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Environment and Communications Legislation Committee
Clean Energy Regulator

Clean Energy Regulator


CHAIR: I welcome to the table representatives of the Clean Energy Regulator. I welcome Ms Munro. Would you like to make an opening statement before we move to questions?

Ms Munro : No, thank you.

Senator BACK: Are you, as the Clean Energy Regulator, a corporate member of the Clean Energy Council?

Ms Munro : I will ask Mr Williamson to answer that as he holds that management.

Mr Williamson : We do hold a membership with the Clean Energy Council.

Senator BACK: Is that a statutory requirement of the regulator that you are a member?

Mr Williamson : No, it is not.

Senator BACK: Do you know what the annual membership is? Is there an annual membership fee or is there an honorary membership?

Mr Williamson : There is an annual membership fee. I honestly cannot remember how much that is.

Senator BACK: Perhaps you could take that on notice. Can you explain to us what the benefits are for the Clean Energy Regulator in being a member of the Clean Energy Council?

Mr Williamson : It helps us to keep in touch with the industry. The Clean Energy Council has certain roles under our legislation, for example, they accredit installers of small-scale systems and they put out an approved list of certain components of small-scale systems to be eligible to receive certificates. There is a range of ways that we need to interact with that body.

Senator BACK: Ms Munro, we discussed this matter the other day, but under section 18(1) with regard to clean energy certificates, the creation of a certificate is on a one-for-one basis, basically one megawatt/hour results in one certificate. Is that correct?

Ms Munro : That is correct.

Senator BACK: If I go to regulation S15A, it is my understanding—and perhaps you can correct me—that electricity that was generated by using an eligible renewable energy source that is not ecologically sustainable should be omitted from this calculation? Am I correct in that interpretation of the regulation?

Ms Munro : Yes, you are, but I might just enlarge on that. Whether or not a source is ecologically sustainable is determined based on whether or not it is one of the listed sources. We do not re-examine a specific, for example, source of biomass—bagasse would be an example—that is permitted under the regulations. We do not re-examine the question of whether the operations of that particular entity are ecologically sustainable. The ecological sustainability is determined through that regulatory entry point, if you like, into the scheme. If you have further questions on that, I can certainly call someone to the table who has more details.

Senator BACK: I was going to go on. My next question would be: can you tell us how much, if any, electricity has in fact been excluded from the calculation of energy generated from industrial wind turbines?

Ms Munro : Yes, I can. Unless any of my colleagues correct me, none would be excluded because the basis of exclusion happens prior to that point at which they have submitted their returns and have created the certificates. It happens prior to the accreditation of that particular power station.

Senator BACK: We heard evidence the other day of Professor Wheatley studying the national electricity market for 2014 proposing that the efficiency level was about 78 per cent. I think we also engaged, did we not, that the Environment Department itself has come up with a calculation of 82 per cent efficiency rather than 100 per cent? Am I right in that assumption?

Ms Munro : I think that is a mischaracterisation. You would have to ask the department, but as I recall they were referring to the report that was done for the expert review panel which made that assessment. However, I do not think it is a question of efficiency. I think it is a question of what the average emissions displacement is in tonnes of carbon dioxide equivalent per megawatt hour of renewable energy generated. So, that really is not a question of efficiency. It is a question of variability of the alternative. It is a question of the variability of the emissions intensity of fossil fuel generation rather than the efficiency of the renewable energy itself. All the renewal energy has zero net emissions associated with it.

Senator BACK: I am getting a bit of advice along the table.

Dr de Brouwer : We cannot confirm whether that was what the department stated.

Mr Archer : I am sorry; I did not quite catch the remark that you made.

Senator BACK: I drew attention to the work of Professor Wheatley from Ireland, who presented data the other day to suggest that in 2014, in assessing the national electricity market, the efficiency level of electricity generated from wind sources was about 78 per cent rather than 100 per cent. I understood that was somewhat close to a figure that the department itself—and you might be able to clarify—had also assessed, at about 82 per cent rather than a one-for-one. So, a 78 or 82 per cent level of efficiency. My question, which Ms Munro was responding to, was that, indeed, if this represents a lack of ecological sustainability and if regulation S15A speaks of omissions of that component that is not ecologically sustainable, why would we be allocating a one-for-one certificate per megawatt hour if indeed the level of efficiency is at 0.78 or 0.82 or a similar figure?

Mr Archer : I am not familiar with that percentage figure or, in fact, the concept of efficiency which the author is referring to there, but I think based on the conversation that we had in the inquiry hearing it might be somehow relating to the emissions that have been abated as a result of, for example, wind farm or wind energy displacing other forms of generation. That is sort of inferring rather than really knowing that is what the report is referring to.

The question of whether something is renewable or sustainable really goes to the question of: are you running down a resource which is not naturally replacing itself? That is the key distinction between a renewable source such as wind or solar as opposed to, for example, a fossil fuel. I think that is what sits behind the intent of the legislation which implements the renewable energy target.

Senator BACK: Ms Munro, am I incorrect in my assertion or assumption that a level of efficiency of, in this case, around 0.78 or 0.8 in fact does not represent a lack of ecological sustainability? Is that the position that you are putting?

Ms Munro : Yes, I believe you are incorrect and, in particular, I think the error in your assumption goes to the definition of ecologically sustainable development in the act. I am just looking to see if I can find it. As you know, ecological sustainability is a term which is given particular meaning in environmental regulation and indeed in the international agreements to which Australia is a party. I am just going back through the act.

Senator BACK: Perhaps you can take it on notice.

Ms Munro : To be honest, I think it goes to the meaning. There is a division here which talks about the meaning of certain sources that are eligible, and it is in the meaning of the sources that are eligible that the term 'ecologically sustainable' is embedded. Certainly it would be misinterpreting the application of that expression in the act to think that it went to whether, at a particular point in time, a power station that was in general eligible and considered to be ecologically sustainable in terms of the act was perhaps less so because it was displacing less emissions than previously thought. That does not go to the point of the ecological sustainability. We will see if we can find the definition here which would clarify that point more extensively.

Senator BACK: The quote I have here is the insertion of select legislative instrument 2007 No. 336, which includes the purpose of:

… clarifying the meanings of eligible renewable energy sources and sources that are not eligible renewable energy sources …

That goes to the point of my question.

Ms Munro : If I might just complete that, I think that also goes to the point of my response that it is whether or not that source is eligible. I do have here a definition of 'ecologically sustainable' which goes into what that term means. It goes to things like the conservation of biological diversity and that ecological integrity should be a fundamental consideration in decision making. That goes to the policy construct rather than the specific decisions of accreditation or approval of certificates.

Senator BACK: I will just go on to turbine numbers. My understanding is that around 1,700 industrial wind turbines attract renewable energy certificates.

Ms Munro : I believe Mr Williamson has chapter and verse on what the current numbers are.

Senator BACK: I will not be asking for a breakdown.

Mr Williamson : It is approximately 2,000 at present.

Senator BACK: The other day did I hear you correctly when you said you thought it would be possible to build around 1,000 new wind turbines in the next five years based on known existing approved projects? Am I correct in that?

Ms Munro : I did not confirm the figure of 1,000, which was a figure that was estimated by the discussion amongst senators at the select committee. I did say that the information that we had seen suggested that there were sufficient projects in the pipeline with approvals to be able to install sufficient additional capacity to meet the 33,000 gigawatt hour target, and that remains our understanding of the situation.

Senator BACK: Am I correct that the Department of the Environment estimates 4,000 to 5,000 megawatts of renewable energy capacity will be needed by 2020 to meet the 33,000 gigawatt hours?

Ms Munro : Perhaps the department might speak for itself on that. The question that was asked was specifically with respect to wind turbines. There is an expectation that a proportion of the additional installed capacity would come from solar as well as from wind. I believe Mr Archer has those numbers for you.

Senator BACK: So we are able to get an understanding, are we, of the prediction of contributions from large scale solar and wind?

Ms Munro : Yes. Mr Archer will be able to provide you with that.

Senator BACK: Is there anything in the hydro space?

Mr Archer : Beginning with wind and large-scale solar, these are based on working assumptions so they are only estimates. They are not a statement of what will necessarily happen. We would expect that to meet the target of 33,000 gigawatt hours in 2020 we would likely see around 4,900 megawatts of additional wind capacity installed and possibly somewhere around 750 megawatts of large scale solar. There will be a range of factors that will influence the split between the two and probably, most importantly, how the relative costs of the two technologies might change over time. I do not think we are expecting to see a lot of additional hydro capacity, primarily for the reason that most of the significant hydro capacity that is thought to be commercially viable has largely been exploited.

Senator BACK: Perhaps you can take this on notice. I have some calculations in terms of likely capacity from wind turbines. I am using a figure of what I understand to be an industry average of about 27 per cent for the operating capacity of wind turbines. Assuming three megawatt hour turbines I am coming up with an assumption of the need for about 2,250 new turbines a year. Has your group done any work on this?

Ms Munro : Certainly. This is all based on averages and orders of magnitude. I think we have also done a quick back of the envelope calculation, noting that we do not do detailed forecasts. Mr Williamson might be able to confirm if that is roughly the order of magnitude.

Mr Williamson : We did some modelling on, if it was about 5,300 megawatt of wind, that would be around 2,100 extra turbines. We are using capacity factor nowadays; it is a little bit higher than that, at about 35 per cent.

Senator BACK: About 35 per cent? That would account for the difference. I will put my other questions on notice.

Ms Munro : There was one question that we just took on notice which I think I can now answer. It was about the cost of our subscription to the Clean Energy Council and our membership there. For the current financial year it is $14,520. I might just mention that we regard that as an important membership to have because of the very significant role the Clean Energy Council plays in disseminating information to its membership which assists with the overall regulatory performance of the industry. Also, as a member, we do not exercise our right to vote, for example, so we do not play any part in the decision making of the Clean Energy Council, for example, in the recent elections for the chair of the council. We would not take any part in that. We are very much at arm's length from that.

Senator BACK: I just advise that the questions that I will be putting on notice relate to the powers of the regulator to collect certain data from thermal power stations. That is the nature of the questions that I will be placing on notice.

Ms Munro : Certainly. We will be happy to answer that. Obviously in the context of the National Greenhouse and Energy Reporting Scheme we have powers with respect to that which are separate from any powers we might have in the context of the renewable energy target. I am very happy to take those questions.

Senator BACK: Thank you.

Senator URQUHART: In regard to the first ERF option, can you run through the number of contracts for ten, seven and three years respectively in terms of the spending trajectory?

Ms Munro : In terms of the spending trajectory?

Senator URQUHART: Yes. I am trying to establish how and when the $2.5 billion will be spent.

Ms Munro : Perhaps I can answer that question in a slightly different way and while I am doing that one of my colleagues can provide the summary in terms of the number of contracts of each of those links, which I do not have in a neat table. What we have said is that, when you take the profiles, the delivery schedules that are in those contracts, the majority of it is delivered within that seven-year timeframe and, in fact, the majority of it, or more than half, will be delivered before 2020. We have not published a year-by-year schedule of the deliveries that are contracted which would show how those three, seven and ten break up, accumulate as it were, because within the contract, the standard terms, there is considerable flexibility in fact in both directions to bring forward deliveries and also to defer deliveries provided the total amount that is contracted is delivered.

We expect that particularly in these early days there will be quite a lot of variation around that. It is clearly in the interests of contractors, in their financial interests, if they can, to advance deliveries because then they would have the benefit of the cash early. We do expect that there will be quite a lot of variation. That is the reason why we have not produced that table in great detail, and we have just published what is in the carbon abatement contract table, on the public record, which has for each contract the length and the volume.

It is a reasonable assumption, for most of them, that the volumes are pretty evenly spread across the whole term of the contract, but obviously some of them are a little bit lumpy. It partly depends on whether the project is already well advanced or whether there is a period of time before they will actually start being able to generate those emissions reductions and report on them. That is just by general way of context. Ms Swirepik can probably give you that breakdown, which summarises what is in the table.

Ms Swirepik : I can give you the breakdown by the length of the contract, not by the delivery of abatement which I do not have at estimates with me today.

Senator URQUHART: Do you have that?

Ms Swirepik : I have the breakdown for the contract duration.

Senator URQUHART: And the other one you just spoke about?

Ms Swirepik : We would need to go back and get that.

Senator URQUHART: Can you provide that on notice?

Ms Swirepik : Yes. There are 62 contracts that are 10 years in duration; 42 contracts which are seven years in duration; one contract of five years and two contracts of three years duration.

Senator URQUHART: New methodologies are coming online all the time, including one for energy efficiency, which came online before the first option, yet I do not see any contracts for energy efficiency projects. Industry has indicated that this may be due to the planning and registration process. Can you just walk us through the process and the anticipated time that each step takes?

Ms Munro : Certainly. I think the point to emphasise here is we did not expect that there would be projects which were ready to bid at that first auction, even though there had been a number of new methods made by then, because there is a planning period. I think that first step, which I regard as the most important step, which is for the proponent who is considering undertaking a project and is, therefore, going to incur all of that effort upfront, and the important step is that they do their own business planning and are comfortable that they have a viable project operationally before they would contemplate registering that project, even though they may not have done full business planning. Then of course there is another step that they have to take, which is to think about the economics of the project. Before they register at auction they need to be ready to commit to a volume and a price. That is an internal matter for them and it is not surprising if that takes a while.

There are certainly some entities who have been involved in or in the technical work groups that have been following the development process who are probably more advanced in terms of having a project that is well advanced within their own business that you would expect them to be able to bring forward fairly quickly but there would be others for whom this is just the germ of an idea and, therefore, they have to do a bit of work in the planning. I do not think I can answer the question about, if you like, that sort of self-selection and pre-planning and how long that would take.

The steps that follow from that are, firstly, to register the project. At the point at which the project is registered they have to supply us with certain information and, in particular, they have to identify the method under which the project will be done. I will ask Mr Williamson in a minute to talk about the timeframes for that process. How quickly that is done will certainly depend partly on the quality of the information that they are able to provide us. It is not unusual for there to be a little bit of toing and froing if their application is not complete, for example.

They can actually do these steps in parallel, but generally speaking at least the full process is sequential. Having a registered project, they can then apply to qualify for an auction. That is a step where they are considering the commercial terms that they would enter into with the regulator. That will be particularly important for projects which have not yet commenced at the time. They cannot commence at the time that they register but they have not commenced at the time that they qualified, and so in that case they would have to think carefully about what sorts of conditions precedent they might wish to have as part of that contract. At that point they are not registered for any particular auction. They have just qualified to come forward, and the commercial terms are settled.

Then the third step for registering for an auction is where essentially they commit to the delivery schedule. So you can see as they go up that curve that they have to be more and more specific about the nature of their project and what its capability is to deliver. Then at the auction itself the only factor that is included in the bid is actually the unit price. Then they really are committing, because they have already worked out the volume, to a price.

I will ask Mr Williamson just to go through the statutory timeframes and also, if you like, the service standards to which we have been working. Our service standards will depend a lot on the quality of the application and also the volumes. If we are overwhelmed with a huge number of applications on one day around the same thing you can imagine that will take a little bit of time, but we would always operate well within the statutory timeframes.

Mr Williamson : The statutory timeframe to register a project is 90 days. So far under the Emission Reduction Fund we have taken an average of about 18 calendar days. That is not business days but calendar days. Before the first auction we managed to get, where there were good-quality applications, some projects registered literally in two or three days. That has been typically what we have had.

To date we have had one project registered under the industrial electricity and fuel efficiency method. As Ms Munro said, we do expect there is always a lag time between a new method coming out, people getting their heads around it, internalising the business case and preparing a competent application to us. That is typically where the majority of time is rather than our processing times.

Senator URQUHART: Do you have an estimated non-delivery margin built into the process; that is, how much of the projected abatement do you count as at risk of non-delivery?

Ms Munro : No. We do not work like that, although certainly the risk of non-delivery is a very important thing that we manage. It is a matter we will have to address much further down the track when we are close to having committed the full $2.55 billion that is available to us. It really is not a matter that we are concerned with.

Each of the steps in the chain is designed to provide some controls about different aspects of that risk. The first entry point, the registration point, is where we apply the fit and proper person test. Obviously it is important that a party who is considering accessing the benefit, and the benefit in this case being the issuance of the Australian carbon credit units and it does not go further that, is a fit and proper person to participate in the scheme. That is the first hurdle, if you like, and then the hurdle on project registration is whether their project was intended to comply with the method and, therefore, they will be eligible.

The next test is at the point of issuance of the certificates and where they report. The way that we have constructed the eligibility criteria for the auction puts some more controls, if you like, around some of those risks. The design of the contract itself which, although as I said earlier there is the flexibility around the delivery, is nevertheless in the nature of firm contracts, which puts some very clear obligations on the contractor to deliver. They are able to deliver units that they have bought in secondary market, if they are unable to deliver the units that they are committed to from there. Again, there are some controls, mitigants if you like, of non-delivery there, and ultimately if they do not deliver they do not get paid.

So through that whole chain there are a lot of controls to mitigate that risk of non-delivery, and certainly this question of whether we would put in some sort of margin really only comes to the point where we are thinking about if we have fully or close to fully committed the funds. Do we have committed funds which, in fact, we think will not be called upon? Of course, that is not an unusual situation to be in, so we would address that at the time but we have not calibrated that, if you like, at the current point and I do not believe it is necessary.

Senator Birmingham: It is important to emphasise that payment under the contracts is tied to delivery of the abatement. It is not that there is a risk of payments being made for no abatement being achieved.

Senator URQUHART: I was not asking you about that.

Senator Birmingham: That means that if a project is not delivered at some point in the future that funding remains available to the government and the energy regulator.

Senator URQUHART: Thank you for that.

Senator Birmingham: I am just emphasising that it means that it can actually be used. You may understand it, Senator Urquhart, but sometimes people listening or otherwise might not be clear and might fear that there is a risk somehow that non-delivery means a loss of government funding. The terms of the Emissions Reduction Fund are very secure to make sure that is not the case.

Senator URQUHART: Thank you for clarifying that. How many of the contracts and what level of abatement were operating under the previous system of Australian carbon credit units trading?

Ms Munro : The majority of them were, and a significant proportion of them had already performed, to the extent that they had reported and Australian carbon credit units had been issued to them. Again, I do not think that I have that breakdown in front of me, so if we are not able to provide it we can certainly take that on notice. The majority of them were already registered. Again, it was built into the design of the Emissions Reduction Fund that the transitional provisions that allowed those carbon farming initiative projects that no longer had a compliance market to participate.

Senator URQUHART: If you can provide the details of that on notice that would be great.

Ms Munro : Yes.

Senator URQUHART: That would be the number of tonnes of abatement that was previously paid for within a market mechanism by polluters.

Ms Munro : Just before you go on, I can actually answer that question. Just to summarise, there were 107 contracts, which covered 144 projects. Of the 144 projects that were covered by the contracts, 107 of those projects transitioned from the carbon farming initiative; in other words, the remainder of them, which would be some 37, were registered after the new legislation was in place. Some 34.4 million tonnes of abatement that has been contracted is from those former projects, and that represents 72 per cent of the total abatement contracted from the first auction. By extraction, 72 per cent was from transition projects and 28 per cent is from projects that were newly registered, although the majority of those that were newly registered were still registered under methods that had transitioned from the carbon farming initiative. They were not all under the new methods. In fact, 34 of them used the transitional carbon farming initiatives methods. As you can imagine, they were already projects where considerable work had been done on them before the transition and only three used the new methods.

Senator URQUHART: Am I correct in saying that 107 of those is the number of tonnes of abatement that was previously paid for within a market mechanism by polluters, and that has now transferred to payment by the taxpayer? So, it is a different methodology of payment? There are 107 that were in the previous; do I understand that correctly?

Ms Munro : Certainly it is correct that under the previous legislation 107 projects would have been able to access the compliance market, and under this their primary market—although in both cases it is possible to sell also to the voluntary market—will be the Emissions Reduction Fund which, as you say, is funded from the budget.

Senator URQUHART: So the process you undertook for the first ERF auction has been hailed as rather successful in terms of administration and process, but many other elements have been rather sketchy. What mechanisms are in train to report on the actual success of the ERF; that is, the actual delivery of abatement and when would we start to see these results?

Ms Munro : Fundamentally, we will report in a number of ways. Obviously we will report in a macro sense in our annual report. That will cover how the appropriation is disbursed and overall how the fund is delivered. We will also be updating the publicly available information, the Carbon Abatement Contract table and the various registers that we keep, to report on deliveries as they are made. Our intention is that we will not do that exactly in real-time but it will be within days. There will be a periodic update of the information that is available through the website. I think that offers a great deal of transparency about not only how deliveries are tracking for the whole scheme but also performance of individual contracts will be evident from that.

Senator URQUHART: Can you outline your understanding of the concept of additionality and how you applied that to the first auction?

Ms Munro : Yes, I can. I was commenting earlier that there are tests that are applied at different stages in the whole process. The additionality test effectively is applied at the point of project registration and indeed as the project reports, because the additionality is part of the method. We rely on the method to express what constitutes additional. We do not then retest, as it were, a project when it comes forward to auction. It is already qualified. It is already eligible to earn Australian carbon credit units. The auction itself is only for the purchase of those Australian carbon credit units. It is not then for further eligibility of that project in any particular way.

Senator URQUHART: How was that applied to the first auction?

Ms Munro : As I said, all of the projects which were qualified for the action and were registered were a registered project and, therefore, had already passed the eligibility tests.

Senator URQUHART: So that registration?

Ms Munro : The registration; that is correct.

Senator URQUHART: Can you update us on your progress to settle the safeguards mechanism?

Ms Munro : The safeguard mechanism is a matter for policy so that is really for the department to discuss.

Senator URQUHART: Dr de Brouwer—

Dr de Brouwer : If you want to do that later tonight, we can go through where those consultations are with the department.

Senator URQUHART: What program is that under?

Dr de Brouwer : That is 2.1. It is on at 9.40 tonight.

Senator URQUHART: Thank you.

Senator SINGH: I would like to ask some questions in relation to the renewable energy target. I wanted to ask you as the regulator of the renewable energy target: what is the risk of the 33,000 gigawatt hours not being delivered by 2020?

Ms Munro : If you mean what is the percentage now, if it is 78 per cent or 100 percent, we do not do that. I think it is really more about what are the drivers that would create a risk if it is not delivered. That really goes back to the questioning from Senator Back earlier on, because it hinges on the amount of new renewable energy capacity that is actually installed and operating. So, provided the required amount of capacity is built and is operating, that target will be met. Currently there is a surplus of certificates in the market, which allows for some smoothing of the transition. That question of whether there is a shortfall certainly will not arise for some time and by then it will be clear the pace at which new renewable energy installations have been built.

Senator SINGH: So does that surplus of certificates currently in the market relate specifically to the stalling of new projects in the last 12 months particularly in the renewable energy sector?

Ms Munro : Not specifically. It relates to the transition from the earlier arrangements when the scheme, the renewable energy target, was split into large scale and small scale. At that time there was quite a surplus which carried forward into the market. The obligation, which is set in legislation, which is the trajectory towards the target, was designed to mop up some of that surplus. The obligation was rather higher than the actual new certificates that were being created each year. There was a bit of a mopping up. The market is now pretty much in balance, but it is just over the next couple of years that the obligations might be higher. Currently legislated obligation certainly is higher than the amount of certificates that are likely to be created in the market and that is partly because there has not been a lot of new investment over the last couple of years, but the surplus will fill that gap.

Senator SINGH: What is the current renewable energy capacity in the system?

Ms Munro : Mr Williamson will be able to answer that.

Mr Williamson : This year we expect approximately 16.5 million certificates, so 16.5 million megawatt hours above baseline. That is approximately halfway to the proposed new target.

Senator SINGH: Did you say in this year?

Mr Williamson : In 2015. That is our estimate. Certificates can be created for up to 12 months after the year in which the generation occurs. Our estimate is we expect it will probably be around 16.5 million megawatt hours of generation this year.

Senator SINGH: When you say 'this year', is that calendar year?

Mr Williamson : Yes, calendar year.

Senator SINGH: You make these estimates based on what? How do you formulate your estimates?

Mr Williamson : The last year for which we have full data is 2013. Even for the 2014 generation year certificates can still be created until the end of this year, because they can be created for 12 months after the generation has occurred. We have exactly the right data for 2013. We have a substantial amount of data so far for 2014. It is a little over 10 million large generation certificates, but we expect that will go higher. We can model that from the accreditation of power stations. So 2013 is the full year of data. We know what power stations were accredited for what capacity progressively since that, and that is how we arrive at our best estimate being 16.5 million for this year.

Senator SINGH: Can you give me the data for the renewable energy capacity for 2013?

Mr Williamson : That will be in our—

Senator SINGH: I would image 2013 was quite a good year for the renewable energy sector. I understand you are basing your estimate on 2013 because that is the most recent and probably the most accurate year that you can base it on, given the 12 months that you alluded to thereafter that you need to account for.

Ms Munro : That is correct. Having said that, it depends on how many significant figures you are looking to. Obviously we do not get it to the nth significant figure but if you were rounding it to millions then you would be reasonably confident that it would be in the order of 16 million. This information is published in our annual reports.

Mr Williamson : It does appear to be about 16 million in 2013; however, that was probably somewhat inflated through hydro because hydro, during the period of carbon pricing mechanism, did have some good rainfall years. It stored up a fair bit of water and produced a bit more.

Senator SINGH: I am aware of that, coming from Tasmania. I think Tasmania provides something like 40 per cent of Australia's renewable energy.

Mr Williamson : In fact, Ms Munro has found the exact figure. It is 16,135,712 megawatt hours.

Senator SINGH: So it is a very similar capacity to the estimate that you have predicted for 2015?

Ms Munro : That is correct. In 2013 that included some 3.8 million megawatt hours from hydro, so in fact in arriving at that number we understand that hydro may be slightly less, for the reasons that we have discussed, but there has been particularly more large scale solar. Some wind as well has come on line in the last couple of years, so balancing up those overs and unders we believe it comes to about the same number.

Senator SINGH: Given that you said that it takes another 12 months to have that capacity settled as the figure that you look at that has been the renewable energy capacity for that given year, this time next year, or January next year, will you be able to look at 2015 to see whether that estimate became a reality or will you need to wait another 12 months?

Mr Williamson : We will have the exact 2014 data by the end of the 2015 calendar year. It will not be until the end of the 2016 calendar year that we will have exact figures for 2015.

Senator SINGH: I understand.

Mr Williamson : We are reasonably confident that the numbers we are giving you are in the right ballpark.

Ms Munro : Having said that, under the small scale scheme, because of the administration and the nature of that industry, there can be more of a lag but really for the large scale most generators would put their returns in as early as they could because they want to generate those certificates. Most of them have contracts they need to supply to. I would not want to exaggerate the margin for error at the end of the year. I do not know if we know what it is but it would not be a large number that have not been created by the end of the relevant year.

Senator SINGH: As the regulator of the renewable energy target can you tell the committee if you believe the scheme, if amended to 33,000 gigawatt hours, is likely to default as claimed by Minister Macfarlane?

Ms Munro : What we are saying, as we were saying earlier, to our knowledge—and this is based on information that has been provided to us by third parties—there appear to be sufficient projects that have planning approval that it would be possible to build to that target. What we do not know is whether any of the circumstances have changed that might mean that those do not proceed, including their financial arrangements, nor do we know to what extent new projects of a completely different kind in a different location might come forward during that period.

What we see is an industry that is capable of meeting that target. We do not form an opinion on whether or not it will be met—that is not our role—but what we can do is observe in the market for certificates whether it is at risk of going into shortfall and otherwise whether the surplus is being eroded more or less quickly than we might have thought. We can also observe whether there is illiquidity in the market because it could be perhaps some significant surplus in it that the liquidity could tighten up.

I think the information that we have certainly will provide some forward indicators. At the moment we are offering our opinion because we are not in the forecasting business. We are not offering our opinion as to whether it will or will not, all we are saying is that the capacity is there to achieve that target.

CHAIR: What are the consequences if it does happen?

Ms Munro : If the market goes into shortfall then what would happen is that certain electricity retailers would not be able to acquire sufficient certificates to settle their obligations and they would go into shortfall by a proportion. They would still cover most of their obligations by certificates that they already contracted or had bought from the spot market, but a proportion would be met by shortfall and then they would pay the statutory charge, which is $61.

Mr Williamson : Sixty-five.

Ms Munro : It is $65. So they would pay the statutory charge rather than whatever they would have paid for certificates in the market.

CHAIR: What does that do to power prices?

Ms Munro : Again, that is a matter perhaps we will address at a later stage.

CHAIR: Do you know?

Ms Munro : If I can just frame it in proportionality, the cost of the renewable energy certificates—on other people's estimates, not our own—represents about four per cent of the retail price of power, so four per cent of the bill, I should say. This would be a percentage of that percentage. How much would depend on how much was in shortfall. At the moment there is significant surplus in the market so that shortfall event is not likely to happen really under any scenario for 2018 or 2019. If there was no new build at all then certainly potentially a proportion of the market would be in shortfall. That would be a proportion of that four per cent of the prices, but that is not a matter on which we have done specific analysis and it is not currently part of our role to do that.

Mr Parker : I can just add a footnote to that answer. In part the question is resolved ultimately in the price of so-called LGCs, large generation certificates. There is a market for that. In recent months we have seen significant recovery in the price of certificates, so that market is already beginning to generate an investment signal to drive the investment that is needed to meet that target.

Senator SINGH: So that has happened as the uncertainty has been reduced, perhaps. I just want to make it clear. So you would not support the claim by Minister Macfarlane that 33,000 gigawatt hours is likely to default the scheme, as he has claimed, but you are saying that there is the capacity there for 33,000 gigawatt hours to generate renewable energy in the scheme?

Senator Birmingham: I think Ms Munro can repeat her previous answer if required, but what I took from the previous answer was that there is the physical capacity across Australia to meet such a target. Whether or not there is the financial backing and business wherewithal to deliver upon that is something that Ms Munro said was not in the realms of the Clean Energy Regulator's space to comment. If I have misinterpreted you, Ms Munro, feel free to clarify.

Ms Munro : No. That is absolutely correct. I think I would summarise as saying that both scenarios are possible. It is possible that they are built. It is possible that there may be a shortfall but, as Mr Parker said, it is also correct to say that as the market for certificates tightens the price will respond and that is a very strong investment signal. You would imagine that that would encourage new investment to come forward to take up that opportunity.

Senator SINGH: Thank you.

Senator WATERS: Thank you for your time today, and I appreciate your insight so far. You covered some of the questions that I had sought responses to but I am wondering if you have the detail of the proportion of abatement type that the first option delivered?

Ms Munro : Yes. I can offer you that breakdown in very round terms. I will just find my table on that. If you recall, we let 107 contracts for 47.3 million tonnes of abatement. Twenty-eight point four million tonnes was awarded to proposers whose projects used sequestration methods. That includes avoided deforestation, soil carbon and forestry. Eighteen million tonnes was raised from landfill and alternative waste treatment methods, just shy of half a million tonnes from savanna burning, 300,000 tonnes from piggeries and 160,000 tonnes from transport, so that adds up to the 47.3 million.

Senator WATERS: In going to the sequestration, do you have a breakdown of how much was avoided deforestation as opposed to the soil carbon and the forestry?

Ms Munro : I do not have a simple summary of that in front of me. I think we might need to take that one on notice. We certainly can break that down but I do not think we have the projects sorted in a way that I can give that to you.

Senator WATERS: I would like the detail on notice.

Ms Munro : Certainly.

Senator WATERS: Is there any sense of a ballpark that you are comfortable in giving?

Ms Munro : I just do not have that in my head. I will just check whether any of my colleagues can give us that number. I think not. Somebody might be able to come back to it. It is just a matter of sorting the detailed table that way, which I believe we have not done.

Senator WATERS: I have some more questions about that, but pardon my ignorance because this is my first foray into this area. I am interested in the concept of additionality when you are granting the credits for avoided deforestation. Can you talk me through the process for how you work out whether or not the clearing was going to be undertaken? Obviously a permit was issued but that is not determinative of whether it would be acted upon.

Ms Munro : That is correct. So the rules for additionality are spelt out in each method and how that is determined. I am just trying to find someone who would be able to answer that.

Senator WATERS: Yes. I am keen to have the right person at the table.

Ms Munro : Mr Taylor might want to come up to the table as well. The process for developing the methods which then determines what is meant by 'additionality' in the context of that particular activity is a very painstaking process which is undertaken by the department. There is a lot of consultation around it. The Emissions Reduction Assurance Committee reviews that so they have a very important role in demonstrating, if you like, the integrity of the method and then we apply those rules. It might be helpful if Mr Taylor talks about additionality in that context and then we can talk to the evidence that we receive.

Dr Kennedy : I might start us off. As Ms Munro is saying, we can talk more this this evening under outcome 2.1 when we get into that outcome. There are two parts to assuring additionality. The first part is setting the method. That is the response. That is a process run by the department. Ultimately advice will go to the minister about whether a method is going to produce additional abatement from the Emissions Reductions Assurance Committee. That replaced a previous committee under the Carbon Farming Initiative called the Domestic Offsets Integrity Committee.

The regulator, as Ms Munro said, has particular steps in additionality around whether a project is new and whether the project is not receiving any funding or is required by regulation but as to the application of the method, for example, a deforestation method going to see emissions reduced from what they otherwise would have been, is all done in the context of the method and the calculations are done within that method.

We can talk in some detail about those methods, including the avoided deforestation method. I am just mindful that is going to take up your time to talk to the Clean Energy Regulator but I have the relevant officials here if you want to do it now or we can do it later this evening.

Senator WATERS: Are you able to give me the shorter version now just for context?

Dr Kennedy : For the avoided deforestation?

Senator WATERS: Yes.

Mr Taylor : As both Ms Munro and Dr Kennedy have said it is a multiple layered process for getting additionality. It involves the formation of technical working groups and a process of public consultation. There are also independent technical assessments carried out during the development of the calculations and the methods. There is also then the final scrutiny by the Emissions Reduction Assurance Committee. There are lots of barriers.

Senator WATERS: So this is the model as opposed to the application of the model to a particular project?

Mr Taylor : That is for the development of the method, yes.

Senator WATERS: Yes, the method. I'm sorry, it is not the model; it is the method.

Mr Taylor : The method in this particular case for the avoided deforestation is around the foregoing of the right to clear land. There are a few particular aspects of this method that have been quite successful in the first auction. One is that all of the permits that are foregone have already been issued before 2010. One of the aspects of this was to ensure that it was conservative and that there was not gaming where somebody came along, got a method just with the intention of surrendering it to get the carbon credits. This ensures that permits were obtained for the purpose of clearing land before there was an incentive provided.

Senator WATERS: But they have not yet been acted upon?

Mr Taylor : They may have been partly acted upon or not acted upon at all.

Senator WATERS: I thought they had a two-year lifespan in Queensland under the Vegetation Management Act.

Mr Taylor : These are primarily in New South Wales and they were primarily 15-year permits under property vegetation plan permits. The idea then is you surrender your permit and you surrender that right to clear that land. As a consequence it is assumed, again for the sake of being conservative and appropriate for these methods, that the clearing would occur over that 15-year period so you are paid, if you like, instalments of clearing as it may have occurred over 15 years.

The calculation is done of a standing volume of carbon on the property. That is done through field measurement and rigorous sampling. That is independently audited. The method assumes that volume of carbon is applied on a pro rata basis over a 15-year period.

Senator WATERS: I have a couple of follow-up questions. Thank you for that potted summary. So, if the permits have to have been issued before 2010, and I might be a bit out of date, but my recollection was vegetation permits have a two-year lifespan in Queensland, so does that mean Queensland would be ineligible under that method?

Mr Taylor : I do not think there were any permit categories that were eligible in Queensland under that particular method.

Senator WATERS: Are there other methods that Queensland permits might be eligible under?

Mr Taylor : Yes, there are. The other method works on a process of having a demonstrated history of multiple clearing events on the same land.

Senator WATERS: So it is regrowth permits?

Mr Taylor : Basically. You have either a permit or a right to clear that land at the time and you forego that right by entering into a method.

Senator WATERS: How does that square with the fact that under Queensland vegetation laws you can clear regrowth without a permit lots of times? Is that only in the instances where you need a regrowth permit that you could then surrender that permit to get your credit?

Mr Taylor : No. It is a separate method. In Queensland there are both permits required in some circumstances and in some circumstances it is a right to clear land if it is a certain vegetation category. If you have a history of having cleared that land multiple times and you can establish a cycle of that—

Senator WATERS: Even without a permit?

Mr Taylor : Yes.

Senator WATERS: I see what you mean.

Mr Taylor : And you then have an established cycle of clearing that land, as you approach that anniversary for clearing that land you can forego that opportunity to clear that land again.

Senator WATERS: If the permit was granted before 2010, and it is obviously now 2015, and it has either only been partially acted upon or not at all acted upon, would that indicate that it is fairly unlikely to be acted upon? How do you deal with additionality in that scenario?

Mr Taylor : This was teased out pretty rigorously in various technical working groups, through public consultation and discussion in the Emissions Reduction Assurance Committee and the Domestic Offsets Integrity Committee before that. Human nature is often you get these things and, like all of us, sometimes act at the last minute—procrastinate and put off what we can do until nearly the end of the permit period, so it is likely that they are acted on towards the end. They are also a valuable asset for the farm at the time of trading that land, so they could sell that land with that permit in place and the new owner could take on and clear that land. There seems to be a very strong correlation between those older permits and actual land clearing.

Senator WATERS: I think the experience has been slightly different in Queensland but obviously that was less relevant here. I will have some further questions on that once I have stewed on your responses and looked into it further.

I have two more questions for the CER. How much greenhouse gas emission reduction are you projecting under ERF when fully subscribed?

Ms Munro : We have not done such a forecast and do not intend to. Our mandate is simply to purchase as much abatement as we can with the funds available and the way that we will achieve that is through a competitive process that allows us to discover lowest cost abatement that is available in the market. Naturally it will depend on where those prices fall and what the total amount of abatement is. We would not, for example, extrapolate from the results of the current auction what prices we might be able to achieve at the future auctions and, therefore, what the total amount of abatement is.

Senator WATERS: I see what you mean. Are you able to project how much of the five per cent greenhouse gas emission reduction target that the current government has said that they are committed to is able to be achieved by ERF or projected to be achieved by ERF?

Ms Munro : No, we are not undertaking that, for the same reason that—

Senator WATERS: It depends on the price?

Ms Munro : That is not our mandate. The projections themselves and how the Emissions Reduction Fund contributes to that will be a matter for the department in its regular projections reports.

Senator Birmingham: Importantly, it has been noted through these questions that most of the recipients from the first auction were under established methodologies. That provides enormous scope for potential take-up of the newer methodologies that have come through in future auctions. The government is quite optimistic about the capacity of the ERF to of course meet those targets. We are confident of that but we also see good opportunity there for those newer methodologies as they are better understood and people have the opportunity to develop proposals and projects that comply with them to feature, to a greater extent, in future auction rounds.

Senator WATERS: Ms Munro, I am going to push it here but do not respond if you are not able to. If you were to extrapolate from the price that was achieved on average for the 47-odd million abatement achieved under the first round, how much abatement would you get for your $2.5 billion?

Ms Munro : I simply have not done that arithmetic and do not intend to.

Senator WATERS: Again, because the price will change?

Ms Munro : The price will change. I do not think it is a meaningful calculation to do.

Senator WATERS: Thank you, Minister, you have just triggered my thoughts. This is my final question. You mentioned the new methodologies and I think I note that there were only three that had used the new method. Is that right?

Ms Munro : Yes.

Senator WATERS: Which projects used the new methods and which methods were they?

Ms Munro : Transport is the one that stands out. Perhaps somebody can get the information on the other two. Just while I am getting that pulled out for me from my briefing notes, I will correct the record for the committee. I was referring to an earlier draft of the table which was inaccurate so if I can just correct what I said about the methods. The breakdown is, in fact, 29.8 million tonnes from the sequestration methods and 16.6 million tonnes from landfill and alternative waste treatments.

Senator WATERS: Can you say that again?

Ms Munro : So it is 29.8 million tonnes from sequestration, that family—and we are going to provide you with a further breakdown of that on notice—and 16.6 million for the landfill and alternative waste treatment. The other numbers were correct. My apologies for the error earlier. With those other two projects under the new methods, I think one of them was the new sequestration. Ms Wilson will just take my chair for a second.

Ms Wilson : Of the projects that have been registered under the new methods, one of them is an industrial electricity and fuel efficiency method and two of them are using the land and sea transport method.

Senator WATERS: Are you able to provide any more details of the projects as well as those methods?

Ms Wilson : I do have some details and there are details on the register. What information were you looking for?

Senator WATERS: If it is on the register I can go and look at that.

Ms Wilson : Yes, there is some publicly available.

Senator WATERS: Can you tell me which ones those three are?

Ms Wilson : Yes. It explains who the project proponent is, what the method is and where the activities are being conducted.

Senator WATERS: Thank you.

CHAIR: Thank you very much to the representatives of the Clean Energy Regulator.

Proceedings suspended from 16:31 to 16:47