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Carbon Pollution Reduction Scheme Bill 2009 [No. 2]

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2008-2009

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

Carbon Pollution Reduction Scheme Bill 2009

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

Amendments to be moved on behalf of the Government

 

 

 

(Circulated by the authority of the Minister for

Climate Change and Water, Senator the Honourable Penny Wong)

 



T able of contents

Glossary.............................................................................................................. 1

General outline................................................................................................. 3

Chapter 1               Coal-fired electricity generation........................................ 5

Chapter 2               Exclusion of agricultural emissions............................... 13

Chapter 3               Coal mining........................................................................ 17

Chapter 4               Domestic offsets................................................................ 29

Chapter 5               Minor amendments........................................................... 45

Chapter 6               Voluntary Action................................................................ 51

Index................................................................................................................. 53

 

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The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

Authority

The Australian Climate Change Regulatory Authority

The bill

The Carbon Pollution Reduction Scheme Bill 2009

CO 2 -e

Carbon dioxide equivalent

The consequential amendments bill

The Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009

CSAS

Coal Sector Adjustment Scheme

DOIC

Domestic Offsets Integrity Committee

ESAS

Electricity Sector Adjustment Scheme

NCOS

National Carbon Offset Standard

OTN

Obligation transfer number

The Scheme

The Carbon Pollution Reduction Scheme



Amendment of the Carbon Pollution Reduction Scheme Bill 2009

Coal-fired electricity generation (sheet AL234)

A number of amendments are proposed to the Electricity Sector Adjustment Scheme contained in Part 9 of the main bill.  The purpose of these amendments is to smooth the transition to a low-carbon economy by maintaining investor confidence and security of supply in the coal-fired electricity sector.

The key changes are:

•        Total assistance available will be increased to 228.7 million Australian emissions units (a 75 per cent increase);

•        Assistance will be provided over ten years instead of the current five years; and

•        The windfall gain test will be modified so that it applies to half of a generator’s allocation in the last three years of assistance.

Exclusion of agricultural emissions (sheet BE242)

The amendments ensure that agricultural emissions are not covered by the Scheme.

Coal mining (sheet BE201)

The amendments establish a Coal Sector Adjustment Scheme.  This scheme is intended 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 total assistance available for emissions-intensive mines will be up to 9.72 million Australian emissions units per year.  Assistance will be provided for five years, with a review to be undertaken before the end of this period.

Offsets (sheet BE218)

The amendments provide for the creation, through regulations, of a domestic offset program.  The domestic offset program would allow eligible abatement projects, such as projects to reduce emissions in the agriculture sector, to receive free Australian emissions units.  An independent committee would be responsible for developing and assessing methodologies that would set out the requirements for an offset project to be eligible.  Methodologies would have to ensure that projects achieve real, additional abatement which can be counted towards Australia’s international climate change targets.

Minor amendments (sheet BE242)

A number of minor and technical amendments are proposed.  The most significant of these amendments are to:

•        Put beyond doubt that no liability arises under the Scheme for the combustion overseas of fossil fuels supplied from Australia;

•        Ensure that the Authority may only request information concerning an application where that information is relevant to that application, and that it must exercise this power in a reasonable way;

•        Provide that the Minister, rather than the Authority, is to make the legislative instrument containing the policies, procedures and rules for the conduct of auctions;

•        Clarify that applications relating to the reforestation provisions of the bill cannot be made until 1 July 2010; and

•        Extend the commencement date of the bills to 42 days after Royal Assent, rather than the current 28 days.

Voluntary Action

In order to recognise and promote voluntary action to reduce greenhouse gas emissions, the Government will:

•        Take voluntary action into account in target setting, with potential for targets to be adjusted beyond 15 or 25 per cent;

•        Develop a method for ensuring that the collective voluntary action by households - beyond that projected as a result of the Scheme and other measures - will be taken into account in setting future caps; and

•        Recognise all emissions savings from the use of GreenPower in determining the cap.

While not requiring legislative change, Chapter 5 outlines amendments to the Explanatory Memorandum associated with these initiatives.

 

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C hapter 1     

Coal-fired electricity generation

This Chapter refers to amendments that appear in Sheet AL234.

Outline of chapter

1.1                   This Chapter describes amendments to Part 9 of the main bill. The amendments:

•        Extend the delivery of free Australian emission units from five to ten years and increase the total number of units provided;

•        Modify the windfall gain provisions to apply to the last three years of ten years of assistance, rather than the last two years of five, and apply the test to only half of a generator’s allocation in this three year period; and

•        Make a minor technical amendment to the power system reliability test to recognise intermediaries.

Context of amendments

1.2                   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 (ESAS).  Investor confidence is central to the continued investment in energy infrastructure necessary to maintain energy security and underpin Australia’s transition to a low carbon economy.  Security of supply is of fundamental interest to all Australian businesses and households.

1.3                   Further analysis of the impact of the Scheme on existing coal-fired generators indicates that the financial situation facing some generators warrants a number of policy changes to the ESAS to smooth the transition to a low carbon economy.  

1.4                   In particular, the Government has decided to increase the quantum of assistance under Part 9 from up to 130.7 million units delivered over five years to up to 228.7 million units delivered over ten years, at a total estimated additional cost of $4.0 billion over the period to 2020-21.

1.5                   Increasing the total quantum of assistance available under this Part is designed to maintain energy security, support investor confidence and assist Australia’s transition to a low carbon economy.

1.6                   Extending the period over which assistance is delivered also supports energy security by providing a longer period during which the transition to a lower carbon electricity sector can occur with reduced risk of premature retirement of emissions-intensive generation capacity.

1.7                   Extending the period of assistance achieves this outcome because Division 5 of Part 9 requires recipients of assistance under the Part to comply with the ‘power system reliability test’ in order to continue to receive Australian emissions units. A generation asset would pass the power system reliability test if its generating capacity was maintained, or if the appropriate energy market operator, either the Australian Energy Market Operator or the Independent Market Operator of Western Australia, certifies that any reduction is unlikely to breach power system reliability standards within two years of the reduction [Part 9, Division 5] .

1.8                   The Government has also decided to:

•        amend the power system reliability test to implement the Low Emissions Transition Incentive, which will allow recipients of assistance to take direct credit for replacing their existing capacity with new generation that is reliable and has an emissions intensity that is less than current best-practice coal-fired generation capacity in Australia;

•        amend the windfall gain provisions to apply to 50 per cent of allocations for the last three years; and

•        allow for deferred payment of future vintages of Australian emissions units purchased at auction to reduce working capital constraints for electricity generators.

1.9                   These amendments do not include provisions designed to allow recipients of assistance to take direct credit for their investments in replacement capacity under the power system reliability test in Division 5 of Part 9.  Amendments to this effect will be progressed in 2010 as they will not need to operate until 2011 at the earliest.

1.10               The Government’s intention for the Low Emissions Transition Incentive is that new generation capacity may be used in the place of existing generation capacity to allow compliance with the power system reliability test. This replacement generation capacity will need to meet a number of conditions that support energy security. In particular the new capacity must:

•        not have been ‘committed’ to be developed prior to the commencement of the CPRS legislation or already in existence;

•        not be intermittent, so that it is reliably available to supply electricity at times of peak demand;

•        be located in the same physically connected electricity market and, if the electricity market is divided into ‘regions’, such as the National Electricity Market, in the same region as the retiring capacity;

•        be first registered by the same entity that is registered as the generator in respect of the generation asset that is eligible for assistance and remains registered with that entity when it is assessed to constitute ‘replacement capacity’ (although it may subsequently change hands);

•        enter service before summer (by 1 December) of the calendar year in which the existing capacity retires from service, provided this retirement occurs on or after 1 April;

•        must not have already been used to retire capacity from another generation asset; and

•        must have an emissions intensity that is less than current best-practice coal-fired generation capacity in Australia.

 

Comparison of key features of new law and current law

Amended bill

Current bill

Delivery of 228.7 million Australian emission units over ten years.

Delivery of 130.7 million Australian emission units over five years.

A windfall gain determination results in 50 per cent of assistance being provided for the last three years.

A windfall gain determination results in no assistance for the last two years.

Detailed explanation of amendments

Delivery of assistance over ten years

Annual issue of free Australian emission units [amendments (1), (3), (4), (5)]

1.11               The main bill provides for the delivery of free Australian emission units to certain persons in respect of coal-fired generation assets on 1 September of the first five (5) eligible financial years of the scheme [Part 9, Division 2, subclause 176(2)] .

1.12               The number of free Australian emission units to be issued in respect of a particular generation asset is determined by the annual assistance factor determined under Division 3 of Part 9 for the relevant generation asset and set out in a certificate of eligibility for coal-fired generation assistance, divided by the total of all such annual assistance factors and multiplied by the number of free Australian emission units to be issued under the Part for that year (known as the generation assistance limit for that eligible financial year).  This is generally set at 26,140,000 Australian emissions units.

1.13               The amendments are designed to deliver a higher overall quantum of assistance over ten rather five years to better achieve the object of the Part and enhance energy security.

Summary of amendments
Delivery of free Australian emission units for 10 years

1.14               Amendment (3) provides that free Australian emission units will also be delivered to coal-fired generators on 1 September of the five eligible financial years of the scheme beginning on 1 July 2016, 1 July 2017, 1 July 2018, 1 July 2019 and 1 July 2020 in addition to the preceding five eligible financial years [Part 9, Division 2, subclause 176(2)] .

Quantum of assistance

1.15               Amendments (4) and (5) set out the quantum of free Australian emission units to be issued in each year in which assistance is available under this Part.  These amendments maintain the present rate of assistance for the eligible financial years beginning on1 July 2011, 1 July 2012, 1 July 2013, 1 July 2014 and 1 July 2015, whilst setting a constant, but lower rate of assistance of 19,600,000 Australian emissions units for the five subsequent eligible financial years.  In combination, these amendments increase the total Electricity Sector Adjustment Scheme allocation to up to 228.7 million Australian emissions units over ten years (with delivery of units subject to the windfall gain test and compliance with the power system reliability test) [Part 9, Division 2, clause 176] .

Consequential amendments

1.16               Amendment (1) updates the outline of the Part to reflect that free Australian emission units will be delivered over a period of 10 years [Part 9, Division 1, clause 175] .

Windfall gain test

Windfall gain test [amendments (2), (6), (7), (11), (12), (13), (14), (15), (16), (17), (18), (19), (20), (21), (22), (23)]

1.17               Division 4 of Part 9 of the main bill provides for the application of a ‘windfall gain test’ in relation to the delivery of assistance in respect of each coal-fired generation asset that is subject to a certificate of eligibility for coal-fired generation assistance.

1.18               In the absence of any amendments, the main bill provides that, if the Minister makes a determination under clause 183, no free Australian emission units would be issued in respect of the generation asset on 1 September 2014 or 1 September 2015. The Minister may only make such a determination if the Authority has made a windfall gain declaration in relation to the generation asset.

1.19               The amendments adjust these arrangements in a way designed to better achieve the object of the Part in light of the delivery of assistance over ten years.

1.20               In particular, the delivery of assistance over ten years requires the windfall gain test to be delayed, to give sufficient certainty over the early years of assistance available under this Part.  Applying the windfall gain test to the last three years of ten years of assistance offers an appropriate balance between ensuring the effectiveness of the test and giving generators sufficient certainty over the delivery of assistance.

1.21               Further, in light of the interaction of the windfall gain test and the power system reliability test [Part 9, Division 5] , energy security objectives are enhanced by providing that the windfall gain test will only apply to 50 per cent of the assistance available in any given year.  This ensures that generators will have some incentive to comply with the power system reliability test for the full 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 under clause 183 having been made in respect of a given generation asset.

Summary of amendments

1.22               Amendment (7) provides that the effect of a Ministerial determination is now that the number of free Australian emission units to be issued on 1 September 2018, 1 September 2019 or 1 September 2020 is to be halved.  Accordingly, the Authority will determine a number of units which would ordinarily be issued in respect of the generation asset under clause 176(2) and then reduce that number by 50 per cent [Part 9, Division 4, clause 183] .

1.23               Various amendments delay dates relevant to the windfall gain review by four years to reflect that it takes effect in 2018 rather than 2014 [amendments (11), (12), and (16)] [Part 9, Division 4, clause 185] .  The requirement for the Authority to issue a draft and final instrument relating to the review has been delayed by slightly less than four years, to increase the time between when the Authority should publish a draft legislative instrument (1 January 2017) [Part 9, Division 4, paragraph 187(12)(a)] , when it should make an instrument (1 April 2017) [Part 9, Division 4, paragraph 187(12)(b)] and when submissions are due to the Authority (30 September 2017) [Part 9, Division 4, subclause 185(2)] [amendments (22) and (23)].  This will provide a longer period of time for stakeholders to understand technical elements about how the review will be conducted, while still ensuring that the instrument can reflect the most up to date market information and analysis.

1.24               Amendments (13), (14) and (15) provide for the Government’s policy intention that any remaining assistance that could be issued in respect of a generation asset under the Part should be withheld if a submission to initiate the windfall gain test is not made in respect of that generation asset [Part 9, Division 4, subclause 185(4)] .

Consequential amendments

1.25               Amendments (2), (6), (17), (18), (19), (20) and (21) reflect the revised timeframe for the windfall gain test [Part 9, Division 1, clause 175] [Part 9, Division 4, clause 183] [Part 9, Division 4, subclause 187(3)] .

Revocation of windfall gain declaration [amendments 8, 9 and 10]

1.26               The consequences of a court or tribunal overturning a windfall gain declaration made by the Authority include the revocation of the Minister’s determination not to issue free Australian emission units [Part 9, Division 4, subclause 184(2)] .

1.27               The amendments give effect to the same policy outcome for the revised arrangements, namely that the withheld assistance is to be issued in a timely manner following the revocation of the Minister’s determination [Part 9, Division 4, subclause 184(1)] [Part 9, Division 4, clause 184A] .

Summary of amendments

1.28               Amendment (9) is a technical amendment to give effect to the revocation of the original determination when the windfall gain declaration has been overturned [Part 9, Division 4, subclause 184(2)] .

1.29               The Ministerial declaration [Part 9, Division 4, subclause 184(2)] is not a legislative instrument and is not subject to Parliamentary disallowance [Part 9, Division 4, subclause 184(3)] .  The declaration would not ordinarily fall within the meaning of a legislative instrument as it is an administrative decision that applies only to one generation asset, rather than being of general application.

1.30               Amendment (10) ensures that Australian emission units not issued on 1 September 2018, 1 September 2019 or 1 September 2020 because of a Ministerial determination which is subsequently revoked are issued 10 business days after that revocation [Part 9, Division 4, clause 184A] .  This clause applies separately to each occasion on which a reduced number of Australian emissions units is 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.

1.31               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, subclause 184(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.

1.32               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, subclause 184A(3)] .  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.

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.  

1.33               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] .

1.34               This provision cannot result in a double entitlement to free Australian emissions units [Part 9, Division 4, subclause 184A(6)] .

1.35               Amendment (8) accounts for the legal position where the determination is regarded as not being made at all [Part 9, Division 4, subclause 184(1)] .

Technical amendment relating to intermediaries

Power system reliability test [amendment (24)]

1.36               A generation complex must pass the power system reliability test for a person to receive assistance in respect of that generation complex [Part 9, Division 5] .  Compliance with that 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.

1.37               Some generators have put forward the view that under the National Electricity Rules an ‘intermediary’ may be registered instead of the owner, controller or operator of an asset owner and there may be legal doubt as to whether the intermediary either operates or controls the generation asset. This has been raised 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).

1.38               Amendment (24) 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] .

Summary of amendments

1.39               Amendment (24) allows a person registered in the place of an owner, controller and operator to be regarded as a person who controls the generation complex for the purposes of the Division.  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, paragraphs 189(2)(a)(i), 189(2)(b)(i), 189(2)(c)(ii) and 189(2)(d)(ii)] .

1.40               This deeming provision will not have effect for other purposes, such as the application for assistance elsewhere under the Part [Part 9, Division 3, subclauses 177(2) to 177(3)].   

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C hapter 2     

Exclusion of agricultural emissions

This Chapter refers to amendments that appear in Sheet BE242.

Outline of chapter

2.1                   This chapter deals with amendments to exclude agricultural emissions from the Scheme.

Context of amendments

2.2                   In the White Paper, the Government indicated that it was disposed to include agricultural emissions in the Scheme by 2015 and would make a final decision on this in 2013.

2.3                   On 15 November 2009 the Government indicated, in the context of negotiations with the Opposition to secure passage of these bills, that it was prepared to exclude agriculture from the Scheme indefinitely.

Summary of new law

2.4                   The amendments ensure that emissions of greenhouse gas from the operation of a facility cannot include emissions from agricultural sources.

Comparison of key features of new law and current law

Amendment bill

Current bill

An emission of greenhouse gas from the operation of a facility” explicitly excludes agricultural emissions.

An “ emission of greenhouse gas from the operation of a facility” does not explicitly exclude agricultural emissions.

Detailed explanation of new law

2.5                   The Scheme imposes liability for direct emissions from facilities that exceed specified thresholds [Part 3, Division 2, clauses 17-22] .

2.6                   Emissions covered by the Scheme will be specified in regulations made under paragraph 10(2A)(a) of the National Greenhouse and Energy Reporting Act 2007 .  These types of emissions will count as ‘emissions of greenhouse gas from the operation of a facility’ [Part 3, Division 2, clause 24] [Carbon Pollution Reduction Scheme (Consequential Amendments) Bill 2009, Schedule 1, Part 2, Item 159] .

2.7                   Amendments (6) and (7) ensure that agricultural emissions cannot be included within the meaning of ‘emission of greenhouse gas from the operation of a facility’ [Part 3, Division 2, subclause 24(2)] .

2.8                   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.

2.9                   Together these two provisions ensure that direct obligations cannot be imposed for agricultural emissions.

2.10               The six types of emissions identified for exclusion from the Scheme 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 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.

2.11               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.

2.12               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.

2.13               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.

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C hapter 3     

Coal mining

This Chapter refers to amendments that appear in Sheet BE201.

Outline of chapter

3.1                   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.

3.2                   Certain coal mines will be eligible under the CSAS to receive an allocation of free Australian emission units [Part 8A, Division 4] .

3.3                   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] .

3.4                   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

3.5                   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.  

3.6                   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

3.7                   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.  

3.8                   Mines which commenced operations after 30 June 2009 will not be eligible for assistance.

3.9                   The assistance package will be offered to all mines with a fugitive emissions intensity greater than 0.1 tonnes of CO 2 -e per tonne of saleable coal produced.  

3.10               Any mine with an emissions intensity lower than this will not be considered for assistance.

3.11               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 emission units per year or 60 per cent of fugitive emissions from eligible mines in the 2008-09 financial year.

3.12               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 CO 2 -e per tonne of saleable coal produced.

3.13               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. 

3.14               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 CO 2 -e per tonne of saleable coal produced once the production and emissions of each mine is known.

3.15               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.

3.16               The issue of free Australian emission units under Part 8A is expected to have a fiscal impact of $1.23 billion over the five year period.  This replaces the $500 million previously allocated to the Climate Change Action Fund. 

Detailed explanation of new law

3.17               Amendment (18) inserts a new Part 8A to provide 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 emission units in respect of coal mining

3.18               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, subclause 173F(4)] .

3.19               A certificate of entitlement must be issued each year [Part 8A, Division 2, subclause 173F(1)] and the certificate will be dated for the financial year during which the units are issued [Part 8A, Division 2, subclause 173F(3)]. 

3.20               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, subclause 173F(2)] .  

Certificate of entitlement to coal mining assistance

Application for certificate of entitlement to coal mining assistance

3.21               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, subclause 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, subclause 173G(3)].

3.22               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, subclause 173H(1)].   The application may also need to be accompanied by a statutory declaration or an audit report [Part 8A, Division 3, subclause 173H(2)] [Part 8A, Division 3, paragraph 173H(1)(e)].  The Authority may request further information [Part 8A, Division 3, subclause 173J(1)] .  If this information is not provided, the Authority may refuse to consider the application [Part 8A, Division 3, subclause 173J(2)].   This application process is consistent with other application provisions in the bill.

Issue of certificate of entitlement to coal mining assistance

3.23               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] .

3.24               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.

3.25               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, subclause 173K(5)] .  It must notify the applicant if the application is refused [Part 8A, Division 3, subclause 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, subclause 173K(7)] .

Unit entitlement

3.26               The number of Australian emission 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, subclause 173L(1)] .

3.27               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, paragraph 173L(1)(a)] or 16,200,000 Australian emission units [Part 8A, Division 3, paragraph 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, subclause 173L(2)] .

3.28               The assistance factor [Part 8A, Division 3, subclause 173L(2)] for a mine is calculated using the following formula  

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 CO 2 -e per tonne of saleable coal, its above threshold emissions intensity would be 0.4t CO 2 -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.

3.29               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 emission units not allocated to that mine will not be redistributed to other mines.

Certificate of entitlement to coal mining assistance is not transferable

3.30               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

3.31               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 before 1 September 2010 [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 of eligibility for coal mining assistance in relation to the coal mining area in question.

3.32               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.

3.33               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, subclause 173P(2)].  This is consistent with other application provisions in the bill.

3.34               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.

3.35               The Authority may require further information relating to the application [Part 8A, Division 4, clause 173Q] . 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

3.36               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, subclause 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, subclause 173R(3)] .

3.37               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] .

3.38               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, subclause 173R(4)] .

3.39               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, subclause 173R(1)] .

3.40               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 after making a declaration to the Authority [Part 8A, Division 4, subclause 173R(2)] .

3.41               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, subclause 173R(9)] .

Division 5 - Miscellaneous

3.42               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. 

3.43               The base period fugitive emissions number [Part 8A, Division 5, clause 173S] for an eligible coal mining area is equal to the Authority’s 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.

3.44               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.

3.45               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.

3.46               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

 

where the threshold is 0.1t CO 2 -e per tonne of saleable coal produced.

3.47               The adjusted base period fugitive emissions number for the mine is calculated using the following formula:

 

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

3.48               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 emission 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.

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. 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 emission 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 emission 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 emission 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 CO 2 -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 emission 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 emission 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 the Part.

  Administration, enforcement and monitoring of the Part

3.49               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 the [Australian Climate Change Regulatory Authority Bill 2009 Part 3, clause 43] .

3.50               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] .

Consequential amendments

3.51               Amendments (1), (2), (3), (4), (5), (6), (7) and (8) insert the following definitions:

•        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] .

3.52               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.

3.53               Amendments (9), (10), (11), (12), (13), (14), (15) and (16) refer to the Australian emissions units issued under Part 8A (freely issued units) 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] .

3.54               Amendment (17) provides 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 emission units under both Part 8A and Part 8 [Part 8, Division 2, clause 167] .

3.55               Amendments (19) and (20) modify provisions relating to the publication of information to require the Authority 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 emission units [Part 12, Division 4, clauses 273 and 274] .

3.56               Amendment (22) provides for the operation of the provisions in Part 8A 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] .

3.57               Amendment (23) ensures that 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] .

 

Do not remove section break.



C hapter 4     

Domestic offsets

This Chapter refers to amendments that appear in Sheet BE218.

Outline of chapter

4.1                   This Chapter describes amendments that allow for the formulation of a 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 of amendments

4.2                   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.  

4.3                   Giving liable entities access to additional sources of low-cost abatement will reduce the cost of achieving emissions reduction targets.   

Summary of new law

4.4                   A domestic offset program will be established that 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, subclause 259B(1)] .

4.5                   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, subclause 259B(2)] .  The number of units issued will be calculated in accordance with the applicable offset methodology [Part 11A , Division 2, subclause 259B(3)] .

4.6                   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, subclause 259B(4)] .

4.7                   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] .

4.8                   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] .

4.9                   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] .

Comparison of key features of new law and current law

Amended bill

Current bill

Provision for a program of domestic offsets, in addition to reforestation offsets.

No provision for domestic offsets other than for reforestation projects.

Detailed explanation of new law

4.10               Amendment 15 inserts a new part, Part 11A (Domestic offsets program) into the main bill.

Formulation of the domestic offsets program

4.11               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

4.12               The program will provide for a person to apply for free Australian emissions units in respect to an eligible domestic offset project [Part 11, Division 2, clause 259B] .  

4.13               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] .  

4.14               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, subclause 259C(2)]

4.15               A report on an offsets project must be accompanied by a prescribed audit report [Part 11A , Division 2, subclause 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 .

4.16               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, subclause 259B(2)]

4.17               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, subclause 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, paragraph 259J(1)(c)]

Declaration of eligible offset projects

4.18               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, paragraph 259B(4)(b)]

4.19               The regulations may specify the form of the application and the accompanying information and documentation [Part 11A, Division 2, subclause 259F(1)] .  The regulations may specify an application fee.  Statements in applications may be verified by statutory declaration [Part 11A, Division 2, subclause 259F(2)]

4.20               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, subclause 259B(5)].   This is to prevent the Authority from having to accept or consider applications before the scheme commences.

4.21               The regulations may provide that an application for an eligible project declaration must be accompanied by a prescribed audit report [Part 11A, Division 2, subclause 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

4.22               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, subclause 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.

4.23               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 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.

4.24               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, subclause 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.  

4.25               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.   

4.26               A declaration may take effect immediately after it was made [Part 11A, Division 2, paragraph 259B(6)(a)]

4.27               Alternatively, the applicant may apply to have the commencement of the declaration apply from a specified date [Part 11A, Division 2, paragraph 259B(6)(b)] .  This date may be in the past to allow units to be issued for abatement before the declaration was made.

4.28               Once the scheme commences, a declaration can be backdated but only to 1 July 2011 [Part 11A, Division 2, subparagraph 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.

4.29               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.   

4.30               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, subclause 259B(8)] .

4.31               A declaration (or a revocation of a declaration) of an eligible domestic offsets project is not a legislative instrument [Part 11A, Division 2, subclauses 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 procedures in that Act, for example Parliamentary disallowance, do not apply.

4.32               Further, it is intended that the declaration will be subject to both merits review (refer to Amendment (30)) and judicial review (for example, as provided by the Administrative Decisions (Judicial Review) Act 1977 ).

Recognised offset entity

4.33               A person must be a ‘recognised offset entity’ to receive Australian emissions units in relation to an eligible offset project.

Application process

4.34               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, subclause 259L(1)] .

4.35               A person is not entitled to make an application before 1 July 2011 [Part 11A, Division 5, subclause 259L(2)] . This is to prevent the Authority from having to assess and recognise offsets entities before the scheme commences.  

4.36               The regulations may specify any information or documents that must accompany an application [Part 11A, Division 5, clause 259M] .

4.37               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, subclause 259N(1)] .  

4.38               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, subclause 259N(2)] .   

4.39               The regulations may specify an application fee [Part 11A, Division 5, paragraph 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.  

4.40               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, subclause 259P(6)] .  Amendment (30) provides that a decision to refuse recognition of the applicant is reviewable under Part 24 of the bill.

Criteria for recognition

4.41               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. 

4.42               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, subclause 259P(3)] .

4.43               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.

4.44               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.

4.45               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] .  Amendment (30) provides that cancellation of recognition is a reviewable decision under Part 24 of the bill.

4.46               A person may surrender their recognition as an offsets entity by written notice to the Authority [Part 11A, Division 5, clause 259R]

4.47               If an entity is a recognised offsets entity, the entity’s recognition is not transferable [Part 11A, Division 5, clause 259S] .

Reporting requirements

4.48               The program may require the proponent of an offset project to provide a written report in relation to their project [Part 11A, Division 2, subclauses 259C(1) and (2)]

4.49               It is envisaged that written reports will be required to accompany applications for Australian emissions units. 

4.50               The regulations may also specify the frequency of the report [Part 11A, Division 2, subclause 259C(3)]

4.51               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, paragraph 259C(3)(b)] .

4.52               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.

4.53               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, subclause 259C(4)] .

4.54               Civil penalty provisions may apply if reporting requirements are not met [Part11A, Division 3, subclause 259H(1)].

4.55               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, subclause 259H(3)] .

Record keeping requirements

4.56               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, subclauses 259D(1) and (2)].  

4.57               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.  

4.58               Civil penalty provision may apply if record keeping requirements are not met [Part 11A, Division 3, subclause 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, subclause 259H(3)].

Relinquishment requirement

4.59               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 units was directly or indirectly attributable to that information [Part 11A, Division 2, subclause 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, subclause 259E(1)].

4.60               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.

4.61               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.

4.62               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.  

4.63               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.

4.64               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, subclause 259E(3)].   An avoided deforestation project is an example of a project that would involve the reduction and storage of greenhouse gases.

4.65               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

4.66               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, subclause 259J(1)].  

4.67               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.   

4.68               The Minister must not make or amend a determination unless advised to do so by the Domestic Offsets Integrity Committee [Part 11A, Division 4, subclause 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. 

4.69               The Minister may revoke a determination at any time, without obtaining advice from the Committee [Part 11A, Division 4, subclause 259J(3)].

4.70               Domestic offset project methodologies must not be inconsistent with the principles set out in clause 259K [Part 11A, Division 4, subclause 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, subclause 259K(1)].   

Emissions counted towards Australia’s international climate change targets

4.71               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 emissions from:

-       livestock

-       manure management

-       fertiliser use

-       savanna burning

-       burning of agricultural residues

-       rice cultivation

•        emissions from deforestation

•        waste deposited in landfill facilities before 1 July 2011 (‘legacy waste’)

•        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

4.72               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.

4.73               Part 11A has been designed so that the domestic offsets program can be flexible.  If international accounting rules changes 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.

4.74               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.

4.75               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

4.76               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 are covered by the Scheme are emitted by small facilities that fall below the threshold for scheme liability.

4.77               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, paragraph 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.

4.78               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, subclause 259K(3)].   

4.79               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.

4.80               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, paragraph 259K(1)(d)] .

4.81               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.

4.82               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

4.83               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, paragraph 259K(1)(c)].  

4.84               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, paragraphs 259K(2)(a) and (b)].  

4.85               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, paragraph 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.

4.86               If the project is a project to remove or store emissions from the atmosphere,  then the removal must not be likely to be reversed in whole or in part [Part 11A, Division 4, paragraphs 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.

4.87               The abatement from emissions reductions or removals must not be offset by emissions outside the project [Part 11A, Division 4, paragraphs 259K(2)(f) and (g)].  This commonly referred to as ‘leakage’.  Offsetting emissions are emissions that are measurable and attributable to the offset project.

For example, there would be leakage if, in an avoided forestation project, rates of deforestation in one location were offset by an increase in rates of deforestation in another location.

4.88               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 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

4.89               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 11A, Division 5, 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

•        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.

4.90               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

4.91               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, subclause 373B(1)].  

4.92               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, paragraph 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.

4.93               The Committee may also do anything incidental or conducive to the performance of its specified functions [Part 25A, Division 1, paragraph 373B(1)(c)] .  For instance, this allows the Committee to consider methodologies proposed by members of the public .  

4.94               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.

4.95               If the Committee initially refuses to consider a methodology, the Secretary may refer it back to the Committee for consideration [Part 25A, Division 1, subparagraph 373B(1)(b)(ii)] .

4.96               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, subclause 373B(2)].  This will promote the development of consolidated methodologies that apply broadly to particular types of 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

4.97               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, paragraph 373C(1)(a)].  

4.98               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, subclauses 373C(1) and (2)].  

4.99               Providing the public with an opportunity to review and comment on draft determinations provides additional assurance regarding the environmental integrity of offset methodology determinations.

4.100           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, subclause 373C(3)].  

4.101           The period for making submissions on the draft work program must be at least 60 days [Part 25A, Division 1, subclause 373C(4)].  

4.102           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. 

4.103           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

4.104           The Committee must have five to six members, including the Chair [Part 25A, Division 2, clause 373D].

4.105           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, subclause 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.

4.106           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, subclause 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.  

4.107           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, subclause 373E(4)]

4.108           It is envisaged that the Department will provide secretariat functions for the committee.

4.109           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. 

4.110           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

4.111           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].

Definitions

4.112           Amendments (1), (2), (3), (4), and (5) insert the following definitions:

•        applicable domestic offsets methodology determination

•        Domestic Offsets Integrity Committee

•        Domestic Offsets Integrity Committee member

•        domestic offsets program

•        domestic offsets project methodology determination

•        domestic offsets project methodology principles

•        domestic offsets reporting period

•        eligible domestic offsets project

•        native forest

•        offsets project [Part 1, clause 5] .

Consequential amendments

4.1                   Other amendments refer to the units issued under Part 11A (domestic offsets program) in the same manner as units issued Part 10 (Reforestation).

4.2                   Amendment (36) provides for the operation of the provisions as if they were expressly limited in certain ways - for example, as if the reference to the issue of free units in subclause 259B(1) were expressly confined to the issue of free units to a constitutional corporation, in reliance on the corporations power (section 51(xx) of the Constitution) [Part 26, clause 382] .

 

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C hapter 5     

Minor amendments

This Chapter refers to amendments that appear in Sheet BE242.

Outline of chapter

5.1                   These amendments will implement a range of matters enabling the Scheme to operate efficiently and effectively. 

Context of amendments

5.1                   These amendments are made to address commitments given by the Australian Government during negotiations with the Opposition and to make other minor and technical amendments. 

Summary of new law

5.2                   The amendments:

•        Extend the commencement date of the Scheme to 42 days after Royal Assent;

•        Ensure consistent references to State and Territory Ministers in the reforestation provisions;

•        Ensure that there is no liability for emissions from exported fuel;

•        Extend the time within which a person can provide evidence that Australian emissions units should be transferred to a new account (e.g. where the account holder has died);

•        Provide that the Minister, rather than the Authority, is to make the legislative instrument that determines the policies, procedures and rules that apply to auctions;

•        Provide that reforestation applications may only be made from 1 July 2010;

•        Expand the Authority’s ability to publish statements concerning the characteristics of emissions units;

•        Provide for the automatic triggering of a review of the Scheme if Australia enters into a new multilateral international agreement containing emissions reductions obligations;

•        Ensure that the Authority exercises its power to require further information in relation to applications in a reasonable way; and

•        Technical drafting amendments.

Detailed explanation of new law

Commencement

5.3                   Amendments (1) and (2) delay the commencement of the substantive provisions of the proposed Act by 14 days and in consequence, the establishment of the Authority.  This will ensure a smooth handover of responsibilities from existing regulators to the new regulator, given that the handover period will include the Christmas break. 

Substitution of Crown Lands Minister instead of Principal State/Territory Minister

5.4                   These amendments seek to ensure consistent references to State and Territory Ministers in the reforestation provisions. 

5.5                   Amendment (29) substitutes the Crown Lands Minister for the Principal State Minister or Principal Territory Minister (as appropriate).  This will ensure that the most relevant Minister is able to directly certify certain matters which form part of the criteria for the Authority to declare that a project is an ‘eligible reforestation project’ without the need for the involvement of State Premiers or Chief Ministers [Part 10, Division 5, Subdivision A , clause 209]

5.6                   Amendment (30) makes a similar amendment for the purposes of the Authority varying a declaration of an eligible reforestation project [Part 10, Division 5, Subdivision B, clause 212]

5.7                   Amendments (3), (4) and (5) insert a new definition of Crown Lands Minister and make other amendments to the definitions clause in consequence to the amendments to clauses 209 and 212 [Part 1, clause 5, definitions of ‘Crown Lands Minister’, ‘Principal State Minister’ and ‘Principal Territory Minister’] .

5.8                   Amendment (33) makes an amendment consequential to the new definition of Crown Lands Minister [Part 10, Division 14A, clause 241B] .

Excluding exported eligible upstream fuel

5.9                   Amendments (9) to (14) seek to put beyond doubt that no liability arises under the Scheme for exported eligible upstream fuel.

Transmission of units by operation of law 

5.10               Emissions units will most commonly be transferred via the Australian Registry of Emissions Units through an instruction issued by an account holder (that is, by “assignment”).  However, in some cases, such as where the account holder dies or becomes bankrupt, ownership of an emissions unit may transfer but the account holder will be unable to assign the emissions units. 

5.11               To cater for this, the bill provides that where an emissions unit is transferred from one person to another by any lawful means other than transmission by assignment, the transferee must give the Authority a declaration of transmission made in accordance with the regulations.  The Authority is then required to transfer the unit to the transferee’s account.  If the transferee does not yet have an account, it must open an account before this can occur. 

5.12               Amendments (15) and (16) and (18) - (21) extend the timeframe for a person to provide the Authority with evidence of the transmission from 14 to 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, subclauses 97(2) and (5)] [Part 4, Division 3, subclauses 116C(2) and (5)] [Part 4, Division 3, subclauses 112B(2) and (5)] .

Auctions

5.13               Amendment (17) provides that the detailed policies, procedures and rules for the conduct of auctions will be included in a legislative instrument made by the Minister, rather than the Authority [Part 4, Division 2, Subdivision C, clause 103] .  This will ensure that the Government can deliver on its commitments to establish deferred payment arrangements. 

5.14               Deferred payment arrangements for auctions of Australian emissions units will 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. 

5.15               This determination will be a legislative instrument for the purposes of the Legislative Instruments Act 2003 and will be finalised following consultation with stakeholders. 

Timing of reforestation applications

5.16               Amendments (26) and (28) ensure that applications for recognition of reforestation entities or applications for declarations of an eligible reforestation project cannot be made in the period between the commencement of the bill and the proposed commencement of the regulations on 1 July 2010 [Part 10, Division 4, subclause 198(2)] [Part 10, Division 5, subclause 205(2)] .  Amendments (25) and (27) amend punctuation as a consequence of amendments (26) and (28).

5.17               The reason for the insertion of the 1 July 2010 date is to enable consultation on regulations that will be needed to implement Part 10 of the bill.  Due to delays in the passage of this bill, regulations relating to reforestation are unlikely to be made until mid-May 2010. 

5.18               Persons intending to undertake reforestation projects will not be disadvantaged by not being able to submit their applications until 1 July 2010.  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, subclause 209(7)]

Expansion of the Authority’s ability to publish information

5.19               Amendment (35) clarifies the timing of the Authority’s power to publish statements describing the characteristics of eligible emissions units.  The amendment removes doubt that this information could only be published within a period of 24 hours before the Authority starts to conduct the first auction of Australian emission units.

5.20               The Authority will be required to publish a statement setting out the characteristics of Australian emissions units prior to 31 December 2010, and keep that statement up-to-date [Part 12, Division 4, clause 277A] .

5.21               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) within 30 days after the commencement of clause 278.  This will enable people selling those Kyoto units (in certain circumstances) to rely on that statement in place of a product disclosure statement, thereby reducing their compliance burden from commencement of the Scheme. 

5.22               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] .

Special Review of the Scheme 

5.23               Amendment (37) requires that 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] .  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 whether the agreement has any particular implications for the policy underpinning the emissions-intensive trade-exposed assistance program.

5.24               Amendment (38) ensures that the report of such a review is subject to the same requirement as other special reviews relating to tabling in Parliament and Government responses [Part 25, Division 3, clause 356] .

5.25               Amendment (36) makes an amendment consequential to the inclusion of new clause 355A [Part 25, Division 2, clause 355].

Authority’s power to require further information

5.26               Several clauses in the bill make provision for the Authority to refuse to consider an application if the Authority requires additional information in relation to the application and the applicant does not comply.  The applications that may be affected by such a refusal include applications for:

•        a liability transfer certificate [Part 3, Division 3, clause 75] ;

•        a certificate of entitlement for coal mining assistance [Part 8A, Division 3, clause 173J] ;

•        a declaration of an eligible coal mining area [Part A, Division 4, clause 173Q] ;

•        a certificate of eligibility for coal-fired generation assistance [Part 9, Division 3, clause 179] ;

•        a certificate of reforestation [Part 10, Division 3, clause 194] ;

•        recognition as a reforestation entity [Part 10, Division 4, clause 201] ;

•        a declaration of an eligible reforestation project [Part 10, Division 5, clause 207] ;

•        a variation of a declaration of an eligible reforestation project [Part 10, Division 5, subclauses 210(6) and (7)] ;

•        recognition as a synthetic greenhouse gas destruction customer [Part 11, Division 4, clause 255] ; and

•        recognition as an offsets entity [Part 11A, Division 5, clause 259N] .

5.27               Amendment (39) addresses concerns that the Authority may make unreasonable requests for additional information following receipt of any type of these applications.  If these unreasonable requests were not met, the Authority could set aside the application without it being subject to merits review.  The applicant would not have an avenue of appeal to the Administrative Appeals Tribunal, although the applicant would have recourse to judicial review through the Administrative Decisions (Judicial Review) Act 1977 .

5.28                Amendment (39) requires the Authority to request only relevant information and to exercise its power to seek information in a reasonable way. 

Technical Corrections

5.29               Amendments (22), (23), (24), (31), (32), (34), and (40) correct drafting oversights.   [Part 6, Division 3, clause 130] [Part 6, Division 4, clauses 132] [Part 10, Division 9, Subdivision A, clause 226] [Part 10, Division 13, clause 239] [Part 10, Division 14A, clause 241B] [Part 26, clause 375A]

 

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C hapter 6     

Voluntary Action

Voluntary Action

6.1                   Paragraph 2.26 of the Explanatory Memorandum to the bill tabled in the Senate on 17 November 2009 explains that one of the matters to which the Minister may have regard in setting the scheme cap is the extent of voluntary actions taken to reduce Australia's greenhouse gas emissions.

6.2                   The Australian Government has made three new policy commitments to give further recognition to voluntary action. 

6.3                   First, 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.

6.4                   Second, as a matter of policy, the Government will give recognition to all GreenPower purchases when setting Scheme caps.  This is a change to the policy set out in paragraph 2.27 of the Explanatory Memorandum to the bill tabled in the Senate on 17 November 2009, which stated that GreenPower purchases above a 2009 baseline would be taken into account.  In recognition of the fact that all GreenPower sales represent a commitment to secure additional abatement, all GreenPower sales will be counted, not just those that are beyond the 2009 baseline.  All 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 tightened to reflect 2011 GreenPower sales, 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.

6.5                   Third, as a matter of policy, the Government is committed to taking into account voluntary reductions in overall household emissions when setting scheme caps.  Specifically, the Government will estimate annual emissions from household electricity, gas use 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.

6.6                   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 tightened in 2012 to reflect the difference 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.  The estimated additional cost of the GreenPower policy changes is $330 million over the period to 2019-20. 

6.7                   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. 



Part 1:  Preliminary

Bill reference

Paragraph number

Clause 5

3.51, 4.112

Clause 5, definitions of ‘Crown Lands Minister’, ‘Principal State Minister’ and ‘Principal Territory Minister’

5.7

Part 2:  National scheme cap and national scheme gateway

Bill reference

Paragraph number

Clause 13, note

3.53

Part 3:  Liable entities

Bill reference

Paragraph number

Division 2, clauses 17-22

2.5

Division 2, clause 24

2.6

Division 2, subclause 24(2)

2.7

Division 3, clause 75

5.26

Part 4:  Emissions units

Bill reference

Paragraph number

Division 1, clause 82

3.53

Division 2, Subdivision A, clause 88

3.53

Division 2, Subdivision A, clause 93

1.33, 3.53

Division 2, Subdivision B, subclauses 97(2) and (5)

5.12

Division 2, Subdivision C, clause 101

3.53

Division 2, Subdivision C, clause 103

5.13

Division 2, Subdivision D, clauses 103A and 103B

3.53

Division 3, subclauses 112B(2) and (5)

5.12

Division 3, subclauses 116C(2) and (5)

5.12

Part 6:  Surrender of eligible emissions units

Bill reference

Paragraph number

Division 2, clause 129

3.53

Division 3, clause 130

5.29

Division 4, clauses 132

5.29

Part 8:  Emissions-intensive trade-exposed industry program

Bill reference

Paragraph number

Division 2, clause 167

3.54

 

 

 

 

 

 

Part 8A:  Coal mining

Bill reference

Paragraph number

Division 1, clause 173D

3.17

Division 2, subclause 173F(2)

3.20

Division 2

3.3, 3.4, 3.18

Division 2, subclause 173F(4)

3.18

Division 2, subclause 173F(1)

3.19

Division 2, subclause 173F(3)

3.19

Division 3, subclause 173L(2)

3.27, 3.28

Division 3, clause 173M

3.30

Division 3

3.3, 3.4

Division 3, subclause 173G(1)

3.21

Division 3, subclause 173G(2)

3.21

Division 3, subclause 173G(3)

3.21

Division 3, subclause 173H(1)

3.22

Division 3, subclause 173H(2)

3.22

Division 3, paragraph 173H(1)(e)

3.22

Division 3, clause 173J

5.26

Division 3, subclause 173J(1)

3.22

Division 3, subclause 173J(2)

3.22

Division 3, clause 173K

3.23

Division 3, subclause 173K(5)

3.25

Division 3, subclause 173K(6)

3.25

Division 3, subclause 173K(7)

3.25

Division 3, subclause 173L(1)

3.26

Division 3, paragraph 173L(1)(a)

3.27

Division 3, paragraph 173L(1)(b)

3.27

Division 4, clause 173N

3.31

Division 4, clause 173R

3.24

Division 4, subclause 173R(2)

3.36, 3.40

Division 4, subclause 173R(3)

3.36

Division 4, subclause 173R(4)

3.38

Division 4, subclause 173R(1)

3.39

Division 4, subclause 173R(9)

3.41

Division 4

3.2

Division 4, subclause 173P(1)

3.33

Division 4, subclause 173P(2)

3.33

Division 4, clause 173Q

3.35

Division 5, clause 173S

3.43

Division 5, clauses 173S - 173V

3.37

Division 5, clause 173T

3.44

Division 5, clause 173TA

3.45

Division 5, clause 173U

3.46

Part 9:  Coal-fired electricity generation

Bill reference

Paragraph number

Division 1, clause 175

1.16, 1.25

Division 2, subclause 176(2)

1.11, 1.14

Division 2, clause 176

1.15, 3.48

Division 3, subclauses 177(2) to 177(3)

1.40

Division 3, clause 179

5.26

Division 4, subclause 184A(3)

1.32

Division 4, clause 183

1.22, 1.25

Division 4, subclause 184A(6)

1.34

Division 4, clause 185

1.23

Division 4, paragraph 187(12)(a)

1.23

Division 4, paragraph 187(12)(b)

1.23

Division 4, subclause 185(2)

1.23

Division 4, subclause 185(4)

1.24

Division 4, subclause 187(3)

1.25

Division 4, subclause 184(2)

1.26, 1.28, 1.29, 1.31

Division 4, subclause 184(1)

1.27, 1.35

Division 4, clause 184A

1.27, 1.30

Division 4, subclause 184(3)

1.29

Division 5

1.7, 1.21, 1.36

Division 5, paragraphs 189(2)(a)(i), 189(2)(b)(i), 189(2)(c)(ii) and 189(2)(d)(ii)

1.39

Division 5, clause 189C

1.38

Part 10:  Reforestation

Bill reference

Paragraph number

Division 3, clause 194

5.26

Division 4, subclause 198(2)

5.16

Division 4, clause 201

5.26

Division 5, clause 207

5.26

Division 5, Subdivision A, subclause 209(7)

5.18

Division 5, Subdivision A, clause 209

5.5

Division 5, subclauses 210(6) and (7)

5.26

Division 5, Subdivision B, clause 212

5.6

Division 5, subclause 205(2)

5.16

Division 9, Subdivision A, clause 226

5.29

Division 13, clause 239

5.29

Division 14A, clause 241B

5.8, 5.29

Part 11:  Destruction of synthetic greenhouse gases

Bill reference

Paragraph number

Division 4, clause 255

5.26

Part 11A:  Domestic offsets program

Bill reference

Paragraph number

Division 2, clause 259B

4.11, 4.12

Division 2, subclause 259B(1)

4.4

Division 2, subclause 259B(2)

4.5, 4.16

Division 2, subclause 259B(3)

4.5, 4.17

Division 2, subclause 259B(4)

4.6, 4.22

Division 2, paragraph 259B(4)(b)

4.18

Division 2, subclause 259B(5)

4.20

Division 2, clause 259B(6)

4.25

Division 2, paragraph 259B(6)(a)

4.26

Division 2, paragraph 259B(6)(b)

4.27

Division 2, subparagraph 259B(6)(b)(iii)

4.28

Division 2, subclause 259B(8)

4.30

Division 2, subclause 259B(9)

4.24

Division 2, subclauses 259B(10) and (11)

4.31

Division 2, subclauses 259C(1) and (2)

4.48

Division 2, subclause 259C(2)

4.14

Division 2, subclause 259C(3)

4.50

Division 2, paragraph 259C(3)(b)

4.51

Division 2, subclause 259C(4)

4.15, 4.53

Division 2, subclauses 259D(1) and (2)

4.56

Division 2, subclause 259E(1)

4.59

Division 2, subclause 259E(3)

4.64

Division 2, clause 259F

4.13

Division 2, subclause 259F(1)

4.19

Division 2, subclause 259F(2)

4.19

Division 2, subclause 259F(3)

4.21

Division 5, clause 278H

4.89

Division 3, subclause 259H(2)

4.58

Division 3, subclause 259H(3)

4.55, 4.58

Division 4, subclause 259J(1)

4.66

Division 4, paragraph 259J(1)(c)

4.17

Division 4, subclause 259J(2)

4.68

Division 4, subclause 259J(3)

4.69

Division 4, subclause 259J(4)

4.70

Division 4, clause 259K

4.7

Division 3, subclause 259K(1)

4.70

Division 4, paragraph 259K(1)(c)

4.83

Division 4, paragraph 259K(1)(d)

4.77, 4.80

Division 4, paragraphs 259K(2)(a) and (b)

4.84

Division 4, paragraph 259K(2)(c)

4.85

Division 4, paragraphs 259K(2)(d) and (e)

4.86

Division 4, paragraphs 259K(2)(f) and (g)

4.87

Division 4, subclause 259K(3)

4.78

Division 5, subclause 259L(1)

4.34

Division 5, subclause 259L(2)

4.35

Division 5, clause 259M

4.36

Division 5, paragraph 259M(1)(e)

4.39

Division 5, clause 259N

5.26

Division 5, subclause 259N(1)

4.37

Division 5, subclause 259N(2)

4.38

Division 5, subclause 259P(6)

4.40

Division 5, subclause 259P(3)

4.42

Division 5, clause 259Q

4.45

Division 5, clause 259R

4.46

Division 5, clause 259S

4.47

Part 12:  Publication of information

Bill reference

Paragraph number

Division 4, clauses 273 and 274

3.55

Division 4, clause 277A

5.20

Division 4, clause 278

5.22

Part 24:  Review of decisions

Bill reference

Paragraph number

Clause 346, Table, items 27A to 27H

3.50

Part 25:  Independent reviews

Bill reference

Paragraph number

Division 2, clause 355

5.25

Division 3, clause 355A

5.23

Division 3, clause 356

5.24

Part 25A:  Domestic Offsets Integrity Committee

Bill reference

Paragraph number

Division 1, clause 373A

4.8, 4.91

Division 1, clause 373B

4.8, 4.9

Division 1, paragraph 373B(1)(b)

4.92

Division 1, subparagraph 373B(1)(b)(ii)

4.95

Division 1, subclause 373B(1)

4.91

Division 1, paragraph 373B(1)(c)

4.93

Division 1, subclause 373B(2)

4.96

Division 1, paragraph 373C(1)(a)

4.97

Division 1, subclauses 373C(1) and (2)

4.98

Division 1, subclause 373C(3)

4.100

Division 1, subclause 373C(4)

4.101

Division 2, clause 373D

4.104

Division 2, subclause 373E(2)

4.105

Division 2, subclause 373E(5)

4.106

Division 2, subclause 373E(4)

4.107

Division 2, clause 373J

4.111

Division 2, clause 373K

4.111

Division 2, clause 373Q

4.110

 

Part 26:  Miscellaneous

Bill reference

Paragraph number

Clause 375A

5.29

Clause 382

3.56, 3.57, 4.2

Do not remove section break.