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Renewable Energy (Electricity) Amendment Bill 2015



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ISSN 1328-8091

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BILLS DIGEST NO. 119, 2014-15 15 JUNE 2015

Renewable Energy (Electricity) Amendment Bill 2015 Sophie Power Science, Technology, Environment and Resources Section

Contents

Purpose of the Bill ............................................................... 3

Structure of the Bill ............................................................. 3

Background ......................................................................... 3

Overview of the RET ................................................................ 3

Brief history of the RET ............................................................ 4

Recent reviews of the RET scheme.......................................... 5

Current proposal...................................................................... 5

Committee consideration .................................................... 6

Selection of Bills Committee.................................................... 6

Senate Standing Committee for the Scrutiny of Bills .............. 6

Policy position of non-government parties/independents ..... 6

Position of major interest groups ......................................... 7

Environmental groups ............................................................. 7

Industry groups ........................................................................ 7

Financial implications .......................................................... 8

Statement of Compatibility with Human Rights .................... 8

Parliamentary Joint Committee on Human Rights .................. 8

Key issues and provisions..................................................... 9

Reduction of the Large-Scale Renewable Energy Target ......... 9

Why is the LRET being reduced? ........................................... 9

Response to the proposed reduction ................................ 10

Comparison with RET review recommendations .............. 10

Could the 41,000 GWh target be achieved? ..................... 11

Full exemptions for emissions-intensive activities ................ 11

Current partial exemption provisions ................................. 11

Proposed amendments ....................................................... 12

Date introduced: 27 May 2015

House: House of Representatives

Portfolio: Environment

Commencement: The day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

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Why are full exemptions being provided? .......................... 13

Impact of extending exemptions for EITE activities ............ 13

Electricity intensity or emissions intensity? ........................ 14

Removing RET reviews ........................................................... 15

Need for certainty ............................................................... 15

Wood waste ........................................................................... 16

History of wood waste under the RET scheme ................... 18

Issues relating to native forest wood waste ....................... 18

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Purpose of the Bill The purpose of the Renewable Energy (Electricity) Amendment Bill 2015 (the Bill) is to amend the Commonwealth Renewable Energy Target (RET) scheme to:

• reduce the large-scale renewable energy target (LRET) from 41,000 gigawatt-hours (GWh) by 2020 to 33,300 GWh with this level to be maintained until 2030

• allow full exemptions to be provided for electricity used in prescribed emissions-intensive trade-exposed (EITE) activities, so that they do not need to purchase and surrender large-scale generation certificates

• remove the requirement for two-yearly reviews of the operation of the RET scheme and replacing it with annual statements by the Clean Energy Regulator (CER) on the progress of the RET towards meeting the new targets and the impact it is having on household electricity bills and

• include native forest biomass as an eligible renewable energy source under the same conditions that existed prior to its removal from eligibility in 2011.1

Structure of the Bill The Bill has one Schedule, divided into four parts:

• Part 1 amends the Renewable Energy (Electricity) Act 2000 (the RET Act)2 to reduce the required amount of renewable source electricity (the annual legislated targets under the large-scale component of the RET scheme) for each year until 2030

• Part 2 amends the RET Act to allow the Renewable Energy (Electricity) Regulations 2001 (RET Regulations) to provide full exemptions from RET liability for electricity used in EITE activities3

• Part 3 amends the RET Act and the Climate Change Authority Act 2011 to repeal the requirement for biennial reviews of the operation of the RET Act by the Climate Change Authority4 and

• Part 4 amends the RET Regulations to extend the current definition of ‘wood waste’ to include native forest biomass as an eligible renewable energy source.

Background Overview of the RET The Commonwealth RET scheme is designed to reduce emissions of greenhouse gases in the electricity sector and encourage the additional generation of electricity from sustainable and renewable sources. The RET scheme is established under the RET Act and is administered by the Clean Energy Regulator.5 The objects of the RET Act are:

• to encourage additional generation of electricity from renewable sources

• to reduce emissions of greenhouse gases in the electricity sector and

• to ensure generation of electricity from ecologically sustainable renewable energy sources.6

The RET mandates the proportion of electricity that must be generated from eligible renewables by electricity retailers on behalf of their customers. It was designed to support a policy commitment that at least 20 per cent of Australia’s energy supply would come from renewable sources by 2020.7 The policy rationale for the RET is that these more expensive forms of energy would not be viable market options and so the scheme encourages the use of current renewable technologies. The RET created a renewable certificate market where Renewable

1. As discussed later in this Digest, prior to amendment of the RET Regulations in 2011, the RET Regulations included native forest wood waste from sawmill residue, manufacturing operations or harvesting which meets a number of integrity requirements as an eligible renewable energy source.

2. Renewable Energy (Electricity) Act 2000 (Cth) (RET Act), accessed 5 June 2015. 3. Renewable Energy (Electricity) Regulations 2001, accessed 12 June 2015. 4. Climate Change Authority Act 2011 (Cth), accessed 12 June 2015. 5. The Clean Energy Regulator is an independent statutory authority established under the Clean Energy Regulator Act 2011 (Cth), accessed 12

June 2015.

6. RET Act, section 3. 7. Note that the original target was initially lower: see ‘Brief history of the RET’ later in this Digest.

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Energy Certificates (RECs) (a form of renewable energy currency) are issued to power station generators classified as renewable under the RET Act. Electricity retailers must purchase RECs to acquit their liability under the set target, with the REC price passed on through Power Purchase Agreements via the retail price to electricity consumers in the form of higher energy tariffs.

The RET works by allowing both large-scale renewable energy power stations and the owners of small-scale systems to create certificates for every megawatt hour of renewable power they generate. ‘Liable entities’8 (mainly electricity retailers) have legal obligations to purchase certificates and then surrender them to the Clean Energy Regulator, in percentages set by regulation each year. This creates a market which provides financial incentives to both large-scale renewable energy power stations and the owners of small-scale renewable energy systems. If a liable entity does not surrender the required amount of certificates, it must pay a shortfall charge. Partial exemptions are available for EITE activities. Generators producing and consuming their own electricity (self-generators) are fully exempt.9

The Renewable Energy Target has two core components: the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES). The LRET supports large-scale renewable energy projects such as wind and large-scale solar generators, by helping to bridge the cost between renewable and fossil-fuel generation. It sets annual targets for the amount of large-scale renewable energy. Currently, these targets rise to 41,000 GWh in 2020 and stay constant until 2030. The annual targets are allocated among liable parties in proportion to their purchases of wholesale electricity.10

The SRES helps households, small businesses and community groups with the upfront cost of installing small-scale renewable systems, such as rooftop solar systems and solar hot water heaters. The SRES has an uncapped notional target of a total of 4,000 GWh by 2020. Unlike the LRET, the SRES does not have binding annual targets. Rather, the scheme is uncapped allowing all eligible installations to receive assistance.11

Brief history of the RET The RET was first legislated in 2000 under the Renewable Energy (Electricity) Act 2000 as the Mandatory Renewable Energy Target (MRET), which created an obligation for large electricity purchasers to source an additional two per cent of their electricity from renewable sources by 2010. This was expressed in the RET Act as a target of 9,500 GWh by 2010.

Prior to the 2007 election, the Australian Labor Party (ALP) committed to an expanded target of at least 20 per cent of Australia’s electricity to be generated from renewable energy sources by 2020.12 In 2009, the Council of Australian Governments (COAG) agreed on the design of a RET scheme to achieve a 20 per cent share of renewables in Australia’s electricity mix by 2020.13 To achieve this, the target was increased from 9,500 GWh by 2010 to 45,000 GWh by 2020. In addition, provision was made for partial exemptions for ‘emissions-intensive trade-exposed industries’ from their liabilities under the expanded RET.14

In 2010, the RET was split into two separate targets as outlined above: the LRET with legislated annual targets increasing to 41,000 GWh by 2020, and the SRES, which it was estimated would deliver at least 4,000 GWh by 2020.15

Further historical information in relation to the RET scheme is available in the relevant Bills Digests.16

8. RET Act, section 35. 9. Clean Energy Regulator, ‘About the Renewable Energy Target’, Clean Energy Regulator website, 2 June 2015, accessed 3 June 2015. For further information on the Commonwealth RET scheme and its operation, see: A St John, The Renewable Energy Target: a quick guide, Research paper Series, 2013-14, Parliamentary Library, Canberra, 14 May 2014, accessed 28 May 2015.

10. Climate Change Authority, Renewable Energy Target Review: report, Melbourne, December 2014, p. 9, accessed 4 June 2015; see also A St John, op. cit. 11. Warburton Review (Expert Panel), Renewable Energy Target Scheme — report of the Expert Panel, (Warburton Review), Commonwealth of Australia, August 2014, p. 6, accessed 4 June 2015. 12. A St John, op. cit.; K Rudd, P Garrett and C Evans, Labor's 2020 target for a renewable energy future, ALP policy document, Election 2007,

accessed 3 June 2015. 13. Council of Australian Governments (COAG), Communiqué, COAG Meeting, Hobart, 30 April 2009, accessed 2 June 2015; COAG, Renewable Energy Target Scheme Design, 30 April 2009, accessed 2 June 2015. 14. Renewable Energy (Electricity) Amendment Act 2009 ; see also A Martyn and J Styles, Renewable Energy (Electricity) Amendment Bill 2009,

Bills digest, 182, 2008-09, Parliamentary Library, Canberra, 24 June 2009, accessed 5 June 2015. 15. Renewable Energy (Electricity) Amendment Act 2010 (Cth), accessed 12 June 2015.

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Recent reviews of the RET scheme Under the RET Act, the Climate Change Authority must conduct a review every two years examining the operation of the Act, its associated regulations and the environmental and economic impact of the scheme.17 Subsection 162(11) of the RET Act states that the review must make recommendations which are consistent with the objects of the Act.18 The Climate Change Authority has conducted reviews in 2012 and 2014.

The Climate Change Authority’s review in 2012 concluded that the RET scheme did not require significant changes, and that there was no compelling evidence to alter the quantity or nature of the target. However, the Authority did flag that the uncapped nature of the SRES could prove problematic, and suggested policy measures to alleviate this. The Authority also noted that biennial reviews were damaging to investor confidence, and recommended that the RET should be reviewed every four years instead.19

In December 2014, the Climate Change Authority finalised its second review under the RET Act.20 That review found that the RET scheme can make significant greenhouse gas emissions reductions at a reasonable cost, with modest impacts on electricity consumers.21 The review recommended that the 2020 LRET target should not be reduced, but that the timeframe for achieving the target should be extended by up to three years. The review made this recommendation in light of the decline in investor confidence in the renewable energy industry, the resulting slowdown in investment, as well reductions in projected electricity demand.22 Over the longer term (and in particular, after 2020), the Authority recommended that the Government should consider increasing and extending targets, and expanding arrangements to cover a wider set of technologies.23

A separate, non-statutory review of the RET scheme was also conducted in 2014, by an ‘Expert Panel’ chaired by Mr Dick Warburton and supported by a secretariat in the Department of Prime Minister and Cabinet (the Warburton Review).24 The terms of reference for the review were wide-ranging and considered, among other matters, whether the RET is meeting its objectives and whether the targets are appropriate and cost-effective.25 The Renewable Energy Target Scheme - Report of the Expert Panel (Non-Statutory Review) was released in August 2014.26 The Warburton review found that the RET has largely met its objectives but ‘is a high cost approach to reducing emissions because it does not directly target emissions and it only focuses on electricity generation’.27 One of the review’s recommendations was that the RET be amended in light of the changing circumstances in Australia’s main electricity markets and the availability of lower cost emission abatement alternatives. The review put forward several options for reforming both the LRET and the SRES.28

The findings of these reviews are discussed in further detail as relevant in this Digest.

Current proposal Following the Warburton Review, there have been many months of negotiations and speculation as to the future of the RET Scheme. On 8 May 2015, the Minister for Industry and Science and the Minister for the Environment

16. See, in particular, A Martyn and M Roarty, Renewable Energy (Electricity) Bill 2000, Bills digest, 198, 1999-2000, Parliamentary Library, Canberra , 9 August 2000; A Martyn and J Styles, Renewable Energy (Electricity) Amendment Bill 2009, Bills digest, 182, 2008-09, op. cit.; A Talberg and J Tomaras, Renewable Energy (Electricity) Amendment Bill 2010, Bills digest, 166, 2009-10, Parliamentary Library, Canberra, 11 June 2010, accessed 12 June 2015.

17. RET Act, section 162. 18. The objects of the RET Act are set out in section 3, and are outlined earlier in this Digest. 19. Climate Change Authority, Renewable Energy Target Review: final report, Melbourne, December 2012, accessed 4 June 2015. 20. Climate Change Authority, Renewable Energy Target Review: report, Melbourne, December 2014, accessed 4 June 2015. 21. Ibid., pp. 8, 23. 22. Ibid., pp. 2, 4, 37. 23. Ibid., p. 39. 24. Australian Government, ‘RET Review’, Department of Prime Minister and Cabinet website, accessed 4 June 2015. 25. Australian Government, ‘Terms of Reference’, Department of Prime Minister and Cabinet website, 25 February 2014, accessed 4 June 2015. 26. Warburton Review (Expert Panel), Renewable Energy Target Scheme — report of the Expert Panel, (Warburton Review), Commonwealth of

Australia, August 2014, accessed 4 June 2015. 27. Ibid., p. i. 28. Ibid., pp. vii-viii.

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announced that the Government had agreed with the ALP to set the LRET at 33,000 GWh by the year 2020.29 As the Explanatory Memorandum states:

Following its consideration of the expert panel’s [Warburton review] report and subsequent negotiations with the Opposition and cross bench senators, the Government has decided to make changes to the RET scheme to better reflect market conditions and to ensure renewable energy continues to play a significant role in Australia’s energy mix and in achieving Australia’s 2020 emissions target.

30

Committee consideration Selection of Bills Committee At the time of writing, the Selection of Bills Committee has not considered the Bill.

Senate Standing Committee for the Scrutiny of Bills At the time of writing, the Committee has not commented on the Bill.

Policy position of non-government parties/independents The ALP has indicated its support for the Bill, except the amendments to the definition of wood waste. The Shadow Minister for the Environment indicated that the ALP would support the Bill in order to restore investor confidence in the LRET.31 In particular, the ALP supports the revised target of 33,000 GWh by 2020, the full exemption for EITE activities and the removal of the two-yearly reviews of the RET scheme.32 However, the ALP (unsuccessfully) moved amendments in the House of Representatives which would have removed the Bill’s amendments to the definition of ‘wood waste’ in the RET Regulations to include native forest wood waste. They also attempted to add provisions preventing any future regulations being made to include biomass derived from native forests in the definition of wood waste.33

The Australian Greens have indicated that they do not support the Bill, particularly its reduction in the LRET, and the amendments to the definition of wood waste.34

At the time of writing, most minor parties and independents do not appear to have publicly stated a position in relation to the Bill itself, but have given some indication of their level of support for changes to the RET scheme.

Senator Lambie, Independent for Tasmania, has indicated her support for a reduction in the RET, as well the inclusion of biomass and wood waste as a renewable energy source.35

Senator Lazarus is opposed to a cut in the RET, and has called for a future target of 50 per cent of Australia’s energy generated by renewables by 2030.36

Senator Madigan is reported as supporting a reduction in the RET to reflect a ‘true 20 per cent’ target.37 Senators Leyonhjelm, Day and Madigan also reportedly support the provisions relating to wood waste, but ‘could seek

29. I Macfarlane (Minister for Industry and Science) and G Hunt (Minister for the Environment), Doorstop interview: Melbourne: 8 May 2015: Renewable Energy Target, transcript, 8 May 2015, accessed 4 June 2015. 30. Explanatory Memorandum, Renewable Energy (Electricity) Amendment Bill 2015, p. 6, accessed 12 June 2015. 31. M Butler, ‘Second reading speech: Renewable Energy (Electricity) Amendment Bill 2015’, House of Representatives, Debates, 2 June 2015,

p. 3, accessed 12 June 2015. 32. M Butler (Shadow Minister for Environment, Climate Change and Water), Labor fights to remove wood waste from RET, media release, 2 June 2015, accessed 3 June 2015. 33. M Butler, ‘Consideration in detail: Renewable Energy (Electricity) Amendment Bill 2015’, House of Representatives, Debates, 2 June 2015,

p. 77, accessed 12 June 2015. 34. See, for example, Senator Di Natale, RET deal is an irresponsible backwards step, media release, 18 May 2015, accessed 3 June 2015; Senator Di Natale, Labor must not allow Abbott's slash and burn Renewable Energy Target, media release, 27 May 2015, accessed 2 June 2015;

Senator Waters, Old parties pass pitiful, forest-burning Renewable Energy Target through Lower House, media release, 2 June 2015, accessed 3 June 2015. 35. J Lambie, Lambie welcomes RET deal and vows to fight to keep wood waste, part of the Scheme, media release, 18 May 2015, accessed 2 June 2015; J Lambie, Lambie calls for a National RET target of 32,000 GWH - or less, media release, 10 April 2015, accessed 2 June 2015. 36. G Lazarus, Senator Lazarus reaffirms support for RET, media release, 24 March 2015, accessed 3 June 2015; G Lazarus, Senator Lazarus

launches national solar energy campaign, media release, 26 April 2015, accessed 3 June 2015. 37. D Conifer, ‘Crossbench Senator John Madigan urges Labor to return to talks over Renewable Energy Target’, ABC News online, 14 November 2014, accessed 3 June 2015.

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conditions that would reserve part of the 33,000 gigawatt-hour target for solar and hydro power only’.38 Senator Day has also reportedly suggested that the Bill be delayed until the conclusion of the Senate Select Committee on Wind Turbines, which is currently scheduled to report on 3 August 2015.39

Senator Muir, of the Australian Motoring Enthusiast Party, has urged bipartisan support for the RET and indicated that he ‘will stand firm to protect the current legislated RET’. However, he does support ‘minor amendments’, such as extending the exemption for EITE activities to 100 per cent and ‘recognising wood waste sourced from sustainably managed forests as an eligible source of renewable energy within the RET’.40

Palmer United Party Senator Wang supports the current target of 41,000 GWh but has reportedly said he would consider backing a lower figure if it had bipartisan support, given the industry's need for certainty.41

Independent Senator Xenophon is reportedly concerned that solar and hydro projects could be ‘crowded out’ of the renewable energy scheme by wind power. He also reportedly supports the inclusion of native forest wood waste, but with safeguards and conditions to ensure it is genuine wood waste and incorporates protections for native habitat.42

Position of major interest groups Environmental groups Environmental groups have expressed disappointment at the reduction in the RET, as well as opposition to the proposals to exempt EITE industries and to include native forest biomass.43 Environmental groups consider that the RET is an important mechanism to reduce Australia’s greenhouse gas emissions and to modernise and ‘decarbonise’ Australia’s power sector. For example, the Australian Conservation Foundation suggests that a reduction in the RET will ‘allow more electricity to be generated at old, inefficient coal-fired power stations’ and has pointed to modelling which shows that prices to consumers are likely to increase under most scenarios if the RET is reduced.44 The Wilderness Society has expressed particular concern about the inclusion of native forest biomass, suggesting that ‘including a new incentive for logging high conservation value forests and important wildlife habitat is never going to be worthy of the tag ‘renewable’’.45

Many environmental groups have expressed support for the current RET to be maintained and increased beyond 2020. For example, the Australian Conservation Foundation has called for the renewable energy target to be increased to 50 per cent by 2030.46

Industry groups Many industry groups have been calling for a resolution to RET negotiations following the release of the Warburton Review. In March 2015, a coalition of peak business associations released an ‘open letter’ calling for an urgent resolution on the RET by both major political parties. The letter noted that the uncertainty of the

38. L Cox, ‘Senators could demand wind power restrictions in RET scheme’, The Sydney Morning Herald (online edition), 19 May 2015, accessed 4 June 2015; see also D Leyonhjelm, ‘The RET bomb is set to explode’, The Australian Financial Review, 10 April 2015, p. 38, accessed 4 June 2015.

39. R Lewis, ‘Wait for wind inquiry before changing RET’, The Australian, 22 April 2015, p. 3, accessed 2 June 2015; see also Senate Select Committee on Wind Turbines, accessed 9 June 2015. 40. R Muir, ‘Matters of public importance: Abbott Government’, Senate, Debates, 11 February 2015, p. 527, accessed 12 June 2015. 41. E Borrello, ‘Labor indicates winding back Government-crossbench deal to reduce Renewable Energy Target’, ABC News online, 23 March 2015,

accessed 3 June 2015. 42. L Cox, ‘Senators could demand wind power restrictions in RET scheme’, The Sydney Morning Herald (online edition), 19 May 2015, accessed 4 June 2015. 43. See for example Australian Conservation Foundation, Sad day for the climate as politicians agree to cut RET, media release, 8 May 2015,

accessed 5 June 2015; The Climate Institute, RET compromise no real solution, media release, 8 May 2015, accessed 5 June 2015; N CaÅ¡ule, ‘Here’s what your political representatives just did to our renewable energy future’, Greenpeace website, 19 May 2015, accessed 5 June 2015. 44. Ibid; see also Australian Conservation Foundation, Embrace renewables’ potential, don’t wreck the RET, media brief, 27 February 2015, accessed 5 June 2015; The Climate Institute, Australian Conservation Foundation, WWF-Australia, Who really benefits from reducing the

Renewable Energy Target, Policy brief, August 2014, accessed 5 June 2015. 45. The Wilderness Society, Coalition must learn torching forests is not renewable energy, media release, 8 May 2015, accessed 3 June 2015. 46. Australian Conservation Foundation, RET debacle a bonus for big polluters, media release, 8 May 2015, accessed 12 June 2015.

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unresolved Warburton Review was having a ‘material and detrimental impact on the renewable energy sector, energy users, the traditional energy sector and the broader business community’.47

Some of these peak business groups, joined by others, reiterated this call in May 2015. They expressed concern that failure to agree on the RET ‘will continue to block investment in renewable energy generation and in electricity supply. It will also impose significant unnecessary costs on industry that relies on electricity’.48

The Australian Aluminium Council, which was a signatory to the open letter mentioned above, has noted that ‘the future of Australia's four aluminium smelters is closely tied to the resolution of the target’.49 Following the release of the Warburton Review, the Australian Aluminium Council welcomed the review’s acknowledgement that ‘the RET impacts electricity prices for trade exposed businesses such as aluminium smelting and alumina refining - and that significant adjustments to the scheme are required to reduce its cost burden’. The Council also stated that it would be ‘pursuing a full exemption from the burden of the RET for aluminium smelting and reduced RET costs for alumina refining’.50

The Clean Energy Council has expressed disappointment with the reduction in the RET,51 but has nevertheless called for the Bill to be ‘passed quickly’, suggesting that:

Approximately 6,500 jobs and $10 billion worth of investment are set to be created by the large-scale renewable energy sector alone. With household renewables included, this takes the total up to 15,200 jobs and $40.4 billion worth of investment over the life of the scheme.

It is essential that the new legislation is passed quickly, without perverse political outcomes caused by a messy negotiation with cross-bench senators in search of an agreement on native wood waste. 52

The Australian Forest Products Association has welcomed the Bill, particularly the provisions for fully exempting EITE industries and the proposed inclusion of native forest biomass in the definition of wood waste as an eligible renewable energy source.53

Further comment from major interest groups is canvassed under the Key issues and provisions section below.

Financial implications The Explanatory Memorandum states that the financial impacts of the reforms to the RET scheme have ‘not yet been finalised, but are expected to be minor’.54

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.55

Parliamentary Joint Committee on Human Rights At the time of writing, the Committee has not commented on the Bill.

47. Australian Aluminium Council, Business Council of Australia, Cement Industry Federation, Clean Energy Council, Energy Users Association of Australia and the Tasmanian Minerals & Energy Council, Open letter from peak bodies calling for urgent Renewable Energy Target resolution, 30 March 2015, accessed 5 June 2015.

48. Australian Chamber of Commerce & Industry, Australian Industry Group, Business Council of Australia, Australian Aluminium Council, Cement Industry Federation, Energy Users Association of Australia, Tasmanian Minerals and Energy Council, Business calls for a RET compromise, media release, 4 May 2015, accessed 5 June 2015.

49. Australian Aluminium Council, Aluminium sector calls for final RET resolution, media release, 8 April 2015, accessed 5 June 2015. 50. Australian Aluminium Council, Warburton Review calls for significant RET changes, media release, 28 August 2014, accessed 5 June 2015. 51. Clean Energy Council, Major breakthrough puts renewable energy deal within reach, media release, 18 May 2015, accessed 4 June 2015. 52. Clean Energy Council, Thousands of jobs, billions of dollars up for grabs from renewable energy deal, media release, 27 May 2015, accessed

4 June 2015. 53. Australian Forest Products Association, Greg Hunt- the Minister who kept his promise, media release, 27 May 2015, accessed 5 June 2015; Australian Forest Products Association, Common sense to reinstate wood waste in RET deal, media release, 11 May 2015, accessed 5 June

2015.

54. Explanatory Memorandum, op. cit., p. 7. 55. The Statement of Compatibility with Human Rights can be found at page 21 of the Explanatory Memorandum to the Bill.

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Key issues and provisions Reduction of the Large-Scale Renewable Energy Target Part 1 of Schedule 1 of the Bill contains provisions to reduce the LRET.56

Subsection 40(1) of the RET Act contains a table setting out the annual targets for the production of electricity generated from renewable sources from 2001. Currently, the LRET target for 2020 and subsequent years is 41,000 GWh. Item 2 of the Bill proposes to amend this table to reduce the LRET target for 2020 to 33,000 GWh.57 This level is maintained until 2030. Reductions proportionate to this reduced target are proposed for the years 2012 to 2019.

Item 3 of the Bill repeals subsections 40(1A) to (5), which were inserted into the RET Act in 2010 as a transitional measure to adjust the target to deal with surplus renewable energy certificates due to the commencement of the separate LRET and SRES in 2011 and to account for the 850 GWh annual allocation of non-renewable generation using waste coal mine gas (see below).58 These provisions are now redundant, particularly due to the adjustments to future targets made by the Bill.59

Subsections 40(2) to 40(5) are also being repealed by item 3. These subsections were inserted into the RET Act in 2010 and established an additional target allocation able to be met by generation using waste coal mine gas. They were part of a transitional measure which included 850GWh annual allocation of non-renewable generation using waste coal mine gas as an eligible source in the RET as a result of the cessation of the NSW Greenhouse Gas Abatement Scheme. The annual targets were able to be increased by 850GWh per year until 2020 to accommodate certificates created by existing waste coal mine gas generators to ensure they did not ‘crowd out renewable energy generation’.60 The Explanatory Memorandum states that these subsections:

… are redundant as the adjustments they make to the legislated targets from 2012 to 2020 to include the waste coal mine gas allocation have now been incorporated into the table in subsection 40(1). For example, the amended target for 2020 in the table is 33,850 GWh, including 850 GWh for generation using waste coal mine gas. 61

Why is the LRET being reduced? The Explanatory Memorandum states that the LRET is being reduced to ‘better reflect electricity market conditions, while continuing to support the uptake of large-scale renewable electricity’.62 The Minister for the Environment suggests that the target of 33,000 GWH in the Bill will still ‘lead to more than 23.5 per cent of Australia’s electricity being sourced from renewable energy by 2020’.63

As noted above, the current target of 45,000 GWh by 2020 was set in 2009 so as to achieve a 20 per cent share of renewables in Australia’s electricity mix by 2020. In order to provide a workable mechanism, the percentage targets were converted to a fixed number of GWh of electricity, which were then set in legislation, based on assumed growth in the usage of electricity.64 Thus the original MRET was set at 9,500 GWh, and the expanded RET at 45,000 GWh. At the time the expanded RET was calculated, the anticipated 2020 electricity usage was 300,000 GWh. 20 per cent of this figure is 60,000 GWh, but pre-existing renewable generation of around

56. Note that the SRES remains unchanged by the Bill. 57. Note that the target set out in item 2 of the Bill for 2020 is actually 33,850 GWh. This is because the target is increased by 850GWh per year until 2020 to accommodate a transitional measure relating to waste coal mine gas (as discussed in the next paragraphs), The target drops back to 33,000 GWh in 2021 and stays at this level until 2030.

58. Subsection 40(1A) provided for the targets to be increased in each of 2012 and 2013 by half the excess above 34.5 million renewable energy certificates, and for the reduction in annual targets in the period 2016 to 2019, each by one quarter of the excess. See further Supplementary Explanatory Memorandum relating to sheet CA251, Renewable Energy (Electricity) Amendment Bill 2010, pp. 2-3, accessed 12 June 2015.

59. Explanatory Memorandum, op. cit., p. 10. 60. Explanatory Memorandum, op. cit., pp. 9-10; see also Explanatory Memorandum, Renewable Energy (Electricity) Amendment Bill 2010, pp. 41-42, accessed 3 June 2015. 61. Explanatory Memorandum, op. cit., p. 10. 62. Ibid., p. 9. 63. G Hunt (Minister for the Environment), ‘Second reading speech: Renewable Energy (Electricity) Amendment Bill 2015’, House of

Representatives, Debates, 27 May 2015, p. 3, accessed 4 June 2015. 64. Warburton Review, op. cit., p. 15.

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15,000 GWh is subtracted to arrive at the 45,000 GWh figure. The expanded RET was then split into a large-scale target of 41,000 GWh and a notional small-scale target of 4,000 GWh.65

However, electricity usage in Australia peaked in 2010-11, and has been declining since.66 This was unforeseen, and the predicted 2020 total electricity usage of 300,000 GWh is now likely to be around 255,300 GWh.67 When combined with pre-existing renewable generation (16,150 GWh) and the grid electricity saved from rooftop solar hot water and photovoltaic systems (around 13,420 GWh), the 41,000 GWh LRET would lead to about 70,570 GWh of renewable energy, or 27.6 per cent of total usage.68 Based on these figures, the proposed revised 33,000 GWh target would lead to about 24.5 per cent of total usage being generated by renewable sources.

Response to the proposed reduction As noted earlier, the Clean Energy Council has expressed disappointment with the reduction in the RET but is pleased that a deal has been reached to restore confidence to the sector.69 Other industry stakeholders have also welcomed the bipartisan agreement to revise the target in order to provide industry certainty.70 However, environmental groups do not support the reduction of the RET, suggesting that the RET is an important mechanism to reduce Australia’s greenhouse gas emissions and to modernise and ‘decarbonise’ Australia’s power sector.71 The Climate Institute, Australian Conservation Foundation and WWF-Australia commissioned a report showing that prices to consumers are likely to increase under most scenarios if the RET is reduced.72 These environmental groups suggest that RET should be kept unchanged and increased beyond 2020. For example, the Australian Conservation Foundation has called for the renewable energy target to be increased to 50 per cent by 2030.73

Comparison with RET review recommendations These amendments differ from the recommendations of reviews by both the Climate Change Authority and the Warburton Panel, presumably as a result of negotiations following those reviews.

The first recommendation of the Warburton Review was that the RET ‘should be amended in light of the changing circumstances in Australia’s main electricity markets and the availability of lower cost emission abatement alternatives’.74 However, the Warburton Review, after considering various options including reducing the LRET to achieve ‘a real 20 per cent’, actually recommended that the LRET be closed to new entrants or the target be set annually by the Clean Energy Regulator to allocate a share of growth in electricity demand to renewables.75

The Climate Change Authority did not favour any significant scaling back of the LRET but did recommend that consideration be given to extending the end year for achieving the target by up to three years.76 The Authority found that a reduction in RET is not warranted:

… there is no compelling justification for reducing the target to a level representing 20 per cent of an updated electricity demand forecast for 2020. There is no reason to think that 20 per cent is the ‘right’ amount of renewable energy…a significant reduction in the target would not decrease consumer prices and would not provide a satisfactory solution to the current oversupply problem. It would, however, defer investment in renewable

65. Ibid. See also A St John, op. cit. 66. Bureau of Resources and Energy Economics (BREE), Australian energy statistics, table O, BREE, Canberra, 2014, accessed 3 June 2015. 67. Climate Change Authority, 2014, op. cit., p. 10; Warburton Review, op. cit., pp. 126-130. 68. Ibid.

69. Clean Energy Council, Major breakthrough puts renewable energy deal within reach, media release, 18 May 2015, accessed 4 June 2015. 70. See, for example, Energy Supply Association of Australia, RET deal welcome, electricity market challenges remain, media release, 19 May 2015, accessed 5 June 2015. 71. See, for example, The Climate Institute, RET compromise no real solution, media release, 8 May 2015, accessed 5 June 2015. 72. Australian Conservation Foundation, Embrace renewables’ potential, don’t wreck the RET, media brief, 27 February 2015, accessed 5 June

2015; The Climate Institute, Australian Conservation Foundation, WWF-Australia, Who really benefits from reducing the Renewable Energy Target, Policy brief, op. cit. 73. Australian Conservation Foundation, RET debacle a bonus for big polluters, media release, 8 May 2015, accessed 12 June 2015. 74. Warburton Review, op. cit., p. vii, recommendation 1. 75. Ibid., p. 64, recommendation 2. 76. Climate Change Authority, 2014, op. cit., pp. 35-37.

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generation, leading to higher electricity sector emissions, making it harder for Australia to achieve the deeper emissions reductions required beyond 2020. 77

Could the 41,000 GWh target be achieved? Another reason given for amending the LRET by the Minister for the Environment is that it is ‘unlikely’ that the 41,000 GWh target would be met.78 This echoes the concerns raised by some stakeholders during the Warburton Review that it would not be technically possible to construct enough renewable generation to achieve the target of 41,000 GWh of large-scale generation by 2020.79 If realised, this situation could leave RET-liable entities in the position of not being able to procure enough certificates to meet their RET obligations, and hence be liable for the RET shortfall charge.80

In order to meet the current LRET, most sources suggest that around 9,000 megawatts (MW) of new renewable generation will need to be built.81 As of May 2015, Australia had around 4,012 MW of wind generation and 8,018 MW of hydro power,82 along with amounts of large scale solar and biomass fuelled generation totalling less than 250 MW.83 At May 2014, according to the Climate Change Authority, 7,700 MW of large-scale renewable energy projects were approved for development, with 7,250 MW of that pending financial close or resolution of other issues. An additional 10,050 MW of projects were in the approval process. The majority of the potential generation capacity was from wind farm projects.84 Typically, an approved wind farm is constructed in one to two years,85 meaning there would be opportunity for these farms to be constructed before the 2020 deadline.

However, such a construction rate would be unprecedented, around three times the highest construction rate yet recorded.86 Achieving construction of around 1,800 to 2,000MW of new generation per year would require significant economic and human resources. Despite this, both the Warburton Review and Climate Change Authority concluded that achieving the 41,000 GWh target would be technically feasible, particularly given the renewable energy projects already in the pipeline.87

Full exemptions for emissions-intensive activities

Current partial exemption provisions Sections 46A-46F of the RET Act currently provide a framework for partial exemptions for electricity used by businesses conducting EITEs from their liabilities under the expanded RET. Under section 46A, businesses carrying out eligible EITE activities may apply to the Clean Energy Regulator annually for a partial exemption certificate (PEC). Each PEC represents an amount of electricity to which RET liability will not apply in a given year. An EITE business can exchange this PEC with its RET-liable electricity retailer in return for partial relief from the pass-through of RET costs.88

Much of the detail of the partial exemption regime is left to the RET Regulations. For example, an emission-intensive trade-exposed activity is defined in the RET Act to mean an activity prescribed by regulations.89 Schedule 6 of the RET Regulations lists the prescribed eligible EITE activities. There are currently

77. Ibid., p. 34. 78. G Hunt (Minister for the Environment), ‘Second reading speech: Renewable Energy (Electricity) Amendment Bill 2015’, House of Representatives, Debates, 27 May 2015, p. 3, accessed 4 June 2015. 79. Warburton Review, op. cit., pp. 33-34. 80. See further Climate Change Authority, 2014, op. cit., p. 27. 81. Warburton Review op. cit., p. 29; Climate Change Authority, 2014, op. cit., p. 25. 82. Note that the majority of existing hydro generation is not eligible for inclusion in the RET. 83. Parliamentary Library estimates, compiled from Energy Supply Association of Australia, Electricity Gas Australia 2014, Melbourne, 2014, p. 22,

and Australian Energy Market Operator (AEMO), ‘Generation information’, AEMO website, 15 May 2015, accessed 3 June 2015. 84. The Climate Change Authority reported that the project ‘pipeline consists of about 16,100 MW of wind farm projects and 1,700 MW of large-scale solar projects’: Climate Change Authority, 2014, op. cit., p. 25. 85. Clean Energy Council, Wind farms - a guide for communities, Clean Energy Council, Melbourne, 2014, p. 5, accessed 3 June 2015. 86. Climate Change Authority, 2014, op. cit., p. 25. 87. Warburton Review, op. cit., p. 43; Climate Change Authority, 2014, op. cit., p. 25. 88. Explanatory Memorandum, op. cit., p. 11. 89. RET Act, section 5.

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over 50 activities listed, including for example, zinc and aluminium smelting, production of glass, methanol, silicon, manufacture of carton board, packaging and paper, and petroleum refining.

In addition, the amount of the liable entity’s partial exemption for the year in relation to EITEs is calculated according to a method prescribed by the regulations.90 The method for calculating an entity's partial exemption is currently based on, among other matters, an activity's classification in Schedule 6 of the Regulations as either a highly emissions-intensive activity, which receives an assistance rate of 90 per cent, or as a moderately emissions-intensive activity, which receives an assistance rate of 60 per cent. However, the partial exemption currently does not apply to the portion of RET costs associated with the original 9,500 GWh MRET. As a result, in 2013, this translated to an exemption rate of about 75 per cent for highly emissions-intensive activities and about 50 per cent for moderately emissions-intensive activities.91

Proposed amendments Part 2 of Schedule 1 of the Bill proposes to amend the RET Act to allow the RET Regulations to provide for full exemptions from RET liability for all EITE activities. In short, the bulk of the amendments in this Part achieve this by simply removing the word ‘partial’ in relevant provisions of the RET Act. For example, items 7 and 8 remove the definitions of ‘partial exemption’ and ‘partial exemption certificate’ in subsection 5(1) of the RET Act. Instead, new definitions of ‘exemption’ and ‘exemption certificate’ are provided. These definitions are essentially the same as the previous definitions but without the word ‘partial’.92

Section 46B currently provides for the Clean Energy Regulator to issue partial exemption certificates. Item 27 amends subsection 46B(1) of the RET Act to remove the word ‘partial’ in relation to exemption certificates. It also provides that a certificate must specify or describe the amount that is the liable entity’s exemption for the year in relation to the EITE activity and site.

Item 28 then adds a proposed subsection 46B(4), which provides that the regulation must prescribe the method for working out the amount of a liable entity’s exemption for a year in relation to an EITE activity and a site. Proposed paragraph 46B(4)(b) provides that the regulations may provide that an exemption certificate may either specify the amount that is the liable entity’s exemption in relation to the EITE activity and the site; or describe, in some other way, the amount that is the liable entity’s exemption in relation to the EITE activity and the site. Item 13 also adds proposed subsection 38B(2) which defines the exemption amount in an exemption certificate as the amount specified or described in the certificate as being the amount of the liable entity’s exemption. In addition to allowing for full exemptions to be provided, these amendments provide greater flexibility in the way in which the amount of an exemption can be represented on an exemption certificate. The Explanatory Memorandum states that:

It is intended that this additional flexibility would empower regulations to effectively limit the potential for an exemption to be provided in respect of a particular EITE activity (at a particular site) that exceeds the amount of electricity consumed in undertaking that activity. 93

Item 18 removes the references to ‘partial’ in sections 39 and 40A of the provisions which relate to the calculation of the renewable power percentage and also the small-scale technology percentage. These percentages are currently calculated taking into consideration a number of matters, including the amount of all partial exemptions that will be claimed for the year. These changes allow the additional total amount of full exemptions to be taken into account in determining the renewable power percentage and small-scale technology percentage in the future.94

Items 5 and 6 amend subsection 5(1) of the RET Act to remove redundant references to the Carbon Pollution Reduction Scheme and associated EITE assistance program under the Carbon Pollution Reduction Scheme Act 2009, which was never enacted.

90. RET Act, subsection 46B(1) and RET Regulation 22ZA. 91. Climate Change Authority, 2014, op. cit., p. 37. 92. See also items 4, 9-12, 14-26 and 29-36 which amend relevant provisions of the RET Act to remove the word ‘partial’. 93. Explanatory Memorandum, op. cit., p. 14. 94. Ibid.

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The Explanatory Memorandum expresses an intention that the RET Regulations will be amended to complete implementation of 100 per cent exemptions for all EITE activities as soon as practicable following passage of the Bill.95 In addition, item 37 contains transitional provisions to require the Clean Energy Regulator to amend exemption certificates already issued for the current year ‘as soon as practicable’ after the commencement of amending regulations in order to provide full exemptions from RET liability for all electricity consumed in undertaking EITE activities in 2015. This means that this aspect of the Bill will have retrospective operation, although the reasons for this are not explained in the Explanatory Memorandum.

Why are full exemptions being provided? The partial exemption provisions were introduced when the RET was expanded by the Renewable Energy (Electricity) Amendment Act 2009 on the basis that RET costs reduce the competitiveness of businesses competing in an international environment.96 As the Climate Change Authority noted in its 2012 review:

The general rationale for providing assistance to EITE activities is that these businesses are competing in an international setting where their competitors do not face a similar impost. EITE businesses are unable to pass on the additional cost of the RET to their customers, to remain competitive, and must absorb the additional cost of the RET. This may cause EITE businesses to move the activity to a country that does not have a RET (or other such cost imposition), which is undesirable from an Australian industry perspective.

97

Many EITE businesses claim that the current exemption is not sufficient to prevent a loss of global competitiveness as a result of the additional costs of the RET scheme.98

As a result, the Government has decided to increase the rate of exemption for all EITE activities, whether highly or moderately intensive, to 100 per cent as applied to the total RET liability.99 The reason given is ‘to ease pressure on businesses undertaking EITE activities and improve the competitiveness of Australian industry’.100

These amendments reflect calls by some industry groups such as the Australian Aluminium Council, which has been ‘pursuing a full exemption from the burden of the RET for aluminium smelting and reduced RET costs for alumina refining’. The Australian Aluminium Council suggests that:

The RET policy imposes costs on Australian smelters that are not paid by the major global competitors of the Australian aluminium industry, meaning our smelters will continue to struggle in an already difficult commercial environment if not fully exempted from the costs of the RET. 101

The Australian Forest Products Association has also welcomed the potential for increased exemptions from the RET noting that:

Our large manufacturing companies, such as sawmills and pulp and paper making enterprises, have had their status as significant energy users operating in a globally exposed trading environment recognised, and appropriately fully offset from the beginning of the 2015 compliance year. 102

Impact of extending exemptions for EITE activities The Bill allows for the regulations to be amended to provide full exemptions for all EITE activities, and the exact details of the new exemption regime will be contained in regulations which are yet to be developed. As noted earlier much of the detail of the exemption framework is left to the RET Regulations, including the list of EITE activities. There are currently over 50 EITE activities listed in Schedule 6 of the RET Regulations, and there is the

95. Ibid., p. 12. 96. The provisions for partial exemptions were added on a similar basis to arrangements being developed under the then proposed Carbon Pollution Reduction Scheme: Climate Change Authority, 2014, op. cit., p. 37; see also A Martyn and J Styles, Renewable Energy (Electricity) Amendment Bill 2009, op. cit.

97. Climate Change Authority, 2012, op. cit., p. 94. 98. Warburton Review, op. cit., p. v. 99. That is, unlike the partial exemption, it is intended that the full exemptions will cover costs associated with the original 9,500 GWh MRET as well as the costs of the expanded target: see G Hunt, ‘Second reading speech: Renewable Energy (Electricity) Amendment Bill 2015’, op. cit.,

p. 5.

100. Explanatory Memorandum, op. cit., p. 12. 101. Australian Aluminium Council, Warburton Review calls for significant RET changes, media release, 28 August 2014, accessed 5 June 2015. 102. Australian Forest Products Association, Greg Hunt- the Minister who kept his promise, media release, 27 May 2015, accessed 5 June 2015.

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potential for more activities to be prescribed, meaning that a wide range of activities may be able to be given full exemptions from the RET Scheme. There will be an opportunity for parliamentary scrutiny of these amending regulations.

The extension of the exemption regime may also have broader implications. For example, in 2012 the Climate Change Authority warned that:

… extending the partial exemption arrangements to the MRET will result in higher RET costs for all other liable entities, because they would need to pick up those costs in order for the target to still be met. 103

The Warburton Review recommended that the current partial exemption arrangements for emissions-intensive trade-exposed businesses should be maintained but not extended, noting that:

Extending the assistance provided to EITE businesses increases the volume of liable electricity covered by the exemption. In turn, this transfers a greater share of the cost of the RET to all other electricity consumers. 104

The Warburton Review noted concerns raised by EITE businesses about the cost of the RET, but pointed out that ‘the rationale for providing the exemption was to reduce the combined impact that a carbon tax and higher RET costs would have on EITE businesses. The repeal of the carbon tax will lower electricity prices for all consumers’.105 The Warburton Review also noted that its other recommendations relating to the LRET and SRES would help EITE businesses:

If adopted, the Panel’s recommendations on both the LRET and the SRES would reduce the costs of the RET faced by EITE businesses in the future compared with current settings. The Panel also notes that changes to exemption arrangements for EITE businesses are likely to have a much smaller impact than factors such as exchange rate movements and global supply and demand conditions for goods produced by EITE businesses, which are likely to be far more important determinants of profitability. Given these factors, it is difficult to justify extending the exemption arrangements for EITE businesses considering the additional cost this would impose on other electricity consumers.

106

However, the Government considers that:

The reduction in the direct costs of the RET resulting from the lower large-scale renewable energy target will more than offset the impact on other electricity users of the increase in assistance for emissions-intensive trade-exposed activities. 107

Electricity intensity or emissions intensity? The Bill also does not appear to address an issue raised by the Climate Change Authority in its 2014 review, which considered whether the current basis for assisting particular businesses with RET costs remains appropriate, particularly in light of the repeal of the carbon price. The 2014 review concluded that if any further exemptions from electricity costs under the RET are to be granted, this should be on the basis of electricity intensity, rather than emissions intensity. The Climate Change Authority explained:

Providing assistance based on emissions intensity, rather than electricity intensity, leads to some anomalies… Based on the current eligibility thresholds, some activities, such as lime and ammonium nitrate, are highly emissions-intensive, but not particularly electricity-intensive. These activities receive a high level of exemption from RET costs, despite having lower electricity intensities than some moderately emissions-intensive activities, such as tissue paper manufacturing.

103. Climate Change Authority, 2012, op. cit., p. 96. Note that the Climate Change Authority considered the assistance for EITE activities in its 2012 review, but did not form a conclusion. At the time, the carbon pricing mechanism included a similar assistance regime for the same activities, leading the Authority to recommend the Productivity Commission consider the issue as part of its broader review of carbon pricing assistance: Climate Change Authority, 2014, op. cit., pp. 37-38; see also Climate Change Authority, 2012, op. cit., pp. 94-98.

104. Warburton Review, op. cit., p. 80; see also p. viii, recommendation 4. 105. Ibid., p. 82. 106. Ibid. 107. G Hunt, ‘Second reading speech: Renewable Energy (Electricity) Amendment Bill 2015’, op. cit., p. 5.

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Providing assistance with electricity costs to businesses that are not particularly electricity intensive places a greater burden on non-exempt electricity users. In the Authority's view, any changes to assistance with RET costs should be based on need and the best measure of need in this context is electricity intensity. If broadening of assistance is considered, it should be based on electricity intensity.

108

The extension of the EITE exemptions may also lead to other anomalies. For example, the Explanatory Memorandum notes that due to the fact that the averaging processes for establishing electricity intensity baselines was based on data from July 2006 to June 2008, there is ‘a risk of some EITE firms receiving assistance that exceeds the cost impact of the RET on these EITE activities’. The Government ‘will consult on the detail of regulations to address this risk’.109

Removing RET reviews Part 3 of Schedule 1 of the Bill contains provisions to repeal the requirement for periodic reviews of the operation of the RET scheme by the Climate Change Authority.

Currently, section 162 of the RET Act requires the Climate Change Authority to conduct reviews every two years into the operation of the RET Act, Renewable Energy (Electricity) Regulations 2001 and the RET scheme. Item 39 repeals section 162 and therefore removes the requirement for the Climate Change Authority to conduct these reviews.

Items 40-45 make consequential amendments to the Climate Change Authority Act 2011.110 Items 40 and 41 remove references in the Climate Change Authority Act to the Climate Change Authority’s obligations to conduct periodic reviews under the RET Act. For example, section 11 of the Climate Change Authority Act sets out the functions of the Climate Change Authority. Item 41 repeals subparagraph 11(a)(iv), which provides that the Climate Change Authority’s functions include conducting reviews under section 162 of the RET Act. The Climate Change Authority’s other functions are not changed by the Bill.

Under section 57 of the Climate Change Authority Act, the Climate Change Minister may, by legislative instrument, give directions to the Climate Change Authority in relation to the performance of its functions and the exercise of its powers. Those directions must not relate to the conduct of, or the content of a report, of a particular review (subsection 57(3)) and must not be inconsistent with the objects of the RET Act (paragraph 57(4)(d)). Items 42 and 43 remove the obligation for directions given by the Climate Change Minister to the Climate Change Authority to be not inconsistent with the objects of the RET Act. The need for this particular amendment is not entirely clear, although the Explanatory Memorandum describes this as an ‘application and transitional provision’.111

Section 82 of the Climate Change Authority Act provides an exemption from liability for the Climate Change Authority and related persons, for damages in relation to acts or omissions done in good faith in relation to (among other things) the requirement to conduct periodic reviews under section 162 of the RET Act. Items 44 and 45 remove this exemption, given that the requirement in section 162 to conduct these periodic reviews is being removed. Item 46 provides that the exemption from liability continues to apply to any reviews or related matters carried out before the enactment of the Bill.

Need for certainty The Explanatory Memorandum states that this amendment will ‘provide greater certainty for project developers, investors and energy users’.112 According to the Clean Energy Council, the 2014 reviews of the RET ‘stalled investment in large-scale renewable energy such as wind and solar power in 2014, with investment falling by 88 per cent’.113

The Climate Change Authority recommended amending the RET Act to require reviews every four years, rather than every two years. In its 2012 review, the Climate Change Authority concluded that two-yearly reviews of the

108. Climate Change Authority, 2014, op. cit., p. 38. 109. Explanatory Memorandum, op. cit., p. 12. 110. Climate Change Authority Act 2011, accessed 2 June 2015. 111. Explanatory Memorandum, op. cit., p. 17 112. Ibid., p. 16. 113. Clean Energy Council, Tough year over, big opportunity ahead for renewable energy, media release, 3 June 2015, accessed 4 June 2015.

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RET risked undermining policy stability and investment in the sector and recommended that they occur only every four years.114 This recommendation was not implemented.

In 2014, the Climate Change Authority review again recommended that the frequency of statutory reviews of the RET should be changed from every two years to every four years, finding that ‘frequent reviews of the LRET create uncertainty which discourages investment in the sector’.115 The Climate Change Authority suggested that reviews every four years ‘strikes a reasonable balance between the need for policy flexibility and the risks to investor confidence created by too frequent reviews’.116

The removal of the requirement for regular reviews is consistent with the Warburton Review’s findings, which recommended that:

… the requirement for statutory reviews be removed from legislation. The Government can initiate a review of the legislation at any time it considers appropriate and the Panel heard from a wide range of stakeholders that frequent statutory reviews undermine investor certainty, hinder the achievement of the scheme’s objectives and reduce the likelihood of any renewable energy target being met.

117

According to the Explanatory Memorandum, in lieu of the biennial reviews by the Climate Change Authority, the Clean Energy Regulator will instead prepare an ‘annual statement on the progress of the RET Scheme towards meeting the new targets and the impact it is having on household electricity bills’.118 The Bill does not contain any provisions to make this a statutory requirement. However, the Clean Energy Regulator is already required under existing provisions of the RET Act to give the Minister an annual report on the ‘working of’ the RET Act.119 The most recent report was tabled on 11 May 2015.120 This report does consider the extent to which the RET scheme is performing against its legislated objectives, but does not appear, for example, to examine the impact on electricity bills.

Wood waste Part 4 of Schedule 1 of the Bill amends the definition of wood waste in the RET Regulations to remove the restrictions on products derived from biomass in a native forest, subject to certain conditions.

Section 17 of the RET Act currently lists a number of eligible renewable energy sources for the purposes of the RET Act. Wood waste is specifically listed as one of these ‘eligible renewable energy sources’.121 Under subsection 17(3), definitions for the various listed eligible renewable energy sources (including wood waste) may be prescribed in the regulations.122

However, biomass derived from native forests is currently excluded from the definition of wood waste in regulation 8 of the RET Regulations. This definition states that wood waste means:

(a) biomass:

(i) produced from non-native environmental weed species; and

(ii) harvested for the control or eradication of the species, from a harvesting operation that is approved under relevant Commonwealth, State or Territory planning and approval processes; and

(b) a manufactured wood product or a by-product from a manufacturing process, other than a product or a by-product that is derived from biomass from a native forest; and

114. Climate Change Authority, 2012, op. cit., p. 39. 115. Climate Change Authority, 2014, op. cit., p. 32. 116. Ibid., p. 50. 117. Warburton Review, op. cit., p. vi, see also recommendation 7 and discussion at pp. 87-88. 118. Explanatory Memorandum, op. cit., p. 16. 119. RET Act, section 105. Note that Minister is also able, by legislative instrument, to give directions to the Clean Energy Regulator under

section 41 of the Clean Energy Regulator Act 2011, accessed 12 June 2015. Such directions must not be inconsistent with the objects of the RET Act. 120. Clean Energy Regulator, Renewable Energy Target 2014: administrative report: encouraging investment in renewable energy, May 2015, accessed 3 June 2015. 121. RET Act, paragraph 17(1)(j). 122. Paragraph 17(1)(t) of the RET Act also allows for other energy sources to be prescribed by regulations.

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(c) waste products from the construction of buildings or furniture, including timber off-cuts and timber from demolished buildings; and

(d) sawmill residue, other than sawmill residue derived from biomass from a native forest.123

Items 48-50 of Part 4 of Schedule propose to amend this definition of wood waste in regulation 8. Item 48 amends paragraph 8(b) to remove the words ‘other than a product or a by-product that is derived from biomass from a native forest’. This means that a manufactured wood product or by-product of a manufacturing process which originally came from a native forest is an eligible renewable energy source for the purposes of the RET Act.

Item 49 amends paragraph 8(d) to remove the words ‘other than sawmill residue derived from biomass from a native forest’. This means that sawmill residue which originally came from a native forest will be an eligible renewable energy source for the purposes of the RET Act.

Item 50 inserts a new paragraph 8(e) to include ‘biomass from a native forest that meets the requirements in subregulation 8(2)’ in the definition of wood waste.

Item 51 then inserts new subregulations 8(2)-(4), which are integrity requirements that biomass from a native forest must meet in order to be eligible under the RET scheme. New subregulation 8(2) specifies that biomass from a native forest must be:

• harvested primarily for a purpose other than biomass for energy production; and

• either a by-product or waste product of a harvesting operation under relevant Commonwealth, state or territory planning and approval processes for which a high value process is the primary purpose of harvesting, or a by-product (including thinnings and coppicing) of a harvesting operation that is carried out in accordance with ecologically sustainable forest management principles and

• produced in accordance with ecologically sustainable forest management principles required in a regional forest agreement, or if no regional forest agreement is in place, carried out in accordance with ecologically sustainable forest management principles that the Minister is satisfied are consistent with those required by a regional forest agreement.

New subregulation 8(3) provides that the primary purposes of a harvesting operation is taken to be a high-value process only if the total financial value of the products of the high-value process is higher than the financial value of other products of the harvesting operation. High value process is defined in new subregulation 8(4) as ‘the production of sawlogs, veneer, poles, piles, girders, wood for carpentry or craft uses, or oil products’. The Explanatory Memorandum refers to this as the ‘high value test’:

The high-value test ensures that the primary purpose of the operation is production of sawlogs, veneer, poles, piles, girders, wood for carpentry or craft uses, or oil products such that the financial value of these products is higher than the total financial value of other products of the harvesting operation. 124

New subregulation 8(4) then defines ecologically sustainable forest management principles to mean the following principles that meet the requirements of ecologically sustainable development for forests:

• maintenance of the ecological processes within forests, including the formation of soil, energy flows, and the carbon, nutrient and water cycles

• maintenance of the biological diversity of forests

• optimisation of the benefits to the community from all uses of forests within ecological constraints.

The amendments in the Bill will mean that the RET Regulations will be worded exactly as they were before November 2011, when they were amended to restrict biomass from native forests.125

123. The Regulations give the following examples for paragraph (b): Packing case, pallet, recycled timber, engineered wood product (including one manufactured by binding wood strands, wood particles, wood fibres or wood veneers with adhesives to form a composite). 124. Explanatory Memorandum, op. cit., p. 19. 125. Renewable Energy (Electricity) Regulations 2001 (as in force 6 October 2011), regulation 8. These were amended by Renewable Energy

(Electricity) Amendment Regulations 2011 (No. 5), Schedule 1, item 1, accessed 12 June 2015.

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Item 52 is a transitional provision to ensure that the amendments in this part of the Bill will apply to all electricity generated from biomass after the commencement of the Bill, including electricity generators which were subject to the transitional provisions of the November 2011 regulations (discussed further below).

History of wood waste under the RET scheme Native forest wood waste was originally included as an eligible source of renewable energy when the MRET was established in 2001. In November 2011, following agreement of the Multi-Party Climate Change Committee, native forest wood waste was removed as an eligible form of wood waste under the RET. Transitional measures were introduced for power stations that were already accredited to use wood waste derived from native forest biomass as an eligible energy source and are effective until 2020.126

The Climate Change Authority’s 2012 RET review examined whether wood waste from native forests should be included in the LRET and recommended that:

The Government should explore whether the RET eligibility for native forest wood waste is likely to increase the rate of logging of native forests. If it is not, then wood waste eligibility should be reinstated, subject to appropriate accreditation processes designed to ensure that no additional logging occurs as a result. 127

However, this recommendation was rejected in the government response which stated:

Wood waste from native forests was removed from the RET as an eligible renewable energy source in 2011. This amendment was made to ensure that the RET did not provide an incentive for the burning of native forest wood waste for bio-energy, which could lead to unintended outcomes for biodiversity and the destruction of intact carbon stores. The Government does not consider that circumstances have changed sufficiently since 2011 to warrant this issue being reconsidered.

128

During the 2013 election campaign, the Coalition announced that it would ‘introduce amendments to the renewable energy regulations allowing appropriately scaled renewable energy initiatives using wood biomass, to benefit from energy initiatives available to other renewable energy sources’.129

The Climate Change Authority did not consider the issue of wood waste in its 2014 review. However, the Warburton Review did consider it and supported the reinstatement of native forest wood waste as an eligible renewable energy source under the RET scheme. The Warburton Review recommended that this be ‘implemented through the reintroduction of the relevant regulations in force prior to 2011’.130 The review noted that it had ‘not been presented with any evidence that these regulations resulted in unsustainable logging activities’.131 This Bill implements that recommendation.

Issues relating to native forest wood waste The eligibility of biomass from native forests is a controversial issue. Given the controversial nature of this measure, it is unclear why the approach has been taken to use this Bill to amend the RET Regulations, rather than promulgating amending regulations separately.

Supporters of these provisions argue that the use of native forest biomass replaces fossil-fuel generation and that wood waste from forests is generally burned or left to rot anyway. Proponents also suggest that there are sufficient safeguards in place to ensure native forest wood waste is sustainably harvested.132

The main concern about the eligibility of wood waste from native forests under the RET is that it could create an added incentive to log native forests. Other related concerns are that it could contribute to other adverse

126. Warburton Review, op. cit., p. 5; see also Renewable Energy (Electricity) Amendment Regulations 2011 (No. 5). 127. Climate Change Authority, 2012, op. cit., pp. 111-113, recommendation 28. 128. Australian Government, Australian Government response to the Climate Change Authority’s Renewable Energy Target Review final report, March 2013, p. 11, accessed 5 June 2015.

129. Liberal Party of Australia and the Nationals, The Coalition’s policy for a strong and sustainable forestry industry, Coalition policy document, Election 2013, September 2013, p. 5, accessed 2 June 2015. 130. Warburton Review, op. cit., p. viii, recommendation 6. 131. Ibid., p. v. 132. Ibid., pp. 86-87; Climate Change Authority, 2012, op. cit., p. 112; see also G Hunt, ‘Second reading speech: Renewable Energy (Electricity)

Amendment Bill 2015’, op. cit., p. 5.

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environmental impacts - such as loss of biodiversity, loss of ‘carbon sinks’, and particulate pollution from burning sawmill waste.133

As noted earlier, environmental groups, such as The Wilderness Society and the Australian Conservation Foundation, have criticised the amendments to include native forest biomass. The Australian Conservation Foundation has recently released a statement setting out ‘ten reasons why burning native forests for electricity should not be included in the RET’. These reasons include that the addition of native forest wood waste could restrict the uptake of other renewable energy, particularly large scale solar, in the RET; burning of native forest wood waste depletes carbon stocks instead of preserving forests as a carbon sink; burning native forest wood releases toxins that are harmful to air quality and human health; and has impacts on the conservation values of Australia’s native forests.134

The Australia Institute has similarly suggested that including native forest biomass in the RET will cause a number of direct and indirect problems, including displacement of solar and wind energy in the RET cap, reducing investment in those technologies, and environmental harm caused by providing support for the continued logging of native forests.135

The Wilderness Society agrees with these concerns and has also queried the adequacy of the safeguards for ensuring that forest management is conducted in a sustainable manner. The Society suggests that there are numerous instances demonstrating that mechanisms such as the Regional Forest Agreement framework and state regulation of logging are inadequate and failing to protect environmental values:

For example, logging has contributed heavily to the recent listing of the Leadbeater’s Possum in Victoria as critically endangered - that is, having a high risk of extinction in the near future. Similarly, recent evidence has identified logging being approved by the Tasmanian Government in the habitat of the endangered Swift Parrot, ignoring advice from expert Government scientists about direct impacts on the species’ viability.

136

Indeed, the proposed integrity requirements in subregulations 8(2)-(4), which biomass from a native forest must meet in order to be eligible under the RET scheme, deserve close scrutiny. In particular, whether the standards provide sufficient levels of protection for the conservation values of native forests, and whether there are adequate compliance and enforcement mechanisms, may be a source of concern for some stakeholders. For example, the effectiveness of standards for environmental protection in the Regional Forest Agreement regime is a contentious issue.137

However, the Australian Forest Products Association has welcomed the reinstatement of native forest wood waste in the RET, stating that there is always a large amount of residue and offcuts from forestry operations, and that the ‘biomass material in question is a waste product and will not affect the level of native forest harvesting in Australia’.138 The Australian Forest Product Association further explains:

Sustainably managed harvesting and processing operations in Australia generate mountains of offcuts and organic waste every year. These offcuts include sawdust, shavings and bark. Additional biomass is left on the forest floor, providing mountains of kindling for mega bushfires or pushed into piles to rot away or be burnt to clear the site for regeneration. With the incentive of renewable energy certificates many regional enterprises would be able to convert coal or gas fired power and heating facilities to use the wood waste, reducing greenhouse gas emissions.

139

133. Australian Network of Environmental Defender’s Offices, quoted in Climate Change Authority, 2012, op. cit., p. 112. 134. Australian Conservation Foundation, Ten reasons why burning native forests for electricity should not be included in the RET, media release, 15 May 2015, accessed 4 June 2015. 135. R Denniss, Do we need to burn forests to save the environment, Briefing note, The Australia Institute, 15 May 2015, accessed 5 June 2015. 136. The Wilderness Society, Native forest wood and the Renewable Energy Target, Briefing paper, May 2015, accessed 12 June 2015. 137. See, for example, J Feehely, N Hammond-Deakin and F Millner, One stop chop: how regional forest agreements streamline environmental

destruction, Lawyers for Forests, Melbourne, 2013, accessed 12 June 2015. 138. Australian Forest Products Association, Common sense to reinstate wood waste in RET deal, media release, 11 May 2015, accessed 5 June 2015. 139. Ibid.

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On 29 May 2015, the ABC reported that a document from Victoria's state-owned forestry business, VicForests, obtained by the ABC stated that this amendment ‘would provide a market for otherwise unsaleable timber’.140

Acknowledgements

The author would like to acknowledge the assistance of Dr Alexander St John with background material.

140. G Borschmann and S Phillips, ‘Timber company to benefit as RET deal creates market for unsaleable timber, says VicForests analysis’, ABC News, 29 May 2015, accessed 11 June 2015.

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