on the use of share registry data and is included to prevent the
use of Registry data for purposes such as advertising (spam). [Part 7,
Division 6, clause 163]
12.49 Many actions in relation to the Registry, such as the transfer of
units may be done through electronic means only. An electronic notice
transmitted to the Authority is defined in the bill. Regulations may
prescribe requirements in relation to the security and authenticity of
notices transmitted to the Authority including identification checking
processes and encryption of those processes. This is to give the Authority
the power to determine the level of encryption and identification checking
required for different actions in order to maintain the integrity of the
Registry.
12.50 If an electronic notice is transmitted to the Authority it is taken
to have been transmitted on the day on which the electronic
communication is sent. For example, an email sent to the Authority at
6:45 pm on Friday that waits on the server (not downloaded) until
Monday morning will be taken as sent at 6:45 pm on Friday. This will
provide certainty for the sender. [Part 1, clause 8]
12.51 Regulations may make further provision in relation to the
Registry. [Part 7, Division 6, clause 164] It is expected that regulations
will be required to set out detailed rules for the use of accounts and the
registry.
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Chapter 13
Public information
Outline of chapter
13.1 This chapter relates to the various requirements in the bill for
information to be made public.
13.2 Its focus is Part 12 of the bill.
Context
13.3 For units to flow to their highest value uses, their price needs to
reflect all available information. This will provide a price signal that will
inform business investment.
13.4 Provision of relevant market information and predictable
medium-term policy will assist Scheme participants and financial market
analysts to identify and understand the overall supply and demand
conditions for units, allowing efficient price discovery.
13.5 Announcements by the Government and Authority about, for
example, policy decisions, reported emissions and other information are
of particular significance in this context. However, the decision to allow
unlimited imports and surrender of certain types of international units will
also be relevant to the degree of price-sensitivity of domestic
announcements.
Summary
13.6 The bill includes provisions which will require the public
disclosure of information about Scheme operations, emissions,
participants and compliance.
13.7 Part 12 of the bill includes a simplified outline [Part 12, Division 1,
clause 260].
Detailed explanation of new law
13.8 Information will be made publicly available regarding liable
entities, holders of Registry accounts and regarding units (Part 12).
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Carbon Pollution Reduction Scheme Bill 2010
Information about liable entities
13.9 The Authority will keep a database known as the Liable Entities
Public Information Database [Part 12, Division 2, clause 261].
13.10 Since liability in some situations is determined at the end of the
financial year, it is not completely certain at any one point during the year
which entities will be liable. For this reason, the test for inclusion on the
Database is whether the Authority has reasonable grounds to believe that a
person is or is likely to be a liable entity for a particular financial year
[Part 12, Division 2, clause 262]. When the Authority makes such an entry, it
must give written notice of it to the person [Part 12, Division 2, clause 262(1A)].
There is provision for removal of entries [Part 12, Division 2, clause 262(2)]
and for correction of the Database [Part 12, Division 2, clause 268].
13.11 The Database will also include the emissions number (from a
report under the National Greenhouse and Energy Reporting Act 2007 or
an assessment or amended assessment of the Authority) [Part 12, Division 2,
clause 263].
13.12 Details of the number and types of units surrendered by each
liable entity will be included on the Database [Part 12, Division 2, clause 266].
The number of units relinquished will also be included [Part 12, Division 2,
clause 267C].
13.13 Unit shortfalls and relinquishment requirements will also be
entered on the Database, but there is provision for annotations indicating
that particular decisions are under review [Part 12, Division 2, clause 264] [Part
12, Division 2, clause 267A]. In addition, unpaid administrative penalties for
unit shortfalls will be included [Part 12, Division 2, clause 265] as will unpaid
penalties for failure to relinquish [Part 12, Division 2, clause 267B].
13.14 The number of voluntarily cancelled Australian emissions units,
Kyoto units or non-Kyoto international emissions units by a liable entity
will be entered separately on the Database [Part 12, Division 2, clause 267].
13.15 The purpose of disclosing this information is to ensure that the
market is fully informed about the demand for eligible emissions units.
13.16 As well as the information about emissions units voluntarily
cancelled by liable entities, which is referred to above, the Authority is
required to publish comparable information about emissions units
voluntarily cancelled by other persons [Part 12, Division 5, clause 278A-278C].
13.17 Comparable information about relinquishment requirements for
persons other than liable entities will also be made public. The
information is about relinquishment requirements [Part 12, Division 6,
clause 278D], unpaid administrative penalties following a requirement to
relinquish [Part 12, Division 6, clause 278E] and about the number of units
relinquished [Part 12, Division 6, clause 278F].
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Chapter 13: Public information
Information about holders of Registry accounts
13.18 The Authority will publish on its website the name of each
person with a Registry account and the person's address last known to the
Authority [Part 12, Division 3, clause 269].
13.19 The holding within an account which includes only Australian
emissions units will not be published.
13.20 Further information is required by the Kyoto Rules to be
published about Kyoto unit holdings. This is addressed below.
Information about units
13.21 The Authority will be required to publish a statement setting out
the characteristics of Australian emissions units prior to
31 December 2010 (that is, six months before the commencement of
scheme obligations) and keep that statement up-to-date [Part 12, Division 4,
clause 277A].
13.22 The Authority will also be required to publish a statement
setting out the characteristics of certain Kyoto units (those that are eligible
international emissions units)
13.23 Within 30 days after the commencement of regulations
prescribing a new eligible international emissions unit or a non-Kyoto
international emissions unit, the Authority must publish a statement
setting out the characteristics of the prescribed unit [Part 12, Division 4, clause
278].
13.24 In addition, the Authority will be required to publish a statement
setting out a concise description of the characteristics of Australian
emissions units and eligible international units [Part 12, Division 4, clause 278]
within 30 days after the commencement of clause 278.
13.25 This statement will assist in providing information to retail
investors about emissions units. No product disclosure statement or
prospectus would be issued by the Commonwealth under the relevant
provisions of the Corporations Act 2001 in relation to Australian
emissions units. This will therefore reduce the compliance burden under
the Scheme.
13.26 The Authority is required to publish information about:
· the charge per unit issued as a result of an auction and the
number of units issued for that charge [Part 12, Division 4,
clause 270]
· the aggregate number of units issued at a fixed charge in each
of the periods when this facility is available [Part 12, Division 4,
clause 272]
· the identity of recipients and the number of units provided
free of charge under the emissions-intensive trade-exposed
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Carbon Pollution Reduction Scheme Bill 2010
program, for coal-fired electricity generation, reforestation or
the destruction of synthetic greenhouse gas [Part 12, Division 4,
clause 273].
13.27 In addition, the Authority must publish various aggregate
figures:
· relating to the issue of free Australian emissions units [Part 12,
Division 4, clause 274]
· the surrender of borrowed and banked eligible emissions
units [Part 12, Division 4, clause 275]
· total emissions numbers and unit shortfalls [Part 12, Division 4,
clause 277].
13.28 The Authority will be required to publish the information
specified in the regulations which is required to be published by the Kyoto
Rules. It is also required to publish information about the total number of
certified emissions reductions and emission reduction units in the
Australian registry [Part 12, Division 4, clause 276].
Information about significant holdings
13.29 Where the members of a controlling corporation's group hold a
total of 5 per cent or more of the national scheme cap number for the
particular vintage year, then the controlling corporation must give written
notice of this to the Authority [Part 16, clause 293]. In other cases, the
obligation rests on the entity holding the units [Part 16, clause 294]. These
are civil penalty provisions which also address ancillary contraventions.
13.30 The Authority must publish the notices on its website [Part 16,
clauses 293(6) and 294(6)].
13.31 This provides additional information to the market which may
be relevant to price.
13.32 Part 16 of the bill, which relates to significant holdings, includes
a simplified outline [Part 16, clause 292].
Other information
13.33 Other sources of information about the Scheme and its
participants include:
· The Obligation Transfer Number Register [Part 3, Division 5,
clause 49]
· The Register of Reforestation Projects [Part 10, Division 13,
clause 238]
· Publication of the `benchmark average auction price' by the
Authority (which relates to setting the administrative penalty
for unit shortfalls and failure to relinquish units) [Part 6,
Division 4, clause 133(3)]
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Chapter 13: Public information
· Publication of each certificate of eligibility for coal-fired
generation assistance [Part 9, Division 3, clause 180(6)]
· Publication of a list of large landfill facilities and their
location [Part 12, Division 7, clause 278G]
· Publication monthly of information about the average auction
price over the last 6 months (which is relevant to the
adjustments to fuel taxes which will take place every 6
months) [Part 12, Division 4, clause 271].
13.34 Related legislation also permits disclosure of relevant
information. This includes:
· Clause 52 of the Australian Climate Change Regulatory
Authority Bill, for example, will also permit the disclosure of
summaries and statistics of protected information, if they are
not likely to enable the identification of a person
· The National Greenhouse and Energy Reporting Act 2007,
which is to be amended by the consequential amendments)
bill.
291
Chapter 14
Independent reviews
Outline of chapter
14.1 Part 25 of the bill provides for independent reviews of the
Carbon Pollution Reduction Scheme (the Scheme). A simplified outline is
at [Part 25, Division 1, clause 352].
Context
14.2 The Scheme is a significant, long-term reform. It is essential that
regular, expert, independent and public reviews are carried out to ensure
the integrity of the Scheme.
14.3 In particular, such reviews are required to provide a considered
basis for periodic decisions on whether to maintain, change or extend
national targets and Scheme caps.
Summary
14.4 Expert advisory committees will be constituted to conduct
public reviews of the Scheme. The bill sets out the matters such
committees must address in their reviews. These include the effectiveness
and efficiency of the Scheme and whether national targets relating to
emissions of greenhouse gases should be changed or extended.
14.5 The first periodic review will be completed by 30 June 2014, so
that any improvements to the Scheme can be made before the start of the
fifth year of the Scheme on 1 July 2015. Subsequent periodic reviews
must be carried out and completed every five years.
14.6 In addition to the periodic reviews of the Scheme, the Minister
may at any time commission special reviews to investigate matters
identified by the Minister.
14.7 A review of the Scheme will also be conducted as soon as
practicable after Australia signs a new multilateral international agreement
containing emissions reductions obligations. Even if the agreement does
not place obligations on Australia to take action to reduce greenhouse gas
emissions, the Minister may specify that a review should occur in
accordance with the relevant provisions of the bill.
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Carbon Pollution Reduction Scheme Bill 2010
14.8 Expert advisory committees must make provision for public
consultation, and once a review report is complete it must be tabled in
Parliament. The Commonwealth Government must also table a response
to any recommendations made by the expert advisory committee. These
requirements will ensure a high level of transparency and openness in the
conduct of the reviews and in the Government's response to the reviews.
14.9 The bill contains provisions directed towards ensuring that
expert advisory committees:
· have appropriate expertise
· are independent
· are appropriately resourced.
Detailed explanation of new law
14.10 The bill provides for the establishment of expert advisory
committees to carry out five-year, mandatory reviews of the Scheme. In
addition, such committees can carry out special reviews of particular
matters relating to the Scheme.
14.11 The bill sets out:
· timelines for periodic reviews
· the terms of reference for periodic reviews
· provision for special reviews, if required
· a requirement for public consultation
· a requirement to table review reports in Parliament
· a requirement to table responses to review report
recommendations in Parliament
· provisions directed towards ensuring that review
committees
- have appropriate expertise
- are independent
- are appropriately resourced.
Periodic reviews
14.12 The first periodic review must be completed before the end of
30 June 2014. [Part 25, Division 2, clause 353(2)]
14.13 Subsequent periodic reviews must be completed each five years,
measured from the tabling of the Government's response to the previous
review. [Part 25, Division 2, clause 353(3)]
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14.14 For the purposes of these timelines, a review is `completed'
when the report of the review is given to the Minister. [Part 25, Division 2,
clause 353(4)]
14.15 Periodic reviews must review certain matters set out in the bill
[Part 25, Division 2, clause 353(1)].
These matters, which are set out in detail in
the bill, include:
· the effectiveness and efficiency of the Scheme
· whether national targets relating to emissions of greenhouse
gases should be changed or extended
· the regulations that should be made for the purposes of
setting national scheme caps and gateways
· the emissions-intensive, trade-exposed assistance program
· the arrangements for the governance and implementation of
the Scheme
· such other matters relating to the Scheme, if any, that the
Minister specifies.
14.16 Matters relating to the emissions-intensive, trade-exposed
program are set out in some detail and are described below. [Part 25,
Division 2, clause 353(1)(h)]
14.17 As noted above, the Minister may specify additional matters an
expert advisory committee must review. As announced on 24 November
2009, it is intended that the Minister will use this power to direct the
independent Expert Advisory Committee to take into account the findings
of Working Group III of the IPCC when considering appropriate caps and
gateways in the first statutory review in 2014.
14.18 The bill provides that the instrument by which the Minister
specifies additional matters is not a legislative instrument. [Part 25, Division
2, clause 353(7)] This is declaratory of the law, rather than being an
exemption from the Legislative Instruments Act 2003.
14.19 The report resulting from a review may set out recommendations
to the Commonwealth Government. In formulating a recommendation for
particular action, the expert advisory committee must assess the costs and
benefits of the action. [Part 25, Division 2, clause 354(4)]
Review of matters related to the emissions-intensive trade-exposed
assistance program
14.20 The package of new measures for the Scheme, announced by the
Prime Minister's on 4 May 2009, included commitments relating to the
conduct of reviews of the emissions-intensive trade-exposed assistance
program, which amended and built on the White Paper.
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14.21 The Government has given legislative expression to these
commitments as outlined in the table below. The commitments are set out
in the column on the left as they appear in Attachment A of the
4 May 2009 press release by the Prime Minister, the Treasurer and the
Minister for Climate Change, titled Carbon Pollution Reduction Scheme:
Support in Managing the Impact of the Global Recession.
Paragraph in Attachment A of Relevant clause in bill
the 4 May 2009 press release
When conducting their five- 353(1) Reviews of the following matters are to be
yearly emissions-intensive trade- conducted by an expert advisory committee:
exposed reviews, the Expert (h) the emissions intensive trade exposed
Advisory Committee will assistance program, including:
consider the following issues
(amending and building on the
position in the White Paper):
(a) the review of eligibility whether additional activities should be identified
assessment for activities (e.g. as emissions intensive trade exposed activities,
taking into account falls in having regard to changes in the coverage of the
commodity prices etc as outlined carbon pollution reduction scheme, commodity
in policy position 12.8 in the price movements and any other relevant matters
White Paper)18 [Part 25, Division 3, clause 355(1)(h)(i)]
(b) whether modifications should whether the assistance provided under the
be made to the emissions- emissions intensive trade exposed assistance
intensive trade-exposed program is an appropriate means of giving effect
assistance program on the basis to the aim and objects of Part 8
of whether it continues to be [Part 25, Division 3, clause 355(1)(h)(ii)]
consistent with the rationale for whether the emissions-intensive trade-exposed
assistance or is conferring assistance program supports the competitiveness
windfall gains on entities of emissions-intensive trade-exposed activities
conducting activities carried on in Australia.
[Part 25, Division 3, clause 355(1)(h)(iii)]
the extent to which persons carrying out
emissions-intensive trade-exposed activities in
Australia have been able to pass on cost increases
resulting from the carbon pollution reduction
scheme
[Part 25, Division 3, clause 355(1)(h)(vi)]
whether the emissions-intensive trade-exposed
assistance program is conferring windfall gains on
persons carrying out emissions-intensive trade-
exposed activities in Australia
[Part 25, Division 3, clause 355(1)(h)(vii)]
18
White Paper policy position 12.8 refers to both commodity price movements and the
possible extension of the Scheme to cover agricultural emissions to be decided no earlier
than 2013.
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(c) the extent to which the the extent to which the carbon pollution reduction
Scheme has resulted in an scheme has resulted in an increase in the cost of
increase in the cost of electricity electricity, and the extent to which the increased
and the extent of pass through to cost has been passed through to persons carrying
entities conducting emissions- on emissions-intensive trade-exposed activities in
intensive trade-exposed activities Australia
[Part 25, Division 3, clause 355(1)(h)(v)]
(d) the extent to which the extent to which persons carrying out
emissions-intensive trade- emissions-intensive trade-exposed activities in
exposed firms are making Australia are making progress towards world best
progress towards world's best practice energy and emissions efficiency for the
practice energy and emissions industry sector to which those activities relate
efficiency for their industry [Part 25, Division 3, clause 355(1)(h)(iv)]
sector
(e) the future shape of the permit the provisions that should apply in relation to the
price cap, recognising the need to issue of Australian emissions units for a fixed
balance the development of charge (to act as a price cap)
market mechanisms and business [Part 25, Division 3, clause 355(1)(ea)]
certainty
(f) international developments, whether sufficient measures (to reduce emissions
including the extent to which in respect of markets in which emissions-intensive
Australia has entered trade-exposed activities compete) have been, or
international agreements, are likely to be, implemented and, if so, how
tangible emissions abatement assistance under the emissions intensive trade
commitments have been made by exposed assistance program may be terminated
countries which compete with [Part 25, Division 3, clause 355(1)(h)(viii)]
emissions-intensive trade- whether sufficient measures (to reduce emissions
exposed industries, and major in respect of foreign countries that are responsible
partners or competing countries for the substantial majority of the world's
have introduced carbon emissions) have been, or are likely to be,
constraints into their own implemented and, if so, how assistance under the
economies emissions-intensive trade-exposed assistance
(g) whether broadly comparable program may be terminated
carbon constraints (whether [Part 25, Division 3, clause 355(1)(h)(ix)]
imposed through an explicit This wording reflects that, to give effect to the aim
carbon price or by other and object of Part 8 as a whole, the assessment of
regulatory measures) are the sufficiency of industry or economy wide
applying internationally, at either market or regulatory measures to reduce emissions
an industry or economy-wide will need to draw upon analysis of carbon prices
level, or an international and shadow carbon prices imposed by those
agreement involving Australia measures in major economies. It will also need to
and all major emitting economies draw heavily upon the state of international
is concluded, in which case the developments at that point in time to determine
Committee would make what measures are likely to be implemented.
recommendations to Government Accordingly, as announced, the Government
with regard to the withdrawal of intends to commission detailed work on this
EITE assistance; this assessment initially from the Productivity Commission to
will draw on analysis by an inform the review.
independent expert body
(initially the Productivity This analysis will then allow the expert advisory
Commission) of quantitative committee to make an assessment of whether there
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Carbon Pollution Reduction Scheme Bill 2010
measures of carbon prices or are broadly comparable carbon constraints such
shadow carbon prices in major that the assistance is no longer warranted to meet
economies its primary aim and objects.
As a matter of policy, the Minister would direct
the expert advisory committee to consider all of
the elements of paragraphs (f) and (g) of the press
release in coming to judgments about `sufficient
measures'. (Under clause 353(1)(j), the Minister
may refer `other matters' that relate to the Scheme
to the expert advisory committee).
Five years' notice will be whether any changes should be made to the
provided for any modifications to emissions-intensive trade-exposed assistance
the EITE assistance program, program as a result of consideration of a matter
unless the modifications were mentioned in any of the above subparagraphs and,
required for compliance with if so, the timing of those changes having regard to
Australia's international trade the general principle that industry should be given
obligations. at least 5 years notice of material changes to the
provision of assistance under the program
[Part 25, Division 3, clause 355(1)(h)(x)]
As a matter of policy, the Government will meet
the commitment in this statement. The term
`material changes' is used to allow technical
amendments to be made to the program in a timely
manner.
A price cap will apply from the provisions that should apply in relation to the
commencement of the Carbon issue of Australian emissions units for a fixed
Pollution Reduction Scheme, charge (to act as a price cap)
with the 5-year EITE review to [Part 25, Division 3, clause 355(1)(ea)]
look at whether the price cap (The price cap is provided for in clause 89 of the
should continue into the future. Bill.)
14.22 On 24 November 2009 the Government announced further detail
which must be considered as part of the review of the emissions-intensive
trade-exposed assistance program. The Government will specifically
request the expert advisory committee to advise whether the carbon
productivity contribution should change for a specific industry.
14.23 This advice will be based on an assessment of whether a
substantial proportion of relevant producers in competitor markets face
lower carbon constraints than Australian producers. In assessing
comparability of carbon constraints facing producers in Australia and
other countries, the review will take account of assistance policies
relevant to those producers. Evidence that the carbon constraints facing a
substantial proportion of producers in competitor markets were lower than
the carbon constraints facing producers in Australia would be evidence
that it was appropriate to cease application of the carbon productivity
contribution such that assistance rates did not fall below 90 and 60 per
cent. If less than 70 per cent of relevant competitors in an industry have
introduced comparable carbon constraints, this will be taken as prima
facie evidence that the carbon productivity contribution should cease. The
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expert advisory committee will also take into account other evidence
including the extent to which Australian industries meet world best
practice in emissions efficiency and the degree of exposure to trade
competition.
14.24 Consistent with the current policy on the conduct of reviews of
the emissions-intensive trade-exposed assistance program, assessments of
carbon constraints will consider both explicit carbon prices and other
regulatory measures. The Government intends to commission the
Productivity Commission to undertake detailed work on carbon
constraints to inform the expert advisory committee.
14.25 The above assessment will be conducted on an industry-by-
industry basis. If the expert advisory committee recommends that the
carbon productivity contribution should reduce or cease, the Government
has made a policy commitment that this can be applied immediately
through amendments to the regulations. Any increases in the carbon
productivity contribution will be subject to the five year notice provision
outlined above.
Special reviews
14.26 In addition to the mandatory periodic reviews, the Minister may
request an expert advisory committee to conduct a review of any specified
matter related to the Scheme. [Part 25, Division 3, clause 355(1)]
14.27 The bill provides that the instrument by which the Minister
specifies additional matters for review is not a legislative instrument.
[Part 25, Division 3, clause 355(4)] This is declaratory of the law, rather than
being an exemption from the Legislative Instruments Act 2003.
14.28 Routine reviews of administrative or operational matters may
also be undertaken to ensure the effective delivery of the Scheme. No
specific legislative powers are required to undertake such reviews.
14.29 In addition, if Australia signs a new multilateral international
agreement on climate change which either imposes emission reduction
obligations on Australia, or is specified by the Minister, a review of the
implications of that agreement for the Scheme will be conducted as soon
as practicable after the agreement is signed [Part 25, Division 3, clause 355A].
14.30 A review of the Scheme will be conducted as soon as practicable
after Australia signs a new multilateral international agreement containing
emissions reductions obligations, in accordance with clause 335A. Even
if the agreement does not place obligations on Australia to take action to
reduce greenhouse gas emissions, the Minister may specify that a review
should occur in accordance with the provisions of that clause.
14.31 The review will consider all aspects of the Scheme that are
affected by the new agreement, but will not consider the Scheme as a
whole. In particular, it is anticipated that this review will consider
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whether the agreement has any particular implications for the policy
underpinning the emissions-intensive trade-exposed assistance program.
14.32 The report of this review will be subject to the same requirement
as other special reviews relating to tabling in Parliament and Government
responses [Part 25, Division 3, clause 356].
Public consultation
14.33 Advisory committees must make provision for public
consultation in conducting a review. [Part 25, Division 2, clause 353(5)] [Part 25,
Division 3, clause 355(2)]
Tabling of review reports
14.34 An expert advisory committee will provide its report to the
responsible Minister. [Part 25, Division 2, clause 354(1)] [Part 25, Division 3,
clause 356(1)]
14.35 The Minister must, within 15 sitting days of receiving the report,
cause the report to be tabled in both Houses of Parliament. [Part 25,
Division 2, clause 354(2)] [Part 25, Division 3, clause 356(2)]
Government response to review reports
14.36 If a report makes recommendations to the Commonwealth
Government, the Government must respond to those recommendations as
soon as practicable. This response must be tabled in each House of
Parliament within 6 months from receipt of the report. [Part 25, Division 2,
clause 354(6)-(7)] [Part 25, Division 3, clause 356(6)-(7)]
Membership
14.37 An advisory committee must have three to five members,
including the Chair. [Part 25, Division 4, clause 359] They are appointed by
the Minister [Part 25, Division 4, clause 357] for the period, not exceeding
five years, specified in the instrument [Part 25, Division 4, clause 361].
14.38 The bill provides that the instrument by which the Minister
appoints an advisory committee member is not a legislative instrument.
[Part 25, Division 3, clause 355(4)] This is declaratory of the law, rather than
being an exemption from the Legislative Instruments Act 2003.
14.39 The committee's functions are described in Part 25 [Part 25,
Division 4, clause 358].
14.40 The Minister can appoint acting members if there is a vacancy
on the committee [Part 25, Division 4, clause 362(1)-(2)]. There will be a
vacancy if there are less than five members. [Part 1, clause 7]
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Example 14.1
Three members are appointed to an independent expert review
committee. In the course of the review the Chair requests that
another member with particular expertise is required. The Minister
can appoint another acting member.
14.41 The Minister can also appoint an acting Chair or acting member
of the committee where the Chair or member is overseas or for some other
reason unable to perform their duties. [Part 25, Division 4, clause 362(1)-(2)]
14.42 The Minister can grant the Chair a leave of absence, and the
Chair can grant committee members a leave of absence. [Part 25, Division 4,
clause 368]
14.43 A member may resign his or her appointment by writing to the
Minister. [Part 25, Division 4, clause 369]
Expertise
14.44 The Minister may only appoint a person to an advisory
committee where the Minister is satisfied that the member has substantial
experience and knowledge and significant standing in at least one of these
fields:
· economics
· law
· Australian industry
· climate science
· energy measurement and reporting
· greenhouse gas emissions measurement and reporting
· greenhouse gas abatement
· financial markets
· trading of environmental instruments.
[Part 25, Division 4, clause 360(1)-(2)]
Independence
14.45 Expert advisory committees are to be independent from
government. To this end:
· The Chair, and a majority of members of the committee,
may not be Commonwealth employees. [Part 25, Division 4,
clause 360(3)-(4)]
· The Minister may only terminate the appointment of a
committee member on narrow grounds, including
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Carbon Pollution Reduction Scheme Bill 2010
misbehaviour or physical or mental incapacity [Part 25,
Division 4, clause 370]
14.46 The bill provides that the instrument by which the Minister
specifies additional matters for review is not a legislative instrument.
[Part 25, Division 3, clause 355(4)] This is declaratory of the law, rather than
being an exemption from the Legislative Instruments Act 2003.
14.47 The Minister can notify expert advisory committees of relevant
Commonwealth Government policies, and while the committee must have
regard to those policies it is not bound by them. [Part 25, Division 2,
clause 353(6)] [Part 25, Division 3, clause 355(3)].
14.48 The bill also seeks to ensure that committee members are free
from conflicts of interest. The bill includes:
· a general requirement that members must give written
notice to the Minister of all interests, pecuniary or
otherwise, that could conflict with the proper performance
of the member's functions [Part 25, Division 4, clause 364]
· a specific requirement that members disclose conflicts of
interest to the committee, and absent themselves from any
deliberation or decision with respect to that matter unless
determined otherwise by the committee [Part 25, Division 4,
clause 365]
· a prohibition on an expert advisory committee member
engaging in any paid employment that may conflict with
the proper performance of his or her duties [Part 25,
Division 4, clause 366]
· a prohibition on a director, officer or employee of a liable
entity being appointed as a member [Part 25, Division 4,
clause 360(5)].
Resourcing
14.49 Advisory committee members are to be paid at a rate determined
by the Remuneration Tribunal, the independent tribunal established under
the Remuneration Tribunal Act 1973 to handle the remuneration of key
Commonwealth offices. Where no determination has been made by the
Tribunal, committee members are paid at the rate prescribed in
regulations. Members' allowances are to be prescribed [Part 25, Division 4,
clause 367]
14.50 Other terms and conditions (if any) are to be determined by the
Minister [Part 25, Division 4, clause 371].
14.51 The Authority, Department of Climate Change and other
Commonwealth Departments, agencies, and authorities are given
authority to assist an advisory committee. This can include the provision
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of information, advice, resources and facilities. [Part 25, Division 4,
clause 372]
14.52 In addition, the Chair of an advisory committee can directly
engage consultants on terms and conditions determined in writing by the
Chair. [Part 25, Division 4, clause 373]
Procedures
14.53 Regulations may set out the procedures to be followed at or in
relation to meetings of expert advisory committees. [Part 25, Division 4,
clause 363(1)]
14.54 The bill provides the flexibility for expert advisory committees
to pass resolutions without meeting, where all members are informed of
the resolution or reasonable efforts are taken to inform all members of the
proposed resolution. [Part 25, Division 4, clause 363(2)]
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304
Chapter 15
Review of decisions and miscellaneous
provisions
Outline of chapter
15.1 This chapter addresses those provisions which provide for merits
review by the Administrative Appeals Tribunal, and the miscellaneous
provisions (other than transitional provisions) which are not addressed in
other chapters.
15.2 It focuses on Parts 24 and 26 of the bill.
Context
15.3 The Government has committed to sound appeals processes for
decisions under the Carbon Pollution Reduction Scheme, including judicial
review pursuant to the Administrative Decisions (Judicial Review) Act
1977 and merits review by the Administrative Appeals Tribunal.
15.4 The context of the various other provisions addressed in this
chapter is included in the detailed explanation below.
Summary
15.5 The bill includes provision for merits review of the discretionary
decisions of the Authority. It does not exclude judicial review.
15.6 The miscellaneous provisions which this chapter also addresses
include further functions of the Authority, concurrent operation of State
and Territory law, delegation by the Minister, alternative constitutional
bases for the Scheme and commencement.
15.7 A simplified outline of Part 24, which relates to merits review, is
included in the bill [Part 24, clause 345].
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Carbon Pollution Reduction Scheme Bill 2010
Detailed explanation of new law
Merits review
Decisions which are subject to merits review
15.8 There is an extensive list of decisions by the Authority which are
subject to merits review [Part 24, clause 346]. The objective of this approach
is to ensure fair treatment of all persons affected by a decision, and to
encourage high quality, consistency, openness and accountability in
decisions made by the Authority.
15.9 The list does not include those decisions where the Authority has
no discretion.
15.10 Additional decisions will be prescribed in the regulations to be
made in connection with the emissions-intensive trade-exposed assistance
scheme [Part 24, clause 346, item 27].
Internal reconsideration
15.11 A person who seeks the review of a reviewable decision will
need to seek internal reconsideration if the decision was made by a
delegate of the Authority [Part 24, clause 347].
15.12 Such an application must be made within 28 days after being
informed of the decision or within the period extended by the Authority
[Part 24, clause 347(4)].
15.13 The Authority must make a decision on the application within
90 days of receiving it [Part 24, clause 349].
15.14 That decision may be to affirm, vary or revoke the decision and a
written statement of reasons must be provided to the applicant within
28 days after making the reconsidered decision [Part 24, clause 348].
Applications to the Administrative Appeals Tribunal
15.15 Applications may be made to the Administrative Appeals
Tribunal if the Authority has affirmed or varied the decision. Where the
original decision was not made by a delegate, then an application may be
made to the Tribunal without the need to go through internal
reconsideration [Part 24, clause 350].
Stay of proceedings
15.16 The court is empowered to stay proceedings for recovery of an
administrative penalty or late payment penalty while an assessment is
being reconsidered by the Authority or when a decision relating to an
assessment is subject to an application for review by the Administrative
Appeals Tribunal [Part 24, clause 351].
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Chapter 14: Independent reviews
Miscellaneous functions of the Authority
15.17 As well as the specific functions of the Authority provided
through the bill, the Authority will monitor and promote compliance,
conduct and co-ordinate education programs and advise and assist persons
(and their representatives) in relation to their obligations [Part 26, clauses
374(a), (b), (c), (e) and (f)]. This is expected to be a significant part of the
Authority's work in the period leading to the commencement of the
Scheme and the initial years of the Scheme's operation.
15.18 The Authority will also be empowered to collect, analyse,
interpret and disseminate statistical information relating to the operation of
the Scheme [Part 26, clause 374(h)].
15.19 This is expected to add to the body of information available to
participants in the carbon market and other people who are interested in
how the Scheme is operating. Other sources of information are the public
information released under Part 12 and the Authority's annual report.
15.20 The Authority will also liaise with regulatory and other relevant
bodies about co-operative arrangements for matters relating to the Scheme
or emissions trading schemes more generally [Part 26, clause 374(g)]. This
liaison may be with domestic or overseas bodies, and will be important in
handling the international transfers of units and will enable the Authority
to learn from experience with other trading schemes.
15.21 The Authority will also advise the Minister on matters relating to
the Scheme and other emissions trading schemes [Part 26, clause 374(d)].
States and Territories
Concurrent operation of State and Territory law
15.22 The bill is not intended to exclude or limit the operation of a law
of a State or Territory that is capable of operating concurrently with it
[Part 26, clause 376].
Arrangements with the States and Territories
15.23 The Minister is empowered to make arrangements with a
Minister of a State, the ACT, Northern Territory or Norfolk Island with
respect to the administration of the bill, including arrangements for the
performance of the functions by magistrates and the exercise of certain
powers by land registration officials. A copy of each instrument by which
such an arrangement is made is to be published in the Commonwealth
Gazette, but it is not a legislative instrument [Part 26, clause 378].
15.24 This provision may be used, for example, to establish
arrangements for magistrates to exercise power in relation to the granting
of monitoring warrants [Part 19, Division 6, clause 321] [Part 19, Division 7,
clause 322] and for the exercise of powers by land registration officials [Part
10, Division 12, clause 236-237].
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Carbon Pollution Reduction Scheme Bill 2010
Delegation by a State Minister or a Territory Minister
15.25 The Minister of a State or Territory may delegate any functions
or powers under the bill the power to a person who is an officer or
employee of the State or Territory and who holds or performs duties that is
equivalent to a position occupied by a Senior Executive Service employee
in the Australian Public Service [Part 26, clause 375A]. For instance this could
be used to delegate the power to consent to reforestation projects on
Crown land.
Commonwealth
Delegation by the Minister
15.26 The Minister will be able to delegate any or all of his or her
functions or power under the Act or regulations to the Secretary or a senior
executive service (SES), or acting SES, employee of the Department. This
power does not extend to making, varying or revoking legislative
instruments. The delegate must comply with any direction of the Minister
[Part 26, clause 375].
15.27 The Minister has various powers under the bill. They include the
power to direct the Authority to issue to the Commonwealth, in accordance
with the Kyoto rules, a specified number of assigned amount units for a
specified commitment period [Part 4, Division 3, clause 105].
Executive power
15.28 The Act does not, by implication, limit the executive power of
the Commonwealth [Part 26, clause 380].
15.29 This is to make it clear that the bill does not, for example, limit
the Commonwealth's executive power to take various actions to meet
Australia's obligations under the Kyoto Protocol.
Notional payments by the Commonwealth
15.30 The Crown, in each of its capacities, will be bound by the bill.
While the bill does not make the Crown liable to a pecuniary penalty or to
be prosecuted for an offence, this protection does not apply to an
administrative penalty or late payment penalty under the Act [Part 1,
clause 9].
15.31 To accommodate this, by ensuring such amounts are notionally
payable by the Commonwealth, provision is made for the Minister
administering the Financial Management and Accountability Act 1997 to
give written directions relating to, among other things, transfers of
amounts within or between accounts operated by the Commonwealth
[Part 26, clause 381].
308
Chapter 14: Independent reviews
Alternative constitutional bases
15.32 Clause 382 of the bill provides for the operation of the bill and
the associated provisions on several alternative constitutional bases. It does
this by providing for the operation of the provisions (or some of the
provisions) as if they were expressly limited in certain ways -- for
example, as if each reference to a liable entity were expressly confined to a
constitutional corporation, in reliance on the corporations power (section
51(xx) of the Constitution) [Part 26, clause 382].
Compensation for acquisition of property
15.33 If the operation of the Act or regulations would result in an
acquisition of property from a person other than on just terms, the
Commonwealth is liable to pay a reasonable amount of compensation to
the person. Provision is included for the institution of proceedings to
recover such compensation if agreement has not been reached. The terms
`acquisition of property' and `just terms' have the same meaning as in
section 51(xxxi) of the Constitution [Part 26, clause 383].
Regulations
15.34 The bill includes a general regulation-making power [Part 26,
clause 387].
15.35 The regulations may apply, adopt, or incorporate with or without
modification, a matter contained in another instrument as it exists from
time to time, despite subsection 14(2) of the Legislative Instruments Act
2003. The instrument referred to must be published on the Authority's
website unless this would infringe copyright [Part 26, clause 384].
15.36 An example would be adoption of a matter contained in a
standard published by International Organization for Standardisation, as in
force from time to time.
15.37 In addition, the regulations may confer a power to make a
decision of an administrative character on the Authority [Part 26, clause 385].
15.38 This provision is expected to be used in connection with the
emissions-intensive trade-exposed assistance program, which will be
implemented through regulations. In particular, the Authority will need to
make administrative decisions about a person's eligibility for, and
quantum of, assistance in accordance with the requirements in the
regulations. It may also need to make administrative decisions to require
the relinquishment of Australian emissions units, such as on the closure of
a facility [Part 8, Division 2, clause 168].
Liability for damages
15.39 Certain specified persons are not liable to an action for damages
in relation to acts done in good faith (or omissions) in the performance of
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Carbon Pollution Reduction Scheme Bill 2010
their functions or powers under the Act or the associated provisions. (The
provision includes where such acts or omissions are done in the purported
performance of functions or powers.) The persons include the Minister,
the Authority and members of the expert advisory committee [Part 26,
clause 379].
Legal professional privilege
15.40 The doctrine of legal professional privilege has been described
by the High Court in Daniels Corporation International Pty Ltd v
Australian Competition and Consumer Commission (2002) 213 CLR 543
as follows:
`It is now settled that legal professional privilege is a rule of
substantive law which may be availed of by a person to resist the
giving of information or the production of documents which would
reveal communications between a client and his or her lawyer made
for the dominant purpose of giving or obtaining legal advice or the
provision of legal services, including representation in legal
proceedings.'
15.41 The Act will not affect the law relating to legal professional
privilege [Part 26, clause 377].
Transitional -- definition
15.42 Transitional provision is made for definitions that pick up the
meaning of an expression from the National Greenhouse and Energy
Reporting Act 2007, which is being amended by the consequential
amendments bill [Part 26, clause 386].
Computerised decision-making
15.43 The Authority will have the capacity to make use of a computer
program for the purposes of decision making in relation to Part 10 [Part 26,
clause 374A]. These decisions will include calculation of the unit limit and
unit entitlement in relation to reforestation. It is expected that the computer
program for this purpose will incorporate an updated version of the
National Carbon Accounting Toolbox. This is discussed further in
Chapter 7 of this explanatory memorandum.
Simplified outlines
15.44 To assist readers, the bill includes a simplified outline of the
Scheme [Part 1, clause 4].
15.45 Each Part also contains a simplified outline of that Part's
contents.
310
Chapter 14: Independent reviews
Commencement
15.46 While substantive provisions of the proposed Act will commence
28 days after Royal Assent [Part 1, clause 2], the first year in relation to
which entities will be liable under the Scheme will commence on
1 July 2011. This is achieved by use of the phrase `eligible financial year'
which is defined to mean the financial year beginning on 1 July 2011 or a
later financial year.
15.47 Early commencement of the proposed Act will allow liable
entities and the Authority to prepare for the Scheme and for the Authority
to operate the National Registry in relation to Kyoto units. Preparation will
include:
· Education and assistance for entities which are likely to be
liable and their representatives
· Receipt and assessment of applications for, for example,
certificates of eligibility for coal-fired generation assistance,
registry accounts, obligation transfer numbers, emissions-
intensive trade-exposed assistance and in relation to
reforestation
· The holding of at least one auction.
311
312
Index
Part 1: Preliminary
Bill reference Paragraph
number
Clause 2 15.46
Clause 3 2.3, 3.2
Clause 4 15.44
Clause 5 5.52, 7.73
Clause 5, definition of `applicable identification procedure' 12.24
Clause 5, definition of `application to own use' 1.151
Clause 5, definition of `approved synthetic greenhouse gas 8.19
destruction facility'
Clause 5, definition of `assigned amount unit' 2.72
Clause 5, definition of `associated provisions' 11.9, 11.98
Clause 5, definition of `carbon dioxide equivalence' 1.33
Clause 5, definition of `certified emission reduction' 2.73, 2.74
Clause 5, definition of `control' 7.42
Clause 5, definition of `designated large landfill facility' 1.48
Clause 5, definition of `eligible emissions unit' 2.38, 10.37
Clause 5, definition of `eligible international emissions unit' 2.41, 10.40
Clause 5, definition of `eligible international emissions units' 2.120
Clause 5, definition of `eligible upstream fuels' 1.108
Clause 5, definitions of `eligible upstream fuels', `liquid 1.247
petroleum fuels' and `exempt hydrocarbon solvent'
Clause 5, definition of `emission reduction unit' 2.76
Clause 5, definition of `executive officer' 11.38
Clause 5, definition of `facility' 1.41
Clause 5, definition of `forest stand' 7.59
Clause 5, definition of `generation asset' 6.21, 6.22
Clause 5, definition of `generation complex' 6.21, 6.23
Clause 5, definition of `generation complex project' 6.21, 6.24
Clause 5, definition of `generation unit' 6.21, 6.23
313
Carbon Pollution Reduction Scheme Bill 2010
Clause 5, definition of `greenhouse gas' 1.30
Clause 5, definitions of `Kyoto rules', `Kyoto Protocol' and 2.66
`decision of the Meeting of the Kyoto Parties'
Clause 5, definition of `Kyoto unit' 2.70
Clause 5, definition of `landfill facility' 1.42
Clause 5, definitions of `liquid petroleum fuels' and `exempt 1.110
hydrocarbon solvent'
Clause 5, definition of `nameplate rating' 6.46, 6.140
Clause 5, definition of `non-group entity' 1.38
Clause 5, definition of `non-Kyoto international emissions unit' 2.43, 2.120, 10.53
Clause 5, definition of `operational control' 1.88
Clause 5, definition of `penalty unit' 11.67
Clause 5, definition of `person' 1.35
Clause 5, definition of `potential greenhouse gas emissions' 1.115
Clause 5, definition of `prescribed wholesale gas market' 1.143
Clause 5, definition of `project area' 7.63
Clause 5, definition of `recognised transformation' 1.134, 1.250
Clause 5, definition of `reforestation project' and `management' 7.58
Clause 5, definition of `removal unit' 2.75
Clause 5, definition of `supply' 1.120, 1.138, 1.149
Clause 5, definition of `synthetic greenhouse gas destruction 8.24
event'
Clause 5A 1.123
Clause 6 1.121
Clause 6(1) 1.122
Clause 7 14.40
Clause 8 10.48, 12.50
Clause 9 1.36, 11.82, 11.96,
15.30
Clause 10 1.289
Clause 11 1.290
Clause 11A 1.293
Clause 12 1.292
314
Index
Part 2: National scheme cap
Bill reference Paragraph
number
Clause 13 2.11
Clause 13, note 5.54
Clause 14 2.14, 3.4
Clause 14(2) 2.14
Clause 14(3) 2.14
Clause 14(4) 2.16
Clause 14(5)(a) 2.19
Clause 14(5)(c)(i) 2.22
Clause 14(5)(c)(ii) 2.23
Clause 14(5)(c)(iii) 2.25
Clause 14(5)(c)(iv) 2.26
Clause 14(5)(c)(v) 2.31
Clause 14(5)(c)(vi) 2.32
Clause 14(7) 2.34
Clause 15 2.35
Clause 15(3) 2.18
Clause 15(4) and (6) 2.35
Part 3: Liable entities
Bill reference Paragraph
number
Division 1, clause 16 1.28
Division 2 1.77, 1.248
Division 2, clauses 17(1), 18(1), 20(1), 21(1) 1.57
Division 2, clauses 17(1), 18(1), 19(1), 20(1), 21(1), 22(1) 1.53
Division 2, clauses 17(1)-(3), 18(1)-(3), 19(1)-(3), 20(1)-(3), 1.39
21(1)-(3), 22(1)-(3)
Division 2, clause 17(5) 1.55
Division 2, clause 17(6) 1.104
Division 2, clauses 17(6) and clause 20(7) 1.105
Division 2, clauses 17(7)-(8,) 18(7)-(8), 19(6)-(7), 20(9)-(10), 1.79
21(9)-(10) and 22(8)-(9)
315
Carbon Pollution Reduction Scheme Bill 2010
Division 2, clauses 17(9)-(10), 18(9)-(10), 19(8)-(9), 20(11)- 1.82
(12), 21(11)-(12) and 22(10)-(11)
Division 2, clauses 17, 18, 20 and 21 1.45
Division 2, clauses 17-19 1.153
Division 2, clauses 17, 20 1.99
Division 2, clause 18 and 21 1.102
Division 2, clause 18(5) 1.55
Division 2, clauses 19 and 22 1.46, 1.103
Division 2, clauses 19(1), 22(1) 1.58
Division 2, clause 19(5) 1.55
Division 2, clause 20(5) 1.55
Division 2, clause 20(6) 1.50
Division 2, clause 20(7) 1.104
Division 2, clauses 20(8), 21(8), 22(8) 1.83
Division 2, clause 20(13) 1.47
Division 2, clause 21(5) 1.55
Division 2, clause 21(6) 1.50
Division 2, clause 21(13) 1.47
Division 2, clause 22(5) 1.55
Division 2, clause 22(6) 1.50
Division 2, clause 22(12) 1.47
Division 2, clauses 22A -- 22C 1.293
Division 2, clause 23 11.5, 11.105
Division 2, clauses 23, 30 1.164
Division 2, clauses 23 and 30 1.59
Division 2, clause 24 1.60
Division 2, clause 24(2) 1.65
Division 2, clause 25 1.73
Division 3, clause 26(2) 1.165
Division 3, clause 26(4) 1.159
Division 3, clause 26(5) 1.161
Division 3, clause 26(6) 1.162
Division 3, clauses 26, 27 1.158
Division 3, clauses 27(2) 1.165
Division 3, clauses 27(4) 1.159
Division 3, clause 27(5) 1.163
Division 3, clause 27A 1.166
316
Index
Division 3, clause 27A(1) 1.165
Division 3, clause 27A(2) 1.167
Division 3, clause 27A(4) 1.170
Division 3, clause 28 1.256
Division 3, clause 28 1.171, 1.172
Division 3, clause 29 1.221
Division 3, clause 30 11.5
Division 3, clause 30 11.105
Division 4 1.248
Division 4, clauses 31(1), 32(1), 33(1), 33A(1), 34(1), 35(1), 1.114
36(1), 37(1), 38(1), 39(1) and 40(1)
Division 4, clause 31(2) 1.130
Division 4, clause 31(5) 1.127
Division 4, clauses 31-32 1.82, 1.125
Division 4, clauses 31-33, 35 1.107
Division 4, clause 32(2) 1.130
Division 4, clause 32(5) 1.127
Division 4, clause 32A 1.130, 1.131
Division 4, clause 33 1.133, 1.234, 1.249
Division 4, clause 33(1)-(2) 1.136
Division 4, clauses 33(1), 33A(1), 35(1), 37(1) 1.141
Division 4, clause 33A 1.140
Division 4, clause 33A(2) 1.144
Division 4, clauses 34(1), 36(1), 38(1), 39(1) 1.152
Division 4, clauses 34, 36, 38-39 1.155
Division 4, clauses 34, 36, 38 and 39 1.150
Division 4, clause 35 1.133, 1.249
Division 4, clause 35(1)-(2) 1.136
Division 4, clause 37 1.146
Division 4, clause 37(2) 1.147
Division 4, clause 37A 1.24, 1.147
Division 4, clause 37A(2)-(3) 1.136, 1.137
Division 4, clause 37A (4)-(5) 1.148
Division 4, clauses 38-39 1.156
Division 4, clause 40 1.221
Division 5, clause 41 1.180
Division 5 1.175
317
Carbon Pollution Reduction Scheme Bill 2010
Division 5, clauses 42-43 1.182
Division 5, clauses 44-45 1.183
Division 5, clause 46 1.185
Division 5, clause 47 1.188
Division 5, clause 48 1.179
Division 5, clause 49 1.189, 13.33
Division 5, clause 50 1.209
Division 5, clause 50A 1.191, 11.68
Division 5, clause 51 1.193
Division 5, clause 51(1) 1.192
Division 5, clause 51A-51B 1.194, 1.195
Division 5, clause 51BA 1.203
Division 5, clause 51C 1.201
Division 5, clause 51D 1.202
Division 5, clause 51E 1.210
Division 5, clause 51F-51G 1.204
Division 5, clause 52 1.224
Division 5, clauses 52 -64AA 1.26
Division 5, clauses 52, 56 1.176
Division 5, clause 52(1) 1.228
Division 5, clauses 52(1)(aa), 53(1)(aa), 56(1)(aa), 56(2)(aa), 1.177
58 (aa), 59 (aa), 60 (aa)
Division 5, clause 52(2)-(3) 1.225
Division 5, clause 52(4) 1.229
Division 5, clause 53 1.224
Division 5, clauses 53-54 1.176, 1.233
Division 5, clause 53(2)-(3) 1.225
Division 5, clause 54 1.224, 1.234
Division 5, clause 54(2)-(3) 1.225
Division 5, clause 55 1.224, 1.235
Division 5, clause 55(2)-(3) 1.225
Division 5, clauses 55, 58, 60-64AA 1.176
Division 5, Subdivision D 1.237
Division 5, clause 56 1.237
Division 5, clause 56(1) 1.238, 1.240
Division 5, clause 56(2)-(8) 1.243
Division 5, clause 56(9) 1.239
318
Index
Division 5, clause 58 1.237, 1.245
Division 5, clause 59 1.135, 1.237
Division 5, clause 59 1.176, 1.250
Division 5, clauses 60 1.237, 1.251
Division 5, clause 63 1.237, 1.253
Division 5, clause 64 1.237, 1.255
Division 5, clause 64AA 1.237, 1.257
Division 5, clauses 64A-64B 1.199
Division 5, clause 65 1.212
Division 5, clause 65(3) 1.214
Division 5, clause 65(4)-(5) 1.215
Division 5, clause 66 1.217
Division 5, clause 66A 1.227
Division 5, clause 67 1.220
Division 5, clause 67(2)-(3) 1.222
Division 5, clause 67(4) 1.221
Division 5, clause 68 1.205, 1.206
Division 5, clause 68(1) and (2) 11.68
Division 5, clause 68(3) and (4) 11.68
Division 5, clause 68(3)-(5) 1.208
Division 6 1.266
Division 6, clause 69 1.264
Division 6, clause 70 1.276
Division 6, clause 70(3) 1.267
Division 6, clause 71 1.277
Division 6, clause 72 1.273, 1.274, 1.278
Division 6, clause 73 1.264
Division 6, clause 74 1.276
Division 6, clause 75 1.277
Division 6, clause 76 1.273, 1.274, 1.278
Division 6, clause 77 1.279, 1.280, 1.281
Division 6, clause 78 1.283
Division 6, clauses 78-79 1.288
Division 6, clause 79 1.287
Division 6, clause 80 1.265
Division 6, clause 81 1.271
319
Carbon Pollution Reduction Scheme Bill 2010
Part 4: Emissions units
Bill reference Paragraph
number
Division 1, clause 82 2.37, 5.54
Division 2, clause 83 2.45
Division 2, clause 84 2.46
Division 2, clause 85 2.47
Division 2, clause 86 2.48
Division 2, clause 87 2.45
Division 2, clause 87(2) 2.46
Division 2, clause 88 2.52, 3.6
Division 2, Subdivision A, clause 88 5.54
Division 2, clause 89 3.38, 3.44, 3.50
Division 2, clause 89(2) 3.40
Division 2, clause 89(5) 2.51, 3.49
Division 2, clause 89(6) 3.49
Division 2, clause 89(7) 3.45
Division 2, clause 89(10) 3.46
Division 2, clause 89(11) 3.47
Division 2, clause 90 3.26, 3.43
Division 2, clause 91 3.27
Division 2, clause 92 2.54, 3.7
Division 2, clause 93 2.54, 3.8
Division 2, Subdivision A, clause 93 5.54, 6.81
Division 2, clause 94 2.55
Division 2, clause 95 2.60
Division 2, clause 96 2.61
Division 2, clause 97 2.61, 2.63
Division 2, Subdivision B, clauses 97(2) and (5) 2.64
Division 2, clause 98 2.61
Division 2, clause 98A 2.58
Division 2, clause 99 3.17, 3.30
Division 2, clause 100 3.31, 3.34, 10.71
Division 2, clause 101 3.31
Division 2, clause 101 3.36
Division 2, Subdivision C, clause 101 5.54
320
Index
Division 2, clause 102 3.37
Division 2, clause 103 3.18
Division 2, clause 103(2) 3.20
Division 2, clause 103A 2.50, 3.51
Division 2, Subdivision D, clauses 103A and 103B 5.54
Division 2, clause 103B 3.51, 4.71, 6.152
Division 2, clause 103B(2) 3.53
Division 2, clause 103B(5) 3.54
Division 3 2.65
Division 3, clause 104 2.77
Division 3, clause 105 2.80, 15.27
Division 3, clause 105(5) 2.81
Division 3, clause 106 2.83
Division 3, clause 107 2.85
Division 3, clause 108 2.89
Divisions 3 and 4, clauses 108(3), 112, 114, 116A 2.90
Division 3, clauses 108(5) and 109(7) 2.87
Division 3, clause 109 2.95
Division 3, clauses 109(1) and 111 2.95
Division 3, clause 109(4) 2.97
Division 3, clause 110 2.100
Division 3, clauses 110(1) and 111 2.100
Division 3, clause 110(1)(b) 2.101
Division 3, clause 110(1)(c) 2.102
Division 3, clauses 110(1), 112 and 116A 2.105
Division 3, clause 110(2) 2.106
Division 3, clause 111 2.94
Division 3, clause 111(3) 2.94
Division 3, clause 112 and 109(3)(a)(i) 2.98
Division 3, clause 112(1) 2.88
Division 3, clause 112(2) 2.88
Division 3, clauses 112B(2) and (5) 2.64
Division 3, clause 113 2.109
Division 3, clause 114 and 109(3)(a)(ii) 2.99
Division 3, clause 115 2.114
Division 3, clause 116 2.116
Division 3, clause 116A 2.117
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Carbon Pollution Reduction Scheme Bill 2010
Division 3, clauses 116B, 116C 2.91
Division 3, clause 116BA 2.92
Division 3, clauses 116C(2) and (5) 2.64
Division 4, clause 117 2.123
Division 4, clause 118 2.126
Division 4, clauses 119(5) and 120(7) 2.127
Division 4, clause 119 2.128, 2.129
Division 4, clause 120 2.132
Division 4, clause 121 2.134
Division 4, clause 121(2) 2.135
Division 4, clause 122 2.124
Division 4, clause 122AA 2.131
Division 4, clause 122A, 122B 2.130
Division 4, clause 123 2.125, 2.133
Part 5: Emissions number
Bill reference Paragraph
number
Clause 124 10.8
Clause 125 10.22
Clause 126 10.30
Clauses 126(3) and 127(3) 10.31
Clauses 126(4), 126(5), 127(4), 127(5) 10.32
Clauses 126(7) and 127(7) 10.33
Clause 127 10.30
Part 6: Surrender of eligible emissions units
Bill reference Paragraph
number
Division 1, clause 128 10.16
Division 2, clause 129 5.54
Division 2, clause 129(1) 10.47
Division 2, clause 129(2) 10.49
Division 2, clause 129(4) 2.49, 10.38
322
Index
Division 2, clause 129(5) 10.26, 10.39
Division 2, clause 129(5AA) 2.50, 10.26
Division 2, clause 129(5A) 2.50, 3.51, 10.43
Division 2, clause 129(6) 10.44
Division 2, clause 129(6A) 2.39, 10.42
Division 2, clause 129(7) 2.103, 10.45
Division 2, clause 129(7A) 10.45
Division 2, clause 129(8) 10.46
Division 2, clause 129(9) 10.46
Division 2, clause 129(10) 2.59
Division 2, clause 129(10) 10.51
Division 2, clause 129(11) 10.52
Division 2, clause 129(12) 10.52
Division 3, clause 130 10.35, 11.45
Division 3, clause 130(2) 10.35
Division 3, clause 130(3) 10.35
Division 3, clause 130(4) 10.36, 10.39
Division 3, clause 131 10.54
Division 3, clause 131(2) 10.55
Division 3, clause 131(3) 10.56
Division 3, clause 131(4) 10.57
Division 3, clause 131(5) and (6) 10.57
Division 3, clause 131(9) 10.58
Division 4, clause 132 3.7, 10.34
Division 4, clause 133 10.59, 10.60,
11.46, 11.47, 11.49
Division 4, clause 133(3) 10.61, 11.50, 13.33
Division 4, clauses 133 and 142 11.5
Division 4, clause 134 10.62
Division 4, clause 134 11.51
Division 4, clause 135 10.63, 11.51
Division 4, clause 135(1) 11.51
Division 4, clause 135(2) 11.52
Division 4, clause 136 10.64
Division 4, clause 137 10.65
Division 4, clause 138 1.104, 10.67
Division 4, clause 138 and 142(2) 1.267
323
Carbon Pollution Reduction Scheme Bill 2010
Division 4, clause 139 10.66
Division 4, clause 141 10.61, 11.50
Division 4, clause 142 10.59, 11.46
Division 4, clause 142(1) 10.27
Division 4, clause 142(2) 10.29
Division 4, clause 143(1) 10.25
Division 4, clause 143(2) 10.26
Division 4, clause 143(3) 3.42, 3.51, 10.26
Division 5, clause 143A 10.50
Part 7: Australian National Registry of Emissions Units
Bill reference Paragraph
number
Division 1, clause 144 12.12
Division 2, clause 145 12.8
Division 2, clause 145 12.13, 12.14
Division 2, clause 145(2)-(3) 12.15
Division 3, clause 146 12.18
Division 3, clause 146(4) 12.19
Division 3, clause 147 12.23
Division 3, clause 148 2.118, 12.32
Division 3, clause 149 12.33
Division 3, clause 150 12.35
Division 3, clause 151 12.16
Division 3, clause 152 12.26
Division 4, clauses 153-154 12.28
Division 5, clause 155 12.36
Division 5, clauses 157-158 12.37
Division 5, clause 157-158(2) 12.38
Division 5, clause 157-158(3) 12.40
Division 5, clause 159 12.44
Division 6, clause 160 11.89
Division 6, clause 160 12.45
Division 6, clause 161 12.45
Division 6, clauses 162-163 12.47
324
Index
Division 6, clause 163 11.75, 12.48
Division 6, clause 164 12.51
Part 8: Emissions-intensive trade-exposed assistance
program
Bill reference Paragraph
number
Division 1, clause 165(1) 4.31
Division 1, clause 165(2) 4.32
Division 1, clause 165(2)(a) 4.33
Division 1, clause 165(2)(b) 4.34
Division 1, clause 165(2)(c) 4.35
Division 1, clause 165(2)(d) 4.36
Division 1, clause 165(2)(e) 4.36
Division 1, clause 165(2)(f) 4.38
Division 1, clause 166 4.24
Division 2 5.3, 5.4, 5.18
Division 2, clause 167 4.45
Division 2, clause 167(1)(a) 4.42
Division 2, clause 167(1)(b) 4.42
Division 2, clause 167(2)(a) 4.43
Division 2, clause 167(2)(b) 4.43
Division 2, clause 167(3) 4.44
Division 2, clause 168 4.46, 15.38
Division 2, clause 168(1)(b) 4.46
Division 2, clause 168(1)(a) 4.47
Division 2, clause 168(2) 4.47
Division 2, clause 169 4.49
Division 2, clause 170 4.51
Division 2, clause 171 4.53
Division 2, clauses 171(1)-(3) 4.53
Division 2, clause 172 4.53, 4.56
Division 3, clause 173 4.58, 11.80
Division 3, clause 173(1) 4.50
Division 3, clause 173(2) 4.52
325
Carbon Pollution Reduction Scheme Bill 2010
Division 3, clause 173(4) 4.59
Division 4, clause 173A 4.61
Division 4, clauses 173A(3) and 173A(5) 4.62
Division 4, clause 173B 4.63
Division 4, clause 173C 4.63
Part 8A: Coal mining
Division 1, clause 173D 5.17
Division 2, clause 173F(1) 5.19
Division 2, clause 173F(2) 5.20
Division 2, clause 173F(3) 5.19
Division 2, clause 173F(4) 5.18
Division 3 5.3, 5.4
Division 3, clause 173G(1) 5.21
Division 3, clause 173G(2) 5.21
Division 3, clause 173G(3) 5.21
Division 3, clause 173M 5.30
Division 3, clause 173H(1) 5.22
Division 3, clause 173H(2) 5.22
Division 3, clause 173H(1)(e) 5.22
Division 3, clause 173J(1) 5.22
Division 3, clause 173J(2) 5.22
Division 3, clause 173K 5.23
Division 3, clause 173K(5) 5.25
Division 3, clause 173K(6) 5.25
Division 3, clause 173K(7) 5.25
Division 3, clause 173L(1) 5.26
Division 3, clause 173L(1)(a) 5.27
Division 3, clause 173L(1)(b) 5.27
Division 3, clause 173L(2) 5.27, 5.28
Division 4 5.2
Division 4, clause 173N 5.31
Division 4, clause 173P(1) 5.33
Division 4, clause 173P(2) 5.33
Division 4, clause 173Q 5.35
326
Index
Division 4, clause 173R 5.24
Division 4, clause 173R(1) 5.40
Division 4, clause 173R(2) 5.36, 5.41
Division 4, clause 173R(3) 5.36
Division 4, clause 173R(4) 5.38
Division 4, clause 173R(9) 5.42
Division 5, clause 173S 5.44
Division 5, clauses 173S - 173V 5.37
Division 5, clause 173T 5.45
Division 5, clause 173TA 5.46
Division 5, clause 173U 5.47
Part 9: Coal-fired electricity generation
Bill reference Paragraph
number
Division 1, clause 174 6.15, 6.16, 6.35
Division 1, clause 175 6.16
Division 2, clause 176 5.49
Division 2, clause 176(2) 6.42, 6.52, 6.54,
6.56, 6.57, 6.58
Division 5, clause 176(2) 6.131
Division 2, clauses 176(2) and 176(4) 6.58
Division 2, clauses 176(2) and 176(9) 6.114
Division 2, clause 176(3) 6.55
Division 2, clause 176(6) 6.26, 6.59, 6.61
Division 2, clause 176(9) 6.62
Division 3, clause 177(1) 6.25, 6.26
Division 3, clauses 177(2)-(3) 6.27, 6.150
Division 3, clause 177(4) 6.28
Division 3, clause 177(8) 6.25
Division 3, clause 178 6.29
Division 3, clauses 178(1)(c)-(e) 6.30
Division 3, clause 178(1)(f) 6.49
Division 3, clauses 178(1)(f) and (3) 6.145
Division 3, clauses 178(1)(f) and 178(3) 6.29
Division 3, clause 178(2) 6.30
327
Carbon Pollution Reduction Scheme Bill 2010
Division 3, clause 179 6.31
Division 3, clause 180 6.53
Division 3, clause 180(3) 6.42
Division 3, clause 180(4)(a) 6.32
Division 3, clause 180(4)(b)(i) 6.32
Division 3, clause 180(4)(b)(ii) 6.32
Division 3, clause 180(5) 6.41
Division 3, clause 180(6) 6.60, 13.33
Division 3, clauses 181(1) and 180(2) 6.34
Division 3, clause 181(2) 6.34
Division 3, clause 181(2)(a) 6.23
Division 3, clause 181(2)(b) 6.38
Division 3, clause 181(2)(c) 6.39
Division 3, clause 181(3) 6.34
Division 3, clause 181(3)(b) 6.37
Division 3, clauses 181(3)(c)-(d) 6.40
Division 3, clause 181(4) 6.39
Division 3, clause 182 6.44
Division 3, clause 182(1) 6.43
Division 3, clause 182(1)(a) 6.45, 6.48
Division 3, clauses 182(1)(b)-(c) 6.45
Division 3, clause 182(2) 6.48
Division 3, clauses 182(3) and 182(6) 6.52
Division 3, clause 182(4) 6.29, 6.49
Division 3, clause 182(4)(c) and 182(5) 6.50
Division 3, clause 182(5) 6.51
Division 4, clause 183(1) 6.72, 6.83
Division 4, clause 183(2) 6.72
Division 4, clause 183(5) 6.74
Division 4, clauses 184(1)-(2) 6.75
Division 4, clause 184(3) 6.76
Division 4, clause 184A 6.77
Division 4, clause 184A(2) 6.78
Division 4, clause 184A(3) 6.79
Division 4, clause 184A(6) 6.82
Division 4, clauses 185(1)-(2) 6.86
Division 4, clause 185(3) 6.86
328
Index
Division 4, clause 185(4) 6.89
Division 4, clause 186(2) 6.68
Division 4, clause 186(2)(a) 6.66, 6.97
Division 4, clause 186(2)(b) 6.66
Division 4, clauses 186(3)(a)-(b) 6.67
Division 4, clauses 186(3)(c)-(da) 6.67
Division 4, clause 186(3A) 6.67
Division 4, clause 186(4) 6.68
Division 4, clause 186(8) 6.69
Division 4, clause 186(9) 6.69
Division 4, clause 186(10) 6.71
Division 4, clause 187 6.66
Division 4, clause 187(2)(b) 6.95
Division 4, clause 187(3) 6.97
Division 4, clauses 187(4)-(5) 6.96
Division 4, clauses 187(4)-(7) 6.93, 6.94
Division 4, clauses 187(6)-(7) 6.95
Division 4, clause 187(8)(a) 6.99
Division 4, clauses 187(8)(a)-(b) 6.100
Division 4, clause 187(9) 6.101
Division 4, clause 187(10) 6.103
Division 4, clauses 187(10)(b) and 187(11) 6.103
Division 4, clause 187(12) 6.103
Division 4, clauses 187(13)-(14) 6.105
Division 4, clause 187(15) 6.106
Division 5, clause 188 6.58
Division 5, clause 188(1)(b) 6.113
Division 5, clause 188(2) 6.114
Division 5, clauses 189(2)(a)-(b) 6.116
Division 5, clauses 189(2)(a), 189(2)(b), 189(2)(c) and 6.133
189(2)(f)(iii)
Division 5, clauses 189(2)(a)(i), 189(2)(b)(i), 189(2)(c)(ii), 6.149
189(2)(d)(ii) and 189AA(4)
Division 5, clause 189(2)(c) 6.118
Division 5, clauses 189(2)(c)-(d) 6.119
Division 5, clause 189(2)(d) 6.118
Division 5, clauses 189(2)(e), 189AA and 189AB 6.123
329
Carbon Pollution Reduction Scheme Bill 2010
Division 5, clause 189(2)(f) 6.125
Division 5, clauses 189(2)(f)-(g) 6.124
Division 5, clause 189(2)(g) 6.126
Division 5, clauses 189AA(2)-(3) 6.127
Division 5, clause 189AA(4) 6.128
Division 5, clause 189AA(4)(a) 6.128
Division 5, clause 189AA(4)(b) 6.129
Division 5, clause 189AA(4)(c) 6.130
Division 5, clause 189AA(4)(d) 6.130
Division 5, clause 189AA(4)(e) 6.131
Division 5, clause 189AA(4)(f) 6.138
Division 5, clause 189AA(4)(g) 6.133
Division 5, clause 189AA(5) 6.132, 6.135
Division 5, clause 189AA(5)(a) 6.129, 6.133
Division 5, clauses 189AA(5)(a)-(c) 6.134
Division 5, clause 189AA(5)(b) 6.129, 6.133
Division 5, clause 189AA(5)(c) 6.133
Division 5, clause 189AA(5)(d) 6.134, 6.135
Division 5, clauses 189AA(5)(d)-(f) 6.134
Division 5, clause 189AA(5)(e) 6.134, 6.136
Division 5, clause 189AA(5)(f) 6.134, 6.137
Division 5, clause 189AA(6) 6.139
Division 5, clause 189AA(7) 6.140
Division 5, clause 189AA(8) 6.131
Division 5, clause 189AB 6.128
Division 5, clauses 189AB(1)(a) and (2) 6.141
Division 5, clauses 189AB(1)(a) and (c) 6.142
Division 5, clause 189AB(1)(b) 6.143
Division 5, clause 189AB(1)(d) 6.143
Division 5, clause 189AB(1)(e) 6.144
Division 5, clause 189AB(1)(f) 6.145
Division 5, clauses 189AB(3)-(4) 6.145
Division 5, clause 189AC 6.146
Division 5, clauses 189A and 189B 6.120
Division 5, clauses 189A(4) and 189B(4) 6.120
Division 5, clause 189C 6.149
Division 5, clause 189D 6.151
330
Index
Part 10: Reforestation
Bill reference Paragraph
number
Division 1, clause 190 7.7
Division 2, clause 191 7.98, 7.99
Division 3, clause 192 7.3, 7.102, 7.107
Division 3, clause 192 7.104
Division 3, clause 193 7.105, 7.106
Division 3, clause 194 7.109
Division 3, clause 195 7.110, 7.111
Division 3, clause 195(3A) 7.112
Division 3, clause 196 7.115
Division 3, clause 196(3A) 7.116
Division 3, clause 197 7.103
Division 3A, clauses 197A(2)&197B(5) 7.137
Division 3A, clauses 197A(2)&197B(4) 7.150
Division 3A, clause 197A 7.22
Division 3A, clause 197B 7.37
Division 3A, clause 197B(6) 7.39
Division 3A, clause 197C 7.44
Division 4, clause 198 7.9
Division 4, clause 198(2) 7.10, 7.49
Division 4, clause 199 7.12, 7.13
Division 4, clause 200 7.14
Division 4, clause 201 7.15, 7.16
Division 4, clause 202 7.19
Division 4, clause 203 7.20
Division 4, clause 204 7.21
Division 5, clause 205 7.48
Division 5, clause 205(2) 7.10, 7.49
Division 5, clause 206 7.51, 7.52
Division 5, clause 207 7.53
Division 5, clause 208 7.54
Division 5, clause 208 7.55, 7.56
Division 5, clause 209(3) 7.46
Division 5, clause 209(4) 7.64
331
Carbon Pollution Reduction Scheme Bill 2010
Division 5, clause 209(5A) 7.71
Division 5, Subdivision A, clause 209(7) 7.11, 7.50
Division 5, clause 209(7) and (8) 7.75
Division 5, clause 209(10) 7.57
Division 5, clause 209(11) 7.47
Division 5, clause 210 7.119, 7.121
Division 5, clause 211 7.124, 7.126
Division 5, clause 211 7.125
Division 5, clause 212 7.123, 7.127,
7.128, 7.129
Division 5, clause 212(7), 213(3), 213A (3),214(5), 214A(5), 7.136
214B(3), 214C(3)
Division 5, clauses 212(10), 213(5), 213A(5), 214(7),214A(7) 7.155
214B(5), 214C(5), 215(5), 216(5), 217(4), 218(6),218A(4),
219(4), 219A(4)
Division 5, clause 213, 213A 7.131, 7.132
Division 5, clause 214, 214A 7.133
Division 5, clause 214B, 214C 7.135
Division 5, clause 215, 216 7.140
Division 5, clause 215, 216 7.141, 7.142
Division 5, clause 215(4), 216(4), 217(3), 218(5), 218A(3), 7.154
219(3), 219A(3)
Division 5, clause 217 7.143
Division 5, clause 218 7.144
Division 5, clause 218(1)(b)(i) 7.61
Division 5, clause 218A 7.146
Division 5, clause 219 7.147
Division 5, clause 219A 7.152
Division 6, clause 220 7.79
Division 6, clauses 220(5), 221(5), 222(5) 7.87
Division 6, clause 221 7.84
Division 6, clause 222 7.84
Division 6A, clause 222A 7.164
Division 6A, clause 222B 7.164
Division 7, clause 223 7.93
Division 7, clauses 223, 224 7.95
Division 7, clause 224 7.94
Division 8, clause 225 7.88
332
Index
Division 9, clause 226 7.6, 7.171, 7.173,
7.178
Division 9, clause 226(3) 7.175
Division 9, clause 226(5) 7.176
Division 9, clause 226(7) 7.174
Division 9, clause 226(10) 7.172
Division 9, clause 226(11), 226A(8), 226C(11), 226D(8) 7.185
Division 9, clause 226A 7.177
Division 9, clause 226A & 226B 7.178
Division 9, clause 226C 7.180
Division 9, clause 226C(2) 7.181
Division 9, clause 226C(5) 7.182
Division 9, clause 226C(7) 7.184
Division 9, clause 226D 7.183
Division 9, clause 227, 230, 231 7.186
Division 9, clause 228 7.187
Division 9, clause 229 7.188
Division 10, clause 232 7.156, 7.158
Division 10, clause 232 7.61
Division 10, clauses 232, 233 7.5
Division 10, clause 233 7.161
Division 11, clause 235 7.149
Division 11, clause 235A 7.96
Division 12, clause 236-237 15.24
Division 12, clause 236 7.193
Division 12, clause 237 7.195
Division 13, clause 238 7.189, 13.33
Division 13, clause 239 7.190
Division 14, clause 239A 7.31
Division 14, clause 240 7.31
Division 14, clause 241 7.23
Division 14A, clause 241A 7.67
Division 14A, clause 241B 7.68
Division 15, clause 242 7.114
Division 16, clause 243 7.198
Division 16, clause 243A 7.200
Division 16, clause 243B 7.201
333
Carbon Pollution Reduction Scheme Bill 2010
Division 16, clause 243C 7.202
Division 16, clause 243C(6) 7.205
Part 11: Destruction of synthetic greenhouse gases
Bill reference Paragraph
number
Division 1, clause 244 8.7
Division 2, clause 245 8.6, 8.36
Division 3, clause 246 8.5, 8.8, 8.21, 8.23,
8.25
Division 3, clause 247 8.21
Division 3, clause 248 8.22
Division 3, clause 249 8.6, 8.34
Division 3, clause 250 8.33
Division 3, clause 250(2) 8.27
Division 3, clause 250(2) 8.29
Division 3, clause 250(3) 8.27, 8.30
Division 3, clause 251 8.37
Division 3, clause 252 8.35
Division 4, clause 253 8.9
Division 4, clause 254 8.10, 8.12
Division 4, clause 255 8.11
Division 4, clause 256 8.13
Division 4, clause 257 8.16
Division 4, clause 258 8.17
Division 4, clause 259 8.18
Part 11A: Domestic offsets program
Division 2, clause 259B 9.11, 9.12
Division 2, clause 259B(1) 9.4
Division 2, clause 259B(2) 9.5, 9.16
Division 2, clause 259B(3) 9.5, 9.17
Division 2, clause 259B(4) 9.6, 9.22
Division 2, clause 259B(4)(b) 9.18
334
Index
Division 2, clause 259B(5) 9.20
Division 2, clause 259B(6) 9.25
Division 2, clause 259B(6)(a) 9.26
Division 2, clause 259B(6)(b) 9.27
Division 2, clause 259B(6)(b)(iii) 9.28
Division 2, clause 259B(8) 9.30
Division 2, clause 259B(9) 9.24
Division 2, clauses 259B(10) and (11) 9.31
Division 2, clauses 259C(1) and (2) 9.48
Division 2, clause 259C(2) 9.14
Division 2, clause 259C(3) 9.50
Division 2, clause 259C(3)(b) 9.51
Division 2, clause 259C(4) 9.15, 9.53
Division 2, clauses 259D(1) and (2) 9.56
Division 2, clause 259E(1) 9.59
Division 2, clause 259E(3) 9.64
Division 2, clause 259F 9.13
Division 2, clause 259F(1) 9.19
Division 2, clause 259F(2) 9.19
Division 2, clause 259F(3) 9.21
Division 3, clause 259H(3) 9.55, 9.58
Division 3, clause 259H(2) 9.58
Division 3, clause 259K(1) 9.70
Division 4, clause 259J(1) 9.66
Division 4, clause 259J(1)(c) 9.17
Division 4, clause 259J(2) 9.68
Division 4, clause 259J(3) 9.69
Division 4, clause 259J(4) 9.70
Division 4, clause 259K 9.7
Division 4, clause 259K(1)(c) 9.83
Division 4, clause 259K(1)(d) 9.77, 9.80
Division 4, clauses 259K(2)(a) and (b) 9.84
Division 4, clause 259K(2)(c) 9.85
Division 4, clauses 259K(2)(d) and (e) 9.86
Division 4, clauses 259K(2)(f) and (g) 9.87
Division 4, clause 259K(3) 9.78
Division 5, clause 259L(1) 9.34
335
Carbon Pollution Reduction Scheme Bill 2010
Division 5, clause 259L(2) 9.35
Division 5, clause 259M 9.36
Division 5, clause 259M(1)(e) 9.39
Division 5, clause 259N(1) 9.37
Division 5, clause 259N(2) 9.38
Division 5, clause 259P(6) 9.40
Division 5, clause 259P(3) 9.42
Division 5, clause 259Q 9.45
Division 5, clause 259R 9.46
Division 5, clause 259S 9.47
Part 12: Publication of information
Bill reference Paragraph
number
Division 1, clause 260 13.7
Division 2, clause 261 13.9
Division 2, clause 262 13.10
Division 2, clause 262(1A) 13.10
Division 2, clause 262(2) 13.10
Division 2, clause 263 3.39, 13.11
Division 2, clause 264 13.13
Division 2, clause 265 13.13
Division 2, clause 266 13.12
Division 2, clause 267 13.14
Division 2, clause 267A 13.13
Division 2, clause 267B 13.13
Division 2, clause 267C 13.12
Division 2, clause 268 13.10
Division 3, clause 269 13.18
Division 4, clause 270 3.12
Division 4, clause 270 13.26
Division 4, clause 271 13.33
Division 4, clause 272 13.26
Division 4, clause 273 4.65, 13.26
Division 4, clause 273(1) 4.65
336
Index
Division 4, clauses 273 and 274 5.55
Division 4, clause 274 4.65, 4.66, 13.27
Division 4, clause 274(b) 4.66
Division 4, clause 274(c) 4.67
Division 4, clause 275 13.27
Division 4, clause 276 13.28
Division 4, clause 277 13.27
Division 4, clause 277A 13.21
Division 4, clause 278 13.23, 13.24
Division 5, clause 278A-278C 13.16
Division 6, clause 278D 13.17
Division 6, clause 278E 13.17
Division 6, clause 278F 13.17
Division 7, clause 278G 1.48, 13.33
Division 8, clause 278H 9.89
Part 13: Fraudulent conduct
Bill reference Paragraph
number
Clause 279 11.5
Clause 280 11.97, 11.107
Clause 280(5) 11.108
Part 14: Voluntary cancellation of emissions units
Bill reference Paragraph
number
Clause 281 10.20
Clauses 282, 283 and 284 10.78
Clause 282(2A) 3.51, 10.79
Clause 282(3) 2.59, 10.82
Clause 283(3) 10.84
Clause 284 10.85
337
Carbon Pollution Reduction Scheme Bill 2010
Part 15: Relinquishment of Australian emissions units
Bill reference Paragraph
number
Division 1, clause 285 10.19
Division 2, clause 286 2.59, 4.48
Division 2, clauses 286(1) and (2) 10.69
Division 2, clause 286(2A) 3.51
Division 2, clause 286(2A) and (3) 3.35
Division 2, clauses 286(3) and (6) 10.70
Division 2, clauses 286(4) and (5) 10.71
Division 2, clause 286(4) 3.34
Division 3, clause 287 4.64, 11.5, 11.55
Division 3, clause 287(2) 10.75
Division 3, clause 287(3) 11.56, 11.57
Division 3, clause 287(4) 11.58
Division 3, clauses 287-291 10.74
Division 3, clause 288 11.59
Division 3, clause 288(2) 11.59
Part 16: Notification of significant holding of Australian
emissions units
Bill reference Paragraph
number
Clause 292 13.32
Clause 293 13.29
Clauses 293(6) and 294(6) 13.30
Clause 294 13.29
Part 17: Information-gathering powers
Bill reference Paragraph
number
Clause 295 11.5
Clause 296 11.8, 11.80
338
Index
Clause 296(3) 11.10
Clause 296(4) 11.79
Clause 297 11.12
Clause 298 11.12
Clause 299 11.13
Clause 300 11.14, 11.28,
11.30, 11.31
Part 18: Record-keeping requirements
Bill reference Paragraph
number
Clause 301 11.5
Clause 302 11.17
Clauses 302-304A 11.20
Clause 303 11.18
Clause 304 11.18
Clause 304A 11.18
Part 19: Monitoring powers
Bill reference Paragraph
number
Division 1, clause 305 11.5
Division 2, clause 306 11.22
Division 2, clause 307 11.23, 11.94
Division 3, clause 308 11.24
Division 3, clause 309 11.25
Division 3, clause 310 11.26
Division 3, clause 311 11.27, 11.90
Division 3, clause 312 11.28, 11.30, 11.31
Division 4, clause 313 11.32
Division 4, clause 314 11.32
Division 4, clause 315 11.32
Division 4, clause 316 11.32
Division 4, clause 317 11.32
339
Carbon Pollution Reduction Scheme Bill 2010
Division 4, clause 318 11.32
Division 5, clause 319 11.33
Division 5, clause 320 11.34
Division 5, clause 320 11.90
Division 6, clause 321 11.35, 15.24
Division 7, clause 322 11.36
Division 7, clause 322 15.24
Part 20: Liability of executive officers of bodies corporate
Bill reference Paragraph
number
Clause 323 11.5
Clause 324 11.37
Clause 324(2) and (3) 11.39
Clause 325 11.40
Part 21: Civil penalty orders
Bill reference Paragraph
number
Clause 326 11.5
Clause 326A 11.63
Clause 327 1.208, 1.216,
1.222, 1.226, 11.64
Clauses 327(3) and (4) 11.65
Clause 327(4)(b) 11.68
Clause 327(4)(b) and (6)(a) 11.72
Clause 327(4)(c) 11.68
Clause 327(4)(d) and (6)(c) 11.67
Clause 327(5) 11.68, 11.71
Clause 327(6) 11.68
Clause 327(6)(a) 11.68
Clause 327(6)(b) 11.68
Clause 328 11.83
Clause 329 11.84
340
Index
Clause 330 11.84
Clause 331 11.83
Clauses 332 to 335 11.84
Clause 336 11.76, 11.85
Clause 337 11.86
Clause 338 11.78
Clause 338(3) 11.79
Part 22: Offences relating to administrative penalties
Bill reference Paragraph
number
Clause 339 11.5
Clauses 340 and 341 11.91
Part 23: Enforceable undertakings
Bill reference Paragraph
number
Clause 342 11.5
Clause 343 11.100
Clause 343(5) 11.101
Clause 344 11.102
Part 24: Review of decisions
Bill reference Paragraph
number
Clause 345 15.7
Clause 346, Table, items 27A to 27H 5.51
Clause 346 15.8
Clauses 346-348 and 350 12.41
Clause 346, item 27 15.10
Clause 347 15.11
Clause 347(4) 15.12
341
Carbon Pollution Reduction Scheme Bill 2010
Clause 348 15.14
Clause 349 15.13
Clause 350 15.15
Clause 351 15.16
Part 25: Independent reviews
Bill reference Paragraph
number
Division 1, clause 352 14.1
Division 2, clause 353(1) 14.15
Division 2, clause 353(1)(b) 2.21
Division 2, clause 353(1)(c) and (d) 2.21
Division 2, clause 353(1)(h) 4.72, 14.16
Division 2, clause 353(2) 14.12
Division 2, clause 353(3) 14.13
Division 2, clause 353(4) 14.14
Division 2, clause 353(5) 14.33
Division 2, clause 353(6) 14.47
Division 2, clause 353(7) 14.18
Division 2, clause 354(1) 14.34
Division 2, clause 354(2) 14.35
Division 2, clause 354(4) 14.19
Division 2, clause 354(6)-(7) 14.36
Division 3, clause 355(1) 14.26
Division 3, clause 355(1)(ea) 14.21
Division 3, clause 355(1)(h)(i) 14.21
Division 3, clause 355(1)(h)(ii) 14.21
Division 3, clause 355(1)(h)(iii) 14.21
Division 3, clause 355(1)(h)(iv) 14.21
Division 3, clause 355(1)(h)(v) 14.21
Division 3, clause 355(1)(h)(vii) 14.21
Division 3, clause 355(1)(h)(viii) 14.21
Division 3, clause 355(1)(h)(ix) 14.21
Division 3, clause 355(1)(h)(x) 14.21
Division 3, clause 355(2) 14.33
342
Index
Division 3, clause 355(3) 14.47
Division 3, clause 355(4) 14.27, 14.38, 14.46
Division 3, clause 355A 14.29
Division 3, clause 356 14.32
Division 3, clause 356(2) 14.35
Division 3, clause 356(6)-(7) 14.36
Division 3, clause 356(1) 14.34
Division 3, clause 355(1)(h)(vi) 14.21
Division 4, clause 357 14.37
Division 4, clause 358 14.39
Division 4, clause 359 14.37
Division 4, clause 360(1)-(2) 14.44
Division 4, clause 360(3)-(4) 14.45
Division 4, clause 360(5) 14.48
Division 4, clause 361 14.37
Division 4, clause 362(1)-(2) 14.40, 14.41
Division 4, clause 363(1) 14.53
Division 4, clause 363(2) 14.54
Division 4, clause 364 14.48
Division 4, clause 365 14.48
Division 4, clause 366 14.48
Division 4, clause 367 14.49
Division 4, clause 368 14.42
Division 4, clause 369 14.43
Division 4, clause 370 14.45
Division 4, clause 371 14.50
Division 4, clause 372 14.51
Division 4, clause 373 14.52
Part 25A: Domestic Offsets Integrity Committee
Bill reference Paragraph
number
Division 1, clause 373A 9.8, 9.91
Division 1, clause 373B 9.8, 9.9
Division 1, clause 373B(1) 9.91
343
Carbon Pollution Reduction Scheme Bill 2010
Division 1, clause 373B(1)(b) 9.92
Division 1, clause 373B(1)(b)(ii) 9.95
Division 1, clause 373B(1)(c) 9.93
Division 1, clause 373B(2) 9.96
Division 1, clause 373C(1)(a) 9.97
Division 1, clauses 373C(1) and (2) 9.98
Division 1, clause 373C(3) 9.100
Division 1, clause 373C(4) 9.101
Division 2, clause 373D 9.104
Division 2, clause 373E(2) 9.105
Division 2, clause 373E(5) 9.106
Division 2, clause 373E(4) 9.107
Division 2, clause 373J 9.111
Division 2, clause 373K 9.111
Division 2, clause 373Q 9.110
Part 26: Miscellaneous
Bill reference Paragraph
number
Clauses 374(a), (b), (c), (e) and (f) 15.17
Clause 374(d) 15.21
Clause 374(g) 15.20
Clause 374(h) 15.18
Clause 374A 15.43
Clause 374B 1.277, 5.22, 5.35,
6.31, 7.14, 7.53,
7.109, 7.127, 8.11,
9.37
Clause 375 15.26
Clause 375A 15.25
Clause 376 15.22
Clause 377 15.41
Clause 378 15.23
Clause 379 15.39
Clause 380 15.28
Clause 381 15.31
344
Index
Clause 382 5.56, 15.32
Clause 383 15.33
Clause 384 4.57, 15.35
Clause 385 4.57, 15.37
Clause 386 15.42
Clause 387 15.34
345