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Environment and Communications Legislation Committee
18/02/2019
Estimates
ENVIRONMENT AND ENERGY PORTFOLIO
Clean Energy Regulator

Clean Energy Regulator

[17:43]

CHAIR: Welcome back, Mr Parker. Do you have an opening statement you'd like to make tonight or this afternoon?

Mr Parker : Thank you, Mr Chair. No, we don't have an opening statement. We're at your disposal.

CHAIR: Excellent.

Senator CHISHOLM: How many tonnes of CO2 have been contracted under the Emissions Reduction Fund?

Mr Parker : I'll get Shayleen Thompson to give you an answer to that.

Ms Thompson : To date, 193.2 million tonnes of abatement has been contracted through the Emissions Reduction Fund.

Senator CHISHOLM: Of those contracted, is the CER confident all those emissions reductions will be delivered?

Ms Thompson : I think the short answer is yes. Otherwise we wouldn't have given the contracts to the people saying that's what they would deliver. That said, of course, things happen in real life. Sometimes the people who contract with us find they are not able to deliver on their contracts. However, the contracts do have some flexibility mechanism. If, for example, the project that was originally subject to the contract doesn't go ahead, the proponents are able to secure the Australian carbon credit units through the secondary market, or they might subsequently find that there is another project that has emerged that they wish to invest in and they can use that to fulfil their contractual obligations. So we are finding, in fact, that so far it's going pretty well. To date, deliveries are 107 per cent above what they were scheduled to be at this point in time. So I think that does indicate a willingness of our proponents to deliver early and to meet their contractual obligations.

Senator CHISHOLM: Is there currently a default rate?

Ms Thompson : A default rate?

Senator CHISHOLM: In terms of emissions contracted, what proportion ends up being relinquished? Is there a figure based on past experience?

Ms Thompson : Again, it's a bit difficult to answer that question precisely because of the flexibility options that I mentioned earlier. We do have some contracts that have not gone ahead. Of course, one of the strengths of the Emissions Reduction Fund is that if contracts don't go ahead and the ACCUs aren't delivered, that money is returned, in effect, and made available for future purchasing. So we actually only pay on delivery, if you like.

Senator CHISHOLM: But in terms of, I suppose, modelling, is there a default rate that the CER operates under in terms of an expectation if something isn't going to be delivered?

Ms Thompson : I don't know that we have something like that. As I said earlier, we are actually in the happy situation of people delivering in advance of their contracts. As I said, it is 107 per cent.

Mr Parker : The premise of the question is that you might have a model default rate if you were thinking about the behaviour of the whole portfolio of contracts. Shayleen will tell you the precise number.

Ms Thompson : In terms of?

Mr Parker : Of contracts. We'll get that precise number for you. But the way we administer this is contract by contract. It's not something where we imagine a portfolio process like if you were, for example, managing a financial portfolio. It is something where we are very focused on delivering and we look contract by contract. We will enter into negotiations on a contract by contract basis.

Ms Thompson : In fact, at the moment, as of the end of December, we had 437 active contracts.

Senator CHISHOLM: Asking it in a different way might give more clarity. How much money has been returned to the Clean Energy Regulator from ERF contracts not delivered?

Mr Parker : We can get you that number. I'm not sure if you have it in front of you, Shayleen.

Ms Thompson : Yes. I do. We actually have had 22 contracts that have not gone ahead. They were originally contracted for 153.8 million. But it's probably worth pointing out that that is a relatively small amount of the contracted abatement that we have. So it's only 6.5 per cent of the abatement that we've contracted.

Mr Parker : Of all the contracts which are, in a sense, no longer operative, it is in the public domain that those contracts have been turned into a non-active contract. We have told this story over at least the time that I have been at the regulator. When we do our roughly twice a year auctioning process, we tell the market how much money is left in the fund. That includes moneys returned from contracts that have become non-active.

Senator HANSON-YOUNG: I'd like to ask exactly what your role is in administering the CER in relation to seeing if projects are, indeed, eligible.

Mr Parker : That is a specific regulatory decision. I imagine you are talking about an ERF project. That is at the registration stage. People can apply for a project to be registered. Often that is done in the context of when an auction is announced and new projects are registered. It is not specifically legally linked to the auction process. At the very simple level, a person applies for a project to be registered. That is not the same as a contract; let me just make that clear at the outset. Our task at that point is to assess whether the project as proposed fits within one of the methods made under the relevant law.

Senator HANSON-YOUNG: So it's really your job to make sure it is eligible?

Mr Parker : Correct.

Senator HANSON-YOUNG: So if it's not eligible, it's your fault?

Mr Parker : What do you mean by if it's not eligible, it's our fault?

Senator HANSON-YOUNG: Well, if it's found to be later on not something that fits the criteria, you've made a mistake.

Mr Parker : In terms of eligibility, it is possible that we might make a mistake. I tend to rule that out. But there are also some issues that relate to various representations which may be made by a person seeking to register a project. It may be that that information was not correct. That is another possibility.

Senator HANSON-YOUNG: It was reported last week that the Clean Energy Regulator was holding back approval for Vales Point to be able to receive funding under the Emissions Reduction Fund unless they could get their emissions intensity below the grid average. So long as you hold that position, will they be ineligible for that funding, or is there a way that they are able to get the government to sidestep the decision that you've made or the concerns that you have?

Mr Parker : Let me actually take the question in reverse order. The administration of the law, which we are responsible for, is a matter of personal responsibility. There are independence arrangements written into the legislation. So we are responsible for that. You've talked about the Vales Point project. It is a matter of public record that a project at Vales Point generation facility was registered and, in our view, appropriately registered on the basis of the representations made by the proponent. However—it is relatively straightforward, but of course the law is always quite technical—I would prefer not to talk about very specific regulatory issues which arise between us and Vales Point on the one hand. I'm quite happy to talk in terms of generality in the application of the method to this. What is the method—

Senator HANSON-YOUNG: I actually have some specific questions about Vales Point.

Mr Parker : Sure. The general story may help the framing of those questions. The relevant method under the ERF—we only have two projects, I think, registered under this method—is the so-called facilities method. That provides for the registration of projects effectively at industrial facilities which may lead to abatement through energy efficiency or changing the technology and so forth. So that's the first question at what we call the project registration point. The next and subsequent question about whether or not Australian carbon credit units may be issued in respect of a particular project is an entirely separate decision. It is a separate multistep process that is absolutely standard in the government processes.

Senator HANSON-YOUNG: Who is responsible for that?

Mr Parker : We are responsible for that.

Senator HANSON-YOUNG: So you're responsible for both parts?

Mr Parker : We are responsible for both parts. But they are technically separate matters and separate issues arise for consideration.

Senator HANSON-YOUNG: So what you're saying is that the Vales Point project has been appropriately registered?

Mr Parker : Yes.

Senator HANSON-YOUNG: But in terms of giving approval for the second section, you are saying that is where they've hit a hurdle? You want to be sure what their emissions intensity level is?

Mr Parker : Let me give you a bit more background. Once a project is registered, proponents are able to report against their project into the Clean Energy Regulator. Subsequent to the project being delivered and abatement having arisen, they can apply for ACCUs at that point in time. There have been conversations about the application of this method because the method has a provision in it relating to coal-fired power stations which provides for abatement. There's no doubt that this project will lead to abatement. The question is whether eligible abatement arises for the purposes of crediting ACCUs. You have flagged that there is a provision in the method in black and white which says that the specific project itself and the operation of that can only give rise to ACCUs in the event that the emissions intensity is less than the grid average.

Senator HANSON-YOUNG: What is the average emissions intensity of the grid?

Mr Parker : We can provide specific details on that if you wish. We have that in front of us.

Ms Evans : It is 0.82 tonnes of carbon equivalent per meg watt hour for the NEM.

Mr Parker : And that's been declining, of course.

Senator HANSON-YOUNG: What is the emissions intensity of Vales Point?

Ms Thompson : I'm sorry, Senator. I don't have that figure with me. We could take it on notice.

Mr Parker : We'll take it on notice.

Senator HANSON-YOUNG: But it's obviously higher than the average?

Mr Parker : Yes.

Senator HANSON-YOUNG: Is it technically possible for a reduction to happen? You must have some concerns that it's so large that it wouldn't be able to be lowered.

Mr Parker : We are getting into speculative territory here for us. The test is whether or not it is above or below and that is the end of the story.

Senator HANSON-YOUNG: Is it the view that the emissions intensity at Vales Point can be reduced so much so that it is below the grid average?

Mr Parker : I don't know that we have addressed our minds to that question.

Senator HANSON-YOUNG: You are saying you don't have the figures for what Vales Point emissions intensity is.

Mr Parker : We've said we would take it on notice.

Senator HANSON-YOUNG: You will take it on notice. So you do have them somewhere. You just don't have them with you?

Mr Parker : Yes.

Senator HANSON-YOUNG: When they registered, did they have to tell you? Do they give that information upfront or do you have to go around and find out?

Mr Parker : I would have to go back and check.

Senator HANSON-YOUNG: Is it a matter of course that projects would put all that data in their registration in the first instance, or is it a negotiation to get the information out of them?

Ms Thompson : It would probably depend a bit on the nature of the project—what they were planning to do to reduce their remissions.

Senator HANSON-YOUNG: What is Vales Point planning to do to reduce their emissions?

Ms Thompson : Without wanting to be at all unhelpful, we would really prefer to take these questions on notice so that we can make sure that we get you a very precise answer in response.

Senator HANSON-YOUNG: Okay.

Ms Thompson : These are quite complex matters and they do raise various issues for the people who participate in our schemes.

Senator HANSON-YOUNG: What is the mechanism that this project could use if, indeed, they are unable to reduce their emissions intensity in order to access the fund? Is there any other option than being given the tick from you?

Mr Parker : Not from us.

Senator HANSON-YOUNG: So there's no way they could actually access the Emissions Reductions Fund unless the government changed the law or regulation?

Ms Thompson : It's possibly easier to talk a bit more about what the method does and doesn't allow. Under the facilities method, a power station could register under the ERF and receive ACCUs provided its emissions intensity that results after the project has been implemented is lower than the emissions intensity in the electricity market. So it's possible that a project could accomplish that, but that's the test that the method requires.

Mr Parker : I'm sorry that this is going to be very technical, so we'll provide you with further information on it. As we've said, we'll take that on notice. The method is really complicated and it does take quite a lot of effort for people to really understand the details of it. There is the possibility that if the power station as a whole reduced its intensity, but not because of the actual project itself, it could engage with, if you like, some of the noise in the measurement. But it's not a substantive matter at all. It would be a tiny fraction of the actual abatement that was coming from the method. But, as I said, we can provide you with further information on that.

Senator HANSON-YOUNG: Is there a time frame that you give a project if they're not able to meet the appropriate measures where they can review their registration and revise their plans?

Ms Thompson : It's possible that a project could register. There are arrangements in place. They might need to get some consents from others that have an interest in the project. There might need to be a regulatory approval from a state government, for example. We do allow people some time to make those sorts of arrangements. So there is some flexibility around that.

Mr Parker : The overall idea, the architecture, if you like, of the Emissions Reduction Fund has been to generate abatement and to generate credits. So the idea of registering a project is often something people do quite early in the process. Once you have a project that is registered, it may well help in the financing of the project. It may well help in the regulatory approval processes. So the registration point is very much at the front end of the project rather than being at the end of the project. But certainly you don't get an ACCU out of this until the project is done and until it's reported against it. That can often be many years into the future.

Senator HANSON-YOUNG: Can the government allocate money from the Emissions Reduction Fund without a facility qualifying or being given approval from you?

Mr Parker : I don't believe so.

Ms Thompson : No, Senator. A project would need to register under an approved method, which is, of course, a legislative instrument, before they would be eligible.

Senator HANSON-YOUNG: As the Clean Energy Regulator, you would have to approve any money coming out of that fund?

Ms Thompson : The regulator does this through the competitive auctions. The legislation does allow us in principle to take other sorts of purchasing arrangements or make other sorts of purchasing arrangements, but in practice we haven't done so. All the funds have been committed through the auctions to date.

Senator HANSON-YOUNG: Just to be clear, the minister wouldn't be able to allocate money from the fund?

Mr Parker : No.

Ms Thompson : No.

Senator HANSON-YOUNG: Thank you.

CHAIR: Thank you. I think that concludes us for the Clean Energy Regulator. Thank you very much.