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2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
CARBON POLLUTION REDUCTION SCHEME BILL 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Minister for
Climate Change and Water, Senator the Honourable Penny Wong)
Table of contents
Glossary ............................................................................................................... 1
General outline of the Carbon Pollution Reduction Scheme Bill 2009 ............... 3
Chapter 1 Liable entities and covered emissions .................................. 27
Chapter 2 Scheme caps, gateways and emissions units ...................... 75
Chapter 3 Allocation of units -- introduction, auction and fixed
charge units ......................................................................... 101
Chapter 4 Emissions-intensive trade-exposed assistance
program................................................................................ 111
Chapter 5 Coal-fired electricity generation ........................................... 127
Chapter 6 Reforestation........................................................................ 159
Chapter 7 Destruction of synthetic greenhouse gases ........................ 187
Chapter 8 Assessment, surrender, relinquishment and
voluntary cancellation .......................................................... 197
Chapter 9 Compliance and enforcement ............................................. 213
Chapter 10 The Australian National Registry of Emissions Units.......... 233
Chapter 11 Public information ................................................................ 243
Chapter 12 Independent reviews............................................................ 249
Chapter 13 Review of decisions and miscellaneous provisions ............ 259
Index................................................................................................................. 267
Glossary
The following abbreviations and acronyms are used in this commentary.
Abbreviation Definition
Authority The Australian Climate Change
Regulatory Authority
CO2-e Carbon dioxide equivalence
The draft bill The draft Carbon Pollution Reduction
Scheme Bill 2009
The draft consequential The draft Carbon Pollution Reduction
amendments bill Scheme (Consequential
Amendments) Bill 2009
Eligible emissions unit An Australian emissions unit or an
eligible international emissions unit
Eligible international A certified emission reduction (other
emissions unit than a temporary certified emission
reduction or a long-term certified
emission reduction), an emission
reduction unit, a removal unit, a
prescribed unit issued in accordance
with the Kyoto rules
Garnaut Climate Change R. Garnaut, The Garnaut Climate
Review Final Report; Change Review: Final Report,
Garnaut Final Report Cambridge University Press, 2008
Green Paper Carbon Pollution Reduction Scheme
Green Paper, July 2008
IPCC Intergovernmental Panel on Climate
Change
Kyoto unit An assigned amount unit, a certified
emission reduction, an emission
reduction unit, a removal unit or a
prescribed unit issued in accordance
with the Kyoto rules
1
Carbon Pollution Reduction Scheme Bill 2009
Abbreviation Definition
Kyoto rules This term is defined in section 5. In
brief, it includes the Kyoto Protocol,
decisions of the Meeting of the Kyoto
Parties, certain standards adopted by
such a Meeting and prescribed
instruments
NEMMCO The National Electricity Market
Management Company
Non-Kyoto international A prescribed unit issued in
emissions units accordance with an international
agreement (other than the Kyoto
Protocol) or a prescribed unit issued
outside Australia under a law of a
foreign country
OTN Obligation transfer number
Registry National Registry of Emissions Units
The Scheme The Carbon Pollution Reduction
Scheme
White Paper Carbon Pollution Reduction Scheme:
Australia's Low Pollution Future,
White Paper, December 2008
2
General outline of the Carbon Pollution
Reduction Scheme Bill 2009
Rationale for the Carbon Pollution Reduction Scheme
Climate change is the greatest social, economic and environmental
challenge of our time. Scientific evidence confirms that human activities,
such as burning fossil fuels (coal, oil and natural gas), agriculture and land
clearing, have increased the concentration of greenhouse gases in the
atmosphere. As a consequence, the earth's average temperature is rising
and weather patterns are changing. This is affecting rainfall patterns,
water availability, sea levels, storm activity, droughts and bushfire
frequency, putting at risk Australian coastal communities, health
outcomes, agriculture, tourism, heritage and biodiversity for current and
future generations.1
The climate is already changing, with more frequent and severe droughts,
rising sea levels and more extreme weather events. Globally, thirteen of
the 14 warmest years since records began occurred between 1995 and
2008 2 , and Australia has experienced warmer than average mean annual
temperatures for 17 of the past 19 years.3 The latest report from the
Intergovernmental Panel on Climate Change (IPCC), the 2007 Fourth
Assessment Report, concludes that Australia has significant vulnerability
to the changes in temperature and rainfall projected over the coming
decades.4
The Garnaut Climate Change Review Final Report paints a bleak picture
of Australia at the end of this century should greenhouse gas emissions
continue unchecked. There would be major declines in agricultural
production across much of the country. The Great Barrier Reef and other
reef systems, such as Ningaloo, would be effectively destroyed, with
serious ramifications for tourism industries and biodiversity. Coastal
infrastructure would be at risk of damage from storm surges and flooding.
Key Australian export markets would have significantly lower economic
activity, feeding back into lower prices for Australian exports and poorer
terms of trade.
1
Intergovernmental Panel on Climate Change, Fourth assessment report, Synthesis report,
2007.
2
Based on UK Climatic Research Un it Had ley Centre data.
3
Based on Bureau of Meteorology data.
4
Intergovernmental Panel on Climate Change, Fourth assessment report, Synthesis report.
3
Carbon Pollution Reduction Scheme Bill 2009
The Garnaut Final Report also suggests that emissions are tracking at the
upper bounds of the scenarios modelled by the IPCC in the Fourth
Assessment Report. New data and scientific understanding, unavailable
for the Fourth Assessment Report, suggest that the rate and magnitude of
climate change over the next century may be at the high end of the range
estimated by the IPCC. Trends in global mean temperature and sea-level
rise are also at the upper end of the range of projections. 5 There is
increasing concern about the stability of the Greenland and west Antarctic
ice sheets, with major implications for sea-level rise.6
The costs of inaction on climate change
The IPCC's Fourth Assessment Report suggests that, in a `business as
usual' world where world-wide economic growth continues based on
fossil fuels, the best estimate of temperature rise by the end of the century
would be 4 degrees Celsius. 7 The report says that climate change caused
by this temperature rise is very likely to have widespread and severe
consequences, including significant species extinctions around the globe,
increased danger of wildfire, real threats to food production, and severe
health impacts, with dramatic increases in morbidity and mortality from
heatwaves, floods and droughts. 8
The environmental impacts of climate change have flow-on effects for
other aspects of human society, such as the economy, security and human
health.
Referring to Australia's region, the Lowy Institute for International Policy
has noted:
... even if not catastrophic in themselves, the cumulat ive impact of
rising temperatures, sea levels and more mega droughts on
agriculture, fresh water and energy could threaten the s ecurity of
states in Australia's neighbourhood by reducing their carrying
capacity below a minimu m threshold, thereby undermin ing the
legitimacy and response capabilit ies of their governments and
jeopardising the security of their cit izens. Where climate change
coincides with other transnational challenges to security, such as
5
S Rah mstorf, A Cazenave, JA Church, JE Hansen, R Keeling, DE Parker & RCJ So merville,
`Recent climate change observations compared to projections', Science, vol. 316, 2007,
p. 709, doi: 10.1126/science.1136843.
6
EJ Rohling, K Grant, CH Hemleben, M Siddall, BAA Hoogakker, M Bolshaw & M Kucera,
`High rates of sea level rise during the last interglacial period', Nature Geoscience, 2008,
vol. 1, pp. 38- 42.
7
Intergovernmental Panel on Climate Change, Fourth assessment report, Synthesis report.
8
Intergovernmental Panel on Climate Change, Fourth assessment report, Synthesis report.
4
General outline
terroris m or pandemic diseases, or adds to pre-existing ethnic and
social tensions, then the impact will be magnified. 9
While some climate change is unavoidable, the negative effects of
warming can be substantially diminished by prompt and concerted action.
The sooner we stabilise and then reduce atmospheric concentrations of
greenhouse gases, the sooner we can reduce our impact on the climate and
minimise the risk of dangerous change.
Small variations in climate are expected to be more damaging to Australia
than to other developed countries. Climate change will also affect
Australia's neighbours.
Australia's economic growth in recent years has boosted domestic living
standards and consumption. This growth has been supported by rapidly
expanding developing economies, particularly in the Asia-Pacific region.
Continued growth in developing economies could be threatened by the
impacts of climate change as expenditure is diverted to cope with severe
weather events, food crop failures, droughts and population displacement.
The findings of the Garnaut Final Report suggest that, in the long term,
the costs of inaction will be greater than the costs of mitigation. The
aggregate costs of action are modest, and the benefits of action (and the
cost of inaction) increase over time, becoming more pronounced in the
second half of this century and beyond.
Analysis presented in the Garnaut Final Report builds a strong case for
responding to climate change with mitigation action. The Garnaut Final
Report observes that `the overall cost to the Australian economy is
manageable and in the order of one tenth of 1 per cent of annual economic
growth'10 and concludes that `the costs of well-designed mitigation,
substantial as they are, would not end economic growth in Australia, its
developing country neighbours or the global economy; unmitigated
climate change probably would'. 11
The Garnaut Final Report also predicts that, in a world of unmitigated
climate change, real wages will be 12 per cent lower by 2100 than in a
world without climate change. This is due to the reduced demand for
labour in the second half of the century as a result of climate change.
The Government accepts the key findings of the Garnaut Climate Change
Review Final Report that:
· a fair and effective global agreement delivering deep cuts in
emissions consistent with stabilising concentrations of
9
A Dupont & G Pearman, Heating up the planet: Climate change and security, Lowy Paper
12, Lowy Institute for International Po licy, 2006.
10
R Garnaut, The Garnaut Climate Change Review: Final report, Chapter 12.
11
R Garnaut, The Garnaut Climate Change Review: Final report, Chapter 11.
5
Carbon Pollution Reduction Scheme Bill 2009
greenhouse gases at around 450 parts per million or lower
would be in Australia's interests
· achieving global commitment to emissions reductions of this
order appears unlikely in the next commitment period
· the most prospective pathway to this goal is to embark on
global action that reduces the risks of dangerous climate
change and builds confidence that deep cuts in emissions are
compatible with continuing economic growth and improved
living standards.
Economies can respond more efficiently to new circumstances when
businesses and individuals have certainty about long-term direction.
Starting as soon as possible on a gradual adjustment to a low-carbon
economy will give them the opportunity to plan their adjustment pathways
and manage changes in technology, equipment and skills requirements,
and will minimise the risk of stranding existing long-lived assets12 . This
will help to reduce the costs of mitigation.
The Australian community stands to gain from a comprehensive response
to climate change. Modelling conducted by the CSIRO suggests that
taking action to reduce Australia's greenhouse gas emissions is consistent
with strong jobs growth over the next 10 years -- including in the
relatively emissions-intensive the transport, construction, agriculture,
manufacturing and mining sectors.13 A comparison can be drawn with the
process of Australian tariff reform, whereby structural reform triggered
growth in productivity, jobs and living standards.
The Government's climate change strategy
The Government's climate change policy is built on three pillars --
reducing Australia's carbon pollution, adapting to the impacts of climate
change that we cannot avoid, and helping to shape a global solution.
Reducing Australia's carbon pollution
The Government is committed to a medium-term national target range of
reducing emissions by between 5 per cent and 15 per cent of 2000 levels
by 2020, and a long-term emissions reduction target of 60 per cent below
2000 levels by 2050.
12
Stranded assets are those that are no longer economically viable due to a change in
circu mstance, even though they are viable fro m an engineering point of view.
13
S Hatfield Dodds, G Tu rner, H Schandl & T Doss, Growing the green collar economy:
Skills and labour challenges in reducing our greenhouse emissions and national
environmental footprint, report to the Dusseldorp Skills Foru m, CSIRO Sustainable
Ecosystems, Canberra, 2008.
6
General outline
In the event that there is a comprehensive global agreement capable of
stabilising atmospheric concentrations of greenhouse gases at around
450 parts per million of carbon dioxide equivalence or lower, the
Government has committed to a target of reducing emissions by
25 per cent of 2000 levels by 2020. Such an ambitious global agreement
would be in Australia's national interest.
While international developments have improved the prospects of
achieving such an agreement, it will require a significant further shift in
negotiating dynamics so that all advanced and major developing
economies take serious action to restrain and then reduce emissions.
Achieving global commitment to such action in the near term will be very
tough. The Government is therefore pursuing responsible action now, to
help move the economy to a low pollution future and position Australia to
be part of a comprehensive 450 parts per million agreement in the future
when that proves possible.
Should the world achieve this ambitious agreement, the Government
would also seek a new election mandate for an increased target for 2050.
Meeting the emissions reductions targets will be challenging. Australia's
emissions have been growing rapidly since 1995. Monitoring and
reporting of Australia's emissions by the Department of Climate Change 14
suggest that, while Australia is likely to meet its Kyoto Protocol target of
limiting emissions in the 2008-2012 period to an average of 108 per cent
of 1990 levels, emissions will increase to 120 per cent of 1990 levels by
2020 (even after the expanded Renewable Energy Target is taken into
account) without additional policy measures.15 This indicates considerable
momentum in national emissions.
The Government will manage the transformation to a low-carbon
economy through:
· the implementation of the Carbon Pollution Reduction
Scheme (the primary tool for driving reductions in
greenhouse gas emissions)
14
Depart ment of Climate Change, Tracking to the Kyoto Target: Australia's greenhouse
emissions trends 1990 to 2008 2012 and 2020, Common wealth of Australia, 2008.
15
Modelling conducted by the Australian Treasury (published in Australia's low pollution
future (2008)) used scenarios to explore the potential economic effects of climate mit igation
policy on Australia. Each scenario represents, in a stylised way, a different possible future,
including levels of greenhouse emissions, which may d iffer fro m those projected in
Tracking to the Kyoto target. The scenarios developed and presented by the Treasury in
Australia's low pollution future are illustrative and do not represent the official policy or
negotiating position of the Australian Govern ment, are not an official Govern ment or
Treasury forecast, and are not an official project ion of Australia's future greenhouse gas
emissions.
7
Carbon Pollution Reduction Scheme Bill 2009
· an expanded national Renewable Energy Target
· investment in renewable energy technologies and in the
demonstration of carbon capture and storage
· action on energy efficiency.
To avoid adverse income or distributional effects arising from the Scheme
and ensure the most vulnerable households in society are protected, the
Government is introducing changes to the tax and transfer systems and is
introducing new, and accelerating existing, energy efficiency measures to
help alleviate increases to the cost of living arising from the Scheme.
The Government has established the $2.75 billion Climate Change Action
Fund to provide targeted assistance to business, community sector
organisations, workers, regions and communities to smooth the transition
to a low pollution economy. The Fund will assist in breaking down market
barriers that may raise the cost of responding to a carbon price, and to
encourage investment in low-emissions technology. It will also provide
targeted assistance for sectors, businesses, regions, communities and
workers that may be disproportionately affected by the introduction of the
Scheme because of their economic reliance on industries that are more
exposed to a carbon price.
The Fund will commence in 2009-10 with the first tranche of funding to
support businesses and community organisations to take early action in
identifying energy efficiency opportunities and to invest in energy
improvements.
The Government has also announced that it will commit $75.8 million
from 2009-10 over 5 years to establish the Australian Carbon Trust to
further support individual actions by households and businesses. Of this,
$50 million will be seed funding to an Energy Efficiency Trust. By
showcasing and demonstrating commercially viable energy efficiency
opportunities the Trust will increase awareness amongst businesses of the
financial and other benefits of energy efficiency and facilitate the growth
of private sector capacity and energy service companies.
In addition, the Council of Australian Governments has committed to
introduce a National Strategy for Energy Efficiency later in 2009 to help
households and businesses reduce their energy costs, improve the
productivity of our economy and reduce the cost of greenhouse abatement
under the CPRS.
Adapting to unavoidable climate change
Even if global mitigation efforts are successful, scientific evidence
indicates that some climate change is unavoidable. The National Climate
Change Adaptation Framework has been developed by the Australian
Government and all State and Territory governments to build Australia's
8
General outline
capacity to respond effectively to climate change, and outlines action to
reduce regional and sectoral vulnerability.
Helping to shape a global solution
While Australia is responsible for only a relatively small proportion of
global emissions, Australia's climate and economy are likely to be
strongly affected by climate change. Australia therefore has a strong and
direct national interest in pursuing a global solution. Being one of the
group of countries leading the global response means that Australia is in a
position to positively shape an international agreement to address climate
change beyond the first compliance period of the Kyoto Protocol, which
ends in 2012. Australia's domestic action will also be a critical influence
on our international credibility and capacity to help shape an effective
global response.
Major steps to date
United Nations Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change was
ratified by Australia on 30 December 1992. The Convention is aimed at
stabilising greenhouse gas concentrations in the atmosphere at a level that
would prevent dangerous anthropogenic interference with the climate
system. It provides an overall framework for intergovernmental efforts,
rather than setting binding emission reduction targets.
Ratification of the Kyoto Protocol
The Prime Minister handed over Australia's instrument of ratification of
the Kyoto Protocol on 3 December 2007. The ratification entered into
force on 11 March 2008. Under the Kyoto Protocol, Australia is
committed to restraining its national emissions to an average of
108 per cent of 1990 levels over the first commitment period (2008 to
2012).
Green Paper
On 16 July 2008, the Government released its Carbon Pollution Reduction
Scheme Green Paper. This Paper reflected the Government's preferred
positions on issues relating to the Scheme.
After the publication of this paper, the Government received more than
1000 submissions relating to all aspects of climate change policy. More
than 2400 people attended 18 public consultation sessions and workshops
held in capital cities and regional areas. More than 260 companies
attended technical workshops and meetings. Six industry and
9
Carbon Pollution Reduction Scheme Bill 2009
non-government roundtables were held with representatives from
45 organisations.
Treasury modelling
The Treasurer and the Minister for Climate Change and Water released
Australia's Low Pollution Future: The Economics of Climate Change
Mitigation on 30 October 2008.
The report presents the results of the Treasury's economic modelling of
the potential economic impacts of reducing emissions over the medium
and long term. It spans global, national and sectoral scales, and looks at
distributional impacts, such as the implications of emission pricing for the
goods and services that households consume.
The Treasury's modelling demonstrates that early global action is less
expensive than later action; that a market-based approach allows robust
economic growth into the future even as emissions fall; and that many of
Australia's industries will maintain or improve their competitiveness
under an international agreement to combat climate change.
White Paper
On 15 December 2008, the Government released its White Paper entitled
Carbon Pollution Reduction Scheme: Australia's Low Pollution Future.
This reflected the Government's decisions on the Scheme. It addressed,
among other things, the national emissions trajectory and target, coverage,
reporting and compliance, the nature of Australian emissions units,
acceptable international units, auctioning, scheme caps, assistance, tax and
accounting issues, household assistance and complementary measures,
and the Climate Change Action Fund.
Public information sessions on the White Paper were held in capital cities
in December 2008. On 26 February 2009, public information sessions
were delivered through a Sky Channel broadcast to 37 regional centres.
The detailed policy positions in the White Paper are reflected in the
package of draft bills that are being released for public comment.
Exposure draft legislation
On 10 March 2009, the Government released the following draft bills for
public comment:
· Carbon Pollution Reduction Scheme Bill 2009
· Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2009
· Australian Climate Change Regulatory Authority Bill 2009
10
General outline
· Carbon Pollution Reduction Scheme (Charges -- General)
Bill 2009
· Carbon Pollution Reduction Scheme (Charges -- Customs)
Bill 2009
· Carbon Pollution Reduction Scheme (Charges -- Excise)
Bill 2009.
Further industry and non-government organisation roundtables were
conducted, as well as stress testing workshops. Workshops have also been
held on a wide range of emissions-intensive trade-exposed activities.
The exposure period ended on 14 April 2009. The Department received
about 170 submissions and approximately 11,000 campaign emails. The
comments received have been taken into account in the preparation of the
final bills.
New measures announced on 4 May 2009
As a result of extensive consultation with the community, business and
environmental advocates, the Government announced a package of new
measures for the Scheme, including:
· a delay in the start date of the Scheme of one year, to help
Australian businesses to manage the impacts of the global
recession
· a one year fixed-price period in 2011-12, during which
emissions units will cost $10 per tonne of carbon, with the
transition to full market trading from 1 July 2012
· a Global Recession Buffer will be provided as part of the
assistance package for emissions-intensive trade-exposed
industries
· eligible businesses will receive funding to undertake energy
efficiency measures commencing in 2009-10
· a commitment to reduce carbon pollution by 25 per cent of
2000 levels by 2020 if the world agrees to an ambitious
global deal to stabilise levels of carbon dioxide equivalent
(CO2-e) in the atmosphere at 450 parts per million or less
· up to five percentage points of the 25 per cent target could be
achieved through Government purchase of international
credits, such as avoided deforestation credits, using Scheme
revenue and commencing no earlier than 2015
· should the world achieve this ambitious agreement, the
Government would seek a new election mandate for
increased 2050 targets
11
Carbon Pollution Reduction Scheme Bill 2009
· the establishment of Australian Carbon Trust to allow
households to do their bit by investing directly in reducing
Australia's emissions and to drive energy efficiency in
commercial buildings and businesses.
These measures will allow the Australian economy more time to recover
from the impacts of the worst global recession since the Great Depression,
while strengthening Australia's 2020 carbon pollution target, assisting
business to prepare for a low carbon future, and supporting individual
households and businesses to reduce emissions.
The legislative package
The group of bills for which this General Outline provides an introduction
are those which were released for public comment on 10 March 2009.
The Carbon Pollution Reduction Scheme Bill 2009 is the main bill. It
contains the detailed provisions relating to the emissions trading scheme.
These include:
· entities and emissions that are covered by the Scheme
· liable entities' obligation to surrender emissions units
corresponding to their emissions
· limits on the number of emissions units that will be issued
· the nature of Australian emissions units
· allocation of Australian emissions units, including by auction
and the issue of free units
· mechanisms to contain costs, including a fixed price period
and a price cap
· linking to other emissions trading schemes
· assistance in relation to emissions-intensive trade-exposed
activities and coal-fired electricity generators
· voluntary inclusion of reforestation activities under the
Scheme
· the Australian National Registry of Emissions Units
· monitoring and enforcement.
The Carbon Pollution Reduction Scheme (Consequential Amendments)
Bill 2009 includes the consequential amendments which will be
necessary, in particular amendments to the taxation legislation and to the
National Greenhouse and Energy Reporting Act 2007, which will provide
the basis for emissions reporting required under the Scheme.
The Australian Climate Change Regulatory Authority Bill 2009
establishes the Australian Climate Change Regulatory Authority, which
12
General outline
will administer the trading scheme, the reporting regime (the National
Greenhouse and Energy Reporting Act 2007) and the renewable energy
target (Renewable Energy (Electricity) Act 2000).
Three of the draft bills are technical bills, in case the charge for Australian
emissions units issued as the result of an auction or for a fixed charge is,
at some time in the future, considered to be taxation:
· Carbon Pollution Reduction Scheme (Charges -- General)
Bill 2009 will impose charges for the issue of Australian
emissions units as the result of an auction or for a fixed
charge if the charges are taxation within the meaning of
section 55 of the Constitution but are neither duties of
customs nor duties of excise.
· Carbon Pollution Reduction Scheme (Charges -- Customs)
Bill 2009 will impose charges for the issue of Australian
emissions units as the result of an auction or for a fixed
charge if the charges are taxation and are duties of customs
within the meaning of section 55 of the Constitution.
· Carbon Pollution Reduction Scheme (Charges -- Excise)
Bill 2009 will impose charges for the issue of Australian
emissions units as the result of an auction or for a fixed
charge if the charges are taxation and are duties of excise
within the meaning of section 55 of the Constitution
In addition to the above bills, the following related bills are being
introduced in the Parliament:
· the Excise Tariff Amendment (Carbon Pollution Reduction
Scheme) Bill 2009 and Customs Tariff Amendment (Carbon
Pollution Reduction Scheme) Bill 2009, which deliver the
Government's `cent-for-cent' fuel tax reductions to
households and business
· the Carbon Pollution Reduction Scheme (CPRS Fuel Credits)
Bill 2009 and Carbon Pollution Reduction Scheme (CPRS
Fuel Credits) (Consequential Amendments) Bill 2009, which
provide fuel credits to offset the impact of the Scheme for the
agriculture, fishing and heavy on-road transport industries
and gaseous fuels.
The Government also intends to introduce legislation into the Parliament
in winter sitting of 2009 to deliver financial assistance to help households
adjust to impacts of the Scheme.
13
Carbon Pollution Reduction Scheme Bill 2009
Outline of the scheme
The Carbon Pollution Reduction Scheme Bill 2008 (the bill) establishes a
national emissions trading scheme.
The quantity of greenhouse gas emissions for which liable entities are
responsible will be monitored, reported and audited.
At the end of each financial year, each liable entity will need to surrender
an eligible emissions unit for every tonne of greenhouse gas emissions
that they are responsible for in that year.
Eligible emissions units include Australian emissions units issued by the
Australian Climate Change Regulatory Authority (the Authority) and
eligible international emissions units. The number of Australian emissions
units issued by the Authority in each year (apart from 2011-12) will be
limited by a scheme cap, with further units being issued for additional
abatement from reforestation and destruction of synthetic greenhouse
gases.
Liable entities will compete to purchase the number of units that they
require, either at auctions arranged by the Authority or on the secondary
trading market. Those that value the units most highly will be prepared to
pay most for them. From 2012-13 onwards, liable entities will also be able
to purchase eligible Kyoto units to meet their obligations.
Certain categories of entities will receive an administrative allocation of
Australian emissions units as a transitional assistance measure. Those
entities will be able to use the units to comply with obligations under the
Scheme or sell them.
The ability to trade emissions units allows for the scheme cap to be
achieved at lowest cost to the economy.
Placing a price on greenhouse gas emissions will change the relative price
of goods and services, making emissions-intensive goods more expensive
relative to those that are less intensive. This provides incentives for
consumers and businesses to adjust their behaviour to reduce emissions.
The objects
The objects of the Scheme are specified in clause 3 of the bill. The first
object is to give effect to Australia's obligations under the United Nations
Framework Convention on Climate Change and the Kyoto Protocol. The
Carbon Pollution Reduction Scheme is designed as the primary policy tool
to meet Australia's international obligations regarding greenhouse gas
emissions reductions. Backing international commitments with the robust
mechanism of the Scheme means that there is greater likelihood of these
international targets being met. The strong focus on international
obligations also has direct Scheme design implications, ranging from
14
General outline
accounting methodologies to how the Scheme links with emissions
trading schemes elsewhere in the world.
If Australia becomes a party to a new international agreement which does
not comprise an amendment to the Climate Change Convention or the
Kyoto Protocol, the Government considers it may be necessary to amend
the bill to ensure that it reflects Australia's new international obligations.
The Government accepts the key findings of the Garnaut Final Report that
a fair and effective agreement delivering deep cuts in emissions consistent
with stabilising concentrations of greenhouse gases at around 450 parts
per million or lower would be in Australia's interests. Therefore, the
second object is to support the development of an effective global
response to climate change. The Scheme will contribute to the
development of a global carbon market and put Australia in a position to
influence the shape of the post-2012 international legal framework for
climate change.
The third object is to take action directed towards meeting Australia's
national emissions reduction targets.
The third object provides for a target of reducing greenhouse gas
emissions by 25 per cent of 2000 levels by 2020 in the event that there is
comprehensive international agreement to which Australia is a party,
capable of stabilising atmospheric concentrations of greenhouse gases at
around 450 parts per million of carbon dioxide equivalence or lower. The
Australian Government's conditions on becoming a party to an
international agreement that entails a minus 25 per cent 2020 target are set
out below and are designed to achieve a robust international agreement.
The third object also provides, in the event that the minus 25 per cent
target does not apply, for a target of reducing greenhouse gas emissions to
between 5 per cent and 15 per cent below 2000 levels by 2020, and
60 per cent by 2050, and to do this in a flexible and cost-effective way.
The minus 5 to 15 range will ensure that Australia is positioned to make
deeper and more rapid reductions in emissions if global momentum grows
after 2020, including towards an agreement aimed at stabilisation of the
concentration of greenhouse gases in the atmosphere at 450 parts per
million.
In relation to the minus 25 per cent target, the Government considers that
such an agreement requires a clear pathway to achieving an early global
peak in total emissions, with major developing economies slowing the
growth and then reducing their emissions, advanced economies taking on
reductions and commitments comparable to Australia, and access to the
full range of international abatement opportunities through a broad and
functioning international market in carbon credits.
15
Carbon Pollution Reduction Scheme Bill 2009
This would involve:
· comprehensive coverage of gases, sources and sectors, with
inclusion of forests (reducing emissions from deforestation
and forest degradation in developing countries) and the land
sector (including soil carbon initiatives (e.g. bio char) if
scientifically demonstrated) in the agreement
· a clear global trajectory, where the sum of all economies'
commitments is consistent with 450 parts per million CO 2 -e
or lower, and with a nominated early deadline year for peak
global emissions not later than 2020
· advanced economy reductions, in aggregate, of at least
25 per cent below 1990 levels by 2020
· major developing economy commitments to slow growth and
to then reduce their absolute level of emissions over time,
with a collective reduction of at least 20 per cent below
business-as-usual by 2020 and a nomination of a peaking
year for individual major developing economies
· global action which mobilises greater financial resources,
including from major developing economies, and results in
fully functional global carbon markets.
For the purposes of the above, `advanced economies' refers to Annex 1
parties to the United Nations Framework Convention on Climate change
and at least some other high/middle income economies; `major developing
economies' refers to non-Annex 1 members of the Major Economies
Forum.
A Ratification Review will be established in addition to the Joint Standing
Committee on Treaties Process to assess whether the terms of any global
agreement meet the conditions set out for Australia to adopt the
25 per cent target. The establishment of the Ratification Review is a
policy commitment, and is not referred to in the legislative package.
For the Ratification Review, an independent review panel (with broad
membership but including appropriate economic and scientific expertise)
will be established and will conduct public hearings as to whether the
conditionality set out by the Government is met. The Review will report
its findings to Government, which is required to table its response along
with the Review report in Parliament within 90 days. Consideration of a
new international agreement is likely to follow the steps below:
· Australia participates in negotiation and finalisation of a new
international agreement
· A Ratification Review is conducted prior to Government
decision regarding ratification, in addition to consideration
by Joint Standing Committee on Treaties
16
General outline
· the Government makes final decision regarding ratification
· assuming Australia proceeds to ratify the new agreement and
it enters into force for Australia, subsequent scheme caps and
gateways, which are made in regulations under the bill,
would reflect Australia's new targets . In practice, this is
likely to take the form of narrowing and/or extending scheme
gateways, and extending scheme caps.
While not part of the Scheme, were the Government to decide to fund the
purchase of international units from auction revenue, as a matter of policy,
this would be taken into account in setting the scheme caps.
If an ambitious international agreement is reached, the case for EITE
assistance is significantly reduced and an EITE assistance review would
be triggered immediately.
If the conditions relating to the minus 25 per cent target are not met, then
the minus 5 to 15 per cent target range is relevant. The Government
accepts the Garnaut Final Report's finding that, in the event that an
ambitious target is not achieved immediately, the most prospective
pathway to this goal is to embark on global action that reduces the risks of
dangerous climate change and builds confidence that deep cuts in
emissions are compatible with continuing economic growth and improved
living standards. In this way, even if conditions are not met for the minus
25 per cent commitment, Australia's 2020 emissions reduction target can
still contribute to stronger global reductions in emissions over time.
The minus 5 to 15 range represents:
· A minimum (unconditional) commitment to reduce emissions
to 5 per cent below 2000 levels by 2020
· A commitment to reduce emissions by up to 15 per cent
below 2000 levels by 2020 in the context of global agreement
under which all major developing economies commit to
substantially restrain emissions and advanced economies take
on reductions comparable to Australia.
The minus 15 per cent target would involve an international agreement
where major developing economies commit to substantially restrain
emissions and advanced economies take on commitments comparable to
Australia's. In practice this implies:
· global action on track to stabilisation between 510-540 ppm
CO2 -e
· advanced economy reductions in aggregate, in the range of
15 -- 25 per cent below 1990 levels
· substantive measurable, reportable and verifiable
commitments and actions by major developing economies, in
17
Carbon Pollution Reduction Scheme Bill 2009
the context of a strong international financing and technology
cooperation framework, but which may not deliver
significant emissions reductions until after 2020
· progress toward inclusion of forests (reducing emissions
from deforestation and forest degradation in developing
countries) and the land sector, deeper and broader carbon
markets, low carbon development pathways.
The minus 60 per cent target for national emissions by 2050 could be
reconsidered should it become necessary in playing our part alongside
commitments from both developed and developing countries in a truly
ambitious global agreement around stabilisation at 450 parts per million.
The Government would seek a new election mandate for an increased
target for 2050.
When interpreting Australia's emissions reduction targets, greenhouse gas
emissions are calculated in accordance with the Kyoto rules, which
provide an accounting framework and take a net approach that allows for
the international trade of emissions units. That is, national targets for
emissions reductions will comprise reductions in emissions in Australia
and any abatement purchased overseas and cancelled by the Australian
Government in respect of its international targets. Emissions units
exported to other countries will not be counted towards the target. This
approach is consistent with arrangements under the Kyoto Protocol, where
Australia can increase its emissions above its target by purchasing and
retiring additional Kyoto units from other countries.
If there is a successor international agreement to the Kyoto Protocol to
which Australia is a party, the targets would then be calculated in
accordance with the accounting framework in that agreement.
The objects clause states that these emissions reductions targets are to be
achieved in a flexible and cost-effective way. The Scheme incorporates
many elements, such as the ability to trade eligible emissions units, broad
coverage, international links, and the ability to `bank' and `borrow'
Australian emissions units, which contribute to this goal.
The scheme in brief
National targets and Scheme caps
The Government has announced national targets which are reflected in the
objects of the Scheme quoted above.
The Scheme is a `cap and trade' scheme. It involves setting a national
scheme cap for a particular year and issuing units up to the level of that
cap. The scheme cap for a particular year is a quantity of greenhouse
gases that have a carbon dioxide equivalence of a specified number of
tonnes.
18
General outline
Scheme caps generally will be lower than the emissions path required to
meet the national targets because some emissions sources are not covered
by the Scheme (primarily, agricultural and deforestation emissions) and
some direct emissions from facilities are only covered if they exceed
specified thresholds.
Detailed scheme cap numbers for each relevant financial year will be
specified in regulations. The Government intends that these be consistent
with the 2020 and 2050 targets. The Minister will be required to take all
reasonable steps to ensure that regulations to specify the scheme cap
numbers for the three years commencing 1 July 2012 are made before
1 July 2010. The purpose of this requirement is to provide market
certainty. In a similar vein, for all subsequent financial years, the Minister
is required to take all reasonable steps to ensure that regulations declaring
the scheme cap number are in place at least five years before the end of
the relevant year. There is provision for a default scheme cap number in
the event that there is no scheme cap number for a year beginning on or
after 1 July 2015.
To provide further guidance to liable entities and participants in the
carbon market more generally, national scheme gateways may be
prescribed for years beginning on or after 1 July 2015. A gateway is a
range, comprising an upper bound and a lower bound of emissions,
expressed in terms of tonnes of carbon dioxide equivalent, for a particular
year. The Minister is required to take all reasonable steps to ensure that
the scheme caps are within the range specified for the relevant year.
The same considerations that are relevant in making decisions about
national targets and the national emissions trajectory are relevant for
setting caps and gateways. In making a recommendation to the
Governor-General about scheme cap and scheme gateway regulations, the
Minister must have regard to Australia's international obligations under
the United Nations Framework Convention on Climate Change and the
Kyoto Protocol. Other matters that may be taken into account when
setting the national scheme caps and gateways are specified in the draft
bill and discussed in Chapter 2 of this commentary.
The draft bill is designed to provide the maximum feasible level of
certainty over future scheme caps consistent with retaining legitimate
flexibility to adapt to changing international conditions.
Liable entities and covered emissions
The Scheme applies liability in two main ways. First, liability generally
arises where the greenhouse gases emitted from the operation of a facility
have a carbon dioxide equivalence of 25,000 tonnes or more per year.
(One exception is in respect of landfill facilities, where the threshold is
10,000 tonnes for facilities within a prescribed distance of a landfill
facility emitting more than 25,000 tonnes of carbon dioxide equivalence
and accepting the same classification of waste). Where the entity that has
19
Carbon Pollution Reduction Scheme Bill 2009
operational control of the facility is a member of a controlling
corporation's group, liability attaches to the controlling corporation. The
controlling corporation's group consists of a controlling corporation and
its subsidiaries, if any. To avoid doubt, a group may consist of the
controlling corporation alone. Where the legal person with operational
control of the facility is not a member of a controlling corporation's group
(a non-group entity), liability attaches to that person.
Secondly, where there are large numbers of small emitters, it is more
practical to cover emissions by applying liability at another point along
the supply chain. For example, to avoid imposing a compliance burden on
many individual suppliers or users of fossil fuels and synthetic greenhouse
gases, while sending the same price signal, the Scheme applies liability at
the earliest point of the fuel supply chain within Australia, for example the
importer or manufacturer of the fuel or synthetic greenhouse gas.
In some situations, entities that purchase fuel from that `upstream' entity
will be required to quote an `obligation transfer number' and to take
responsibility for emissions that would result from the combustion of the
purchased fuel (referred to as `potential emissions'). Large users of fossil
fuels (other than petroleum liquid fuels) will be required to do this.
In certain other situations the purchaser will be allowed, on a voluntary
basis, to obtain and quote an `obligation transfer number', acquire the
fuel, gas or other substance and take responsibility for surrendering the
units to meet the Scheme obligation. This mechanism allows entities to
take on liability voluntarily or to avoid liability for emissions associated
with exported substances, such as export of black coal and synthetic
greenhouse gases, because the emissions will occur outside Australia.
This is discussed in detail in Chapter 1.
Making upstream entities liable, while providing the `obligation transfer
number' mechanism, will assist in achieving a reduction of greenhouse
gas emissions in a flexible and cost-effective way.
Issue of Australian emissions units
The Australian Climate Change Regulatory Authority will issue
Australian emissions units up to the national scheme cap each year. These
units will be issued:
· following purchase through an auction (see Chapter 3)
· in relation to emissions-intensive trade-exposed activities
(see Chapter 4)
· in relation to coal-fired electricity generators (see Chapter 5).
In addition, units will be issued:
· for $10 in relation to the year commencing 1 July 2011 (see
Chapter 3)
20
General outline
· on application, for the four years commencing 1 July 2012, at
a fixed charge (see Chapter 3)
· for reforestation (see Chapter 6)
· for the destruction of synthetic greenhouse gas (see
Chapter 7).
Chapter 2 addresses Australian emissions units and eligible international
emissions units.
Assessment and surrender
Liable entities under the Scheme will report the emissions for which they
are liable through the National Greenhouse and Energy Reporting Act
2007. This Act will be amended to require those liable entities which are
not currently reporting under that Act to do so.
Liability may arise from several sources for which the one entity is liable.
For example, controlling corporation A may be responsible for the
emissions from one or more facilities and as a large user of fossil fuels.
The emissions from each of these sources are `provisional emissions
numbers'.
The sum of the provisional emissions numbers is reduced by any excess
surrender number (that is, excess units surrendered in the previous year)
and increased by the `make good' number (if the entity failed to meet its
obligations in a previous year). The result of this calculation is the entity's
emissions number.
Eligible emissions units representing this number must be surrendered by
15 December following the relevant financial year. If sufficient units are
not surrendered, a penalty becomes due on 31 January and a late payment
penalty will begin to accrue. The penalty is a pecuniary penalty and a
`make good' obligation. (A `make good' obligation means that if a liable
entity surrenders too few units in one year, the obligation to surrender the
shortfall carries over into the following year.)
The arrangements differ slightly for the year commencing 1 July 2011.
This is explained in Chapter 8.
Compliance and enforcement
The powers relating to information gathering and monitoring are
described in Chapter 9. The enforcement regime is also described in that
Chapter.
The Australian National Registry
A National Registry, described in Chapter 10, will be established to track
the legal title to eligible emissions units and to manage their surrender and
cancellation. This includes opening of accounts, and correction and
rectification.
21
Carbon Pollution Reduction Scheme Bill 2009
Public information
Price-relevant information will be published regularly to enable Scheme
participants to make informed decisions about the price of emissions
units. In addition, information about liable entities, holders of Registry
accounts and forestry projects will be available. This is described in
Chapter 11.
Independent reviews
An independent expert advisory committee will be constituted
periodically to conduct public reviews of the Scheme. The committee and
its operations are described in Chapter 12.
Review of decisions and miscellaneous
Chapter 13 addresses merits review of decisions by the Australian Climate
Change Regulatory Authority and various miscellaneous matters.
Simplified outline
The bill includes a simplified outline of the Scheme (at clause 4) and each
Part of the bill includes a simplified outline of that Part's contents .
Date of effect and application
While the proposed Act will commence 28 days after Royal Assent, the
first year in relation to which entities will be liable under the Scheme will
commence on 1 July 2011. This is achieved by use of the phrase `eligible
financial year' which is defined to mean the financial year beginning on
1 July 2011 or a later financial year.
Early commencement will allow liable entities and the Authority to
prepare for the Scheme and for the Authority to operate the National
Registry in relation to Kyoto units. It will also provide time for liable
entities to manage the impacts of the current global recession. The delayed
start will also provide time for:
· Education and assistance for entities which are likely to be
liable and their representatives
· Receipt and assessment of applications, for example, for
certificates of eligibility for coal-fired generation assistance,
registry accounts, obligation transfer numbers, emissions-
intensive trade-exposed assistance and in relation to
reforestation
Proposal announced
The measures are based on the positions included in the White Paper
entitled Carbon Pollution Reduction Scheme: Australia's Low Pollution
Future, released by the Government on 15 December 2008. The Prime
Minister announced some changes to the Scheme, including to manage the
impacts of the global recession, on 4 May 2009.
22
General outline
Transitional provisions and consequential amendments
The transitional provisions and consequential amendments are included in
the draft Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill. There is a separate commentary for this draft bill.
Financial impact
Financial impact statement
The financial impact associated with the legislative proposals in the
Carbon Pollution Reduction Scheme Bills and consequential amendments,
are reflected in the table of key measures below (Table 1 -- released
under the Carbon Pollution Reduction Scheme: Australia's Low Pollution
Future White Paper) and the table of measures from the Government's
strengthening of the Scheme released as part of the 2009-10 Budget
(Table 2). Table 3 shows the revenue from the sale of emissions units
under the revised implementation schedule for the Scheme. Further detail
on the financial implications of these measures will be provided with the
bill on household assistance.
The Government will use every cent it receives from the sale of emissions
units to help households and businesses adjust and move Australia to the
low pollution economy of the future.
Table 1: Key Measures -- Carbon Pollution Reduction Scheme (and
related Bills and appropriations) (fiscal balance)
2008-09 2009-10 2010-11 2011-12
$b $b $b $b
Revenue from the issuing of permits - - 11.5 12.0
Households Assistance Measures
Assis tance for Low and Middle -6.0
Income Households - - -3.9
Fuel Tax Adjustment - - -2.4 -2.0
Industry Assis tance Measures
Assis tance to Emissions Intensive -3.1
Trade Exposed Industries (EITE) - - -2.9
Assis tance to Strongly Affected -0.7
Industries - - -0.7
Climate Change Action Fund -0.3 -0.7 -0.7
Transitional assis tance to firms
participating in the Greenhouse * * * *
Gas Reduction Scheme (GGAS)
Net Impact of Revenue and Assis tance -0.5
Measures - -0.3 0.8
23
Carbon Pollution Reduction Scheme Bill 2009
Table 2: 2009-10 Budget Measures -- CPRS revised implementation,
global recession buffer, and associated measure -- CCAF additional
funding and rephasing (fiscal balance)
2008- 2009-10 2010-11 2011-12 2012- Total
09 $b $b $b 13 $b
$b $b
CPRS -- revised
implementation - - -1.7 0.5 0.9 -0.3
Revenue - - -7.5 -3.0 1.0 -9.5
Expense - - 5.8 3.5 -0.1 9.2
CPRS -- Global
Recession Buffer - - - -0.1 -0.2 -0.3
CPRS -- Climate
Change Action Fund --
additional funding and
rephasing 0.0 0.1 0.4 0.0 -0.1 0.4
Table 3: 2009-10 Budget -- Carbon Pollution Reduction Scheme
revenue (fiscal balance)
2008- 2009-10 2010-11 2011-12 2012- Total
09 $b $b $b 13 $b
$b $b
Revenue from the
issuing of permits - - - 4.5 13.0 17.5
The Department will receive funding of $15.2m in 2008-09 and interim
funding of $76.7m in 2009-10 for the establishment of ACCRA, with final
funding for 2009-10 and 2010-11 and onwards expected to be finalised as
part of the 2009-10 Additional Estimates process.
Regulation impact statement
The Regulation Impact Statement for the Carbon Pollution Reduction
Scheme comprises the following:
· The initial Regulation Impact Statement
· Review of Input to Regulatory Impact Analysis on
Administrative Costs of the Carbon Pollution Reduction
Scheme by Ernst & Young by George Wilkenfeld and
Associates
The initial Regulation Impact Statement was undertaken in consultation
with the Office of Best Practice Regulation and assessed by the Office as
adequate in December 2008. The compliance costs in the Regulation
Impact Statement are based on two elements:
· Hypothetical company cost estimates based on analysis in the
report Input to Regulatory Impact Analysis on Administrative
24
General outline
Costs of the Carbon Pollution Reduction Scheme by Ernst &
Young which was undertaken in November 2008 for the
Department of Climate Change
· Total annual compliance cost estimates based on aggregation
of the hypothetical company cost estimates drawing on
analysis undertaken by the Department of Climate Change.
In April 2009, George Wilkenfeld and Associates was commissioned by
the Department of Climate Change to undertake a review of the analysis
which underpins the compliance costs for the Regulation Impact
Statement.
The Regulation Impact Statement and the George Wilkenfeld and
Associates review are attached.
These documents reflect the administrative costs of compliance. They do
not assess the business cost impacts of the Scheme associated with the
purchase of emissions units for surrender nor the commercial
opportunities presented to some businesses. This was outlined in the
Treasury report entitled Australia's Low Pollution Future: the economics
of climate change mitigation.
The Regulation Impact Statement shows ongoing administrative
compliance costs for business of around $107 million per annum. This
represents less than 1 per cent of total scheme revenues (approximately
$13 billion annually).
The effects of the new measures announced by the Prime Minister on
4 May 2009 are not included in the Regulation Impact Statement. For
example, for liable entities, the delayed start means more time to put
appropriate compliance systems in place, procure audit and other business
services, and will therefore lower initial costs.
The new measures will also have an effect on the cost for relevant entities
to meet their surrender obligations. Their impact on Government finances
is outlined in the 2009-2010 Commonwealth Budget.
25
Chapter 1
Liable entities and covered emissions
Outline of chapter
1.1 This chapter defines the entities that will have obligations to
surrender eligible emissions units for the various types of emissions
covered under the Scheme. The chapter also introduces two mechanisms
that enable entities to transfer obligations to surrender units, Obligation
Transfer Numbers and Liability Transfer Certificates.
Context
1.2 The Carbon Pollution Reduction Scheme covers a broad range
of emission sources. This reduces the overall cost to the Australian
economy of achieving emissions reductions, by increasing opportunities
for low-cost abatement.
1.3 The Scheme will cover the stationary energy, transport, fugitive
emissions, industrial processes and waste sectors, and all of the six
greenhouse gases that are included under the Kyoto Protocol.
1.4 Clear rules for assigning and transferring responsibility for
emissions are necessary to ensure that one eligible emissions unit is
surrendered for each tonne of emissions covered under the Scheme.
Summary of new law
Liable entities
1.5 Liable entities are liable to surrender eligible emissions units.
A person may be a liable entity during an eligible financial year if the
person:
· is responsible for greenhouse gases emitted directly from a
facility; or
· imports, produces or supplies certain fuels; or
· imports, manufactures or supplies synthetic greenhouse gas.
Greenhouse gases emitted from a facility
1.6 The provisions relating to emissions of greenhouse gases from
the operation of a facility are in Division 2 of Part 3. Subdivision A relates
27
Carbon Pollution Reduction Scheme Bill 2009
to emissions from non-landfill facilities, including emissions from any
waste sources at these facilities. Subdivision B deals with emissions from
landfill facilities.
1.7 In broad terms, a person responsible for greenhouse gases
emitted from the operation of a facility will have an obligation to
surrender eligible emissions units if:
· the total amount of greenhouse gases emitted from the
operation of the facility was 25,000 tonnes or more of carbon
dioxide equivalence (CO2 -e); or
· the facility was a landfill facility that emitted greenhouse
gases of 10,000 tonnes or more of CO2 -e, and was within a
prescribed distance of a landfill facility that emitted
greenhouse gases of 25,000 tonnes or more of CO2 -e and
accepts a similar classification of waste.
1.8 However, to avoid double counting, a person responsible for
greenhouse gases emitted from the operation of a facility will not be
required to surrender eligible emissions units for emissions attributable to
the combustion of fuel for which an importer, producer or re-supplier of
that fuel has incurred Scheme obligations.
1.9 A person can be responsible for greenhouse gases emitted from
the operation of a facility because:
· the person is a controlling corporation of a group, and a
member of the group operates the facility; or
· the person is not a member of a controlling corporation's
group, but operates the facility; or
· the person is the holder of a liability transfer certificate in
relation to a facility.
Liability transfer certificates
1.10 Liability transfer certificates allow for the liability for a
particular facility to be transferred from one entity to another. Provisions
relating to the transfer of liability for emissions under a liability transfer
certificates are in Division 6 of Part 3.
1.11 There are two circumstances in which liability transfer
certificates can be used.
1.12 The first circumstance applies to corporations only. Liability
under the Scheme is placed on the controlling corporation for facilities
that are operated by a member of its group (that is, the controlling
corporation itse lf or one of its subsidiaries). However, Category A
certificates allow a subsidiary to apply to take on liability from its
controlling corporation with the consent of that corporation in certain
28
Chapter 1: Liable entities and covered emissions
circumstances. This transfer is intended to help resolve contract pass
through issues for some corporations where possible. If the subsidiary
fails to meet its obligations, liability will revert back to the controlling
corporation.
1.13 The second circumstance applies when an entity with financial
control over a facility is not the operator of that facility. In this instance,
the operator and the entity with financial control may both have influence
over emissions reductions. In line with the object of the Scheme -- to
reduce emissions -- the entity that has financial control may take on
liability in certain circumstances through a Category B liability transfer
certificate. If more than one entity has financial control, it is intended that
the entity with the greatest financial control would be permitted to apply
for a liability transfer certificate.
1.14 All reporting obligations under the National Greenhouse and
Energy Reporting Act 2007, including reporting of greenhouse gas
emissions, energy production and energy consumption data, in relation to
the facility for which a liability transfer certificate is issued are transferred
to the holder of the certificate.
Importers, producers and re-suppliers of eligible upstream fuel
1.15 Provisions relating to importers, producers and re-suppliers of
`eligible upstream fuels' are in Division 4 of Part 3. (A list of eligible
upstream fuels is set out in clause 5.)
1.16 In the first instance, liability for eligible upstream fuels is
applied at the top of the supply chain.
1.17 In the case of liquid petroleum fuels, the top of the supply chain
is defined by reference to the requirement to pay excise duty or import
duty on these fuels. For these fuels liability arises when the requirement to
pay import duty or excise duty arises.
1.18 For eligible upstream fuels other than liquid petroleum fuels, the
top of the supply chain is determined by reference to when an amount of
imported fuel is entered for home consumption, or in the case of fuels that
are not imported, by reference to the fact that the fuel has not been
supplied in Australia. In effect, liability for these fuels arises when fuel
that has been manufactured or entered for home consumption is first
supplied to another person or applied to a person's own use.
1.19 Obligations can be transferred from fuel suppliers to other
persons using an Obligation Transfer Number (OTN, see below).
1.20 The quotation of an OTN relieves a supplier of liability in
relation to that supply. The subsequent re-supply of that fuel will result in
liability for the re-supplier unless the recipient of the fuel quotes an OTN
in relation to the re-supply. A person that quotes an OTN in relation to a
29
Carbon Pollution Reduction Scheme Bill 2009
supply of fuel will also be liable for any emissions that arise from the
application of that fuel to their own use.
1.21 However, the person will not incur a liability for uses that do not
result in emissions (or that result in emissions outside Australia) such as
the export of fuel or synthetic greenhouse gas and their use as a chemical
feedstock.
Importers, manufacturers and re-suppliers of synthetic greenhouse
gases
1.22 Provisions relating to importers, manufacturers and re-suppliers
of synthetic greenhouse gases are outlined in Division 3 of Part 3.
1.23 Scheme obligations for emissions from the use of synthetic
greenhouse gases will apply to importers, manufacturers and in certain
circumstances, re-suppliers of these gases. A person responsible for
greenhouse gases emitted from a facility will not be required to surrender
eligible emissions units for emissions of synthetic greenhouse gases from
the operation of the facility unless those emissions are generated by an
industrial process, for example, during the production of aluminium.
Obligation transfer numbers
1.24 Provisions that establish Obligation Transfer Numbers (OTNs)
and govern their use are outlined in Division 5 of Part 3. Quoting an OTN
will generally relieve the supplier of liability in respect of the supply of
fuel.
1.25 Liability for all eligible upstream fuels can be transferred down
the supply chain to a re-supplier or end user of the fuel if the rules of the
OTN mechanism require or permit this transfer of liability. The bill
prescribes circumstances under which entities are permitted or required to
quote an OTN. [Part 3, Division 5, clauses 52 -64AA]
1.26 The OTN mechanism allows the carbon price to flow through
the supply chain, and allows entities to avoid situations arising where they
face a double liability or a liability for a use of fuel that does not result in
emissions.
30
Chapter 1: Liable entities and covered emissions
Detailed explanation of new law
1.27 The bill includes a simplified outline of Part 3. [Part 3, Division 1,
clause 16]
Key concepts
1.28 Key concepts and definitions referred to throughout this chapter
are explained in this section.
Greenhouse gas
1.29 `Greenhouse gas' has the same meaning as in the National
Greenhouse and Energy Reporting Act 2007. [Part 1, clause 5, definition of
`greenhouse gas'] This definition will be amended by the consequential
amendments bill to provide for additional gases to be included through
regulations. (See the consequential amendments bill, Schedule 1, Part 2,
item 146) This will allow for the inclusion of any additional greenhouse
gas which is recognised in a post-2012 international agreement.
1.30 The amended definition will cover
· carbon dioxide
· methane
· nitrous oxide
· a synthetic greenhouse gas
· a prescribed greenhouse gas.
1.31 The following gases are synthetic greenhouse gases:
· sulphur hexafluoride
· a hydrofluorocarbon of a kind specified in the National
Greenhouse and Energy Reporting Act 2007
· a perfluorocarbon of a kind specified in the National
Greenhouse and Energy Reporting Act 2007.
Carbon dioxide equivalence
1.32 Carbon dioxide equivalence (CO2 -e) has the same meaning as in
the National Greenhouse and Energy Reporting Act 2007. [Part 1, clause 5,
definition of `carbon dioxide equivalence'] That is, the CO2 -e of an amount of
greenhouse gas (metric weight) means the amount of the gas multiplied by
a value specified in the National Greenhouse and Energy Reporting
Regulations 2008 in relation to that kind of greenhouse gas. This value is
the internationally accepted global warming potential for that gas.
31
Carbon Pollution Reduction Scheme Bill 2009
1.33 This definition will be amended by the consequential
amendments bill so that it also provides for calculating the carbon dioxide
equivalence of an amount of potential greenhouse gas emissions
embodied in an amount of an eligible upstream fuel. (See the
consequential amendments bill, Schedule 1, Part 2, items 112, 146)
Person
1.34 The coverage of legal entities is given effect through the
definition of a `person'. The Scheme may apply obligations to any legal
entity. Legal entities are captured as broadly as possible, ranging from an
individual to a corporation, a trust (a trustee or trust estate), a body
corporate, and Commonwealth, State, Territory and local governments --
these are examples only and this is not intended as an exhaustive list.
[Part 1, clause 5, definition of `person']
1.35 Government bodies will be bound by the bill. Key financial
penalties, such as penalties for failing to surrender sufficient emissions
units, apply to government bodies. However, in line with usual practice
this clause ensures that the Crown is not subject to a pecuniary or criminal
penalty. This protection does not apply to an authority of the Crown.
[Part 1, clause 9]
1.36 These legal entities may be liable under the Scheme if they meet
the criteria for liable entities under Part 3 of the bill.
1.37 A definition of a `non-group entity' is included to identify any
person that is not a member of a controlling corporation's group
(essentially this is individuals and entities that are not constitutional
corporations) [Part 1, clause 5, definition of `non-group entity']. (See the
consequential amendments bill, Schedule 1, Part 2, item 129)
Liable entity -- direct emitters of greenhouse gases
1.38 In broad terms, a person is liable in respect of greenhouse gases
emitted from the operation of a facility if:
· the person operates a facility (other than a landfill facility
that was closed prior to 1 July 2008); and
· the facility had direct (scope 1) emissions of greenhouse
gases covered by the Scheme; and
· the amount of those greenhouse gases exceeds a threshold.
[Part 3, Division 2, clauses 17(1)-(3), 18(1)-(3), 19(1)-(3), 20(1)-(3),
21(1)-(3), 22(1)-(3)]
1.39 A person's liability for a facility will be for greenhouse gases
emitted from that facility other than those from fuel for which an
importer, producer or re-supplier of fuel has incurred a liability.
32
Chapter 1: Liable entities and covered emissions
Facility and landfill facility
1.40 Facility has the same meaning as in the National Greenhouse
and Energy Reporting Act 2007. [Part 1, clause 5, definition of `facility']
1.41 A `landfill facility' is a specific type of facility that is defined
separately in the bill. A landfill facility is defined as a facility for the
disposal of solid waste as landfill, and includes a facility that is closed for
the acceptance of waste. [Part 1, clause 5, definition of `landfill facility']
1.42 The definitions lead to a distinction between facilities for which
the main purpose is the disposal of solid waste and other facilities,
including those for which disposal of solid waste is a secondary purpose.
An example of a facility for which disposal of solid waste is a secondary
purpose is a mine that disposes of mine-generated waste on-site.
Facilities included in the Scheme
Facilities that exceed a threshold
1.43 Thresholds are used to determine when a facility is included in
the Scheme. That is; when the operator of a facility is a liable entity for a
particular facility.
1.44 The operator of a facility will be a liable entity during a financial
year if the facility emitted 25,000 tonnes or more of CO 2 -e of greenhouse
gases during that year. [Part 3, Division 2, clauses 17, 18, 20 and 21]
1.45 The holder of a liability transfer certificate for a facility will be a
liable entity during a financial year if the facility emitted 25,000 tonnes or
more of CO2 -e of greenhouse gases during that year. [Part 3, Division 2,
clauses 19 and 22]
1.46 In the case of landfill facilities, an additional threshold of
10,000 tonnes of CO2 -e applies where a facility is within a specified
distance of an open landfill facility which triggered the 25,000 tonnes of
CO2 -e threshold in the previous financial year, and accepts a similar
classification of waste. This distance will be set in the regulations and will
be fixed for five years to provide certainty for industry. [Part 3, Division 2,
clause 20(13)], [Part 3, Division 2, clause 21(13)], [Part 3, Division 2, clause 22(12)].
1.47 If a landfill facility triggered the 25,000 tonnes of CO 2 -e
threshold in the previous eligible financial year it is considered to be a
designated large landfill facility. The Authority may publish a list of
designated large landfill facilities for the purpose of assisting landfill
facilities in determining if 10,000 tonnes of CO2 -e threshold applies to
them for an eligible financial year. [Part 1, clause 5, definition of `designated
large landfill facility']
1.48 A lower threshold is used in these circumstances to prevent the
movement of waste from a landfill facility that has Scheme obligations to
one that does not.
33
Carbon Pollution Reduction Scheme Bill 2009
1.49 The Government aims to move parliamentary amendments
which will clarify how facilities that are subject to the lower threshold will
be affected if either they or the relevant designated large landfill facility
close.
Example 1.1: Application of 25,000 tonnes of CO 2-e
threshold
During a financial year Co mpany X operates a facility that emits
20,000 tonnes of CO2 -e fro m the co mbustion of fuel that another entity
supplies to it, and 15,000 tonnes of CO2 -e fro m an industrial process.
The total emissions from the facility are 35,000 tonnes of CO2 -e.
Co mpany X is a liable entity.
Example 1.2: Application of 10,000 tonnes of CO 2-e
threshold for landfill facilities
Landfill facility A emits 14,000 tonnes of CO2 -e in an eligib le financial
year. The landfill facility is within the specified distance of another
open landfill facility, landfill facility B, which accepts a similar
classification of waste and in the previous eligible financial year
emitted 25,000 tonnes or more of CO2 -e. Landfill facility A is therefore
covered under the Scheme.
Closed landfill facilities
1.50 The definition of landfill facility includes a facility that is closed
for the acceptance of waste. However landfill facilities which longer
accept waste and closed prior to 1 July 2008 are excluded from the
Scheme.[Part 3, Division 2, clause 20(6)], [Part 3, Division 2, clause 21(6)], [Part 3,
Division 2, clause 22(6)]
1.51 The operator of a landfill facility that closed after
30 June 2008 will be a liable entity for that facility if the facility meets
one of the thresholds outlined above. In the event that operational control
changes after the facility is closed, obligations transfer to the new entity
with operational control. In many cases, this will be the land owner. The
liable entity will be determined through the operational control def inition.
1.52 In situations where gas capture technology, for example, is
installed on a site that is closed, the liable entity will be the one who has
authority over operating and environmental policies relating that site.
Pro-rata thresholds
1.53 Pro-rata emissions thresholds will apply where:
· a facility is under the operational control of a member of a
controlling corporation's group for part of a year
· a facility is under the operational control of a non-group
entity for part of a year
or
34
Chapter 1: Liable entities and covered emissions
· an entity is the holder of a liability transfer certificate for part
of a year. [Part 3, Division 2, clauses 17(1), 18(1), 19(1), 20(1), 21(1),
22(1)]
1.54 The pro-rata threshold is applied in recognition that there will
always be a person that operates a facility, but that the entity that is liable
for a facility may change during the course of a year. This would occur
when operational control passes from one entity to another during a year,
and when an entity holds a liability transfer certificate for a facility for
part of a year. The pro-rata threshold ensures that facilities that would
reach a threshold during an entire financial year continue to be covered
under the Scheme for the full compliance year. This maintains consistent
coverage under the Scheme and prevents entities from avoiding
thresholds, deliberately or otherwise, by changes in operational control or
the issue of a liability transfer certificate.
1.55 Pro-rata thresholds are calculated using a specified formula.
[Part 3, Division 2, clause 17(5)] [Part 3, Division 2, clause 18(5)] [Part 3, Division 2,
clause 19(5)] [Part 3, Division 2, clause 20(5)] [Part 3, Division 2, clause 21(5)] [Part 3,
Division 2, clause 22(5)]
1.56 The calculation involves multiplying the relevant threshold by
the number of control days for a facility, or the number of certificate days
in the case of the holder of a liability transfer certificate, and dividing the
product by the number of days in the year.
1.57 Control days are the days in the financial year, where this is less
than the full year, that a facility was under the operational control of one
or more members of a controlling corporation's group. [Part 3, Division 2,
clauses 17(1), 18(1), 20(1), 21(1)]
1.58 Certificate days are the days in the financial year, where this is
less than the full year, that a person was the holder of a liability transfer
certificate for a facility. [Part 3, Division 2, clauses 19(1), 22(1)]
Example 1.3 Pro rata threshold
If a non-group entity had operational control of a facility fo r 100 days
of the year, the threshold for that facility would be worked out using
the formula:
25,000 × 100 control days ÷ 365 = 6849 tonnes of CO2 -e
If the emissions fro m that facility are 6849 tonnes CO2 -e or more
during the 100 control days then those emissions will count towards
the entity's liability as outlined above.
Anti-avoidance
1.59 Provisions which address schemes entered into with the
substantial purpose of obtaining the advantage of a threshold are described
in Chapter 9. In brief, the benefit of the threshold provision may be lost.
[Part 3, Division 2, clauses 23 and 30]
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Carbon Pollution Reduction Scheme Bill 2009
Scope 1 emissions covered by the Scheme
1.60 In broad terms, emissions that count towards the facility
thresholds and that determine a facility operator's liability are scope 1
emissions of greenhouse gas, where:
· the greenhouse gas is released into the atmosphere as a direct
result of the operation of the facility
· regulations made for the purposes of paragraph 10(2A)(a) of
the National Greenhouse and Energy Reporting Act 2007
declare that the emission is a scope 1 emission covered by
the Scheme. [Part 3, Division 2, clause 24]
1.61 The consequential amendments bill will amend the National
Greenhouse and Energy Reporting Act 2007 to require that its regulations
specify scope 1 emissions that are covered by the Scheme. (See the
consequential amendments bill, Schedule 1, Part 2, item 159)
1.62 The broad categories of sources that will be declared in the
National Greenhouse and Reporting Regulations 2008 as scope 1
emissions covered by the Scheme are:
· fugitive emissions
· industrial process emissions
· emissions from a waste source
· emissions from the combustion of energy sources.
1.63 For the purposes of landfill facilities, the bill categorises
emissions from a solid waste disposal source into two components. The
first component is `legacy emissions', which are generated from waste
deposited prior to 1 July 2011. The second component is emissions from
new waste; that is, emissions from waste deposited from 1 July 2011
onwards.
1.64 The key sources that will not count as scope 1 emission covered
by the Scheme are:
· agriculture sources
· forestry sources
· fugitive emissions from decommissioned underground coal
mines
· emissions of synthetic greenhouse gases from the source `use
of commercial air conditioning etc.' as defined under the
National Greenhouse and Energy Reporting Regulations
2008
· emissions from the combustion of biomass.
36
Chapter 1: Liable entities and covered emissions
1.65 Scope 2 emissions, such as those relating to electricity use, are
not included in the definition of a facility's emissions. Scope 3 emissions
are also not included.
1.66 Under the Scheme, greenhouse gases emitted from the operation
of a facility will be measured using methods to be determined under
subsection 10(3) of the National Greenhouse and Energy Reporting Act
2007, or methods which meet criteria under that subsection, where the use
of those methods satisfies any conditions specified under that subsection.
[Part 3, Division 2, clause 25]
1.67 The consequential amendments bill provides for subsection
10(3) of the National Greenhouse and Energy Reporting Act 2007 to
allow the Minister to determine the methods and criteria for methods by
which amounts of emissions are to be measured. A single determination
will apply under the Carbon Pollution Reduction Scheme and the National
Greenhouse and Energy Reporting Act 2007. (See the consequential
amendments bill, Schedule 1, Part 2, item 160-162)
Emissions that count towards thresholds
1.68 All sources of emissions covered by the Scheme will count
towards thresholds for all facilities.
1.69 To avoid doubt, for facilities that are not landfill facilities,
emissions from solid waste disposal count toward the threshold for that
facility. Similarly, thresholds for landfill facilities include all scope 1
emissions from the facility; that is, all scope 1 emissions that are covered
under the Scheme including emissions from combustion of energy sources
at the facility, emissions from legacy waste and emissions from new
waste -- these are examples only and this is not intended as an exhaustive
list.
Emissions that count towards liability
1.70 The provisional emissions number for an entity that is liable in
respect of a facility is the amount of greenhouse gases emitted from the
facility's operation, in CO 2 -e, for which the entity must surrender eligible
emissions units. [Part 3, Division 2]
Avoidance of double counting
1.71 To avoid double counting of emissions, certain emissions that
count towards a facility's threshold do not count towards the facility
operator's provisional emissions number. There are two circumstances
where this occurs.
1.72 The first is where an amount of greenhouse gas emitted from the
facility is attributable to the combustion of eligible upstream fuel that was
supplied to a person who is not the operator of the facility or that is
supplied to the operator of the facility without the operator quoting their
37
Carbon Pollution Reduction Scheme Bill 2009
OTN. [Part 3, Division 2, clauses 17(7)-(8,) 18(7)-(8), 19(6)-(7), 20(9)-(10), 21(9)-(10)
and 22(8)-(9)]
1.73 If fuel was supplied to a person who is not the operator of the
facility and that person did not quote an OTN in relation to the supply,
liability will arise for an importer, producer or supplier of that fuel. If the
person did quote an OTN for the supply, that person will be liable for
emissions from the combustion of that fuel.
1.74 If the fuel was supplied to the operator of a facility and the
operator did not quote an OTN, liability will arise for an importer,
producer or supplier of that fuel.
1.75 The second circumstance where greenhouse gases emitted from
a facility do not count towards the facility operator's provisional emission
number is where the emissions are attributable to the combustion of liquid
petroleum fuel for which there is already a liability imposed on the facility
operator under the import or production provisions by way of import duty
or excise duty being payable by that person on that fuel. [Part 3, Division 2,
clauses 17(9)-(10), 18(9)-(10), 19(8)-(9), 20(11)-(12), 21(11)-(12) and 22(10)-(11)] [Part
3, Division 4, clauses 31-32]
Example 1.4: Avoidance of double counting
Co mpany A has operational control of a black coal mine. During a
particular financial year fugit ive emissions of 23,000 tonnes of CO 2 -e
are emitted fro m the mine. A further 3,000 tonnes of CO2 -e are emitted
fro m the co mbustion of diesel in equip ment at the mine. Co mpany A
does not quote an OTN for the supply of the diesel.
Co mpany A is a liable entity under the direct emitter provisions
because total emissions from the mine are 26,000 tonnes of CO 2 -e.
Co mpany A is only liable for the fugit ive emissions of 23,000 tonnes
of CO2 -e. The supplier of the diesel is liab le for the emissions from
Co mpany A's combustion of the diesel.
Legacy emissions do not count towards liability
1.76 Emissions from legacy waste deposited prior to the
commencement of Scheme obligations for landfill facilities on 1 July
2011 are not included in a landfill facility's liability. Therefore, the
operator of a landfill facility will be liable for annual total emissions, less
· annual legacy emissions, and
· any emissions that count towards the `OTN -no double
counting' provisions. [Part 3, Division 2, clauses 20(8), 21(8), 22(8)]
1.77 Legacy waste emissions have been excluded from Scheme
liabilities because in many cases there is little or no opportunity to recover
the cost of emissions from waste that was deposited in the past.
38
Chapter 1: Liable entities and covered emissions
1.78 Details on developing a legacy emissions profile to allow liable
landfill facilities to determine the ongoing annual emissions from legacy
waste will be outlined in regulations.
Example 1.5: Thresholds and liability for landfill facilities
A landfill facility, which is under the operational control of
Co mpany S, emits 100,000 tonnes of CO2 -e. This is made up of
20,000 tonnes of new emissions and 80,000 tonnes of legacy
emissions. The following applies:
· Co mpany S is a liable entity under the Scheme. The total emissions
fro m the landfill facility (100,000 tonnes of CO2 -e per year) exceed
the facility threshold of 25,000 tonnes of CO2 -e.
· Co mpany S's liability is equal to the total emissions from the
landfill minus legacy emissions. Therefore, Co mpany S would be
liab le fo r 20,000 tonnes of CO2 -e fro m the landfill facility.
1.79 The Scheme will allocate methane that is captured, flared,
combusted and transferred proportionally between legacy and new
emissions. This allocation will be given effect by an amendment to the
National Greenhouse and Energy (Measurement) Determination 2008.
Example 1.6: Allocating capture, flaring, combustion and
transfer of methane
Co mpany R has operational control over a landfill facility. Total
emissions from that landfill facility (prior to accounting for methane
capture, flaring, co mbustion and transfer) are 200,000 tonnes of CO2 -e.
This is made up of 150,000 tonnes of CO2 -e o f legacy emissions and
50,000 tonnes of CO2 -e of new emissions (a ratio of 3:1).
The facility flares an amount of methane that reduces its net emissions
to 100,000 tonnes of CO2 -e. The fo llowing applies:
· Co mpany R is a liab le entity under the Scheme as the total
emissions from the facility (100,000 tonnes of CO2 -e) exceed the
facility threshold of 25,000 tonnes of CO2 -e.
· The reduced emissions (achieved through methane fla ring) are
allocated proportionally between legacy emissions and new
emissions. Therefore, net legacy emissions are 75,000 tonnes of
CO2 -e and net new emissions are 25,000 tonnes of CO2 -e
(maintain ing the ratio of 3:1).
· Co mpany R is liable for emissions of 25,000 tonnes of CO2 -e.
Operational control
1.80 `Operational control' is used to allocate emissions obligations
for a facility. The operational control approach is adopted for the Scheme
as it identifies the person that has the greatest ability to introduce and
implement operational and environmental policies for a facility and
therefore is likely to have the ability to give effect to emissions
reductions. In addition many controlling corporations have already begun
39
Carbon Pollution Reduction Scheme Bill 2009
organising emissions reporting systems around the operational control
approach as defined in the National Greenhouse and Reporting Act 2007.
Exceptions to the operational control approach relating to liability transfer
certificates are outlined below.
Meaning of operational control
1.81 Operational control has the same meaning as in the National
Greenhouse and Energy Reporting Act 2007. [Part 1, clause 5, definition of
`operational control'] This definition is amended as discussed in the
remainder of this section. (See the consequential amendments bill,
Schedule 1, Part 2, items 131 and 163-172)
1.82 Any person may have operational control over (operate) a
facility. The range of entities that can have operational control in the
National Greenhouse and Reporting Act 2007 is broadened from a
member of a controlling corporation's group to a person. (See the
consequential amendments bill, Schedule 1, Part 2, item 163-170)
1.83 In addition, the entities that the Authority may declare as having
operational control will be expanded to include any person. This is
provided for by amendments to the National Greenhouse and Energy
Reporting Act 2007. (See the consequential amendments bill, Schedule 1,
Part 2, items 190-191 and 193)
1.84 The Government intends that wherever possible liability for a
facility will always be attributable to a single person. This streamlines
compliance and enforcement under the Scheme and assists in maintaining
Scheme coverage and integrity by ensuring that the person responsible for
a facility's emissions is clearly identified.
Circumstances where authority is shared equally amongst persons
1.85 In many cases, if there is uncertainty about which person
operates a facility, the person deemed to have operational control will be
the one with the greatest authority to introduce and implement operating
and environmental policies. (See the consequential amendments bill,
Schedule 1, Part 2, item 172)
1.86 However, there may be instances where persons have equal
authority to implement operational and environmental policies over a
facility, for example in the case of a partnership, a joint venture or a trust.
Amendments to the National Greenhouse and Energy Reporting Act 2007
which insert new sections 11B and 11C deal with these circumstances.
(See the consequential amendments bill, Schedule 1, Part 2, item 172) In
these instances the Authority will still have the ability to make a
declaration regarding which person has operational control.
1.87 If the Authority has not made a declaration, then those persons
with equal authority are required to nominate one of them to be the
40
Chapter 1: Liable entities and covered emissions
nominated person for that facility. Nomination has the effect of deeming
the nominated person to have operational control and therefore obligations
and liability under the Scheme and the National Greenhouse and Energy
Reporting Act 2007. Nominations must be made by 31 August following
the financial year in which the facility met or exceeded the facility
threshold.
1.88 If the persons do not make a nomination, they are each subject to
a civil penalty. In addition, where there is no nomination, liability is
apportioned equally among the persons that have equal authority. For
example, if there are two persons, each would be responsible for
fifty per cent of total liability. If there are four persons each would be
responsible for twenty-five percent of total liability. This is done by
adjusting the provisional emissions number by way of the formula
specified in sections 11B and 11C of the National Greenhouse and
Energy Reporting Act 2007. Each person will also have reporting
obligations in relation to that facility.
1.89 The penalty discussed above is aimed at encouraging the
nomination of a single liable entity under the Scheme. The application of
equal liability applying in the absence of nomination ensures that there is
no gap in liability at any time and as such maintains the integrity of the
Scheme. There is no requirement to nominate if the question of
operational control of a facility is not relevant (directly or indirectly) to a
requirement under the Scheme or the National Greenhouse and Energy
Reporting Act 2007.
1.90 Equally shared authority over operational and environmental
policies is distinct from shared financial control under a partnership or
joint venture, which is discussed below under liability transfer certificates.
Controlling corporations and liability for a facility
1.91 Persons may be liable, in relation to direct emissions from a
facility if:
· they are a controlling corporation of a group and a member
of that group has operational control over a facility;
· they are a non-group entity that has operational control over a
facility; or
· they are a holder of a liability transfer certificate for a given
facility.
Controlling corporation and non-group entity will have the same
meaning as in National Greenhouse and Energy Reporting Act 2007. The
consequential amendments bill introduces a definition of `non-group
entity' into the National Greenhouse and Energy Reporting Act 2007.
(See the consequential amendments bill, Schedule 1, Part 2, item 129)
41
Carbon Pollution Reduction Scheme Bill 2009
1.92 As outlined above, the controlling corporation of a group will be
the liable entity for facilities that are under the operational control of a
member of its group. [Part 3, Division 2, clauses 17, 20]
1.93 This is consistent with the National Greenhouse and Energy
Reporting Act 2007, which imposes reporting obligations on controlling
corporations of a corporate group, where a controlling corporation is
generally the corporation at the top of the corporate hierarchy. Corporate
grouping in this way also provides greater surety for the Scheme as the
controlling corporation is likely to have greater access to funds than an
individual corporation with a single facility. It will therefore have a
greater ability to meet its Scheme liability. It also consistent with the fact
that the controlling corporation should be in a position to exert control
over the activities of the members of its group.
1.94 A controlling corporation's group will consist of the controlling
corporation and its subsidiaries, if any. Subsidiary has the meaning given
by section 46 of the Corporations Act 2001. To avoid doubt, a controlling
corporation's group may consist of the controlling corporation alone. The
consequential amendments bill provides for this by amending the National
Greenhouse and Energy Reporting Act 2007, as discussed in Chapter 1 of
the explanatory memorandum to the consequential amendments bill.
Non Group entities and liability for a facility
1.95 A non-group entity that has operational control over a facility is
the liable entity in relation to that facility. [Part 3, Division 2, clause 18 and 21]
Holder of a liability transfer certificate and liability
1.96 A person that is the holder of a liability transfer certificate for a
facility is the liable entity in relation to that facility. [Part 3, Division 2,
clauses 19 and 22]
1.97 Where a member of a controlling corporation's group takes on
liability through a Category A liability transfer certificate under Part 3,
Division 6, Subdivision A, the controlling corporation will not have
liability for that facility. [Part 3, Division 2, clause 17(6)] [Part 3, Division 2, clause
20(7)] However, the controlling corporation must give its consent to the
transfer and provides a statutory guarantee for the payment of the penalty
for a unit shortfall and any late payment penalty for that member. [Part 6,
Division 4, clause 138]
1.98 Where liability has been transferred to a person with financial
control of a facility, through a Category B liability transfer certificate, the
facility is taken not to be under the operational control of its operator. This
means that the operator's controlling corporation (the transferor of
liability) will therefore not have obligations or liability for the facility.
[Part 3, Division 2, clauses 17(6) and clause 20(7)]
1.99 Liability transfer certificates are discussed in more detail in a
separate section below.
42
Chapter 1: Liable entities and covered emissions
Liable entities -- importers, producers and re-suppliers of eligible
upstream fuels
1.100 In order to achieve comprehensive and efficient coverage of
emissions from the combustion of certain fuels, liability is imposed
upstream on importers, producers and re-suppliers of these fuels. [Part 3,
Division 4, clauses 31-33, 35]
1.101 Fuels for which there is an upstream point of liability are known
as `eligible upstream fuels'. [Part 1, clause 5, definition of `eligible upstream
fuels']
1.102 Eligible upstream fuels are:
· liquid petroleum fuel
· liquid petroleum gas
· black coal
· brown coal
· coking coal
· brown coal briquettes
· coke oven coke
· coal-based char
· natural gas that is distributed or transmitted in a pipeline
· coal seam methane that is captured for combustion
· coal mine waste gas that is captured for combustion
· ethane
· town gas
· liquefied natural gas
· compressed natural gas
· syngas
· refinery grade propene (propylene)
· a fuel specified in the regulations.
1.103 Liquid petroleum fuels are excisable goods classified to item 10
of the Schedule to the Excise Tariff Act 1921 and equivalent imported
goods, other than hydrocarbon solvents classified to sub-items 10.25 to
10.28 that are not combusted. [Part 1, clause 5, definitions of `liquid petroleum
fuels' and `exempt hydrocarbon solvent']
1.104 Other eligible upstream fuels are defined by reference to the
National Greenhouse and Energy Reporting Regulations 2008 which will
43
Carbon Pollution Reduction Scheme Bill 2009
be amended to define fuel types not currently defined in these regulations,
such as coal-based char and syngas.
1.105 The regulation-making power will enable an upstream point of
liability to be applied wherever emissions from other fossil-based fuels,
including new fuels, can be efficiently covered upstream.
1.106 In many circumstances the upstream point of liability for fuel
will be transferred to the end user of the fuel using the Obligation Transfer
Number mechanism.
Potential greenhouse gas emissions
1.107 For eligible upstream fuels, liabilities arise for potential
greenhouse gas emissions, rather than actual emissions. This is because
the liability generally arises before the fuel is combusted and emissions
are released. [Part 3, Division 4, clauses31(1), 32(1), 33(1), 33A(1), 34(1), 35(1),
36(1), 37(1), 38(1), 39(1) and 40(1)]
1.108 The potential greenhouse gas emissions embodied in an amount
of an eligible upstream fuel means the amounts of the greenhouse gas or
gases that would be released into the atmosphere as a result of its
combustion. This is defined by reference to the National Greenhouse and
Energy Reporting Act 2007, which will be amended to define this concept.
[Part 1, clause 5, definition of `potential greenhouse gas emissions'] (See the
consequential amendments bill, Schedule 1, Part 2, items 135, 146)
1.109 The potential greenhouse gas emissions embodied in an amount
of eligible upstream fuel will be able to be calculated in two ways. (See
the consequential amendments bill, Schedule 1, Part 2, item 146)
· Under the first method, known as the default method, the
Minister may determine that the amount of a particular
greenhouse gas that would be released into the atmosphere as
a result of the combustion of an amount of eligible upstream
fuel is taken, for the purposes of the Scheme, to be the
amount of fuel multiplied by a value specified in the
regulations in relation to that fuel.
· Alternatively, a person may elect to use a prescribed
alternative method to ascertain the potential greenhouse gas
emissions embodied in an amount of eligible upstream fuel.
This involves, amongst other things, using a method
specified in the determination which involves testing one or
more samples of the fuel.
Points of liability for eligible upstream fuels
1.110 In the first instance, liability for eligible upstream fuels is
applied at the top of the supply chain. Different circumstances are used to
define the top of the supply chain for liquid petroleum fuels and other
44
Chapter 1: Liable entities and covered emissions
eligible upstream fuels. Similarly, different events result in liability for
entities at the top of those supply chains.
1.111 Liability for all eligible upstream fuels can be transferred down
the supply chain to a re-supplier or end user of the fuel if the rules of the
OTN mechanism require or permit this transfer of liability. The quotation
of an OTN relieves a supplier of liability in relation to that supply. The
subsequent re-supply of that fuel will result in liability for the re-supplier
unless the recipient of the fuel quotes an OTN in relation to the re-supply.
A person that quotes an OTN in relation to a supply of fuel will also be
liable for any emissions that arise from the application of that fuel to their
own use.
1.112 The entities that are liable for eligible upstream fuels and the
circumstances that result in liability are discussed in detail below.
Supply
1.113 As noted above a person may be liable for emissions from
eligible upstream fuels if they supply those fuels. Supply means supply,
including re-supply, by way of sale, exchange or gift. [Part 1, clause 5,
definition of `supply']
1.114 In most instances, supply occurs when a substance is physically
delivered. If there is not a physical delivery but ownership of the
substance changes then supply is taken to occur when property is
transferred. [Part 1, clause 6)]
1.115 In the case of natural gas that is transmitted or distributed in a
pipeline, the bill provides for regulations to be made that over-ride this
definition of when supply occurs. This will allow for the Government to
intervene where it appears that entities are structuring gas supply contracts
in order to undermine the working of the Scheme. If provided for in
regulations, the supply of natural gas in a pipeline occurs when the gas
passes a point ascertained in accordance with the regulations. [Part 1,
clause 6(1)]
1.116 A supply is also taken to occur, where there would not otherwise
be a supply, when a person makes an eligible upstream fuel available to
another person for combustion at a facility. In this situation, supply occurs
when the fuel is combusted. [Part 1, clause 5A]
Example 1.7 Fuel made available for combustion at a facility
Co mpany K engages Company L, a gas -fired electricity generator, to
generate electricity for it. Under the terms of the agreement, Co mpany
K purchases natural gas and makes it available to Co mpany L. In
return Co mpany L provides electricity to Co mpany K.
The gas that is made available by Co mpany K is taken to be supplied
to Co mpany L when it is co mbusted.
45
Carbon Pollution Reduction Scheme Bill 2009
Liable entity -- importers and producers of liquid petroleum fuel
1.117 Importers and producers of liquid petroleum fuel are at the top
of the supply chain for the purpose of applying Scheme obligations for
emissions from the combustion of these fuels. A person is liable in respect
of the import or production of liquid petroleum fuel if
· the entity imports or manufactures / produces an amount of
liquid petroleum fuel, and
· import duty or excise duty is or was payable by the person on
that amount. [Part 3, Division 4, clauses 31-32]
1.118 This aligns Scheme liability with fuel tax arrangements.
1.119 Scheme liability is not imposed where import duty or excise
duty is or was payable by a person on an amount of fuel and:
· the duty was remitted, rebated or refunded in accordance
with section 163 of the Customs Act 1901 or section 178 of
the Excise Act 1901 or a drawback of duty was allowed under
regulations made for the purposes of sections 168(1) and
79 of those Acts respectively; and
· the remission, rebate, refund or drawback was prescribed by
regulations under the bill [Part 3, Division 4, clause 31(5)] [Part 3,
Division 4, clause 32(5)]
1.120 This is to ensure that Scheme liability is not imposed in
circumstances such as where excise duty or customs duty has been paid
but that fuel is exported by the person or that fuel is returned to a
warehouse or manufacturer.
1.121 Specific arrangements for the treatment of fuel emissions
generated from the carriage of domestic cargo on ships engaged in an
international voyage are not addressed in the bill. The Government is
currently developing measures separate to the Scheme to address these
emissions. There may be some interaction between these measures and the
Scheme, and the Government will ensure that the measures are consistent
and complementary.
Provisional emissions number
1.122 The provisional emissions number for a person that imports or
manufactures liquid petroleum fuel equals the potential greenhouse gas
emissions embodied in the fuel for which they have a liability to pay
import or excise duty, minus any `netted-out' number for the person.
[Part 3, Division 4, clause 31(2)] [Part 3, Division 4, clause 32(2)].
1.123 The person's `netted-out' number refers to the potential
greenhouse gas emissions embodied in liquid petroleum fuel that they
supplied to another person who quoted an OTN in relation to that supply.
[Part 3, Division 4, clause 31(4)] [Part 3, Division 4, clause 32(4)]
46
Chapter 1: Liable entities and covered emissions
1.124 This ensures that a manufacturer or importer of liquid petroleum
fuel does not incur liability under the Scheme for an amount of liquid
petroleum fuel for which another person has assumed Scheme liability.
Liable entity -- supply of untransformed and transformed eligible
upstream fuel (other than liquid petroleum fuel )
1.125 Eligible upstream fuels which are not liquid petroleum fuels are
not subject to excise duty, therefore, liability for these fuels is applied to
entities at the top of the supply chains in a different way. A supplier is
liable in respect of the supply of eligible upstream fuel (other than liquid
petroleum fuel) to another person who does not quote an OTN if:
· for imported fuel, the supply is the first supply after the fuel
was entered for home consumption
· for fuel that is not imported, either:
- the fuel is the result of the carrying out by the supplier of
a recognised transformation of another type of eligible
upstream fuel [Part 3, Division 4, clause 35]
- the fuel was not the result of the carrying out by the
supplier of a recognised transformation of another type of
eligible upstream fuel but the fuel was not supplied in
Australia to the supplier. [Part 3, Division 4, clause 33]
1.126 A list of recognised transformations is contained in [Part 1,
clause 5, definition of `recognised transformation'] of the bill. The regulations
may add to this list.
1.127 To avoid double counting, a person that carries out a recognised
fuel transformation will be permitted to quote an OTN in respect of the
supply to them of pre-transformed fuel. [Part 3, Division 5, clause 59]
Provisional emissions number
1.128 The provisional emissions number for the supplier is equal to the
potential greenhouse gas emissions embodied in fuel supplied to persons
who t do not quote an OTN, minus
· where the fuel is natural gas, any natural gas that was
supplied into a prescribed wholesale gas market (except
where the natural gas is the result of the carrying out by the
supplier of a recognised transformation of another type of
eligible upstream fuel), and
· any netted out number of the supplier. [Part 3, Division 4,
clause 33(1)-(2)] [Part 3, Division 4, clause 35(2)]
1.129 The Government aims to move parliamentary amendments
directed to the objective of ensuring that liability does not arise where any
natural gas is supplied into a prescribed wholesale gas market to ensure
47
Carbon Pollution Reduction Scheme Bill 2009
that there is no double counting of emissions in relation to fuel supplied
into and out of a prescribed wholesale gas market.
1.130 The supplier's `netted-out' number refers to the potential
greenhouse gas emissions embodied in eligible upstream fuel that it
supplied to another person who exported the fuel. The fuel must have
been entered for export within the meaning of section 113 of the Customs
Act 1901, and the supplier must have documentary evidence of a kind
prescribed in the regulations to show that the fuel was exported. [Part 3,
Division 4, clause 33(4)] [Part 3, Division 4, clause 35(4)]
Example 1.8: Manufacturer of compressed natural gas
A company purchases natural gas and transforms it into comp ressed
natural gas. The company quotes an OTN when purchasing the natural
gas:
· the company is liable for the potential emissions from any
compressed natural gas that it supplies to a person who does not
quote an OTN
· the company is not liable for the potential emissions from any
compressed natural gas it supplies to a person who quotes an OTN
· the company is liable for any emissions from the application to its
own use of the pre-transformed fuel or the transformed fuel.
Application to own use is exp lained later in this chapter.
Liable entity -- re-supplier of natural gas supplied out of a wholesale
gas market
1.131 A person is a liable entity if they re-supply gas that they were
supplied out of a prescribed wholesale gas market. This is because when
natural gas is supplied into a prescribed wholesale gas market, there is no
liability arising in relation to that supply. This provision effectively places
the re-supplier at the top of a supply chain.
1.132 A person is liable in respect of the re-supply of natural gas that
is supplied to them out of a prescribed wholesale gas market if they
re-supply it to another person who does not quote an OTN in relation to
the supply. [Part 3, Division 4, clause 33A]
1.133 However a liability does not arise when natural gas is supplied
or re-supplied into a prescribed wholesale gas market. This is because a
seller in a wholesale market is not able to determine who purchases their
gas, which is instead determined by the market rules. [Part 3, Division 4,
clauses 33(1), 33A(1), 37(1)]
1.134 The purpose of these provisions is to ensure that entities such as
gas retailers that purchase natural gas through wholesale gas markets are
able to take on Scheme obligations when they re-supply this gas, and that
the efficient operation of gas markets is not impeded by the Scheme.
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Chapter 1: Liable entities and covered emissions
1.135 Prescribed wholesale gas markets will be defined in the
regulations [Part 1, clause 5, definition of `prescribed wholesale gas market']. It is
intended that the regulations will allow for the prescription of a gas
market which has an arrangement where amounts of natural gas are
supplied such that they are to be allocated to persons by the market
operator in accordance with the rules of that market. In the short term, this
is intended to cover the Victorian wholesale gas market currently
regulated by the 'MSO Rules' within the meaning of section 3 of the Gas
Industry Act 2001 (Victoria) which are soon to be part of the National Gas
Law. It is also intended to cover the trading of gas at hubs through the
Short Term Trading Market currently being developed and any similar
regulated trading mechanism.
Example 1.9: Wholesale Gas Market Supplies
The following supplies into a prescribed wholesale gas market would
not be supplies which attract a liability under the Scheme (assuming
the relevant market is prescribed in the regulat ions):
· where a market participant injects gas into the Victorian principal
transmission system under and in accordance with the MSO Ru les
(e.g. where an injection bid was scheduled under the MSO Rules by
the market operator); or
· where a right to natural gas has been transferred between registered
participants in the Short Term Trading Market because a bid under
the National Gas Rules is scheduled at a hub under those rules by
the market operator and settled under those rules.
The following supplies out of a prescribed wholesale gas market would
not be supplies which may attract a liability under the Scheme or for
which a person supplied is required or permitted to quote an OTN:
· where a market participant withdraws natural gas fro m the
Victorian principal t ransmission system under and in accordance
with the MSO Rules (e.g. as a result of the scheduling of a
withdrawal b id or because of the participant's demand forecast); or
· natural gas is obtained by a registered participant in the Short Term
Trading Market because an offer was scheduled and settled at a hub
under the National Gas Rules by the market operator.
However, bilateral contracts for the supply of gas which operate
alongside the Victorian wholesale market or the hubs of the Short
Term Trading Market would not be supplies into, or out of, a
prescribed wholesale market and the normal liability and OTN
quotation arrangements would apply. Provisional emissions number
1.136 For a person that re-supplies natural gas supplied out of a
prescribed wholesale gas market the person's provisional emissions
number is equal to the potential greenhouse gas emissions embodied in
fuel supplied to entities that do not quote an OTN, minus any fuel that was
supplied into a prescribed wholesale gas market. [Part 3, Division 4,
clause 33A(2)]
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Carbon Pollution Reduction Scheme Bill 2009
Liable entity -- re-supply of eligible upstream fuel (including liquid
petroleum fuel)
1.137 The quotation of an OTN to a person at the top of a supply chain
or a person who is a re-supplier relieves that person of liability in relation
to that supply. In this way, liability can transfer down a supply chain.
1.138 A re-supplier is liable in respect of the re-supply of eligible
upstream fuel to another person if they:
· quote their OTN in relation to the supply of an amount of
eligible upstream fuel, and
· re-supply this fuel to another person who does not quote an
OTN in relation to the supply. [Part 3, Division 4, clause 37]
Provisional emissions number
1.139 The re-supplier's provisional emissions number is equal to the
potential greenhouse gas emissions embodied in fuel supplied to entities
that do not quote an OTN, minus any netted out number of the re-supplier.
[Part 3, Division 4, clause 37(2)]
1.140 The re-supplier's `netted-out' number refers to the potential
greenhouse gas emissions embodied in eligible upstream fuel that it
supplied to another person who exported the fuel. The fuel must have
been entered for export within the meaning of section 113 of the Customs
Act 1901, and the supplier must have documentary evidence of a kind
prescribed in the regulations to show that the fuel was exported. [Part 3,
Division 4, clause 37(4)]
1.141 A re-supplier that exports fuel itself will not be liable for the
potential emissions from the exported fuel.
Example 1.10: Re-supplier and exporter of black coal
Co mpany G is a re-supplier and exporter of black coal. Co mpany G
purchases coal fro m several coal mines and quotes its OTN in relation
to each supply. The potential greenhouse gas emissions embodied in
that coal have a carbon dioxide equivalence of 100,000 tonnes.
Co mpany G:
· exports half of this coal (50,000 tonnes of CO2 -e)
· re-supplies coal with potential emissions of 40,000 tonnes of CO 2 -e
to a large coal user who quotes an OTN in relation to the supply
· re-supplies the remaining coal, with potential emissions of
10,000 tonnes of CO2 -e, to a nu mber of s mall coal users who do not
quote an OTN.
Co mpany G is:
· not liable for the emissions embodied in the export coal
50
Chapter 1: Liable entities and covered emissions
· not liable for the emissions embodied in the coal supplied to the
large user
· liab le fo r 10,000 tonnes of CO2 -e for the coal re-supplied to the
small coal users.
Liable entity -- application of eligible upstream fuel to own use
1.142 where a person is at the top of a supply chain, or where a person
quotes an OTN in relation to the supply of fuel they may incur Scheme
obligation under the application for own use provisions. An entity may be
liable in respect of the application to its own use of eligible upstream fuel
if:
· greenhouse gases are emitted from the application to own
use; and
· the emissions are not attributable to a facility for which the
entity is liable. [Part 3, Division 4, clauses 34, 36, 38 and 39]
1.143 Application for own use includes making the fuel available to
another person, where making the fuel available is not a supply of the
fuel. [Part 1, clause 5, definition of `application to own use']
1.144 The provisions relating to own use of fuel only apply where that
use results in the release of greenhouse gas into the atmosphere. The
intention of these provisions is to cover the combustion of fuels. Uses that
do not result in the release of greenhouse gas into the atmosphere, such as
the use of fuels as feedstock, are not covered by these provisions. [Part 3,
Division 4, clauses 34(1), 36(1), 38(1), 39(1)]
1.145 It is likely that many entities that apply fuel to their own use will
be direct emitters. [Part 3, Division 2, clauses 17-19] Where this is the case,
their application to own use will be covered under the direct emitter
provisions (described above in `Liable entities -- direct emitters of
greenhouse gases').
1.146 Application to own use provisions aim to ensure that emissions
from combustion of eligible upstream fuels are covered at all points in the
supply chain and not just imposed on entities that are liable for a facility.
This is particularly important in the case of OTN holders that are not large
direct emitters.
Provisional emissions number
1.147 The provisional emissions number for an entity that applies an
amount of transformed or untransformed eligible upstream fuel to their
own use is equal to the potential greenhouse gas emissions from the
combustion of that fuel. [Part 3, Division 4, clauses 34, 36, 38-39].
1.148 If a particular use of an eligible upstream fuel does not result in
the release of greenhouse gas into the atmosphere (such as feedstock), the
51
Carbon Pollution Reduction Scheme Bill 2009
use will not be covered by these provisions. However, if a portion of the
fuel used results in the release of greenhouse gas into the atmosphere, that
portion will be covered. [Part 3, Division 4, clauses 38-39].
Example 1.11: Feedstock user of natural gas
A person receives an amount of natural gas and quotes their OTN
in relation to the supply. The person uses a portion of the natural
gas as a feedstock in a p lastic manufacturing process that
completely sequesters the natural gas into the plastic. The person
also uses a portion of the natural gas for heating purposes.
The person will not be liable for the potential emissions fro m the
portion of gas purchased with an OTN wh ich is used as a feedstock.
However, the person will be liable for greenhouse gas emissions
released fro m the portion of fuel co mbusted for heating purposes.
Example 1.12: Manufacturer of coke oven coke
Co mpany T specialises in manufacturing coke oven coke fro m b lack
coal. During a financial year Co mpany T:
· quotes an OTN for an annual supply of black coal that embodies
potential greenhouse gas emissions of 100,000 tonnes of CO2 -e
· emits greenhouse gases of 20,000 tonnes of CO2 -e fro m the use of
this coal to manufacture coke oven coke, but has no other
emissions from the facility
· supplies coke oven coke to a number o f small entit ies that do not
quote an OTN -- the potential greenhouse gas emissions embodied
in this coke oven coke is 20,000 tonnes of CO2 -e
· supplies coke oven coke to one large facility that quotes an OTN --
the potential greenhouse gas emissions embodied in this coke oven
coke is 60,000 tonnes of CO2 -e.
Co mpany T:
· is not liable under the direct emitter provisions because total
emissions from the facility are less than 25,000 tonnes of CO2 -e
· is liable under the application to own use provisions for 20,000
tonnes of CO2 -e of emissions from their own use of black coal
· is liable for 20,000 tonnes of CO2 -e for the coke oven coke it
supplies to small entities that do not quote an OTN
· is not liab le for 60,000 tonnes of CO2 -e for the coke oven coke it
supplies to the facility that quotes an OTN.
Liable entities -- importers, manufacturers and re-suppliers of synthetic
greenhouse gases
1.149 Part 2, Division 3 of the bill sets out the circumstances under
which importers, manufacturers and re-suppliers of synthetic greenhouse
gases -- hydroflurocarbons (HFCs), perfluorocarbons (PFCs) and sulphur
52
Chapter 1: Liable entities and covered emissions
hexafluoride (SF6 ) -- will be liable for the emissions from downstream
users of these gases.
Liable entity -- import or manufacture of synthetic greenhouse gas
1.150 In general terms, liability will arise where, during an eligible
financial year, a person imports or manufactures synthetic greenhouse gas
and the carbon dioxide equivalence of that gas is 25,000 tonnes or more.
This threshold is based on gross imports or manufacture. [Part 3, Division 3,
clauses 26, 27]
1.151 If a person imports or manufactures less than this amount they
will not be a liable entity. [Part 3, Division 3, clause 26(4)], [Part 3, Division 3,
clauses 27(4)]
1.152 Certain synthetic greenhouse gases that are imported or
manufactured do not count towards thresholds or liability.
1.153 Synthetic greenhouse gases imported in manufactured products
that contain synthetic greenhouse gases only because they were used in
the manufacturing process are excluded because it is difficult to
consistently identify such products and estimate the amount of synthetic
greenhouse gas they contain. These products include polyurethane foam
insulation but do not include products such as air conditioners which use
synthetic greenhouse gases in their operation. [Part 3, Division 3, clause 26(5)]
1.154 Synthetic greenhouse gases that are imported on board ships or
aircraft that are exclusively for use in meeting the `reasonable servicing
requirements' of air-conditioning or refrigeration equipment during
international journeys will also not count towards thresholds or an
importer's provisional emissions number. [Part 3, Division 3, clause 26(6)]
This is to avoid imposing liability on emissions that do not count towards
Australia's net national emissions.
1.155 Recycled synthetic greenhouse gases are not considered to be
manufactured to avoid double counting. [Part 3, Division 3, clause 27(5)]
Anti avoidance
1.156 Provisions which address schemes entered into with the
substantial purpose of obtaining the advantage of thresholds are described
in Chapter 9 of the explanatory memorandum. In brief, the benefit of the
threshold provision may be lost. [Part 3, Division 2, clauses 23, 30]
Provisional emissions number
1.157 The provisional emissions number of an importer or
manufacturer of synthetic greenhouse gas is equal to the gross amount, in
CO2 -e, of synthetic greenhouse gases imported or manufactured, minus
any `netted-out' numbers of the person for the relevant financial year
[Part 3, Division 3, clause 26(2)] [Part 3, Division 3, clauses 27(2)].
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Carbon Pollution Reduction Scheme Bill 2009
1.158 Netted-out numbers arise where a person exports certain
synthetic greenhouse gases or supplies them to a person that quotes an
OTN.
1.159 Where an importer or manufacturer of a particular type of
synthetic greenhouse gas also exports that type of synthetic greenhouse
gas, and where the gas was not supplied to the importer or manufacturer in
Australia, their netted-out number is equal to the lesser of:
· the amount exported (in tonnes of CO 2 -e), or
· the amount imported or manufactured (in tonnes of CO 2 -e).
[Part 3, Division 3, clause 26(7)], [Part 3, Division 3, clause 27(7)]
1.160 Limiting the amount that can be netted-out to the lesser of
imports/manufacture or exports prevents the provisional emissions
number from having a negative value.
1.161 The purpose of allowing a `net-out' for amounts exported is to
ensure that gases that do not count towards Australia's national emissions
(including gases re-exported as `heels' in ISO tankers) do not count
towards Scheme liabilities. [Part 3, Division 3, clauses 26-27]
Example 1.13: Manufacturer of synthetic greenhouse gas
The total amount of a part icular synthetic greenhouse gas
manufactured by a person has a carbon dioxide equivalence of
27,000 tonnes. The total amount of the same type of synthetic
greenhouse gas exported by the person has a carbon dioxide
equivalence of 2,000 tonnes.
· The 2,000 tonnes of CO2 -e is netted out from the person's liability.
· The person is liable for 25,000 tonnes of CO2 -e (subject to any
other relevant exclusion outlined below).
Example 1.14: Importer of synthetic greenhouse gas
The total amount of a part icular synthetic greenhouse gas imported by
a person has a carbon dioxide equivalence of 27,000 tonnes. The total
amount of the same type of synthetic greenhouse gas exported by that
person has a carbon dioxide equivalence of 30,000 tonnes.
· The 27,000 tonnes of CO2 -e is netted out from the person's
liab ility.
· The person is liable for 0 tonnes of CO2 -e.
1.162 An importer or manufacturer of synthetic greenhouse gases may
also net-out an amount of synthetic greenhouse gas supplied to another
person who quotes their OTN in relation to the supply. [Part 3, Division 3,
clause 26(9)], [Part 3, Division 3, clause 27(8)] This is consistent with the general
principle that liability can be transferred to a person to whom an amount
of synthetic greenhouse gas or eligible upstream fuel is supplied, where
that person quotes an OTN in relation to the supply.
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Chapter 1: Liable entities and covered emissions
Liable entity -- re-supplier of synthetic greenhouse gas
1.163 As outlined above, a person who is supplied an amount of
synthetic greenhouse gas by an importer or manufacturer of synthetic
greenhouse gas may assume liability in respect of the gas by quoting their
OTN in relation to the supply. [Part 3, Division 3, clause 28]
1.164 Where the person then re-supplies an amount of the synthetic
greenhouse gas to a third person who does not quote an OTN in relation to
the supply, the re-supplier will incur a liability for that amount. [Part 3,
Division 3, clause 28]
1.165 Only entities that re-supply synthetic greenhouse gases to
another re-supplier of synthetic greenhouse gases or to exporters of
synthetic greenhouse gases are permitted to quote an OTN for synthetic
greenhouse gases. A re-supplier of synthetic greenhouse gases is not
permitted to quote an OTN if they intend to re-supply that synthetic
greenhouse gas to another person that will not quote an OTN for that
re-supply.
1.166 The purpose of these provisions is to ensure that Scheme
obligations are not imposed on synthetic greenhouse gases that are
exported, where exporters obtain the gases by way of supply from another
entity in Australia.
Obligation Transfer Numbers
1.167 In general, Scheme obligations for eligible upstream fuels arise
for importers and producers when they supply fuel and for importers or
manufacturers of synthetic greenhouse gases when they import or
manufacture the gases. However in certain situations obligations for
eligible upstream fuels and synthetic greenhouse gases can be transferred
down the supply chain to re-suppliers or end users using the Obligation
Transfer Number (OTN) mechanism. [Part 3, Division 5]. Division 4 of
Part 3 sets out the ways in which liability to surrender eligible emissions
units arises for a person who quotes an OTN.
1.168 Certain types of entities are required to quote an OTN while
others are permitted to do so. This mix of voluntary and mandatory
quotations achieves several objectives:
· OTNs move liability for the combustion of fuels by large
users to the facility level and allow certain people to assume
liability for emissions from the combustion of particular
fuels. [Part 3, Division 5, clauses 52, 56]
· OTNs permit entities to assume liability, if any arises, for
fuels or synthetic greenhouse gases that are sequestered into
a product (that is, used as feedstock) or used in a way that
results in emissions that do not count towards Australia's
55
Carbon Pollution Reduction Scheme Bill 2009
national inventory, such as export. [Part 3, Division 5, clauses 55,
58, 60-64AA]
· In the case of natural gas and liquid petroleum gas, OTNs
move the bulk of Scheme obligations from upstream
suppliers (producers or importers) to re-suppliers who have
access to accurate customer usage information. [Part 3, Division
5, clauses 53-54]
· OTNs prevent double counting where entities transform one
type of fuel into another type of fuel. [Part 3, Division 5,
clause 59]
1.169 Entities are not required or permitted to quote an OTN in
relation to natural gas that they are supplied out of a prescribed wholesale
gas market. [Part 3, Division 5, clauses 52(1)(aa), 53(1)(aa), 56(1)(aa), 56(2)(aa),
58 (aa), 59 (aa), 60 (aa)] The operation of the Scheme in relation to natural
gas traded through prescribed wholesale gas markets is discussed in more
detail in the section above on liability for gas that is re-supplied out of a
wholesale gas market.
1.170 The Government aims to move parliamentary amendments
directed to the objective of ensuring that fuel is treated as a `fungible'
substance -- that is, one unit of fuel can be substituted by another unit of
the same type of fuel. For example, a tonne of coal that is added to a
stockpile should be fungible with a tonne of coal that is taken out of the
stockpile, even though it is not the same tonne. This will enable the OTN
mechanism to operate in situations where fuel is collected into a stockpile
or pool and it is not practical or necessary to track the OTN status of
particular molecules of fuel.
Issue of an OTN
1.171 An OTN is issued to a person, and is not transferable. [Part 3,
Division 5, clause 48]
1.172 An OTN may be issued either as a result of an application, or on
the Authority's own initiative. [Part 3, Division 5, clause 41]
1.173 Allowing the Authority to issue OTNs without an application is
intended to simplify the process for entities that the Authority can readily
identify as requiring an OTN. For example, the Authority will be able to
identify large fuel users from emissions data reported under the National
Greenhouse and Energy Reporting Act 2007.
1.174 Where the issue of an OTN is by application, the bill specifies
procedures and requirements relating to that application. [Part 3, Division 5,
clauses 42-43]
1.175 Before issuing an OTN, either as a result of an application or on
the Authority's own initiative, the Authority must:
56
Chapter 1: Liable entities and covered emissions
· be satisfied that the person is, or is likely to be, required or
permitted to quote an OTN; and
· have carried out an identification procedure, the details of
which will be set out in the regulations, that enables the
Authority to verify the identity of the person. [Part 3, Division 5,
clauses 44-45]
Cancellation or surrender of an OTN
1.176 OTN holders who are not currently required or permitted to
quote their OTN may continue to hold their OTN if they wish, provided
they are likely to be required or permitted to quote it in the future.
1.177 Where a person is unlikely to be required to quote an OTN in the
future the person may surrender their OTN with the written consent of the
Authority. The Authority must only consent if it is satisfied that the
person is not required to quote the OTN and is unlikely to be required to
do so in the future. [Part 3, Division 5, clause 46]
1.178 The Authority may, by written notice, cancel an OTN that is
held by a person that is not permitted or required to quote it and is
unlikely to be permitted or required to do so in the future.
1.179 The Authority may also cancel an OTN if a person has breached
a provision of the bill or an associated provision. It is anticipated that the
Authority may take this step where there is an unacceptably high risk of
further breaches of the bill or associated provisions relating to the use of
that OTN.
1.180 The Authority must cancel an OTN if the person to whom it was
issued has ceased to exist. [Part 3, Division 5, clause 47]
The OTN register
1.181 The Authority must keep an electronic register known as the
OTN register. The OTN register will enable suppliers to confirm that an
OTN is valid, and that it belongs to the person that quotes it. This register
will be available for public inspection on the Authority's website. It will
contain an entry for every current OTN. When an OTN is cancelled or
surrendered the Authority must remove the entry from the register. [Part 3,
Division 5, clause 49]
1.182 An entry in the OTN register will include an OTN, the identity
of the person that was issued with that OTN, and the OTN holder's last
known address.
1.183 The Government aims to move a parliamentary amendment that
will require the OTN register to set out a person's ABN, where the person
has one.
1.184 A person with an OTN who changes their name or address as set
out in the register must within 14 days notify the Authority of the change.
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Carbon Pollution Reduction Scheme Bill 2009
A person who fails to meet this requirement may incur a civil penalty.
[Part 3, Division 5, clause 50A ]
Quoting an OTN
1.185 An OTN may only be quoted by the person to whom it was
issued. [Part 3, Division 5, clause 51(1)]
1.186 A person may quote their OTN in relation to a particular supply
(a one-off quotation) or a class of supplies (a standing quotation).
A quotation remains in effect unless it is withdrawn before the supply
occurs (see section on OTN withdrawal, below). [Part 3, Division 5, clause 51]
1.187 A person quotes their OTN in relation to a supply of eligible
upstream fuel or synthetic greenhouse gas by making a statement in
writing. The statement may be included in a contract, order or similar
document and may be in electronic form. [Part 3, Division 5, clause 51A-51B]
1.188 A one off quotation and a standing quotation must both set out:
· the words `quotation of OTN' followed by the OTN,
· the person's name,
· if the person has an ABN, the person's ABN,
· an indication of whether the quotation is voluntary or
mandatory,
· a description of the supply (in the case of a one-off
quotation) or class of supplies (in the case of a standing
quotation) to which the quotation relates. [Part 3, Division 5,
clause 51A-51B]
1.189 A description of a class of supplies could, for example, relate to
all supplies that occur during a specified period, a fixed number of
consecutive supplies, or a volume of fuel to be supplied.
Acknowledgement of OTN quotation
1.190 An OTN quotation must be acknowledged by the supplier in
order for the quotation to come into effect. Acknowledgement takes place
when a supplier notifies the OTN holder in writing. Acknowledgement
ensures that both the OTN holder and supplier understand when an OTN
quotation comes into effect.
1.191 If an OTN holder makes a quotation and they are required to
quote their OTN in relation to the supply, the supplier must acknowledge
the quotation. This ensures that an OTN quotation is in effect when a
person supplies eligible upstream fuel to a person who is required to quote
an OTN for that supply.
1.192 Where the OTN holder makes a quotation and where they are
permitted (but not required) to quote their OTN in relation to the supply,
the supplier may acknowledge the quotation. If the supplier does not
58
Chapter 1: Liable entities and covered emissions
acknowledge the quotation the supplier may still choose to supply to the
OTN holder, however the supply would take place as if the quotation had
not been made. [Part 3, Division 5, clauses 64A-64B]
Withdrawal of OTN quotation
1.193 In certain circumstances an OTN quotation can be withdrawn.
When withdrawn an OTN quotation ceases to be in place.
1.194 There are two situations in which an OTN holder may withdraw
a standing OTN quotation by notifying the supplier in writing. The first
situation is where an OTN holder ceases to be required or permitted to
quote their OTN in relation to the classes of supplied to which the
quotation relates.[Part 3, Division 5, clause 51C]
1.195 The second circumstance is where the supplier agrees to the
withdrawal of a standing quotation. [Part 3, Division 5, clause 51D]
1.196 An OTN quotation is deemed to have been withdrawn if a
person's OTN is surrendered or cancelled and a quotation of that OTN
was in effect immediately prior to the surrender or cancellation. [Part 3,
Division 5, clause 51BA]
1.197 In these circumstances the supplier may not be aware of the
withdrawal as it occurs without the OTN holder notifying the supplier.
Therefore, where a supply occurs in the seven days from when the
surrender or cancellation of an OTN takes effect and where the OTN
holder has not notified the supplier of the cancellation or surrender, the
Act will have effect as if the person held an OTN and the OTN had been
quoted in relation to that supply. [Part 3, Division 5, clause 51F-51G]
Quotation of bogus OTN
1.198 A person must not purport to quote a number as their OTN if it
is not their OTN. [Part 3, Division 5, clause 68]
1.199 If a person purports to quote a number as their OTN for a
supply, and that number is not shown in the OTN register as the person's
OTN, the supplier must not supply eligible upstream fuel or synthetic
greenhouse gas to the person. [Part 3, Division 5, clause 68]
1.200 Suppliers will therefore need to check the details in the OTN
register at the time an OTN quotation is made and ensure that the person
quoting it matches the identity details in the register against that OTN.
1.201 Upon application by the Authority, the Federal Court may order
a person to pay the Commonwealth a civil penalty if it decides that the
person has, for example, aided a contravention of the requirement that a
person must not quote a bogus OTN or supply eligible upstream fuel and
synthetic greenhouse gas to a person that quotes a bogus OTN. [Part 3,
Division 5, clause 68(3)-(5)] [Part 21, clause 327]
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Carbon Pollution Reduction Scheme Bill 2009
1.202 For evidentiary purposes the Authority may supply a copy of or
extract from the OTN register certified by an official of the Authority to
be a true copy or true extract. This certified copy or extract will be
admissible as evidence in all courts and proceedings without further proof
or production of the original. [Part 3, Division 5, clause 50]
1.203 If an OTN holder purports to quote a number as their OTN in
relation to a supply and the purported quotation is due to an honest
mistake the Authority may determine that the Act has, and is taken to have
had, effect as if the OTN holder had quoted the OTN holder's OTN in
relation to the supply. A determination by the Authority must be in
writing and must be given to the OTN holder and the supplier. A
determination of this kind is not a legislative instrument. [Part 3, Division 5,
clause 51E]
Rejection of OTN quotation
1.204 In certain circumstances a supplier is required or permitted to
reject an OTN quotation. These circumstances are outlined below.
Rejection of OTN -- re-supply of eligible upstream fuel
1.205 If a person supplies eligible upstream fuel to a second person
who does not quote an OTN for the supply, and the second person then re-
supplies all or part of that fuel to a third person who quotes an OTN, the
second person must reject the OTN quotation. [Part 3, Division 5, clause 65]
1.206 The purpose of this clause is to avoid double counting. In the
absence of this provision, the third person or another person further down
the supply chain could incur liability for an amount of fuel or synthetic
greenhouse gas for which a liability has already been incurred.
1.207 The effect of a supplier rejecting the quotation of a person's
OTN under this clause is that, if the supply occurs, the supply is taken to
have occurred as if the person did not quote their OTN for the supply.
[Part 3, Division 5, clause 65(3)]
1.208 This clause contains ancillary provisions relating to
contravention of the clause. [Part 3, Division 5, clause 65(4)-(5)]
1.209 The purpose of these ancillary provisions is to provide an
incentive for suppliers and recipients of eligible upstream fuel to comply
with the requirement that an OTN be rejected in the circumstance
described. Upon application by the Authority, the Federal Court may, if it
decides that a person has, for example, aided a contravention of the
requirement to reject an OTN in relation to a particular supply, order the
person to pay the Commonwealth a civil penalty. [Part 21, clause 327]
Rejection of voluntary quotation of OTN
1.210 A supplier may reject the quotation of a person's OTN for a
supply of eligible upstream fuel if that quotation is not required. [Part 3,
Division 5, clause 66] The regulations will specify a method for rejection.
60
Chapter 1: Liable entities and covered emissions
1.211 The effect of a supplier rejecting the quotation of an OTN under
this clause is that, if the supply occurs, it is taken to have occurred as if
the person did not quote their OTN for the supply.
1.212 A supplier does not need any particular reason to reject the
quotation of a voluntary OTN. However, circumstances under which a
supplier may wish to reject a voluntary OTN quotation include:
· the supplier does not have administrative arrangements that
would allow the netting out of amounts of fuel supplied to
OTN holders,
· for reasons of administrative simplicity, the supplier wishes
to manage Scheme obligations for all fuel that it supplies.
Misuse of OTN
1.213 The mere issue of an OTN does not permit a person to quote it.
When a person quotes an OTN for a particular supply or class of supplies
the person must, at the time of quotation, be required or permitted to do
so. An OTN holder breaches the provisions in the bill if they quote an
OTN in circumstances where they are not required or permitted to do so.
[Part 3, Division 5, clause 67]
1.214 If a person quotes an OTN in circumstances where they are not
required or permitted to do so, the validity of the transaction is not
affected by the breach. That is, the quotation will re lieve the supplier of
liability in relation to that supply. However, unlike a quotation which is
permitted or required, a person that misuses their OTN is liable for the
potential greenhouse gases emissions embodied in the fuel supplied or
where the supply relates to synthetic greenhouse gas the carbon dioxide
equivalence of that gas. [Part 3, Division 3, clause 29], [Part 3, Division 4,
clause 40], [Part 3, Division 5, clause 67(4)]
1.215 Upon application by the Authority, the Federal Court may order
a person to pay the Commonwealth a civil penalty, if it decides that the
person has, for example, aided a contravention of the requirement not to
quote an OTN in circumstances where it is not required or permitted.
[Part 3, Division 5, clause 67(2)-(3)] [Part 21, clause 327]
1.216 This provides an incentive for suppliers and recipients of eligible
upstream fuel and synthetic greenhouse gas to comply with the
requirement that an OTN must only be quoted in circumstances where a
person is required or permitted to do so under the bill.
Mandatory quotation of an OTN
1.217 Four types of entities will be required to quote an OTN:
· large users of eligible upstream fuels [Part 3, Division 5,
clause 52]
· re-suppliers of natural gas [Part 3, Division 5, clause 53]
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Carbon Pollution Reduction Scheme Bill 2009
· re-suppliers of liquid petroleum gas [Part 3, Division 5, clause 54]
· feedstock users of liquid petroleum gas, refinery grade
propene and ethene. [Part 3, Division 5, clause 55]
1.218 Each provision that requires quotation of an OTN contains
ancillary provisions relating to contravention of a requirement to quote an
OTN. [Part 3, Division 5, clause 52(2)-(3)] [Part 3, Division 5, clause 53(2)-(3)]
[Part 3, Division 5, clause 54(2)-(3)] [Part 3, Division 5, clause 55(2)-(3)]
1.219 The purpose of these provisions is to provide an incentive for
suppliers and recipients of eligible upstream fuel to comply with the
requirement that an OTN be quoted in relation to a particular supply.
Upon application by the Authority, the Federal Court may, if it decides
that a person aids, procures, induces etc. a contravention of the
requirement to quote an OTN in relation to a particular supply, order the
person to pay the Commonwealth a civil penalty. [Part 21, clause 327]
1.220 An OTN quotation made in circumstances where the quotation is
mandatory must set out a statement to that effect within the quotation.
A person must not, however include a statement to this effect unless the
person is or will be required to quote an OTN in relation to the supply or
class of supplies to which the quotation relates. A breach of this
requirement may result in a civil penalty. [Part 3, Division 5, clause 66A]
Large users of eligible upstream fuels (excluding users of liquid petroleum
fuel)
1.221 The operator of a facility will be required to quote an OTN in
relation to a supply to the facility of an eligible upstream fuel (other than
liquid petroleum fuel) if combustion of that type of fuel contributed
25,000 tonnes of CO2 -e or more to the facility's greenhouse gas emissions
in the previous year. Pro-rata thresholds apply for facilities that an entity
operates for part of a year. [Part 3, Division 5, clause 52(1)]
1.222 The holder of a liability transfer certificate for such a facility is
considered to be its operator. [Part 3, Division 5, clause 52(4)]
1.223 Entities will be able to ascertain whether they meet the threshold
for large fuel users on the basis of their previous year's report made under
the National Greenhouse and Energy Reporting Act 2007.
1.224 Large fuel users will not be required to quote an OTN for fuels
that contributed less than 25,000 tonnes of CO 2 -e to a facility's emissions
in the previous year. This is to ensure that suppliers are not required to net
out small amounts of fuel.
1.225 However in certain circumstances large fuel users will be
permitted to quote their OTN in relation to fuels that contribute less than
25,000 tonnes of CO2 -e to a facility's emissions, as explained in the
section below on voluntary quotation of an OTN.
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Chapter 1: Liable entities and covered emissions
Re-suppliers of natural gas and marketers of liquid petroleum gas
1.226 Natural gas retailers, marketers of liquid petroleum gas and
other entities that carry on a business of re-supplying natural gas, will be
required to quote an OTN. [Part 3, Division 5, clauses 53-54] This will transfer
the bulk of Scheme liabilities for these fuels to the entities that have
customer usage information for these fuels and will ensure that these
re-suppliers operate within equivalent market rules.
1.227 Marketers of liquid petroleum gas are those entities that
re-supply liquid petroleum gas that is supplied to them from an import
terminal bulk storage, petroleum refinery bulk storage or liquid petroleum
gas separation plant bulk storage. [Part 3, Division 5, clause 54] Some entities
that the liquid petroleum gas industry commonly considers to be
marketers (those that run vertically integrated operations with bulk storage
facilities) will not meet this definition as `supply' does not include intra-
company transfers. Nevertheless, these entities will have Scheme
obligations for the liquid petroleum gas they supply by way of their status
as producers or importers of this fuel. [Part 3, Division 4, clause 33]
Feedstock users of liquid petroleum gas, refinery grade propene or ethane
1.228 Feedstock users of liquid petroleum gas, refinery grade propene
or ethane will also be required to quote an OTN to their suppliers of these
fuels. [Part 3, Division 5, clause 55]
1.229 Users of these fuels as feedstocks often consume significant
quantities of the fuels, and there are a limited number of suppliers to these
industries. These circumstances present risks that significant Scheme
liabilities could be imposed for large quantities of fuel that will not result
in emissions. As such, feedstock users of these fuels will be required to
quote an OTN.
Voluntary quotation of an OTN
1.230 Seven types of entities will be permitted, but not required, to
quote an OTN in relation to a particular supply of eligible upstream fuel
or synthetic greenhouse gas. [Part 3, Division 5, Subdivision D] These are:
· large users of eligible upstream fuels (including liquid
petroleum fuels) [Part 3, Division 5, clause 56]
· entities that use eligible upstream fuels as feedstock to
manufacture other products, or in ways that do not result in
emissions of greenhouse gases to the atmosphere [Part 3,
Division 5, clause 58]
· entities that transform eligible upstream fuels from one type
into another [Part 3, Division 5, clause 59]
· exporters and intermediate suppliers of certain fuels [Part 3,
Division 5, clauses 60]
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Carbon Pollution Reduction Scheme Bill 2009
· intermediate suppliers of synthetic greenhouse gases [Part 3,
Division 5, clause 63]
· exporters of synthetic greenhouse gases [Part 3, Division 5,
clause 64]
· feedstock users of synthetic greenhouse gases [Part 3,
Division 5, clause 64AA]
Large users of eligible upstream fuels
1.231 A large user of eligible upstream fuel is permitted to make a
voluntary quotation of an OTN for a supply of fuel. A large fuel user is
the operator of a facility that in the previous financial year had greenhouse
gas emissions from combustion of one type of eligible upstream fuel of at
least the amount specified in the regulations. [Part 3, Division 5, clause 56(1)]
1.232 The holder of a liability transfer certificate for such a facility is
considered to be its operator. [Part 3, Division 5, clause 56(9)]
1.233 The threshold that defines a large fuel user for the purposes of
voluntary quotation of an OTN will be prescribed in regulations. [Part 3,
Division 5, clause 56(1)] The Government's intent is to set this threshold
initially at 25,000 tonnes of CO2-e or less.
1.234 Setting the threshold at this level will enable large fuel users that
are required to quote an OTN for one type of fuel supplied to a facility to
quote an OTN for other fuels used at the facility. They will also be able to
quote an OTN when purchasing fuel for other facilities that do not exceed
the single fuel threshold. This will simplify billing arrangements where a
large fuel user obtains more than one type of fuel from a supplier, or
purchases fuel from one supplier for use at more than one facility.
1.235 The Authority may give approval for the quotation of an OTN
by an entity that expects its emissions to exceed the threshold in a
particular year, even though it does not satisfy the threshold test for the
previous year. This may occur, for example, where an entity expects to
increase production at an existing facility or establish a new facility.
1.236 Entities will be able to apply to the Authority to become an
approved person under this provision. The bill specifies procedures and
requirements relating to such an application. The Authority will only
approve an application if satisfied that emissions are likely to exceed the
threshold in the year to which the application relates. [Part 3, Division 5,
clause 56(2)-(8)]
1.237 The threshold may be lowered over time to allow a greater range
of entities to manage their Scheme obligations.
Example 1.15 Large user of eligible upstream fuel with prior
reporting history
Co mpany X has operational control over a coal mine. In 2011
emissions from the coal mine co mprise:
64
Chapter 1: Liable entities and covered emissions
· 40,000 tonnes of CO2 -e of fugit ive emissions
· 30,000 tonnes of CO2 -e fro m use of diesel
· 2,000 tonnes of CO2 -e fro m use of petrol.
Co mpany X also has operational control over another mine which is a
facility in its own right. In 2011 emissions from this second mine
comprise:
· 20,000 tonnes of CO2 -e of fugit ive emissions
· 15,000 tonnes of CO2 -e fro m use of diesel
· 1,000 tonnes of CO2 -e fro m use of petrol.
In 2012 Co mpany X is permitted to quote an OTN for its diesel use at
the first mine because, in 2011, its emissions from diesel use at that
mine exceeded the single fuel threshold specified in the regulations.
Because emissions fro m one fuel exceeded the threshold, Co mpany X
is also permitted to quote an OTN for its petrol use at that mine.
Co mpany X is also permitted to quote an OTN fo r its diesel and petrol
use at the second mine, even though emissions attributable to any one
type of fuel used at the second mine do not exceed the single fuel
threshold specified in the regulat ions.
The company establishes a fuel supply contract with a fuel co mpany
for the diesel and petrol used at both mines. The company makes an
OTN quotation in that contract which is acknowledged by the supplier.
Co mpany X must manage Scheme obligations for all fuel supplied
under this contract.
Example 1.16: Start-up company that expects to be a large
user of eligible upstream fuel
A company is in the process of commissioning a gas fired electricity
plant. It expects to emit 500,000 tonnes of CO2 -e of greenhouse gases
in its first year of operation. The co mpany applies to the Authority for
an OTN and submits all in formation and documents specified in the
regulations. The Authority assesses the application and decides that it
is likely that the company's emissions fro m natural gas combustion
will e xceed the threshold value specified in the regulations. The
Authority, by written notice, declares that the company is an approved
person. The company is permitted to quote an OTN for the natural gas
it purchases for its new electricity plant, and for any other fuel supplied
to it.
Use of fuel in manufacturing other products etc
1.238 A person may quote an OTN if they use eligible upstream fuels
to manufacture products in which all or part of that fuel is sequestered,
such as where a fuel is used as a feedstock to make plastic. Entities that
use fuels in other ways that do not result in emissions of greenhouse gases
to the atmosphere may also quote an OTN. An example of this type of use
is the use of diesel as a flocculent in minerals processing. [Part 3, Division 5,
clause 58]
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Carbon Pollution Reduction Scheme Bill 2009
1.239 The circumstances under which these entities will be permitted
to quote an OTN do not require that the fuel is to be used for a specific
purpose. This recognises that entities permitted to quote an OTN under
this provision commonly combust a portion of the fuel supplied to them.
1.240 To avoid doubt, exempt hydrocarbon solvents are not eligible
upstream fuels. [Part 1, clause 5, definitions of `eligible upstream fuels', `liquid
petroleum fuels' and `exempt hydrocarbon solvent'] As such, no liability will arise
from their supply and the quotation of an OTN is not permitted in relation
to such a supply.
1.241 Scheme obligations will apply for any greenhouse gas emissions
from the use of that fuel. Liability for these emissions arises under the
direct emitter provisions, or under the application to own use provisions
where the direct emitter provisions do not apply. [Part 3, Division 2] [Part 3,
Division 4]
Transformation of fuel
1.242 A person that transforms one type of eligible upstream fuel into
another type of eligible upstream fuel, for example manufacturing coke
oven coke from black coal, will be liable for the supply of the transformed
fuel to entities that do not quote an OTN. [Part 3, Division 4, clause 35]
However, where a fuel transformer obtains pre-transformed fuel from
another entity, liability will be imposed on that supply unless the fuel
transformer is permitted to quote an OTN. [Part 3, Division 4, clause 33]
1.243 For this reason, entities that undertake recognised fuel
transformations will be permitted to quote an OTN. [Part 3, Division 5,
clause 59] Recognised fuel transformation processes are defined in the bill.
[Part 1, clause 5, definition of `recognised transformation'] Additional fuel
transformations that involve transforming one type of eligible upstream
fuel into another type of eligible upstream fuel can be added through the
regulations.
Export or re-supply of eligible upstream fuels
1.244 Intermediaries are present in certain fuel supply chains, such as
the supply chain for black coal. Entities that are permitted or required to
quote an OTN and that are supplied fuel by an intermediary, would not be
able to assume Scheme obligations for fuels unless their supplier is also
permitted to quote an OTN. Furthermore, intermediaries that export fuels
would incur the cost of Scheme obligations if they were unable to quote
an OTN. For these reasons, re-suppliers or exporters of eligible upstream
fuels will be permitted to quote an OTN. [Part 3, Division 5, clauses 60]
Re-supplier of synthetic greenhouse gases
1.245 Re-suppliers of synthetic greenhouse gases will be permitted to
quote an OTN in a limited set of circumstances. This limited application
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Chapter 1: Liable entities and covered emissions
of an OTN is intended to allow Scheme obligations to be transferred to
exporters of synthetic greenhouse gases.
1.246 A person who carries on a business re-supplying synthetic
greenhouse gases will only be permitted to quote an OTN where they
intend to re-supply the synthetic greenhouse gas to another person and
then only if that other person is either:
· an exporter who quotes an OTN in relation to the re-supply,
or
· another re-supplier who quotes an OTN in relation to the
re-supply. [Part 3, Division 5, clause 63]
1.247 The limited circumstances under which a re-supplier of synthetic
greenhouse gas is permitted to quote an OTN does not provide for the
re-supplier to quote an OTN in relation to an amount of synthetic
greenhouse gas that will be re-supplied to another person who does not
quote an OTN. They also do not permit the quotation of an OTN for an
amount of synthetic greenhouse gas that will be used by the re-supplier.
Exporter of synthetic greenhouse gases
1.248 As noted above, a person who carries on a business exporting
synthetic greenhouse gases may quote an OTN. For such persons
quotation is permitted for an amount of synthetic greenhouse gas that will
be re-supplied or exported. [Part 3, Division 5, clause 64].
1.249 In practice, an entity that both exports synthetic greenhouse
gases and supplies synthetic greenhouse gases within Australia will be
able to quote an OTN when purchasing synthetic greenhouse gases from
their supplier. However, the entity will only be liable for the portion of
synthetic greenhouse gas re-supplied domestically. [Part 3, Division 3,
clause 28]
Example 1.17: Exporter of synthetic greenhouse gases
A company manufactures air conditioners that contain synthetic
greenhouse gases. The company exports a portion of its product and
supplies the other portion on the domestic market. When purchasing
synthetic greenhouse gas refrigerants from its supplier (an importer of
synthetic greenhouse gases) the company quotes its OTN. The
importer will not be liable for the synthetic greenhouse gas supplied to
the company. The company will be liable for the synthetic greenhouse
gases (in CO2 -e) within the air conditioning equip ment it supplies to
the domestic market.
Feedstock users of synthetic greenhouse gases
1.250 A person may also quote an OTN if they use synthetic
greenhouse gases as a feedstock; that is, where the synthetic greenhouse
gas is consumed in a chemical process to manufacture a product. [Part 3,
Division 5, clause 64AA]
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Carbon Pollution Reduction Scheme Bill 2009
Reporting requirements
1.251 The National Greenhouse and Energy Reporting Act 2007 will
be amended to allow regulations to specify reporting requirements for
entities that either use or accept the quotation of an OTN. Examples of the
type of information that may be required by regulations are quantities of
different types of fuel supplied to a person under an OTN and re-supplied
to another person including separate amounts supplied to different OTNs.
(See the consequential amendments bill, Schedule 1, Part 2, item 181.)
Liability transfer certificates
1.252 As outlined in the summary of new law section above provisions
relating to the transfer of liability for emissions under a liability transfer
certificates are in Division 6 of Part 3.
1.253 There are two circumstances in which the liability for a
particular facility can be transferred from one entity to another using a
liability transfer certificate.
1.254 The first circumstance applies under Division 6, Subdivision A
which enables the transfer of Scheme liability from a controlling
corporation to one of its subsidiaries. As such this subdivision applies to
corporations only. The transfer of liability to a subsidiary is intended to
allow the triggering of a change of law or carbon cost pass through clause
in a contract that the subsidiary is a party to on the basis that such clauses
would not be triggered if liability was placed on the controlling
corporation. Accessing these clauses may enable a subsidiary to pass
through carbon costs in existing contracts and convey efficient price
signals to end users.
1.255 The second circumstance applies when an entity with financial
control of a facility (for example the owner) is not also the operator of that
facility. In this instance, the entity with financial control may have
influence over emissions reductions in addition to the operator. In line
with the object of the Scheme -- to reduce emissions -- the entity that has
financial control may take on liability in certain circumstances through a
Category B liability transfer certificate. If more than one entity has
financial control, it is intended that the entity with the greatest financial
control would be permitted to apply for a liability transfer certificate.
1.256 To apply for a liability transfer certificate an entity must pass
either the Category A or Category B transfer test as outlined below.
1.257 A liability transfer certificate may only be issued for a single
facility. If a person wants to transfer liability for multiple facilities they
will have to apply for a certificate for each of those facilities. [Part 3,
Division 6, clause 69] [Part 3, Division 6, clause 73]
1.258 A person taking on liability must have a significant connection
to a facility that encompasses the ability to reduce emissions from that
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Chapter 1: Liable entities and covered emissions
facility. For this reason a liability transfer certificate can only be issued by
the Authority and is not transferable. [Part 3, Division 6, clause 80]
1.259 This section also outlines other matters relating to liability
transfer certificates including Category A and Category B transfer tests,
the issuance process, reporting obligations, application process, duration,
surrender and cancellation. [Part 3, Division 6]
Transfer of liability to another member of a controlling corporation's
group -- category A transfer test
1.260 As outlined above, Division 6, Subdivision A enables the
transfer of Scheme liability from a controlling corporation to one of its
subsidiaries. Under Subdivision A, a subsidiary can only apply for a
liability transfer certificate if its controlling corporation gives its consent
for that application to be made. [Part 3, Division 6, clause 70(3)] Where a
certificate is issued the controlling corporation is taken to have given a
statutory guarantee for the payment of any administrative penalty for a
unit shortfall for the relevant financial year and any late payment penalty
for that subsidiary, plus the controlling corporation has a make good
number for the unit shortfall of the subsidiary. [Part 6, Division 4, clause 138
and 142(2)] This provision ensures that there is always a liable entity under
the Scheme for a covered facility and prevents controlling corporations
from avoiding liability by transferring liability to a subsidiary.
Diagram 1.1
Corporation A
Corporation A's group Corporation A is the controlling
consists of subsidiaries X corporation for subsidiaries X and Y
and Y
Subsidiary X Subsidiary Y
X has operational control over Y does not have operational control
over Facility 1 or 2, but is part of
facilities 1 and 2
controlling corporation A's group
Transfer of
liability
certificate issued
to Subsidiary Y
Facility 1 Facility 2
Transfer of liab ility certificate is issued for Subsidiary Y in relat ion to
Facility 2.
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Carbon Pollution Reduction Scheme Bill 2009
Subsidiary Y takes on all ob ligations and liability for Facility 2 under
the Scheme and under the National Greenhouse and Energy Reporting
Act 2007 -- this includes reporting in relat ion to emissions, energy
production and energy consumption.
Corporation A will not have obligations or liab ility for Facility 2 under
the Scheme or under the National Greenhouse and Energy Reporting
Act 2007.
Corporation A will, however, have consented to the application for the
transfer and in doing gives a statutory guarantee against liability
incurred by Subsidiary Y.
Facility 2 will continue to form part of Corporation A's group for the
purposes of meeting the National Greenhouse and Energy Reporting
Act 2007 group thresholds.
Transfer of liability to a company that has financial control over a
facility -- Category B transfer test
1.261 As outlined above a Category B liability transfer certificate
(outlined in Division 6, Subdivision B) allows liability to be transferred
from the operator of a facility to another person as long as that other
person has financial control (defined below) over the facility.
1.262 However, transfers are not allowed to certain persons. First, the
person cannot be an individual. This avoids complications that may arise
when an individual is liable, such as death. Second, the person cannot be a
foreign person. This prevents liability from being transferred to a person
overseas to avoid compliance under the Scheme, recognising that it would
be more difficult enforce obligations against a foreign person. Third, the
person cannot be within the same controlling corporation's group as the
operator. This is because an application for a transfer in this instance is
intended to be made under the Category A transfer test.
1.263 In the majority of circumstances liable persons are not expected
to access these provisions. This is because the operator will also be the
owner of a facility and would therefore have financial control of that
facility. However, in some circumstances, for example contract mining
and pipeline operations, the person with financial control of a facility
contracts out the operation of a facility to another person. The operator
will then generally have operational control over the facility and therefore
liability for the facility under the Scheme. As the person with financial
control of a facility may also have an influence over emissions arising
from the facility, it is appropriate to allow that person to take on liability
for the facility with the agreement of the operator of the facility.
1.264 Financial control is intended to encompass a person that has
significant ability to control a facility through financial means only and
therefore give effect to decisions relating to emissions reductions. It is not
intended to include an agent or person acting on behalf of an entity that
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Chapter 1: Liable entities and covered emissions
has financial or operational control of a facility who may not have any
direct influence on emissions reductions. [Part 3, Division 6, clause 81]
1.265 The meaning of financial control recognises that more than one
person may have financial control over a facility. For example several
persons may be participants in a joint venture or partnership that
collectively have financial control of a facility. In these circumstances, the
person with the equal or greatest share in the economic benefits from a
facility will have financial control for the purposes of the Act.
Example 1.18
Diagram 1.2
Corporation A
Controlling corporation
Corporation B
Controlling corporation
Subsidiary X -- Subsidiary Y
operator
Subsidiary F
F has financial control Subsidiary G
over Facility 1
Facility 1
Subsidiary F, which is part of Controlling Corporation B's group, has
financial control over Facility 1. Subsidiary F (with consent from
Corporation A and Corporation B) applies for a liability transfer
certificate.
A certificate is issued and Subsidiary F takes on takes on all
obligations and liability fo r Facility 1 under the Scheme and under the
National Greenhouse and Energy Reporting Act 2007 -- this includes
reporting in relation to emissions, energy production and energy
consumption.
Corporation A will not have obligations or liab ility for Facility 1 under
the Scheme or under the National Greenhouse and Energy Reporting
Act 2007.
Criteria for the issue of a liability transfer certificate
1.266 An entity must also meet the criteria for the issue of a liability
transfer certificate. [Part 3, Division 6, clause 72] [Part 3, Division 6, clause 76]
Criteria have been included to maintain Scheme integrity by ensuring that
an entity has the capacity, access to financial resources and information to
comply with its obligations under the Carbon Pollution Reduction Scheme
Act 2009 as well as the National Greenhouse and Energy Reporting Act
2007.
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Carbon Pollution Reduction Scheme Bill 2009
1.267 The financial criterion ensures that a person does not transfer
liability to a person that cannot meet Scheme obligations in order to avoid
or delay liability. This test is not, however, intended to involve an
exhaustive explanation by the applicant of its financial situation. [Part 3,
Division 6, clause 72] [Part 3, Division 6, clause 76]
Reporting obligations and liability transfer certificates
1.268 Obligations for reporting under the National Greenhouse and
Energy Reporting Act 2007 in relation to the facility for which a liability
transfer certificate has been issued will be transferred to the holder of the
certificate. This includes reporting obligations in relation to greenhouse
gas emissions, energy production and energy consumption. This is given
effect by the consequential amendments bill. (See the consequential
amendments bill, Schedule 1, Part 2, items 175-181)
Application process for a liability transfer certificate
1.269 An application to obtain a liability transfer certificate must be
made in writing in a form approved by the Authority. An application by a
subsidiary must be accompanied by the written consent of its controlling
corporation. The application must also include any information and
documents that are specified in regulations. This is intended to include
information and documents that support an entity's application and
demonstrate that the entity meets the criteria for the issue of a liability
transfer certificate. [Part 3, Division 6, clause 70] [Part 3, Division 6, clause 74]
1.270 The Authority may request further information in relation to an
application within a period specified in a notice given by the Authority.
This is to assist the Authority in its decision-making capacity. If the
applicant does not meet this request within the time specified, the
Authority may refuse to consider the application or refuse to take any
action, or any further action, in relation to the application. [Part 3, Division 6,
clause 71] [Part 3, Division 6, clause 75]
1.271 The Authority is required to take all reasonable steps to ensure
that a decision is made on an application for a liability transfer certificate
within 90 days of receiving an application or within 90 days of being
given further information. The Authority must inform an applicant in
writing if it decides to refuse to issue a liability transfer certificate. [Part 3,
Division 6, clause 72] [Part 3, Division 6, clause 76]
1.272 A certificate may come into force on the start day specified in
the certificate, which must be within the same financial year as the
application for the certificate. This ensures that liability cannot be
transferred from a financial year that has already passed and allows
persons to obtain a certificate for an entire financial year regardless of
when the application is made or the certificate is issued during a financial
year. [Part 3, Division 6, clause 77]
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Chapter 1: Liable entities and covered emissions
1.273 The start date may only be earlier than the day on which the
certificate is issued if the applicant and the relevant parties consent to the
specification of that start day. This ensures that all persons that may be
liable under the Scheme know who is liable for a given period. [Part 3,
Division 6, clause 77]
Duration of a liability transfer certificate
1.274 Once made, a liability transfer certificate remains in force
indefinitely subject to provisions relating to surrender and cancellation of
a certificate. [Part 3, Division 6, clause 77]
Voluntary surrender of liability transfer certificate
1.275 If an entity wishes to surrender a liability transfer certificate it
must obtain written consent from the Authority to do so. The Authority
must not consent to the surrender unless:
· where applicable, the controlling corporation(s) that agreed
to the making of the application for the certificate agrees to
the surrender, and
· the certificate has been in force for at least four years, or
· certificate has been in force for less than four years, but the
Authority is satisfied that there are special circumstances that
warrant the giving of its consent to the surrender.
It is envisaged that special circumstances is unlikely to include a change
of operator or contract as these changes are considered to be normal
business practice and are foreseeable by a person at the time of their
application for a liability transfer certificate. The 4 year criterion supports
the Scheme's integrity by ensuring a consistent liable entity and prevents
multiple transfers of liability that may be aimed at avoiding liability.
[Part 3, Division 6, clause 78]
Cancellation of liability transfer certificate
1.276 The Authority must, by written notice, cancel a liability transfer
certificate in the following circumstances:
· if a company ceases to pass a Category A or B transfer test,
· in the case of Category A liability transfer certificate, the
company is no longer a member of the group of the
controlling corporation which consented to the application,
· if a company has not paid an administrative penalty for a unit
shortfall under clause 133 of the bill,
· if the company has become an externally-administered body
corporate (within the meaning of the Corporations Act 2001),
or
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Carbon Pollution Reduction Scheme Bill 2009
· if regulations specify one or more other grounds for
cancellation and at least one of those grounds is applicable to
the company. [Part 3, Division 6, clause 79]
1.277 The cancellation or surrender of a liability transfer certificate
will result in future obligations and liability returning to the person that
would have had obligations and liability in the absence of the liability
transfer certificate. [Part 3, Division 6, clauses 78-79]
Australian boundaries
1.278 The Scheme will extend to every external Territory. [Part 1, clause
10]. It will also extend to the coastal sea in accordance with section 15B of
the Acts Interpretation Act 1901.
1.279 It will extend to a matter relating to the exercise of Australia's
sovereign rights in the exclusive economic zone or the continental shelf.
[Part 1, clause 11]
1.280 This means that those responsible for carbon capture and storage
facilities in the exclusive economic zone or the continental shelf will be
responsible under the general provisions of the bill for any emissions from
these facilities.
1.281 However, the Scheme will not apply to the extent that its
application would be inconsistent with the exercise of rights of foreign
ships in the territorial sea, exclusive economic zone or waters of the
continental shelf in accordance with the United Nations Convention on the
Law of the Sea. [Part 1, clause 12]
1.282 The Act extends to the Joint Petroleum Development Area
because Australia is responsible for a proportion of the emissions from
this region under the United Nations Framework Convention on Climate
Change and the Kyoto Protocol [Part 1, clause 11A]. The regulations will
specify the percentage of the emissions from facilities in the Joint
Petroleum Development Area and the Greater Sunrise Field which are
subject to the Scheme. These regulations will specify percentages
consistent with Australia's responsibilities under international law [Part 3,
Division 2, clauses 22A -- 22C].
1.283 The express application of the Act to the Joint Petroleum
Development Area -- an agreed joint development area under the Timor
Sea Treaty [2003] ATS 13 -- is consistent with the obligations of
Australia under article 4(1) of the Treaty between Australia and Timor-
Leste on Certain Maritime Arrangements in the Timor Sea [2007] ATS
12.
1.284 Apart from these provisions, reliance is placed on the general
presumption that legislation does not have extraterritorial effect plus
section 21 of the Acts Interpretation Act 1901 to limit the scope of the
legislation.
74
Chapter 2
Scheme caps, gateways and emissions
units
Outline of chapter
2.1 This chapter discusses the national scheme caps and national
scheme gateways, and the nature of the various emissions units (domestic
and international) recognised in the bill. It explains how these units can be
issued and transferred. It also explains which can be surrendered.
2.2 It relates particularly to Part 2 and some clauses in Part 4 of the
bill.
Context
2.3 The Carbon Pollution Reduction Scheme is a cap and trade
scheme. It involves setting a national trajectory (which is referred to in the
objects clause [Part 1, clause 3]), and setting national scheme caps and
gateways. The objects clause is discussed in the General Outline of this
explanatory memorandum. A limited number of emissions units are issued
and liable entities are required to surrender a number of units equal to
their emissions to account for those emissions. The emissions units are
tradable, establishing a carbon market that allows emiss ions units to be
allocated to the most highly valued uses across the economy. Therefore,
determining the emissions units that can be used for surrender is
fundamental to the operation of the Scheme.
2.4 The Kyoto Protocol is an international agreement on climate
change, providing among other things a framework for an international
cap and trade scheme. Australia has an obligation to retire emissions units,
referred to as Kyoto units, to meet its Kyoto target. The Kyoto Protocol
also establishes three `flexibility mechanisms'. These flexibility
mechanisms result in the issue of Kyoto units which can be traded
between Kyoto Parties and used towards meeting their emission reduction
targets. Kyoto Parties can also allow for legal entities to participate in the
trade of Kyoto units.
2.5 Allowing for Kyoto units to be used for surrender in the Scheme
creates a link between the Scheme and the international market for Kyoto
units. This allows liable entities to access lower cost abatement
opportunities wherever they occur in the world and allows for emission
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Carbon Pollution Reduction Scheme Bill 2009
reduction targets to be achieved in a flexible and cost-effective way,
without reducing the Scheme's environmental integrity.
2.6 The Kyoto Protocol includes a requirement that Australia's use
of the flexibility mechanisms be supplemental to its domestic actions.
This means that Australia must take some meaningful domestic action to
meet its emission reduction target, and cannot rely solely on the flexibility
mechanisms. Projections of Australia's greenhouse gas emissions for the
first Kyoto commitment period (2008 -- 2012) indicate Australia's
reliance on the flexibility mechanisms to meet the target is expected to be
minimal. Australia has undertaken a range of measures to reduce domestic
greenhouse gas emissions, in addition to the Carbon Pollution Reduction
Scheme, and will continue to do so. The price on greenhouse gas
emissions introduced as a result of the Scheme can also be expected to
result in additional action on the part of households and industry to reduce
Australia's greenhouse gas emissions. Collectively, these measures
represent significant domestic action.
Summary
2.7 The national scheme caps and gateways will be set in
regulations. The matters relevant to specifying the scheme caps and
gateways are listed and discussed in this Chapter.
2.8 Australian emissions units will be created for the purpose of the
Scheme. These will have a number of characteristics which ensure
transparent and secure property rights.
2.9 Australian emissions units will be issued by the Authority on
behalf of the Commonwealth in the Registry. Generally, Australian
emissions units can be transferred between Registry accounts and
surrendered. Restrictions apply to Australian emissions units:
· units issued for a fixed charge are automatically surrendered
for the eligible financial year corresponding to their vintage
year
· units with a vintage year of 2011-12 issued in accordance
with the emissions-intensive trade-exposed assistance
program or in respect of coal-fired electricity generation
assets can only be surrendered in relation to the 2011-12
eligible financial year and, if not surrendered, will be
cancelled on 15 December 2012.
2.10 The bill recognises the emissions units created under the Kyoto
Protocol and sets out how these units can be issued and transferred. Some
types of Kyoto units can be surrendered for compliance purposes while
others cannot. Nonetheless all Kyoto units can be held and transferred
within the Registry.
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Chapter 2: Scheme caps, gateways and emissions units
Detailed explanation of new law
National targets and Scheme caps
2.11 Part 2 of the bill sets out arrangements for national scheme caps
and national scheme gateways. It commences with a simplified outline
[Part 2, clause 13]. The purpose of national scheme gateways is to provide
guidance for longer term cap-setting, while still retaining some flexibility
over where future scheme caps can be set. National scheme caps and
national scheme gateways will exist within a broader policy framework in
relation to national emissions targets, and Australia's international
obligations and objectives.
2.12 The Scheme involves setting a national scheme cap for a
particular year (other than 2011-12) and issuing Australian emissions
units equal to that cap, with further units issued for additional abatement
from synthetic greenhouse gas destruction and reforestation. The scheme
cap for a particular year is a quantity of greenhouse gases that has a
carbon dioxide equivalence of a specified number of tonnes.
2.13 Scheme caps will generally be lower than the emissions path
required to meet any national emissions targets because some emissions
sources are not covered by the Scheme (primarily emissions from
agriculture and deforestation, or some below-threshold emissions from
waste, industrial processes or fugitive emissions). Therefore, the same
factors that the Government takes into account in setting the national
emissions trajectory need to be taken into account when setting caps,
because of the wide coverage of the Scheme.
2.14 Scheme cap numbers for each financial year will be specified in
regulations [Part 2, clause 14]. The Government intends that these be
consistent with the 2020 and 2050 national emissions reduction targets.
The Minister is required to take all reasonable steps to ensure that
regulations specifying the scheme cap numbers for the first three
full-trading years of the Scheme (2012-13 to 2014-15) are made before
1 July 2010 [Part 2, clause 14(2)]. The purpose of this requirement is to
provide market certainty. In a similar vein, for all subsequent financial
years, the Minister is required to take all reasonable steps to ensure that
regulations declaring the scheme cap number are in place at least
five years before the end of the relevant year [Part 2, clause 14(3)]. The
phrase `take all reasonable steps' has been adopted in these provisions
because, despite his or her best endeavours, a Minister cannot guarantee
that regulations are made and not disa llowed.
2.15 In the event that there is no scheme cap number for a year
beginning on or after 1 July 2015, then the scheme cap number will be
99 per cent of the scheme cap number for the previous year, except:
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Carbon Pollution Reduction Scheme Bill 2009
· where this number is greater than the upper bound of the
gateway for the relevant year, the scheme cap is equal to the
upper bound of the gateway; or
· where this number is less than the lower bound of the
gateway, the scheme cap is equal to the lower bound of the
gateway [Part 2, clause 14(4)].
2.16 In the above arrangement, the scheme caps that apply by default
when scheme caps are not prescribed in regulations will always fall within
the scheme gateways (if any).
2.17 The Minister is required to take all reasonable steps to ensure
that the scheme caps are within the upper and lower bound of the gateway
(if any) for the relevant year [Part 2, clause 15(3)]. Again, the phrase `all
reasonable steps' is to reflect that, despite his or her best endeavours, a
Minister cannot guarantee that regulations are made and not disallowed.
2.18 Further, in making a recommendation to the Governor-General
about scheme cap regulations, the Minister must have regard to
Australia's international obligations under the United Nations Framework
Convention on Climate Change and the Kyoto Protocol [Part 2,
clause 14(5)(a)]. The Scheme will be the primary means through which
Australia will aim to meet its international obligations, and so this is a
mandatory criterion to take into account.
2.19 If Australia becomes a party to a new international agreement
which does not comprise an amendment to the Climate Change
Convention or the Kyoto Protocol, the Government considers it may be
necessary to amend clauses 14 and 15 of the bill, to ensure that it reflects
Australia's new international obligations.
2.20 While taking into account Australia's international obligations
plays a central role in cap-setting, the Minister has discretion to also have
regard to a number of other domestic and international factors.
Specifically, the bill provides that the Minister may have regard to an
additional seven factors.
2.21 The first factor is the most recent report from the independent
reviews conducted under Part 25 of the bill. These reviews, by an expert
advisory committee, will advise on whether national targets relating to
emissions of greenhouse gases should be changed or extended [Part 25,
Division 2, clause 353(1)(b)] and on regulations setting caps and gateways
[Part 25, Division 2, clause 353(1)(c) and (d)].
2.22 The second factor is the principle that fair and effective global
action to stabilise atmospheric concentrations of greenhouse gases at
around 450 parts per million of carbon dioxide equivalence or lower is in
Australia's national interest [Part 2, clause 14(5)(c)(i)]. As discussed in the
General Outline, if Australia has committed to a 2020 target of minus
25 per cent, it will have done so after an independent Ratification Review
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Chapter 2: Scheme caps, gateways and emissions units
had found that the international agreement to which Australia was
considering becoming a party was capable of delivering an outcome of
450 parts per million or lower. If the conditions for accepting a minus
25 per cent target have not been met, either because a new agreement to
which Australia was a party did not meet the conditions for the minus
25 per cent target or because no further agreement was concluded at all,
then the minus 5 to 15 target range is relevant. In this case the Minister
could choose to consider the extent to which a particular target was
consistent with the above principle. In doing so, the Minister may take
into consideration the extent to which taking action within this target
range will help build international confidence and co-operation, move the
economy to a low pollution future and position Australia to support and
participate in more ambitious global action over time, including a
potential future agreement capable of achieving stabilisation at 450 parts
per million or lower.
2.23 The third factor to which the Minister may have regard is
progress towards, and development of, comprehensive global action under
which all major economies commit to substantially restrain emissions and
advanced economies take on reductions comparable to Australia [Part 2,
clause 14(5)(c)(ii)].
2.24 As discussed above and in the General Outline, the Government
has made national emissions reduction target offers that are conditional on
the actions taken by others. Under this criterion, progress on international
negotiations, and how they relate to the conditions associated with certain
targets, can be taken into account.
2.25 The fourth factor to which the Minister may have regard is the
economic implications associated with various levels of national scheme
caps, including implications of the carbon price (that is, the price of
Australian emissions units) [Part 2, clause 14(5)(c)(iii)]. The White Paper
stated that all of the design elements of the Scheme were to take into
account the criteria of minimising implementation risks and the
implications for the competitiveness of traded and non-traded industries.
The economic implications of scheme caps have a bearing on these
factors. Different levels of scheme caps will have different economic
implications, including on likely carbon prices and/or the flow of funds
outside Australia to purchase eligible international emissions units. In
addition, judgements about the appropriate level of the cap may take into
account the carbon price and economic impacts arising from observing the
actual operation of the cap in previous years. The carbon price may be
higher or lower than expected as a result of a number of factors. For
example, technological developments may mean that economic costs are
lower than expected as new unanticipated abatement opportunities come
into play. Conversely, some expected abatement opportunities may be
more costly due to developments in other markets, such as the price of
fuels. It may be appropriate to take these factors into account when
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Carbon Pollution Reduction Scheme Bill 2009
judging where within the overall bounds set by the gateway caps should
be set.
2.26 The fifth factor to which the Minister may have regard is the
extent of actions voluntarily taken to reduce Australia's greenhouse gas
emissions [Part 2, clause 14(5)(c)(iv)]. Voluntary action, including by
Australian households, to reduce greenhouse gas emissions can help
ameliorate the economic implications associated with various levels of
national scheme caps, increasing the likelihood that more stringent caps
can be set over time.
2.27 As a matter of policy, the Government is committed to taking
account of uptake of GreenPower in setting caps. Households and
businesses that purchase accredited GreenPower increase the supply of
renewable energy and assist in the transition to cleaner energy sources. To
recognise individual action in purchasing more GreenPower, the
Government will take additional GreenPower purchases, above 2009
levels, into account in setting future scheme caps. The Government has
indicated that additional GreenPower purchases will be measured annually
and taken directly into account in setting scheme caps five years into the
future, on a rolling basis. For example, the 2016-17 cap will be tightened
to reflect the difference between 2009 and 2011 GreenPower sales,
multiplied by a factor to reflect the emissions saved. This will achieve
emissions reductions beyond Australia's national targets as it will be
backed by the cancellation of Kyoto units.
2.28 A range of other indicators of voluntary action may also be
taken into account. As a matter of policy, the Government will monitor
annual emissions from the household sector, and will monitor and
consider the uptake of certain energy efficiency activities among
households and businesses where there are clearly defined
business-as-usual benchmarks, and where improvements can be detected.
In doing so, the Government will consider trends in the construction or
renovation of houses to a star-rating above the minimum required, the use
of public transport and the expansion of public transport services, and the
uptake of more energy efficient appliances (particularly those that
consume a significant proportion of household energy such as water
heaters and airconditioners) beyond regulated levels. Action in these
sectors could be taken into account by assessing the extent to which the
uptake exceeds historical trends, factoring in electricity pr ice changes,
regulation and any direct government assistance.
2.29 For example, the Government would collect data on the
proportion of houses with a 6 star rating that are being constructed,
compare this with historical trends and calculate the reduced emissions
likely over the full life-cycle of the buildings. This calculation could
inform the Government's cap setting decision. Another example could be
monitoring the overall fuel efficiency of the passenger vehicle fleet in
Australia. The trend improvements in fuel efficiency could then be
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Chapter 2: Scheme caps, gateways and emissions units
compared to historical trend improvements, taking account of fuel price
changes and other relevant factors. Estimates of emissions reductions
could then be used to inform the Government's decision regarding
appropriate scheme caps and gateways.
2.30 The above examples illustrate instances where data may be
available to inform a decision regarding the scheme cap or gateway. Over
time the Government will monitor other areas where measurement may be
traceable and where the quantitative impact on emissions is likely to be
significant. It is not possible to list all these areas comprehensively as they
may evolve over time in response to changing carbon prices,
technological developments and other economic and social developments.
2.31 The sixth matter to which the Minister may have regard is
estimates of emissions that are not covered (directly or indirectly) by the
Scheme [Part 2, clause 14(5)(c)(v)]. In order to meet national emissions
targets, account may need to be taken of the remainder of emissions that
are not covered by the Scheme. In the White Paper, the Government stated
that it would set Scheme caps based on the difference between the
indicative national emissions trajectory (that is, its proposed path for
national emissions) and the latest projection of emissions that are not
covered by the Scheme. In this way, sufficient `room' is left for uncovered
emissions, and national targets can still be met.
2.32 Finally, when setting caps, the Minister may take into account
such other matters (if any) as the Minister considers relevant [Part 2,
clause 14(5)(c)(vi)].
2.33 Assuming a future agreement allows a proportion of the national
target to be met with international purchases, as a matter of policy, the
Government has stated that if a target of minus 25 per cent compared with
2000 level emissions by 2020 is in place, up to five percentage points of
this target could be met by using international Kyoto units. This would
imply setting caps broadly on the basis of a target of up to minus
20 per cent, and entail using part of the resulting auction revenue to fund
the purchase of international Kyoto units.
2.34 When scheme cap regulations are tabled before a House of the
Parliament under section 38 of the Legislative Instruments Act 2003, the
Minister must, as soon as practicable, cause to be tabled before that House
a written statement setting out the Minister's reasons for making the
recommendation to the Governor-General about those regulations [Part 2,
clauses 14(7)]. The Government has indicated that it will, as a matter of
policy, set out in such a statement how voluntary action has been taken
into account.
2.35 To provide further guidance to liable entities and participants in
the carbon market more generally, national scheme gateways may be
prescribed for years beginning on or after 1 July 2015 [Part 2, clause 15].
A gateway is a range, comprising an upper bound and a lower bound of
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Carbon Pollution Reduction Scheme Bill 2009
emissions, expressed in terms of tonnes of carbon dioxide equivalent, for
a particular year. As noted above, the Minister is required to take all
reasonable steps to ensure that the scheme caps are within the range
specified for the relevant year. The factors to which the Minister must and
may have regard, and the tabling requirements for a written statement of
reasons, are the same as those described above in relation to the setting of
national scheme caps [Part 2, clause 15(4) and (6)].
2.36 Gateways can be used to indicate longer term possibilities for
cap-setting. For example, they could be used to more formally signal a
policy intention for Australia to play its full and fair part in ambitious
global action, including any international agreement capable of delivering
global concentrations of greenhouse gases of 450 parts per million or
lower (in carbon dioxide equivalent terms). The top of the gateway would
define the maximum cap for a particular year, which in turn relates to the
minimum amount of greenhouse gas abatement that would be required in
that year.
Emissions units
2.37 Emissions units are addressed in Part 4 of the bill. It commences
with a simplified outline [Part 4, Division 1, clause 82].
2.38 The units which can be used for surrender are `eligible
emissions units'. This phrase is defined to mean Australian emissions
units and eligible international emissions units [Part 1, clause 5, definition of
`eligible emissions unit'].
2.39 The inclusion of eligible international emissions units provides
for the Scheme to link to international markets. This is achieved by
accepting international emissions units for surrender, referred to as
importing. Eligible international emissions units cannot be surrendered
during the fixed price transition phase period in 2011-12 [Part 6, Division 2,
clause 129(6A)].
2.40 The bill does not include any provisions to limit the number of
eligible international emissions units that can be used for surrender to
meet obligations under the Scheme.
2.41 A unit is an eligible international emissions unit [Part 1, clause 5,
definition of `eligible international emissions unit']
if it is:
· A certified emission reduction other than a long-term or
temporary certified emission reduction
· An emission reduction unit
· A removal unit
· A prescribed unit issued in accordance with the Kyoto rules
· A non-Kyoto international emissions unit (which must be
prescribed in regulations).
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Chapter 2: Scheme caps, gateways and emissions units
2.42 Consistent with the Government's policy, not all Kyoto units
(explained below) will be able to be surrendered. For example, assigned
amount units and temporary and long-term certified emission reductions
are not included in the definition of an eligible international emissions
unit. However, the definition of eligible international emissions unit
allows for regulations to prescribe additional types of units that are issued
in accordance with the Kyoto rules. For example, should the Kyoto
Protocol rules include a new type of unit in the future, this provision will
allow for any such unit to be prescribed as an eligible international
emissions unit without an amendment to the Act.
2.43 The definition of eligible international emissions unit also
includes a non-Kyoto international emissions unit (discussed below),
which is defined as a prescribed unit issued in accordance with an
international agreement (other than the Kyoto Protocol) or a prescribed
unit issued outside Australia under a law of a foreign country [Part 1,
clause 5, definition of `non-Kyoto international emissions unit'] . This allows for
regulations to add to the types of international emissions units that can be
surrendered without an amendment to the Act.
2.44 Provisions that allow for the future sale and transfer of
Australian emissions units to foreign registries (export) are not included in
the bill. The Government intends to move to full international trading over
time, though any future decision to allow export will require an
amendment to the Act. This is consistent with the Government's policy,
which is that export requires a specific decision of Government.
Government policy is that export will not be provided for in the initial
years of the Scheme and that it will give the market five years' notice of a
decision to allow for export. An exception to this general policy is to be
made for bilateral links (for example, with the New Zealand emissions
trading scheme) where an independent review finds that establishing the
bilateral link will not have a significant impact on the unit charge, and the
Minister decides to waive or shorten the notice period. When allowed, the
outgoing transfer of Australian emissions units will be achieved either by:
· allowing unit holders to convert the unit into an international
emissions unit such as a Kyoto unit which could then be
transferred to a foreign registry; or
· the direct transfer of the unit to a foreign registry.
Australian emissions units
Issue, identification number and vintages
2.45 Australian emissions units will be issued by the Authority on
behalf of the Commonwealth [Part 4, Division 2, clause 83]. To hold an
Australian emissions unit, a person must have a Registry account. Units
are issued by the Authority making an entry for the unit in the person's
Registry account [Part 4, Division 2, clause 87]. The unit will thus be
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Carbon Pollution Reduction Scheme Bill 2009
represented by an electronic entry in the Registry, rather than by a paper
certificate.
2.46 Each Australian emissions unit will have a unique number
known as the identification number [Part 4, Division 2, clause 84]. The entry
by the Authority in an account when issuing a unit consists of the
identification number of the unit [Part 4, Division 2, clause 87(2)].
2.47 Each Australian emissions unit will have a certain vintage year.
This will be the last four digits of the identification number. The vintage
year of the unit is the financial year that ends on 30 June in that calendar
year. For example, if the last four digits of an Australian emissions unit
identification number are 2012, the vintage year of the unit is the financial
year beginning 1 July 2011 and ending on 30 June 2012 [Part 4, Division 2,
clause 85].
2.48 The Authority may issue an Australian emissions unit with a
particular vintage year at any time before the end of 15 December
following the vintage year [Part 4, Division 2, clause 86]. For example, the
Authority may, at any time before the end of 15 December 2013, issue an
Australian emissions unit with the vintage year that ends on 30 June 2013.
This will allow for an auction of units in the interval between the end of
the relevant financial year and 15 December, the final date for surrender.
2.49 Australian emissions units with a vintage year starting on or
after 1 July 2012 do not have a `use by' date. They can be used for
surrender in their vintage year and thereafter. This is referred to as
`banking'. There is limited capacity to surrender Australian emissions
units which are of the following vintage year (`borrowing') [Part 6,
Division 2, clause 129(4)]. The purpose of allowing banking and limited
borrowing is to allow liable entities to shift the timing of their emissions
and abatement activities to reduce their costs. It will also have the effect
of smoothing the unit price over time. More details, the timetable and
process for surrender are described in Chapter 8 of this explanatory
memorandum.
2.50 For 2011-12 vintage units, as a transitional measure, an
unlimited number of Australian emissions units will be available at a fixed
charge of $10 per tonne. These units will not be able to be banked for use
in future years. Units with a vintage year of 2011-12 issued in accordance
with the emissions-intensive trade-exposed assistance program or in
accordance with Part 9 can only be surrendered in relation to the 2011-12
eligible financial year and, if not surrendered, will be cancelled on
15 December 2012 [Part 4, Division 2, clause 103A] [Part 6, Division 2, clause
129(5A)].
2.51 As discussed in Chapter 3 of this explanatory memorandum,
Australian emissions units issued for a fixed charge are automatically
surrendered for the eligible financial year corresponding to their vintage
year [Part 4, Division 2, clause 89(5)]. Accordingly, they cannot be banked.
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Chapter 2: Scheme caps, gateways and emissions units
Circumstances in which Australian emissions units can be issued
2.52 Australian emissions units can only be issued in the following
circumstances:
· As the result of an auction conducted by the Authority
· In accordance with the provisions relating to the issue of
units for a fixed charge
· In accordance with the emissions-intensive trade-exposed
assistance program
· In accordance with Part 9 which relates to coal-fired
electricity generation
· In accordance with Part 10 which relates to reforestation
· In accordance with Part 11 which relates to destruction of
synthetic greenhouse gas.
[Part 4, Division 2, clause 88]
2.53 Details about the procedure for allocation in each of these
circumstances are provided in Chapters 3 to 7 of this explanatory
memorandum.
2.54 Australian emissions units with a particular vintage starting on
or after 1 July 2012 cannot be issued unless there is a national scheme cap
number for the vintage year [Part 4, Division 2, clause 92]. Also, the Authority
must ensure that the sum of Australian emissions units with a particular
vintage year starting on or after 1 July 2012:
· offered at auction;
· issued in accordance with the emissions-intensive
trade-exposed assistance programme; and
· issued in accordance with provisions for assistance to
coal-fired electricity generators,
does not exceed the scheme cap for that vintage year [Part 4, Division 2,
clause 93]. These provisions do not apply to Australian emissions units with
a vintage year corresponding to the fixed price transition period (2011-12)
as there will be no scheme cap for that year.
Characteristics of Australian emissions units
2.55 An Australian emissions unit is personal property and, subject to
the relevant provisions in the bill, transmissible by assignment, by will
and by operation of law [Part 4, Division 2, clause 94].
2.56 The Government's policy intent in adopting this approach in the
bill is to reduce uncertainty for holders of Australian emissions units, and
promote market confidence in and development of the carbon market.
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Carbon Pollution Reduction Scheme Bill 2009
2.57 The bill does not affect the creation or enforcement of, or any
dealings with (including transfers of), equitable interests in Australian
emissions units [Part 4, Division 2, clause 98A]. In addition, the bill is not
intended to prevent the taking of security over Australian emissions units.
2.58 Once an Australian emissions unit is surrendered, it is cancelled
[Part 6, Division 2, clause 129(10)]. It is also cancelled if it is offered for
voluntary cancellation [Part 14, clause 282(3)]. Some units are cancelled
following relinquishment [Part 15, Division 2, clause 286]. Surrender,
relinquishment and voluntary cancellation are explained in greater detail
in Chapter 8 of this explanatory memorandum.
Transfer and transmission of Australian emissions units
2.59 The concept of transfer of an Australian emissions unit is
described in the bill. In general, it consists of the removal of an entry for
the unit from the first account and making an entry for the unit in the
second account [Part 4, Division 2, clause 95].
2.60 There is provision for:
· The transfer of Australian emissions units between accounts
within the Australian National Registry, in the name of the
same person [Part 4, Division 2, clause 98]
· Transmission of Australian emissions units by assignment
[Part 4, Division 2, clause 96]
· Transmission of Australian emissions units by operation of
law [Part 4, Division 2, clause 97].
2.61 At its simplest, a transfer is initiated by an electronic instruction
from the transferor transmitted to the Authority, which then removes the
entry for the unit from one account and makes an entry for that unit in
another account.
2.62 Transmissions by operation of law bring additional issues. An
example is transmission of a unit to a person as the trustee of a deceased
person's estate. In this situation, it is the transferee who needs to establish
evidence of transmission and, if necessary, open a Registry account [Part 4,
Division 2, clause 97].
Kyoto units
2.63 The bill provides for the recognition in Australian legislation of
the emissions units created under the Kyoto Protocol, and sets out how
these units can be issued and transferred [Part 4, Division 3]. The provisions
relating to Kyoto units have been drafted to ensure the Australian
legislation is consistent with the Kyoto Protocol rules.
The Kyoto rules
2.64 The bill defines the Kyoto rules, in summary, to mean:
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Chapter 2: Scheme caps, gateways and emissions units
· the Kyoto Protocol
· a decision of the Meeting of the Kyoto Parties
· a standard or other instrument adopted by the Meeting of the
Kyoto Parties for a purpose relating to:
- the Kyoto Protocol
or
- a decision of the Meeting of the Kyoto Parties
or
· a prescribed instrument that relates to:
- the Kyoto Protocol
or
- a decision of the Meeting of the Kyoto Parties
[Part 1, clause 5, definitions of `Kyoto rules', `Kyoto Protocol' and `decision of the
Meeting of the Kyoto Parties']
2.65 Defining the Kyoto rules in this way allows for all the relevant
elements of the Kyoto Protocol framework to be adopted for various
purposes in the bill. As the Kyoto Protocol itself only provides for the
overarching framework with relevant decisions made by the Meeting of
the Kyoto Parties providing the detail, the definition of Kyoto rules also
encompasses those decisions. For some purposes the Meeting of the
Kyoto Parties has adopted a standard or other instrument which governs
the implementation of the Kyoto Protocol. For example, the data exchange
standards contain the technical specifications for the operation of the
international transaction log and Kyoto registries. Therefore, the definition
of Kyoto rules also includes any such standards or instruments. The
definition also allows for regulations to identify any other instruments that
relate to the Kyoto Protocol or a decision of the Meeting of the Kyoto
Parties to be considered part of the Kyoto rules.
2.66 The various elements of the definition of Kyoto rules are also
intended to accommodate new and amended decisions, standards and
instruments, as well as amendments to the Kyoto Protocol as in force for
Australia. This is intended to allow the flexibility for the legislative
framework to accommodate new changes to the Kyoto rules without
necessarily requiring an amendment to the Act.
Kyoto units in the Australian Registry
2.67 There is a distinction in the bill between the provisions relating
to holding and transferring Kyoto units and those relating to surrender of
eligible international units. While some types of Kyoto units are eligible
international emissions units and can be surrendered, others such as
assigned amount units and temporary and long-term certified emission
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Carbon Pollution Reduction Scheme Bill 2009
reductions, are not eligible international emissions units and therefore
cannot be surrendered. Regardless, all Kyoto units are able to be held and
transferred in the Australian Registry.
2.68 A Kyoto unit is defined for the purposes of the bill to mean an
assigned amount unit, a certified emission reduction, an emission
reduction unit, a removal unit or a prescribed unit issued in accordance
with the Kyoto rules [Part 1, clause 5, definition of `Kyoto unit']. The last
element of this definition allows for the recognition of a new type of
Kyoto unit that could be adopted in the future without an amendment to
the Act.
2.69 Each type of Kyoto unit is also defined for the purpose of the
bill. The form of each definition refers to the relevant provisions of the
Kyoto rules.
2.70 An assigned amount unit is defined to be an assigned amount
unit issued in accordance with the relevant provisions of the Kyoto rules
[Part 1, clause 5, definition of `assigned amount unit']. By way of background,
assigned amount units are issued by an Annex I Party (a developed
country with a target) to the Kyoto Protocol on the basis of its assigned
amount pursuant to Articles 3.7 and 3.8 of the Kyoto Protocol (for
example, Australia will issue assigned amount units equal to its target --
108 per cent of 1990 emissions over the five year period, 2008-2012). As
assigned amount units can be issued by any Annex I Party, the definition
indicates that, for the purposes of the bill, it is immaterial whether the unit
was issued in or out of Australia. This is included in the definition to
make it clear that the general rule in s 21(1)(b) of the Acts Interpretation
Act 1901 does not apply. That rule is that 'references to localities
jurisdictions and other matters and things shall be construed as references
to such localities jurisdictions and other matters and things in and of the
Commonwealth...'
2.71 A certified emission reduction is defined to be a certified
emission reduction issued outside Australia in accordance with the
relevant provisions of the Kyoto rules [Part 1, clause 5, definition of `certified
emission reduction']. By way of background, certified emission reductions
are generated from clean development mechanism projects under Article
12 of the Kyoto Protocol. The clean development mechanism allows
Annex I Parties like Australia to implement emission reduction projects in
developing countries to receive certified emission reductions and use
these towards meeting their Kyoto target.
2.72 Unlike emission reductions from other types of clean
development mechanism projects, those arising from afforestation or
reforestation activities receive either a temporary certified emission
reduction or a long-term certified emission reduction. These units have a
limited life: fewer than two commitment periods for temporary certified
emission reductions and between 20 and 60 years for long-term certified
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Chapter 2: Scheme caps, gateways and emissions units
emission reductions. These Kyoto units are also defined in the bill by
reference to the relevant provisions of the Kyoto rules [Part 1, clause 5,
definition of `certified emission reduction'].
2.73 A removal unit is defined to be a removal unit issued in
accordance with the relevant provisions of the Kyoto rules. It is
immaterial whether the unit was issued in or out of Australia [Part 1,
clause 5, definition of `removal unit']. Removal units are issued by an Annex I
Party on the basis of land use, land-use change and forestry activities
under Articles 3.3 and 3.4 of the Kyoto Protocol.
2.74 An emission reduction unit is defined to be an emission
reduction unit issued in accordance with the relevant provisions of the
Kyoto rules. It is immaterial whether the unit was issued in or out of
Australia [Part 1, clause 5, definition of `emission reduction unit']. By way of
background, emission reduction units are generated by joint
implementation projects under Article 6 of the Kyoto Protocol, where an
Annex I Party like Australia implements a project in the territory of
another Annex I Party and counts the resulting emission reduction units
towards meeting its own Kyoto target. Emission reduction units can be
generated either in another Annex I Party or in Australia. However,
Australia will not host joint implementation projects in the first
commitment period, so it is not expected that any emission reduction units
will be issued in Australia during this period. A decision will be made in
regards to any potential for joint implementation projects in 2013 when
decisions are made about the scope for offsets more generally.
2.75 Kyoto units only exist within the international electronic registry
system established by the Kyoto rules. Each Kyoto unit has a unique serial
number within that electronic registry system that provides the relevant
detail of the unit (such as its type, commitment period, country of origin
and its sequence number) and allows for the unit to be tracked throughout
the registry system. Consistent with the Kyoto rules, the entry for a Kyoto
unit in a Registry account consists of its serial number [Part 4, Division 3,
clause 104].
Issue of Australia's assigned amount units
2.76 As an Annex I Party under the Kyoto Protocol, Australia is
allocated Kyoto units called `assigned amount units' on the basis of its
initial assigned amount, where each assigned amount unit signifies an
allowance to emit one tonne of CO 2 -e. Australia's calculation of its initial
assigned amount, and the method by which it is calculated, is set out in
Australia's initial report under the Kyoto Protocol. After the initial report
has been reviewed by the Kyoto Protocol expert review team and any
questions of implementation have been resolved, Australia's initial
assigned amount will be recorded in the Climate Change Convention
secretariat's compilation and accounting database and provided to the
international transaction log.
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Carbon Pollution Reduction Scheme Bill 2009
2.77 Australia must then, before any transaction takes place for the
relevant commitment period, issue a quantity of assigned amount units
equivalent to its initial assigned amount in its national registry.
2.78 The bill provides for the issue of Australia's assigned amount
units for a commitment period [Part 4, Division 3, clause 105]. Under this
provision, the Minister may direct the Authority to issue to the
Commonwealth, in accordance with the Kyoto rules, a specified number
of assigned amount units for a specified commitment period. The
Authority must comply where such a direction is given and will issue an
assigned amount unit by making an entry for the unit in the
Commonwealth holding account for the relevant commitment period in
the Registry.
2.79 It is possible that Australia's assigned amount units for the first
commitment period will be issued under the Commonwealth's executive
power before the passing of the legislation. The bill is explicit that it does
not affect the validity of the issue of any such units [Part 4, Division 3,
clause 105(5)].
Issue of Australia's removal units
2.80 Under the Kyoto Protocol, removal units are issued in relation to
net removals of greenhouse gases by Article 3.3 activities (afforestation,
reforestation and deforestation). Australia has elected to report and
publish annual estimates of emissions and removals from activities
identified under Article 3.3. This decision is fixed for the first
commitment period and means that Australia must issue or cancel units
(as appropriate) for the relevant activities on an annual basis. If net
removals do occur, it is expected that Australia will issue a quantity of
removal units in its national registry equivalent to those removals.
2.81 The bill provides for the issue of Australia's removal units in the
Registry [Part 4, Division 3, clause 106]. Under this provision, the Minister
may direct the Authority to issue to the Commonwealth, in accordance
with the Kyoto rules, a specified number of removal units. The Authority
must comply with any such direction. The Authority will issue a removal
unit by making an entry for the unit in the Commonwealth holding
account for the relevant commitment period in the Registry.
Transfers of Kyoto units
2.82 The Kyoto rules allow for Kyoto units to be transferred within
the international electronic registry system. The electronic registry system
comprises: the various national registries of Kyoto Parties; the clean
development mechanism registry in which certified emission reductions
are issued; and the international transaction log that allows for
inter-country transfers of units. Within each of the national registries,
Kyoto units can be transferred between different accounts.
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Chapter 2: Scheme caps, gateways and emissions units
2.83 The bill provides for the meaning of `transfer' in relation to
different types of transfers of Kyoto units [Part 4, Division 3, clause 107].
There are several different types of transfers that have been identified. In
each case a `transfer' of a Kyoto unit will consist of the removal of the
entry of the unit from the initial account and an entry for the unit in the
receiving account.
2.84 The four different types of transfers allow for transfer between
any of the account types in the national Registry (Chapter 10 of this
explanatory memorandum discusses the different types of Registry
accounts). For example, a transfer can be: between holding accounts
including a Commonwealth holding account; between a holding account
and a Commonwealth cancellation account; and between a
Commonwealth holding account and a Commonwealth retirement
account.
2.85 The Commonwealth will need to transfer Kyoto units between
the Commonwealth accounts. The same transfer arrangements will apply
where it is the Commonwealth that wishes to transfer Kyoto units. In this
case the bill provides for the Minister to give a transfer instruction to the
Authority [Part 4, Division 3, clauses 108(5) and 109(7)].
2.86 Regulations can be made for, or in relation to, giving effect to
the Kyoto rules so far as the Kyoto rules relate to the issue of Kyoto units
or the transfer of a Kyoto unit: from a Registry account to a foreign
account; from a foreign account to a Registry account; or from a Registry
account to a Commonwealth Registry account [Part 4, Division 3,
clause 112(1)]. This is intended to give full effect to the relevant Kyoto rules
(including as those rules change from time to time), with regulations
providing the detail for the administration of the Registry as it relates to
Kyoto units. The regulations may prevent, restrict or limit:
· the transfer of Kyoto units from a Registry account to a
foreign or voluntary cancellation account; or
· the transfer of Kyoto units from a foreign account to a
Registry account [Part 4, Division 3, clause 112(2)].
Domestic transfers of Kyoto units
2.87 If a person is a holder of a Kyoto unit they may instruct the
Authority to transfer the unit within the Australian Registry: this is
considered a domestic transfer [Part 4, Division 3, clause 108]. The instruction
to transfer will be by electronic notice and will set out the account number
of the account where the Kyoto unit is held, the account number of the
Registry account to which the unit is being transferred, and other
information as specified in regulations. The regulations may specify
additional information consistent with the administrative requirements of
the Registry.
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Carbon Pollution Reduction Scheme Bill 2009
2.88 The Authority must give effect to the transfer instruction unless
to do so would breach any regulations made to give effect to the Kyoto
rules or the management of the commitment period reserve or regulations
restricting transfers to Commonwealth Registry accounts [Part 4, Division 4,
clauses 108(3), 112, 114, 116A].
2.89 Unlike Australian emissions units, the bill does not generally
confer the status of `personal property' on Kyoto units. Nonetheless,
Kyoto units held in the Australian Registry are to be treated as personal
property for the limited purposes of Bankruptcy Act 1966, Chapter 5 of
the Corporations Act 2001 (which deals with external administration), the
law relating to wills, intestacy and deceased estates and any other
prescribed purpose. This is in order to facilitate the transmission (or
disposition) of Kyoto units by operation of law in situations of
bankruptcy, external administration and death. In these situations the
transmission procedures are the same as for Australian emissions units
[Part 4, Division 3, clauses 116B, 116C].
International transfers of Kyoto units
2.90 Under the Kyoto rules, Australia must satisfy a set of eligibility
requirements in order to participate in international emissions trading. If
Australia does not satisfy the set of eligibility requirements, no transfers
of Kyoto units will be allowed between the Australian Registry and a
foreign registry. The international transaction log will block any such
transfers where Australia does not satisfy the eligibility requirements.
Therefore, the ability to transfer Kyoto units from a foreign registry to an
account within the Australian Registry and the ability to transfer Kyoto
units from the Australian Registry to a foreign registry are dependent on
Australia satisfying the eligibility requirements.
2.91 Under the bill, if satisfied that Australia is in compliance with
those eligibility requirements, the Minister must make a written
declaration to that effect. The Minister must, in writing, revoke such
declaration if the Minister is no longer satisfied that Australia is in
compliance with the requirements [Part 4, Division 3, clause 111]. Neither the
instrument of declaration nor revocation is a legislative instrument [Part 4,
Division 3, clause 111(3)]. The policy reason for this is that the Minister does
not have discretion as to whether Australia is eligible or not, so the
declaration should not be subject to potential disallowance. The
enforcement branch of the compliance committee under the Kyoto
Protocol framework is responsible for determining whether an Annex I
Party is not in compliance with the eligibility requirements. In practice,
the Climate Change Convention secretariat maintains a list of Parties that
meet the eligibility requirements and of those Parties that have been
suspended on its website.
2.92 Kyoto units can be transferred from an account in the Australian
Registry to a foreign registry, referred to as an outgoing international
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Chapter 2: Scheme caps, gateways and emissions units
transfer [Part 4, Division 3, clause 109]. A transfer is only possible where there
is a declaration in force that Australia has met the emissions trading
eligibility requirements discussed above [Part 4, Division 3, clauses 109(1)
and 111].
2.93 A holder of a Kyoto unit can initiate an outgoing international
transfer by instructing the Authority by electronic notification to transfer
the Kyoto unit from the holder's Registry account to either a foreign
account kept by another person or a foreign account kept by the holder.
Similar to domestic transfers, the notification will need to specify the
account number from which the units are to be transferred and any other
information as specified in regulations.
2.94 The specific process for administering outgoing international
transfers will be detailed in the regulations made to give effect to the
Kyoto rules. The regulations may require the Authority to remove the
entry for the unit from the relevant Registry account [Part 4, Division 3,
clause 109(4)]. This would be consistent with the normal process of the
international registry system which is designed to ensure that units can be
appropriately transferred and tracked between different accounts and
national registries.
2.95 The Authority will not give effect to an outgoing international
transfer if the transfer would breach regulations made for the purposes of
the Kyoto rules [Part 4, Division 3, clause 112 and 109(3)(a)(i)] (discussed
above).
2.96 Similarly, the Authority will not give effect to an outgoing
international transfer if the transfer would breach regulations made to
manage the commitment period reserve [Part 4, Division 3, clause 114
and 109(3)(a)(ii)]. By way of background, in order to address concerns that
Annex I Parties could oversell units and subsequently be unable to meet
their own Kyoto target, each Kyoto Party is required to hold a minimum
level of Kyoto units in its national registry. This minimum level is called
the `commitment period reserve'. If the transfer of a Kyoto unit from the
Registry would result in an infringement of the commitment period
reserve, the international transaction log will reject the entire transfer and
direct the Authority to terminate the transfer. It is intended that regulations
will outline the procedures and measures to manage Australia's
commitment period reserve. Such regulations will only be necessary if
and when the Scheme allows for the transfer of assigned amount units
by private entities to other countries (for example, if any future export
of Australian emissions units involves the transfer of assigned amount
units). Until that time, the Commonwealth can manage the
commitment period reserve directly as it will have control over
Australia's assigned amount units.
2.97 Kyoto units can be transferred from a foreign registry to an
account in the Australian Registry, referred to as an incoming
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Carbon Pollution Reduction Scheme Bill 2009
international transfer [Part 4, Division 3, clause 110]. A transfer is only
possible where there is a declaration in force that Australia has met the
emissions trading eligibility requirements [Part 4, Division 3, clauses 110(1)
and 111].
2.98 In practice, an incoming international transfer will be initiated
by a foreign registry. The foreign registry will notify the international
transaction log, which will verify the transaction. The international
transaction log will then notify the Authority of the proposed incoming
transfer. Accordingly, it is the receipt of an instruction from the
international transaction log by the Authority which is the trigger for an
incoming international transfer under the bill [Part 4, Division 3,
clause 110(1)(b)].
2.99 An incoming international transfer will only be allowed where
the Kyoto unit is not specified in the regulations as a unit that cannot be
transferred to a Registry account [Part 4, Division 3, clause 110(1)(c)]. In
accordance with section 13(3) of the Legislative Instruments Act 2003, the
ability to `specify' a Kyoto unit allows regulations to be made which
identify a class or classes of Kyoto units. This means that regulations can
exclude certain types of Kyoto units from being transferred into the
Registry. These regulations will not affect units already in the Registry.
2.100 This gives effect to the Government's policy position that it
would retain the right to exclude any type of Kyoto unit from being
transferred into the Registry. Currently there is no specific class of Kyoto
unit that has been identified for exclusion by regulation. The regulation-
making power provides flexibility to respond to future circumstances
without the need for an amendment. For example, the White Paper stated
that it is important to retain the right to disallow a certain type of
international unit for compliance in the Scheme at any time to ensure the
environmental integrity of the Scheme. To avoid disadvantaging liable
entities who had bought those units in good faith, they would be able to
use the units for compliance in the current financial year but not
thereafter. This policy is addressed in the surrender provisions [Part 6,
Division 2, clause 129(7)]. However, this potentially raises concerns that the
Scheme could be open to a `flood' of compromised units. Retaining the
right to disallow a type of unit from entering the Australian registry by
specifying it in regulations would stop such a scenario.
2.101 Another example where this regulation-making power may be
used would be in the event that the Kyoto rules changed in a way that
could potentially result in a liability on the Commonwealth associated
with the treatment of Kyoto units held in its registry. The regulations
could specify that such units could no longer enter the Registry.
2.102 An incoming international transfer will also only be allowed
where the transfer would not breach regulations made to give effect to the
Kyoto rules (discussed above) or regulations restricting transfers to
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Chapter 2: Scheme caps, gateways and emissions units
Commonwealth Registry accounts [Part 4, Division 3, clauses 110(1), 112
and 116A].
2.103 Provided these requirements are met, the Authority must make
an entry for the Kyoto unit being transferred in the receiving Registry
account. However, the Authority may refuse to make an entry if it has
reasonable ground to suspect that the instruction forwarded from the
international transaction log is fraudulent [Part 4, Division 3, clause 110(2)].
Carry-over restrictions
2.104 Under the Kyoto Protocol, an Annex I Party may carry over to a
subsequent commitment period (that is, it may bank) certain Kyoto units
that have not been retired for that commitment period, cancelled or
transferred to a Commonwealth replacement account. Under the current
Kyoto rules, the extent to which a Party can carry over units differs
depending on the kind of units involved:
· Emission reduction units (not converted from removal units)
can be carried over up to a maximum of 2.5 per cent of the
Party's initial assigned amount
· Certified emission reductions can be carried over up to a
maximum of 2.5 per cent of the Party's initial assigned
amount
· Assigned amount units can be carried over without restriction
· Removal units, emission reduction units converted from
removal units, temporary certified emission reductions and
long-term certified emission reductions cannot be carried
over.
2.105 Any Kyoto units that are not carried-over must be transferred to
the mandatory cancellation account. This is a strict requirement of the
Kyoto rules and cannot be disregarded by Australia. All Kyoto Parties and
holders of Kyoto units are subject to the same carry over restrictions.
2.106 The bill provides for regulations to be made detailing
arrangements for the carry-over of Kyoto units [Part 4, Division 3, clause 113].
It is intended that the regulations will: identify the units that can be carried
over and any limits or restrictions that are specified; identify the Kyoto
units that cannot be carried over; set out the procedures for the carry-over;
and set out any prohibition on surrender. The regulations will also provide
for the Authority to transfer to the mandatory cancellation account those
Kyoto units that are not carried over.
2.107 Consistent with the Government's policy, those Kyoto units that
are carried over and are eligible international emissions units will be
eligible for surrender at that time. However, those units that are not
carried over will be cancelled in accordance with the carry-over
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Carbon Pollution Reduction Scheme Bill 2009
regulations and therefore will not be available for surrender after that
time.
2.108 For the purposes of managing the Kyoto Protocol carry-over
restrictions, the regulations may prohibit the surrender of certain Kyoto
units during a period specified in the regulations. This is to prevent the
carry-over risk (i.e. the risk that Kyoto units in excess of the Kyoto
Protocol threshold cannot be carried over) transferring to the Government.
Temporary certified emission reductions and long-term certified
emission reductions
2.109 As discussed above, temporary certified emission reductions and
long-term emission reductions generated from forestry-based clean
development mechanism projects have a limited life after which they
expire. Hence these units are non-permanent.
2.110 Temporary certified emission reductions expire at the end of the
commitment period after the one in which they were issued, while
long-term certified emission reductions expire at the end of the crediting
period of the project. While these certified emission reductions cannot be
surrendered for compliance under the bill, account holders may transfer
and hold these units within the Australian Registry.
2.111 Where either a temporary certified emission reduction or a long-
term certified emission reduction is in a person's Registry account when it
expires, the Authority must, in accordance with the regulations, transfer
the temporary or long-term certified emission reduction to a mandatory
cancellation account. This is required under the Kyoto rules. The
mechanical procedures for such cancellation will be contained in
regulations [Part 4, Division 3, clause 115].
2.112 The Kyoto rules require replacement of long-term certified
emission reductions in certain circumstances. In brief, because long-term
certified emission reductions are valid for long periods, the projects that
generate them must be re-certified by an independent auditor every
5 years to demonstrate that the emission removals have occurred. When a
certification report indicates that the greenhouse gas removals achieved by
a project have been reversed since the last certification (for example
where the trees are cut down), the Kyoto rules require replacement of the
affected long-term certified emission reductions. Replacement is also
required if the clean development mechanism executive board determines
that the required certification report has not been submitted.
2.113 The bill provides for the making of regulations to specify the
requirements for a person to replace long-term certified emission
reductions in their Registry account. The Authority will be required to
transfer long-term certified emission reductions to a mandatory
cancellation account in the event that long-term certified emission
reductions are not replaced in accordance with the regulations. The
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Chapter 2: Scheme caps, gateways and emissions units
meaning of 'replacement' of a long-term certified emission reduction is set
out in the bill [Part 4, Division 3, clause 116].
Transfers to Commonwealth Registry accounts
2.114 Regulations made pursuant to the bill may prevent, restrict or
limit the transfer of Kyoto units to a Commonwealth Registry account
from either an Australian Registry account or a foreign account [Part 4,
Division 3, clause 116A].
2.115 Commonwealth Registry accounts include:
· a retirement account for each commitment period into
which Australia will transfer Kyoto units to comply with
its emission reduction target;
· voluntary and mandatory cancellation accounts for Kyoto
units;
· replacement accounts for replacing temporary and
long-term certified emission reduction; and
· a relinquished unit account, which is discussed in Chapter 3
of this explanatory memorandum [Part 7, Division 3, clause 148].
2.116 There is no need for account holders other than the
Commonwealth to transfer Kyoto units to certain Commonwealth
accounts. Accordingly, the regulations will prevent account holders (for
example, accidentally) transferring to the wrong account and being unable
to recover their units. For example, Kyoto units may not be transferred to
the Commonwealth relinquished units account, as this is only for certain
relinquished Australian emissions units. Kyoto units also may not be
transferred to certain cancellation accounts and replacement accounts.
Non-Kyoto international emissions units
2.117 As discussed above, a non-Kyoto international emissions unit is
defined to mean: a prescribed unit issued in accordance with an
international agreement (other than the Kyoto Protocol); or a prescribed
unit issued outside Australia under a law of a foreign country [Part 1,
clause 5, definition of `non-Kyoto international emissions unit'] . A unit would only
be prescribed as a non-Kyoto international emissions unit where the
intention is to add to the types of international units that can be used for
surrender. That is, all non-Kyoto international emissions units will also
come within the definition of `eligible international emissions units'
[Part 1, clause 5, definition of `eligible international emissions units'] .
2.118 This is consistent with the policy which allows for the addition
to the types of international units that can be used for compliance where:
· the addition does not compromise the environmental integrity
of the Scheme;
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Carbon Pollution Reduction Scheme Bill 2009
· the addition is consistent with the objective of the Scheme,
including Australia's international objectives; and
· there has been consultation with stakeholders and analysis of
the expected impact on the unit price by an independent
review..
2.119 It is also consistent with the policy in relation to pursuing
bilateral links with the schemes of other countries, such as New Zealand.
These will be considered on a case-by-case basis. For example, if a
bilateral link were established, the New Zealand unit would be prescribed
as a non-Kyoto international emissions unit and then Australian liable
entities would be able to surrender those units.
2.120 Like Australian emissions units and Kyoto units, an entry for a
non-Kyoto international emissions unit on the Registry will consist of the
serial number of the unit [Part 4, Division 4, clause 117].
2.121 As in the case for Kyoto units, the regulations may prohibit the
surrender of non-Kyoto international emissions units [Part 4, Division 4,
clause 122].
2.122 The bill provides a framework with the detailed arrangements
for transfers of non-Kyoto international emissions units to be specified in
regulations [Part 4, Division 4, clause 123]. This allows the transfer
arrangements of such units to be in accordance with, for example, any
associated treaty or agreement.
Transfers of non-Kyoto international emissions units
2.123 The bill provides for the meaning of `transfer' in relation to
different types of transfers of non-Kyoto international emissions units in
the Registry [Part 4, Division 4, clause 118]. As with other emissions units, a
transfer will involve the removal of the entry of the unit from the registry
account of the person initiating the transfer and the making of an entry for
the unit in the receiving registry account. Several different types of
transfer have been identified. The unit can be transferred from: a registry
account to a registry account of another person; a registry account to
another registry account owned by the same person; a registry account to
an account in a foreign registry owned by the same person; or an account
in a foreign registry to an account in the Australian registry.
2.124 It is possible that the Commonwealth may wish to transfer non-
Kyoto international emissions units. If so, the Minister has the power to
instruct the Authority to undertake the transfer [Part 4, Division 4,
clauses 119(5) and 120(7)]. Otherwise the general provisions for transfers
would apply.
2.125 A person who holds a non-Kyoto international emissions unit
can instruct the Authority to transfer the unit to an account kept by
another person or to another account kept by the same person within the
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Chapter 2: Scheme caps, gateways and emissions units
Registry [Part 4, Division 4, clause 119]. The instruction will be via electronic
notification and will include the account number of the originating
account and the account number of the receiving account and any other
information that is specified in regulations governing the administration of
the registry.
2.126 The bill allows for conditions relating to domestic transfer of
non-Kyoto units to be provided for in regulations. If the Authority
receives an instruction and any such conditions are satisfied then the
Authority must give effect to the transfer [Part 4, Division 4, clause 119].
2.127 The bill makes provision for non-Kyoto international emissions
units to be personal property for limited purposes to facilitate their
transmission in situations of bankruptcy, external administration and death
[Part 4, Division 4, clause 122A, 122B]. (See para.2.89)
2.128 Non-Kyoto international emissions units can be transferred
from an account in the Australian registry to an account in a foreign
registry, referred to as an outgoing international transfer of non-Kyoto
international emissions units [Part 4, Division 4, clause 120]. Again the transfer
could be to an account kept by another person or kept by the same person,
with the instruction via electronic notification and containing the relevant
account details and other information.
2.129 Regulations may detail any conditions that may apply to
outgoing international transfers of non-Kyoto international emissions
units. The administrative arrangements for giving effect to the transfer
would also be specified in regulations [Part 4, Division 4, clause 123].
2.130 Non-Kyoto international emissions units can be transferred
from a foreign account to an account in the Registry, referred to as an
incoming international transfer of non-Kyoto international emissions unit
[Part 4, Division 4, clause 121]. In this case the Authority would receive an
instruction from a foreign account and, where the conditions as specified
in the regulations are met, the Authority would make an entry for the non-
Kyoto international emissions unit in the nominated account in the
Australian registry.
2.131 However, the Authority may refuse to effect the transfer if it has
reasonable grounds to suspect that the instruction is fraudulent [Part 4,
Division 4, clause 121(2)].
99
Chapter 3
Allocation of units -- introduction, auction
and fixed charge units
Outline of chapter
3.1 This chapter introduces the various ways in which Australian
emissions units are to be allocated and describes two of these: auctions
and the issue of units for a fixed charge.
Context of amendments
National target and scheme caps
3.2 As indicated in the General Outline, the Government has
decided to take action towards meeting Australia's targets of reducing
greenhouse gas emissions to 60 per cent below 2000 levels by 2050 and
reducing greenhouse gas emissions to between 5 per cent and 15 per cent
below 2000 levels by 2020, and to do this in a flexible and cost-effective
way. In the event that there is comprehensive international agreement to
which Australia is a party that is capable of stabilising atmospheric
concentrations of greenhouse gases at 450 parts per million CO 2 -e or
lower, Australia is prepared to adopt a target to reduce greenhouse gas
emissions to 25 per cent below 2000 levels by 2020.These national targets
are set out in one of the objects of the Scheme specified in the bill [Part 1,
clause 3].
3.3 Scheme caps will be set to support national emissions targets
and Australia's international obligations. Scheme caps will generally be
lower than the emissions path required to meet the national targets
because some emissions sources are not covered by the Scheme
(primarily, agricultural and deforestation emissions) and some direct
emissions from facilities are only covered if they exceed specified
thresholds (usually 25,000 tonnes of carbon dioxide equivalence per year).
3.4 Scheme cap numbers will be specified in regulations [Part 2,
clause 14].
3.5 Further discussion about national scheme caps and gateways is
included in Chapter 2 of this explanatory memorandum.
101
Issue of Australian e missions units
3.6 The circumstances in which the Authority may issue Australian
emissions units are described [Part 4, Division 2, clause 88]. They are:
· as the result of an auction conducted by the Authority
(described in more detail in this chapter)
· in accordance with the provisions governing the issue of
units at a fixed charge (described in more detail in this
chapter)
· in accordance with the emissions-intensive trade-exposed
assistance program (see Chapter 4)
· in accordance with the provisions regarding coal-fired
electricity generation assistance (see Chapter 5)
· for reforestation (see Chapter 6)
or
· for the destruction of synthetic greenhouse gas (see
Chapter 7).
3.7 The Authority must not issue an Australian emissions unit with a
particular vintage starting on or after 1 July 2012 unless there is a national
scheme cap number for that vintage year [Part 4, Division 2, clause 92].
(Consistently, there is no obligation to surrender unless there is a national
scheme cap number for the relevant financial year, apart from in the fixed
price transition period (2011-12) [Part 6, Division 4, clause 132].)
3.8 The number of units with a particular vintage year starting on or
after 1 July 2012 offered for issue at auctions and issued in accordance
with the emissions-intensive trade-exposed assistance program and the
provisions regarding coal-fired electricity generation assistance must
equal the scheme cap for the particular year [Part 4, Division 2, clause 93].
Summary
Auctions
3.9 The Government has decided that a large proportion of
Australian emissions units will be auctioned. The primary policy
objectives of the auction are to promote allocative efficiency and efficient
price discovery. Auctions will also raise revenue that can be used for other
policy objectives, such as providing assistance to households and
business.
3.10 The provisions relating to auctions are in Part 4, Division 2
Subdivision C, clauses 99-103 of the bill.
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Chapter 3: Allocation of units -- introduction, auction and fixed charged units
3.11 It is the Government's policy that allocations will, over the
longer term, progressively move towards 100 per cent auctioning over
time, subject to the provision of transitional assistance for
emissions-intensive trade-exposed industries and compensation for coal-
fired electricity generation.
3.12 The Authority will be required to publish information about the
auction results to assist Scheme participants and financial market analysts
to identify and understand the overall supply and demand conditions for
units, allowing efficient price discovery [Part 12, Division 4, clause 270]. This
is discussed in Chapter 11 of this explanatory memorandum.
Fixed charge units
3.13 In 2011-12, as a transitional measure, an unlimited number of
Australian emissions units will be available to liable entities at a fixed
charge of $10 per unit. This will fix the cost of compliance under the
Scheme, as these fixed price units will be used by liable entities to meet
their Scheme obligations. Liable entities will be able to purchase these
units after their emissions number is known and before the final surrender
date for that particular financial year. These units cannot be traded or
banked for future use.
3.14 Full trading will commence in 2012-13 with a price cap in place
for four years. The price cap will take the form of access to an unlimited
store of additional Australian emissions units, issued at a pre-specified
fixed charge, for financial years 2012-13 to 2015-16. The purpose of the
price cap is to set a maximum cost of compliance for liable entities. Liable
entities will have the option of purchasing these units after their emissions
number is known and before the final surrender date for a particular
financial year. These units cannot be traded or banked for future use.
3.15 From 2012-13, a price cap will be in place for four years, rising
at five per cent a year in real terms (calculated using actual changes in the
Consumer Price Index for the previous 12 month period). The level of the
price cap in the first year of operation will be calculated using the original
White Paper commencement figure of $40 as the base for calculations. It
will be calculated as $40 plus 5 per cent real growth for each of the years
2010-11 and 2011-12. The price cap will continue to rise by 5 per cent in
real terms after this (using the Consumer Price Index). The Government's
intention is that the charge is set high enough so that its probability of use
is low, while providing protection against major price shocks.
3.16 The provisions relating to the issue of Australian emissions units
for a fixed charge are described in Part 4, Division 2, clauses 89-91.
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Detailed explanation of new law
Auctions -- issue
3.17 The Authority is empowered to issue Australian emissions units
through auctions [Part 4, Division 2, clause 99].
3.18 The detailed policies, procedures and rules for the conduct of
auctions will be included in a legislative instrument to be made by the
Authority [Part 4, Division 2, clause 103].
3.19 The legislative instrument may deal with a range of matters.
These include but are not limited to the types of auction, their timing,
participants, entry fees, minimum number of units in bids, deposits,
guarantees, and the timing and method of payment [Part 4, Division 2,
clause 103(5)].
3.20 The instrument can address the detailed policies, procedures and
rules for auctions of units which are to be issued, units which have been
relinquished and units issued without charge which have not been
transferred by the original recipient to another person (see below for a
discussion about secondary market auctions).
3.21 The initial instrument is expected to reflect the policy positions
in the White Paper. These include that:
· auctions will be held 12 times in a financial year
· at least one auction of a year's vintage will be held after the
end of the financial year in the lead-up to the final surrender
date (15 December)
· four years of vintages will be auctioned in each year (the
current vintage plus advance auctions of three future
vintages)
· a simultaneous ascending clock auction will be the preferred
auction type. In an ascending clock auction, the auctioneer
announces a price for a particular quantity of each vintage
and bidders reveal the amount they wish to buy at that price.
The auctioneer continues to increase the price until the total
demand is equal to or lower than the amount on offer. The
process will be carried out simultaneously with different
vintages of units
· bidders will have the option to submit proxy bids in `sealed
bid format' for convenience. Proxy bidding allows bidders to
submit in advance their demand schedule for units at various
prices. The bid is therefore `sealed' before the auction has
even commenced.
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Chapter 3: Allocation of units -- introduction, auction and fixed charged units
3.22 It is the Government's policy that auctions for Australian
emissions units for the vintage years of 2012-13 and onwards will
commence in 2010-11.
3.23 The Authority must not issue a unit as the result of an auction
unless the person pays the charge to the Authority on behalf of the
Commonwealth [Part 4, Division 2, clause 90]. This avoids the need for the
Authority to collect debt owing on units issued following an auction, and
lowers the cost of administering the Scheme.
3.24 If the charge is taxation within the meaning of section 55 of the
Constitution, the charge is not imposed by the bill but by the relevant
charges bill [Part 4, Division 2, clause 91].
3.25 The relevant charges bills are the Carbon Pollution Reduction
Scheme (Charges -- Excise) Bill 2009, the Carbon Pollution Reduction
Scheme (Charges -- Customs) Bill 2009 and the Carbon Pollution
Reduction Scheme (Charges -- General) Bill 2009. There is a separate
explanatory memorandum for each of these bills.
Auctions -- secondary
3.26 The Authority is also empowered to auction:
· Australian emissions units which have been relinquished in
certain situations [Part 4, Division 2, clause 100]
· On behalf of the holder, Australian emissions units issued
without charge which have not been transferred by the
original recipient to another person [Part 4, Division 2,
clause 101].
3.27 Each of these powers is examined in further detail below.
Auctions of units which have been relinquished
3.28 In certain situations where excess units have been issued, a
person can be required to relinquish units; that is, return them to the
Commonwealth. These situations are described in Chapter 8 of the
explanatory memorandum. They include situations relating to
reforestation, such as the voluntary withdrawal of reforestation projects
from the Scheme; the issue of excess units for emissions-intensive
trade-exposed activities that have ceased; and the issue of units as a result
of fraudulent conduct by the recipient.
3.29 Where units (with a vintage year other than 2011-12) are
relinquished in response to a requirement which is not connected with
reforestation or destruction of synthetic greenhouse gases, the units are
transferred into the Commonwealth relinquished units account [Part 15,
Division 2, clause 286(4)]. These units are then auctioned by the Authority
[Part 4, Division 2, clause 100].
105
3.30 Units with a vintage year of 2011-12 and units relinquished
under the reforestation provisions or in connection with destruction of
synthetic greenhouse gases are cancelled [Part 15, Division 2, clause 286 (2A)
and (3)]. This is because the units originally issued to the person who
relinquished these units were issued above or outside the scheme cap:
cancellation ensures that the scheme cap is not artificially inflated.
Auctions of units issued without charge
3.31 Until 31 December 2013, the Authority is empowered to auction
units with a vintage year commencing on 1 July 2012 or later on behalf of
persons who had received them without charge in connection with:
· The emissions-intensive trade-exposed assistance program
· Coal-fired electricity generation assistance
· Reforestation
· The destruction of synthetic greenhouse gas.
[Part 4, Division 2, clause 101].
3.32 As a transitional mechanism, this will provide a low-risk,
low-cost and transparent mechanism that encourages entities receiving a
free allocation of units to sell them on the carbon market. This may
increase the size of the auction and reduce hoarding of units. Auctions of
these units can be combined with auctions of units to be issued for a
charge and of certain relinquished units [Part 4, Division 2, clause 102].
Fixed charge units
3.33 A person with a Registry account can apply to acquire from the
Authority units at a fixed charge from the time when the person's
emissions number for the eligible financial year is entered on the
Information Database until 15 December following each of the five
financial years commencing on 1 July 2011 [Part 4, Division 2, clause 89].
3.34 The bill includes safeguards to prevent liable entities from
acquiring more fixed charge units than they need for compliance
purposes. This is important because, as discussed below, fixed charge
units are automatically surrendered. A person would not be able to recover
such units if it, for example, accidentally applied for more units than it
needed. Accordingly, to avoid the excess surrender of these units, the
fixed charge can only be accessed once the person's emissions number for
the eligible financial year is entered on the Information Database. This is
the point at which the person's liability is known. The Authority must
enter a person's emissions number in the Information Database as soon as
practicable after receiving the person's report under the National
Greenhouse and Energy Reporting Act 2007, which is due on 31 October
[Part 12, Division 2, clause 263].
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Chapter 3: Allocation of units -- introduction, auction and fixed charged units
3.35 Also to prevent excess surrender, the number of units which can
be acquired using the fixed charge mechanism is limited by the formula:
The person's emissions number for the vintage year, less the total
number of eligib le emissions units surrendered by the person in
relation to the vintage year [Part 4, Division 2, clause 89(2)].
3.36 The final date for acquiring units in this way, 15 December, is
the date by which surrender is required.
3.37 The Authority must not issue a unit for a fixed charge unless the
person pays the charge to the Authority on behalf of the Commonwealth
[Part 4, Division 2, clause 90].
3.38 The amount of the fixed charge in 2011-12 will be $10. For
2012-13, the fixed charge will be calculated as $40 plus 5 per cent real
growth for each of the years 2010-11 and 2011-12 (calculated using the
proportional changes in the Consumer Price Index for the period March
2010 to March 2012) [Part 4, Division 2, clause 89].
3.39 From 2013-14, the price cap will continue to rise by 5 per cent
in real terms (calculated using the proportional change in the Consumer
Price Index for the previous 12 month period). For example, in calculating
the fixed charge in 2013-14, the charge per unit from 2012-13 would be
used as a base. This would then be multiplied by 1.05 (i.e. 5 per cent
growth) plus the proportional change in the Consumer Price Index from
March 2012 to March 2013 (i.e. this takes account of inflation) [Part 4,
Division 2, clause 89(7)].
3.40 The relevant Consumer Price Index number for these purposes is
the All Groups Consumer Price Index number (excluding volatile items),
being the weighted average of the 8 capital cities published by the
Australian Statistician for each quarter [Part 4, Division 2, clause 89(10)].
3.41 To provide liable entities with certainty over the fixed charge, it
is important to publish its exact value in advance of each compliance year
[Part 4, Division 2, clause 89(11)]. This will allow liable entities to determine
the maximum cost of compliance.
3.42 The commentary above, which discusses the provisions included
to address the possibility that the charge is taxation, applies equally to the
fixed charge for units described in this segment.
3.43 Units acquired in this way are taken to have been surrendered
immediately after issue [Part 4, Division 2, clause 89(5)]. Units issued for a
fixed charge cannot be held over (`banked') for use in compliance in
future years. They cannot be transferred or relinquished [Part 4, Division 2,
clause 89(6)].
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Special arrangements for Australian emissions units with a vintage year
beginning on 1 July 2011
3.44 Australian emission units with a vintage year beginning on
1 July 2011 are generally available to liable entities for a charge of
$10 per unit [Part 4, Division 2, clause 89].
3.45 However, special rules apply to those Australian emission units
with a vintage year beginning on 1 July 2011 issued under the emissions-
intensive trade-exposed assistance program or in accordance with Part 9,
which deals with coal-fired generation assistance. The rules in respect of
these units ensure the integrity of future scheme caps. These units:
· can only be surrendered in relation to the eligible financial
year beginning on 1 July 2011 [Part 6, Division 2, clause 129(5A)]
· do not create an excess surrender number if more of these
units are surrendered in relation to compliance for the first
year of the scheme than the person's emissions number
[Part 6, Division 4, clause 143(3)]
· must be cancelled by the Authority if they have not been
surrendered at the end of 15 December 2012 [Part 4, Division 2,
clause 103A]
· cannot be voluntarily surrendered [Part 14, clause 282(2A)]
· may, on request, be bought-back and cancelled by the
Authority before 1 December 2012 at $10 discounted by a
factor in the regulations which is intended to broadly
represent the present value of those units at the date they are
bought-back [Part 4, Division 2, clause 103B]
· are cancelled if they are relinquished, rather than transferring
to the Commonwealth relinquished units account [Part 15,
Division 2, clause 286(2A)].
3.46 Given that units with a vintage year beginning on 1 July 2011
are available to liable entities for a fixed charge of $10, it is unlikely that
an active market for units of this vintage will develop. However, some
persons will be issued Australian emissions units with a vintage year
beginning on 1 July 2011 through the emissions-intensive trade-exposed
assistance program, or in accordance with Part 9, and who may not wish
to surrender these units against a liability for the eligible financial year
beginning on 1 July 2011. For example, a person may receive units in
respect of the cost increase it faces from its use of electricity in an
emissions-intensive trade-exposed activity, or from the cost increase it
faces that is related to the upstream emissions from the extraction,
processing and transportation of natural gas and its components used as
feedstock in an emissions-intensive trade-exposed activity. This person
may wish to sell these units to receive cash, which can then be used to
offset the increase in monetary costs it faces due to its use of electricity or
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Chapter 3: Allocation of units -- introduction, auction and fixed charged units
natural gas and its components as a feedstock, rather than hold these units
for surrender.
3.47 To ensure that persons who are issued with Australian emissions
units can sell these units when they do not wish to surrender them, the bill
provides for the `buy-back' of these units by the Authority [Part 4,
Division 2, clause 103B(2)]. This facility will be open to requests from 15 July
2011 until 1 December 2012, and allows persons to receive $10 for each
unit they wish to sell back to the Authority, discounted by a factor
specified in the regulations. The factor used to discount the buy-back
amount will broadly reflect the present value of the units at the time they
are sold back. If a person makes a request, the Authority must cancel the
unit on a day specified in the regulations and, as soon as practicable after
that day, pay the relevant amount to the person.
3.48 The Consolidated Revenue Fund is appropriated for the purpose
of making payments for the buy-back of units under this provision [Part 4,
Division 2, clause 103B(5)]. The appropriation is limited in the sense that the
buy-back facility will, at most, apply to the number of units that can be
issued through the emissions-intensive trade-exposed assistance program,
or in accordance with Part 9, for the vintage year beginning on
1 July 2011.
109
110
Chapter 4
Emissions-intensive trade-exposed
assistance program
Outline of chapter
4.1 This chapter outlines the effect of the provisions of Part 8 of the
Carbon Pollution Reduction Scheme Bill 2009 which provide for the
emissions-intensive trade-exposed assistance program to be created by the
regulations and other provisions associated with that program. Part 8 of
the bill allows the Government to make regulations which
administratively allocate Australian emissions units to persons who
conduct emissions-intensive trade-exposed activities. This chapter sets
out:
· the context of the policy framework surrounding the
emissions-intensive trade-exposed assistance program
· a summary of the core provisions in Part 8
· a detailed description of the individual provisions.
Context
4.2 Australia's adoption of a carbon constraint before some other
countries may have a significant impact on the international
competitiveness of its emissions-intensive trade-exposed industries. In
Chapter 12 of the White Paper the Government outlined its commitment
to providing assistance to these industries to reduce the risk of `carbon
leakage' and provide them with some transitional assistance. It committed
to do so in a manner that ensures that these industries contribute to the
national effort to reduce carbon emissions.
4.3 The Government's proposed emissions-intensive trade-exposed
assistance program has been designed to target assistance in as practical
and effective a fashion as possible, to allow for the continued growth in
emissions-intensive trade-exposed industries and to provide a transparent
assistance framework to ensure industry has the clarity and certainty it
needs. It will accommodate growth in these industries in a manner that has
not been proposed in other cap and trade schemes to date, by directly
linking allocations to the production levels of existing and new entities
conducting emissions-intensive trade-exposed activities. The program is
based on the expectation that all industries should contribute to the
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Carbon Pollution Reduction Scheme Bill 2009
national emissions reduction effort and provides strong incentives for all
entities to pursue abatement opportunities.
4.4 Accordingly, the Government's support for emissions-intensive
trade-exposed industries will be:
· targeted towards industries that conduct trade-exposed
activities and have the most significant exposure to a carbon
price
· linked to production levels and provided on the basis that
production continues in Australia
· balanced against its objectives for non-assisted sectors and
households
· consistent with Australia's international trade obligations.
4.5 The assistance will be designed to preserve the incentives for
entities conducting emissions-intensive trade-exposed activities to adjust
to a carbon constrained future by:
· providing assistance only in relation to the most emissions
intensive activities carried out by an entity
· providing assistance on the same basis to all entities, new and
existing, conducting a given activity
· providing assistance on the basis of historical information on
the emissions from these activities to ensure that entities have
an ongoing incentive to reduce their emissions relative to
historical performance.
4.6 The linking of assistance to production levels, and not emissions
levels, means that the administrative allocation of free Australian
emissions units will not mute the financial incentives for firms to reduce
their emissions intensity -- that is, the number of emissions generated
per unit of output produced. The proposed assistance framework does not
reduce the number of Australian emissions units a firm needs to surrender
each year in relation to its emissions. Entities conducting
emissions-intensive trade-exposed activities, like all other entities in the
economy, will therefore retain the incentive to pursue abatement
opportunities that are cost effective at the carbon price.
4.7 Assistance will be provided to entities that conduct emissions-
intensive trade-exposed activities through the issuance of free Australian
emissions units by the Authority at the beginning of each compliance
period. The assistance will be provided on an activity basis to ensure that
it is well targeted and is equitably distributed within and across industries.
The assistance will be provided in relation to the following:
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Chapter 4: Emission-intensive trade-exposed assistance program
· the direct emissions associated with an activity for which a
Carbon Pollution Reduction Scheme (the Scheme) obligation
will be incurred
· the emissions associated with the use of steam by an activity
· the cost increase associated with the use of electricity by an
activity, which is assessed as resulting from the introduction
of the Scheme
· the cost increase related to the upstream emissions from the
extraction, processing and transportation of natural gas and
its components, such as ethane and methane, used as
feedstock by an activity.
4.8 The Government will target assistance to activities that are
trade-exposed and emissions-intensive. As outlined in the White Paper:
· Trade-exposure is to be assessed in relation to trade shares
being greater than 10 per cent in any one of the years
2004-05, 2005-06, 2006-07 or 2007-08 or there being a
demonstrated lack of capacity to pass through costs due to
the potential for international competition.
· Emissions-intensity is to be assessed in relation to whether
the industry-wide weighted average emissions intensity of an
activity is above a threshold of:
- 1000 tonnes of carbon dioxide equivalent (CO 2 -e)
per million dollars of revenue
or
- 3000 tonnes of carbon dioxide equivalent (CO 2 -e)
per million dollars of value added.
4.9 To determine which activities are eligible for assistance under
the emissions-intensive trade-exposed assistance program and should be
listed in the regulations, on 18 February 2009 the Government released a
call for a range of industry information in its Guidance Paper: Assessment
of Activities for the Purposes of Emissions-Intensive Trade-Exposed
Assistance Program. This requires entities to have this information
independently audited. This information will help the Government make
an informed decision on the eligibility of an activity for emission-
intensive trade-exposed assistance and the rate of assistance provided to
the activity.
4.10 In making its decision on the eligibility of activities and the
allocative baselines for eligible activities (that is, the number of free
Australian emissions units that will be issued for each unit of production
of an emissions-intensive trade-exposed activity), the Government will
consider, in addition to data supplied by entities, publicly available
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Carbon Pollution Reduction Scheme Bill 2009
information on pricing, trade and emissions intensity from Australian and
international sources. An expert advisory committee has been established
to provide advice on the finalising of the arrangements for the
emissions-intensive trade-exposed assistance program.
4.11 The emissions-intensive trade-exposed assistance program will
require all entities conducting activities to bear a proportion of the carbon
cost they face and provide assistance at two different rates, reflecting the
need to provide relatively more assistance to relatively more
emissions-intensive activities in order to reduce the likelihood of carbon
leakage.
4.12 Initial assistance to eligible activities will be set in the
regulations at:
· 90 per cent of the allocative baseline for activities that have
an emissions intensity above 2000 tonnes of CO 2 -e/million
dollars of revenue or 6000 tonnes of CO2 -e/million dollars of
value added in the specified assessment period
· 60 per cent of the allocative baseline for activities that have
an emissions intensity between 1000 tonnes CO2 -e/million
dollars of revenue and 1999 tonnes of CO2 -e/million dollars
of revenue or between 3000 tonnes of CO2 -e/million dollars
of value added and 5999 tonnes of CO 2 -e/million dollars of
value added in the specified assessment period.
4.13 For the first five years of the Scheme the regulations will
increase assistance by 5 per cent for activities which initially receive
90 per cent assistance and 10 per cent for activities which initially receive
60 per cent assistance. This global recession buffer has been introduced in
response to the difficult economic circumstances affecting
emissions-intensive and trade-exposed industries, and is designed to
further support jobs and assist businesses manage the introduction of the
Scheme and the impacts of the global recession. Taking into account the
global recession buffer, initial effective rates of assistance will be
94.5 per cent and 66 per cent respectively.
4.14 The emissions-intensive trade-exposed assistance program will
deliver Australian emission units for the first year of the Scheme in the
same manner as subsequent years of the Scheme. However, the units
issued in respect of the first year cannot be banked for use in future years
of the Scheme. In recognition that firms receiving assistance are likely to
want to use the units to meet increased electricity costs, the units are
transferable and the Authority will operate a buy-back mechanism for
these units.
4.15 The regulations will reduce the rates of assistance accorded each
emissions-intensive trade-exposed activity at a pre-announced rate, the
carbon productivity contribution, of 1.3 per cent a year, to broadly ensure
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Chapter 4: Emission-intensive trade-exposed assistance program
that entities conducting emissions-intensive trade-exposed activities share
in the national improvement of carbon productivity.
4.16 The allocative baselines for each activity will be set in the
regulations taking into account historic emissions and production
information submitted to the Department of Climate Change in 2009.
Baselines for allocations will not be updated over time for changes in the
emissions intensity of entities conducting emissions-intensive
trade-exposed activities in order to maximise abatement incentives, and
will be used to determine allocations to new and existing entities
conducting a given activity.
4.17 Allocations of assistance to entities conducting
emissions-intensive trade-exposed activities will be directly linked to the
level of production of individual entities conducting an activity. In any
given year, the number of free Australian emissions units to be issued to
an entity will be determined using the previous financial year's production
of the activity by that entity, with the following exceptions:
· in the first year of the Scheme, the average production of the
highest two of the last three years will be used
· with regard to new entrants and significant expansions, the
Authority will be afforded the discretion to determine the
first few years' allocations, to allow for a `ramp up' period
before capacity production levels are achieved.
4.18 If an entity ceases conducting an emissions-intensive
trade-exposed activity, it will be required to relinquish Australian
emissions units that had been issued to it in respect of production that did
not occur.
4.19 Where an emissions-intensive trade-exposed activity is
conducted at a single facility, the entity which has, or would have, liability
under the Scheme for direct emissions from the facility may apply for
assistance. Where more than one entity has liability or potential liability
under the Scheme (such as where more than one facility is involved),
there must be a joint application from those entities, and that joint
application must specify how they want the assistance allocated.
4.20 The emissions-intensive trade-exposed assistance program will
be reviewed by an expert advisory committee at each five-year review
point under Part 25 of the bill, or at another date at the request of the
Minister. The Government has announced that when conducting their
five-yearly EITE reviews, the expert advisory committee will consider a
number of issues. The commitments made by the Government and their
translation into specific legislative provisions are detailed in Chapter 12 of
the explanatory memorandum.
4.21 The Government also announced in the White Paper a process
for affected firms to request the Government to commission further advice
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from the Productivity Commission pertaining to how the Scheme may be
impacting their industry. Such advice would be sought through the
provisions of the Productivity Commission Act 1998.
4.22 The Government has committed to providing five years' notice
of any modifications to the emissions-intensive trade-exposed assistance
program, unless the modifications were required for compliance with
Australia's international trade obligations.
Summary of Part 8
4.23 A simplified outline of Part 8 is included in the bill [Part 8,
Division 1, clause 166].
Introduction
4.24 Division 1 sets out the aims and objects of the Part and
consequently the emissions-intensive trade-exposed assistance program.
As set out in the White Paper, the program recognises the impact that the
Scheme may have on the international competitiveness of
emissions-intensive trade-exposed activities, and its object is to reduce the
risk of carbon leakage and provide transitional assistance to entities
conducting emissions-intensive trade-exposed activities.
Formulation of the program
4.25 Division 2 sets out the core components of the
emissions-intensive trade-exposed assistance program. In particular it
provides for:
· the creation of a program in regulations which involves the
issuance of free Australian emissions units in respect of
activities which are taken to be emissions-intensive
trade-exposed activities and are carried on in Australia during
a particular financial year
· the program to require the persons issued free Australian
emissions units under the program to relinquish units in
specified circumstances. This is intended to be used to
provide for relinquishment of units on the closure of a facility
· the imposition of reporting and record-keeping requirements
for persons issued free Australian emissions units under the
program. This is intended to be used to ensure the Authority
is aware of potential closures and whether production levels
claimed in assistance applications were actually produced
· the program to set out comprehensive application and
assessment requirements.
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Compliance
4.26 Division 3 requires that persons comply with reporting and
record-keeping requirements under the emissions-intensive trade-exposed
assistance program. Failure to comply will incur a civil penalty.
Special information-gathering powers
4.27 Division 4 allows the Minister to request information relevant to
decisions about the formulation of the emissions-intensive trade-exposed
assistance program from constitutional corporations. This information
gathering power is limited to the circumstances where an activity is not
yet listed as an emissions-intensive trade-exposed activity and a party has
requested that the activity be added to the regulations.
Other aspects of the program outside of Part 8
4.28 Part 15 Division 2 sets up the legal architecture around
compliance with the relinquishment requirements which will operate on
the closure of a facility. Accordingly, if a person does not relinquish
Australian emissions units as necessary they will be required to pay a
penalty, in respect of any units not relinquished, of 200 per cent of the
benchmark average auction price of the previous financial year or another
amount specified in regulations. If this is not paid, a penalty of 20 per cent
per annum is payable or another lower rate specified in regulations.
4.29 There are also provisions requiring the Authority to disclose
information about the emissions-intensive trade-exposed assistance
program in Part 12 of the bill. The general enforcement and accountability
framework for the Authority is also relevant to the program.
Detailed explanation of provisions
Division 1 -- Introduction
Aims and objects
4.30 The aim of the Part is set out in the bill [Part 8, Division 1,
clause 165(1)].It is to recognise issues relating to the impact of the Scheme
on the international competitiveness of emissions-intensive trade-exposed
activities carried on in Australia. As set out above, unless an effective
emissions-intensive trade-exposed assistance program is implemented, the
costs associated with the Scheme may adversely impact the
competitiveness of entities conducting emissions-intensive trade-exposed
activities in Australia in the period before broadly comparable carbon
constraints are applying in other countries at an industry or economy wide
level. This is because these activities would be constrained in their ability
to pass on the costs of the scheme while competitors do not face similar
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costs which may be imposed through market based or regulatory
mechanisms.
4.31 The objects of the Part are set out in the bill [Part 8, Division 1,
clause 165(2)].
4.32 The objects provision outlines the activity focus of the assistance
as the Part is intended to allow the delivery of assistance in respect of
emissions-intensive trade-exposed activities [Part 8, Division 1,
clause 165(2)(a)]. Accordingly, it is the carrying out of defined activities
which creates eligibility for assistance rather than a firm's historic or
future emissions.
4.33 Assistance is provided to reduce the risks of `carbon leakage',
understood in terms of the incentives on businesses to move production to
foreign countries or locate new investment in a foreign country rather than
Australia [Part 8, Division 1, clause 165(2)(b)]. Such incentives may be created
by the treatment of emissions and level of regulation to reduce emissions
in foreign countries.
4.34 Assistance is also to provide transitional support to such
activities when they are carried out in Australia [Part 8, Division 1,
clause 165(2)(c)]. This is done through the administrative allocation of free
Australian emissions units under the emissions-intensive trade-exposed
assistance program.
4.35 The objects provision recognises that circumstances may change
such that assistance may no longer be warranted. In particular, it outlines
two distinct circumstances where this may be the case:
· whether sufficient measures to reduce emissions of carbon
dioxide and other greenhouse gases have been implemented
in respect of the markets in which entities conducting
emissions-intensive trade-exposed activities in Australia
compete [Part 8, Division 1, clause 165(2)(d)]
or
· where foreign countries responsible for a substantial majority
of the world's emissions have implemented sufficient
measures to reduce those emissions [Part 8, Division 1,
clause 165(2)(e)]
4.36 The Government will determine whether the assistance is no
longer warranted based on advice from the expert advisory committee
review on the efficacy and appropriate level of coverage of such
measures. It should be noted that measures to reduce emissions do not
necessarily need to consist of a cap on emissions and other approaches to
reduce emissions are also intended to be considered in the analysis.
Industry-wide emissions could also be controlled through international
sectoral agreements outside the direct control of governments. It will be
important to consider whether all relevant market-based and regulatory
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measures, taken together, impose broadly comparable carbon constraints
on either the particular industry or in respect of measures introduced in the
world's major economies. Box 12.16 of the White Paper provides further
explanation of the nature of global carbon constraints which are relevant
to this analysis.
4.37 It is acknowledged that other factors may also come into play
which render the assistance unwarranted in terms of its aim and primary
objective of addressing carbon leakage and providing transitional
assistance [Part 8, Division 1, clause 165(2)(f)]. However, the Government's
intention is that the factors listed in the legislation are the primary
circumstances where assistance may no longer be warranted.
4.38 The five-yearly and special reviews of the scheme will play an
important role in advising the Government on the consistency of the
emissions-intensive trade-exposed assistance program with these aims and
objects and the likelihood of the assistance becoming unwarranted
because of international developments. When circumstances are arising
which may render the assistance unwarranted, the Government has
committed to providing five years' notice of any modifications to the
emissions-intensive trade-exposed assistance program, unless the
modifications were required for compliance with Australia's international
trade obligations.
Division 2 -- Formulation of the emissions-intensive trade-exposed
assistance program
4.39 This Division allows for the creation of the emissions-intensive
trade-exposed assistance program in regulations. The technical aspects of
precisely defining emissions-intensive trade-exposed activities, the
eligibility criteria and relevant production units, and the need for
flexibility to include new activities, make the program appropriate to
locate within regulations rather than the bill itself. After the detail on
emissions, electricity use, revenue and/or valued added has been assessed
for a given activity, the regulations will be able to provide a relatively
simple allocation methodology per unit of production which provides
investment certainty, minimises ongoing compliance costs and reduces the
risk of assistance decisions being subject to lengthy appeal and review
process which may divert resources from more important issues for
business.
Creating the emissions-intensive trade-exposed assistance program
4.40 The central feature of the Part is the ability for the regulations to
create a program which allows the issuance of free Australian emissions
units in respect of emissions-intensive trade-exposed activities as defined
by the program [Part 8, Division 2, clause 167(1)(a)]. Such activities must be
carried on in Australia during an eligible financial year [Part 8, Division 2,
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Carbon Pollution Reduction Scheme Bill 2009
clause 167(1)(b)].
For this purpose, Australia includes external territories, the
exclusive economic zone, the continental shelf and the Joint Petroleum
Development Area. Assistance may be delivered before an activity is
carried on so long as the activity does actually get carried out in the
relevant eligible financial year.
4.41 While the eligibility of activities will be determined by the
Government in decisions on whether or not to list activities in the
regulations, the individual eligibility requirements for the assistance will
be specified in the program [Part 8, Division 2, clause 167(2)(a)]. A registry
account is one prerequisite [Part 8, Division 2, clause 167(2)(b)]. Without a
registry account, it would be impossible for the Authority to issue the free
Australian emissions units. It is intended that eligibility will essentially
rest upon whether a defined emissions-intensive trade-exposed activity is
being carried out, what relevant levels of production have been achieved
and that the person applying is the one ordinarily liable for the emissions
from the relevant activity under the scheme.
4.42 The Minister must take all reasonable steps to establish the
program before 1 July 2010 [Part 8, Division 2, clause 167(3)].
Relinquishment requirement
4.43 The program may provide for the relinquishment of Australian
emissions units [Part 8, Division 2, clause 168]. This is intended to be utilised
in respect of the closure of an activity. Accordingly, where Australian
emissions units are issued early in a financial year attributable to
production that is to take place in that year, and production ceases during
the year (other than for maintenance or similar temporary closures), units
attributable to the production which did not take place will be required to
be relinquished. As a result, such a requirement may be defined in relation
to events, circumstances or a decision of the Authority according to
criteria in the program [Part 8, Division 2, clause 168(1)(b)]. This provision will
ensure that the assistance is contingent upon continued production by the
activity and will avoid the potential for an entity to receive a windfall gain
from being issued free Australian emissions units in respect of production
which is then closed or moved offshore.
4.44 Relinquishment requirements only apply to persons issued units
under the program [Part 8, Division 2, clause 168(1)(a)] and cannot exceed the
number of units issued to the person under the program [Part 8, Division 2,
clause 168(2)].
4.45 The relinquishment of units to comply with the program can be
done by submitting an electronic notice to the Authority [Part 15, Division 2
clause 286].
Reporting requirements
4.46 The emissions-intensive trade-exposed assistance program can
impose reporting requirements on those persons issued units in
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accordance with the program. Such requirements will allow the Authority
to adequately monitor situations where a closure may have occurred and
be alerted to situations where it may need to trigger a relinquishment
requirement [Part 8, Division 2, clause 169].
4.47 Compliance with a reporting requirement is mandatory [Part 8,
Division 3, clause 173(1)].
Record-keeping requirements
4.48 The program can impose record-keeping requirements on those
persons issued units in accordance with the program [Part 8, Division 2,
clause 170]. Such requirements will facilitate monitoring of the closure of
an activity and ensure that the production records which determined
assistance levels are kept for subsequent validation or investigation. As
production levels will be the central factor which determines the levels of
assistance and these levels will not be collected and reported under the
National Greenhouse and Energy Reporting Act 2007, this additional
provision is necessary. The provisions of Part 18 of the bill would also not
be applicable because the program is contained within the regulations
rather than the bill itself. However, it is not intended that the provision be
used to duplicate other reporting mechanisms or significantly increase the
regulatory burden on business.
4.49 Compliance with a record-keeping requirement is mandatory
[Part 8, Division 3, clause 173(2)].
Other matters and ancillary or incidental provisions
4.50 Further details of the emissions-intensive trade-exposed
assistance program will be specified in the regulations [Part 8, Division 2,
clause 171] and [Part 8, Division 2, clause 172]. In particular, the regulations can
contain extensive provisions regarding the applications for assistance.
Given the value of the free Australian emissions units to be issued, it will
be important for the Authority to have sufficient verified information to
support the relevant production levels which determine the level of
number of free Australian emissions units assistance to be issued to a
particular person in a particular year [Part 8, Division 2, clauses 171(1)-(3)].
4.51 These requirements may include that the information be verified
by statutory declaration by a relevant company officer or accompanied by
particular documents or reports such as an assurance report as to whether
the production was actually undertaken in the previous financial year or
engineering reports to demonstrate that a particular activity is in fact
conducted. It is intended that the Authority will establish a single online
portal for these applications.
4.52 The provisions allow the regulations to prescribe in full the
process and procedural requirements for the Authority to deal with
applications. It is anticipated that applications will be made between
1 July and 31 October each year and assessed by the Authority on a case
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by case basis. The Authority will be able to issue units to applicants as
soon as it is sufficiently satisfied in relation to each application.
4.53 The program can also include ancillary or incidental provisions
[Part 8, Division 2, clause 172].
4.54 It is also intended that the emissions-intensive trade-exposed
assistance program will, where necessary, adopt various industry
standards and confer administrative decision making functions on the
Authority [Part 26, clause 384] and [Part 26 , Division 5,clause 385].
Division 3 -- Compliance with reporting and record-keeping
requirements under the emissions-intensive trade-exposed assistance
program
Compliance with record-keeping and reporting requirements
4.55 There is a direct obligation to comply with any record-keeping
or reporting requirements. Those persons with a direct obligation to
comply with reporting and record-keeping requirements and others
involved in a breach or potential breach of reporting or record-keeping
requirements are liable for their behaviour [Part 8, Division 3, clause 173].
4.56 Breaches of these requirements are all civil penalty provisions
and can accordingly be enforced under Part 21 of the bill discussed in
Chapter 9 below [Part 8, Division 3, clause 173(4)].
Division 4 -- Special information-gathering powers
4.57 The simplicity, effectiveness, fairness and timely
implementation of the emissions-intensive trade-exposed assistance
program is significantly facilitated when Government has the necessary
audited information in relation to particular activities to determine that
activity's eligibility and allocative baseline per unit of product. The
Department of Climate Change has already received audited information
with regard to a number of potential activities which is sufficient to make
these decisions. There remain, however, a large number of activities
which still need to be formally assessed. It will be important for the
Government to be certain that all participants in an industry which are
likely to materially impact this assessment have provided information to
the Government so that historical information can be the primary input
into the decision making process. Quality historical information will
reduce the necessity for detailed comparison of international information
to assist in the determination of eligibility and baselines which may
disadvantage parties who have fully complied with the information
request.
4.58 Accordingly, Division 4 deals with the circumstance where an
entity has come forward and requested an assessment of an
emissions-intensive trade-exposed activity and the Government is not able
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to make a decision to include that activity in the regulations without
formally requesting information of particular companies who have
information relevant to that assessment. The Minister may accordingly
issue notices to a constitutional corporation to provide information and
audit reports relevant to the policy in the emissions-intensive trade-
exposed assistance program [Part 8, Division 4, clause 173A]. Such a power is
limited to the circumstances where an emissions-intensive trade-exposed
activity is not yet listed in the regulations. It is intended that such a power
would only be exercised as a last resort in circumstances where a potential
recipient of assistance is unwilling to provide the necessary information.
4.59 The Minister's information requests must give at least 30 days
for compliance if only information is requested and 60 days if a report is
also requested to accompany that information [Part 8, Division 4, clauses
173A(3) and 173A(5)].
4.60 Refusal or failure to comply with such a notice will render that
constitutional corporation ineligible for assistance for the first two eligible
financial years which begin after the date of the notice [Part 8, Division 4,
clause 173B]. This is proportionate to the potential for the withholding of
such information to result in windfall gains for a particular entity over the
course of the emissions-intensive trade-exposed assistance program. The
Minister may also disclose this information to the Authority to assist them
with their functions and powers [Part 8, Division 4, clause 173C].
Part 15, Division 3 -- Compliance with relinquishment requirements
4.61 A financial penalty will be imposed when Australian emission
units are not relinquished as required under the emissions-intensive
trade-exposed assistance program [Part 15, Division 3, clause 287]. Division 3
of Part 15 of the bill contains a number of provisions relating to the
calculation of the financial penalty, late payment of penalties, recovery of
penalties, set offs and refunds of overpayments. These are similar to the
provisions of Division 4 of Part 6 and are explained in Chapters 8 and 9
below.
Public disclosures relating to emissions-intensive trade-exposed
assistance program
4.62 The public will be informed about Australian emissions units
issued under the emissions-intensive trade-exposed assistance program
[Part 12, Division 4, clause 273] and [Part 12, Division 4, clause 274]. This will
inform the market as to how many units are available for auctioning and
will provide public accountability for the application of the emissions-
intensive trade-exposed assistance program. In particular, the Authority is
required to publish on its website a notice when Australian emissions
units are issued to a person under the program which includes the number
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Carbon Pollution Reduction Scheme Bill 2009
of units issued to that person and the activity for which they were issued
[Part 12, Division 4, clause 273(1)] .
4.63 The total number of Australian emissions units issued during a
particular quarter must be published on the Authority's website [Part 12,
Division 4, clause 274]. This information must also be published in respect of
each activity [Part 12, Division 4, clause 274(b)].
4.64 The total number of Australian emissions units claimed under
the program but for which no decision has been made must also be
disclosed. This will give the market an idea about the potential number of
units which may not be available for auctioning [Part 12, Division 4,
clause 274(c)].
Administration, enforcement and monitoring of the program
4.65 The emissions-intensive trade-exposed assistance program will
be administered by the Australian Climate Change Regulatory Authority
referred to as the Authority for the purposes of the bill. It will be subject
to the governance arrangements in its establishment Act and this bill.
These include the secrecy provisions to protect confidential information
submitted in relation to the program set out in the Australian Climate
Change Regulatory Authority Bill 2009 [Part 3, clause 43].
4.66 The Authority's decisions on eligibility and delivery of
Australian emissions units under the program will be subject to the review
procedure outlined in Part 24 of this bill. This includes merits review in
the Administrative Appeals Tribunal.
4.67 The Authority will be able to draw upon its enforcement powers
in Parts 17 to 23 of this bill to enforce the requirements of the program.
The intention is to provide clear application requirements so that the
Authority has clear, audited and comprehensive information upfront to
make decisions upon allocations. This should allow a light-handed
risk-based approach to monitoring and enforcement issues associated with
the program.
First-year Australian emission units
4.68 Persons who are issued units under the emissions-intensive
trade-exposed assistance program for the first year of the Scheme should
note the special nature of the Australian emissions units issued with a
vintage year beginning on 1 July 2011. In particular, they cannot be used
for subsequent years of the Scheme. The limited nature of the carbon
market during the first year of the Scheme means that it is necessary to
implement a buy-back arrangement for Australian emissions units issued
for the first year of the Scheme [Part 4, Division 2, clause 103B]. This will
operate until 1 December 2012 to allow persons to receive $10 for each
unit they wish to sell back to the Authority, discounted by a factor
specified in the regulations. This factor used to discount the buy-back
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price will broadly reflect the present value of the units at the time they are
sold back to the Authority.
Review
4.69 As set out in Part 25, the Government may choose to initiate
special reviews on the emissions-intensive trade-exposed assistance
program and the program must be reviewed every five years by the expert
advisory committee [Part 25, Division 2, clause 353(1)(h)]. Details of the review
are described in Chapter 12.
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Chapter 5
Coal-fired electricity generation
Outline of chapter
5.1 This chapter outlines the effect of the provisions of Part 9 of the
Carbon Pollution Reduction Scheme Bill 2009, which implement the
Government's Electricity Sector Adjustment Scheme. Part 9, Division 2
and Part 9, Division 3 set out the provisions by which the Authority will
determine the number of free Australian emissions units to issue to
eligible coal-fired electricity generators under the Electricity Sector
Adjustment Scheme.
5.2 Part 9, Division 4 provides that a portion of the Australian
emissions units available to be issued to an eligible coal-fired electricity
generator can be withheld in the event that this asset may be likely to
receive a `windfall gain' under the Electricity Sector Adjustment Scheme,
that is, where the value of assistance a generator receives exceeds the
likely loss in asset value it faces under the Carbon Pollution Reduction
Scheme (the Scheme).
5.3 Part 9, Division 5 requires that no Australian emissions units be
issued to generators that do not comply with the power system reliability
test, to decrease the already low likelihood that the Scheme will reduce
the reliability of supply in Australia's electricity markets.
Context and object of Part 9
5.4 The introduction of the Scheme will impose a new cost on fossil
fuel-fired electricity generators. The general level of electricity prices will
rise as generators include this cost into their offers to supply electricity to
customers.
5.5 However, relatively emissions-intensive generators are likely to
face a greater increase in their operating costs than the general increase in
the level of electricity prices. Competition from relatively less
emissions-intensive generators, which face lower costs under the Scheme,
may cause these emissions-intensive generators to lose profitability.
5.6 The generation of electricity is a capital-intensive process.
Investors in this sector purchase or construct complex and expensive
machinery that can generate large amounts of electricity in a cost-effective
way. To finance the purchase or construction of a generator, investors will
generally borrow money from creditors. Ongoing investment in the
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electricity generation sector requires investors to deploy capital based on
their assessment of the risk and return of that investment, with creditors
supplementing this capital with debt finance. Ongoing investment in this
sector is important to maintain or improve the performance of existing
assets and to deliver new, lower-emissions generation technologies.
5.7 The risk premium charged by investors and creditors to make an
investment reflects their perceptions of its risk in comparison to alternate
investments. The Scheme will change the relative risk and return of
particular investments based on the amount of greenhouse gas emissions
they produce. However, if investors consider that the regulatory
environment is riskier as a result of the Government having introduced the
Scheme, all investments in the sector could face an increased risk
premium irrespective of the amount of greenhouse gas emissions they
produce, which in turn could affect their cost or timing.
5.8 The Government considers that investors' perceptions of the risk
of investing in the Australian electricity generation sector are most likely
to be affected by the extent of any extreme losses in this sector that may
arise under the Scheme, rather than by the average level of loss. Targeted
allocations of free Australian emissions units to the most affected
generators can partially offset these losses of asset value and thereby
reduce the impact of the Scheme on investor confidence.
5.9 Investors who purchase or construct generation assets after the
Commonwealth Government's announcement of its support for a scheme
to reduce pollution caused by emissions of carbon dioxide and other
greenhouse gases are able to factor the impact of such a scheme on their
investments. Providing assistance to these investors would not address a
loss of asset value resulting from Government policy, but would instead
address a loss of asset value resulting from an incomplete risk assessment
by the investor.
5.10 By contrast, investors who purchased or constructed generation
assets prior to the Commonwealth Government's announcement of its
support for such a scheme may face losses of asset value as a result of the
introduction of a carbon constraint. Whilst such a policy change could
have been foreseen prior to this announcement, the Government considers
it appropriate to partially recognise losses of asset value experienced by
investors that were committed to such investments prior to a clear
announcement by the Commonwealth Government of its support for such
a scheme.
5.11 On 3 June 2007, the then Prime Minister announced that
`Australia will move towards a domestic emissions trading scheme, that's
a cap and trade system beginning no later than 2012'. The Electricity
Sector Adjustment Scheme limits eligibility for assistance to those
generation assets that were in operation, or committed to be constructed,
by 3 June 2007.
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5.12 This context is summarised in the object of Part 9, which
focuses on the maintenance of investor confidence in electricity
generation [Part 9, Division 1, clause 174]. Nonetheless, the Government
recognises the importance of the proper regulation of electricity markets
for continued efficient investment in electricity generation. The
Government is confident that the Electricity Sector Adjustment Scheme
embodied in Part 9 of the bill complements the continued reform of
energy market regulatory frameworks in promoting efficient investment
and reliable supply in Australia's electricity markets.
Summary
5.13 Part 9, Division 1 sets out an objects clause [Part 9, Division 1,
clause 174] and a simplified outline for the Part [Part 9, Division 1, clause 175].
5.14 Part 9, Division 2 requires the Authority to issue a number of
free Australian emissions units in respect of particular generation assets
based on the annual assistance factors specified in various certificates of
eligibility for coal-fired generation assistance in force in respect of those
assets, and clarifies the persons to whom the Authority should provide
these free Australian emissions units.
5.15 Part 9, Division 3 sets out the circumstances under which the
Authority should issue a certificate of eligibility for coal-fired generation
assistance, and determines how the Authority should determine an annual
assistance factor in each of those certificates.
5.16 Part 9, Division 4 provides that the issuing of some free
Australian emissions units available under this Part is subject to the
Minister's power to make a determination withholding those units, in the
event that the Authority finds that the provision of assistance under this
Part is likely to deliver a `windfall gain' in respect of a particular
generation asset.
5.17 Part 9, Division 5 provides that generation assets in respect of
which certificates of eligibility for coal-fired generation assistance are
issued must comply with the power system reliability test in order to be
issued with free Australian emissions units under this Part.
Detailed explanation of new law
Important definitions used in this Part
5.18 Part 9 is based upon some key concepts defined in the bill.
Assistance under Part 9 is not provided in respect of a particular person,
such as the person making an application for assistance, but rather is
provided in respect of a collection of equipment used for the generation of
electricity known as a `generation asset'. Understanding the definition of a
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generation asset [Part 1, clause 5, definition of `generation asset'] , and the
subsidiary concepts of `generation unit' [Part 1, clause 5, definition of
`generation unit'], `generation complex' [Part 1, clause 5, definition of `generation
complex'] and `generation complex project' [Part 1, clause 5, definition of
`generation complex project'], is essential to understanding the scope of the
operation of Part 9.
5.19 The concept of a generation asset [Part 1, clause 5, definition of
is not the same as the concept of a `facility', which takes
`generation asset']
its definition from the National Greenhouse and Energy Reporting Act
2007. Assistance under Part 9 is focused on coal-fired electricity
generators, which must meet certain eligibility criteria. However, a facility
under the National Greenhouse and Energy Reporting Act 2007 could
include, for example, the activities of a co-located coal-fired generator and
coal mine. For this reason, the separate definition of a `generation asset' is
used to capture those elements of a facility that may be eligible for coal-
fired generation assistance.
5.20 For operational reasons, equipment used for the generation of
electricity is often engineered such that at, a given location, there are
multiple sets of equipment that can generate electricity independently of
one another (although they may share some common infrastructure, such
as cooling systems or coal conveyor belts). Under the bill, each
independent set of equipment for the generation of equipment is known as
a `generation unit' [Part 1, clause 5, definition of `generation unit'] , whilst one or
more generation units at the same location are known as a `generation
complex' [Part 1, clause 5, definition of `generation complex'] . Assistance under
this Part is provided in respect of generation complexes rather than
generation units. There is no requirement on persons applying for
assistance under Part 9 to aggregate multiple generation units at the same
location together to form a single generation complex, although this may
be practical for various reasons. However, a person applying for
assistance under Part 9 should factor the fact that each generation unit in a
generation complex must satisfy the eligibility criteria in order for it to
pass the generation asset assistance eligibility test into any decision to
aggregate multiple generation units to form a single generation complex
[Part 9, Division 3, clause 181(2)(a)] .
5.21 Further, assistance under Part 9 is available to projects to
construct and commission a new generation complex that were fully
committed by their proponent as of 3 June 2007 (see 5.34 below).
Accordingly, the bill provides the concept of a `generation complex
project' [Part 1, clause 5, definition of `generation complex project'] , which is a
project to construct and commission a new generation complex. The
definition of a generation asset includes both generation complexes and
generation complex projects.
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Applying for assistance
5.22 A person who wishes to apply to the Authority so that a
certificate of eligibility for coal-fired generation assistance is issued in
respect of a particular generation asset must do so within 180 days of the
commencement of the provision [Part 9, Division 3, clause 177(1)]. However,
the Authority may choose to extend the time limit for some applications
by up to an additional 30 days, provided the application submitted under
the extended time limit is mutually exclusive in its coverage of generation
units in comparison to all other applications [Part 9, Division 3, clause 177(8)].
Where an application is submitted after the time limit (whether extended
or not), it is not a valid application and the Authority will not be able to
issue a certificate of eligibility for coal-fired generation assistance in
relation to the generation asset in question.
5.23 Applications are made in respect of a generation asset, rather
than in respect of the person making the application [Part 9, Division 3, clause
177(1)]. This means that the act of applying for assistance does not entitle
the applicant to receive free Australian emissions units issued in respect of
a given generation asset. Instead, the recipient of assistance is defined by
reference to the relationship of a person to a generation asset, not by
reference to the person who applied for assistance, as provided for by [Part
9, Division 2, clause 176(6)].
5.24 Spurious applications from persons that do not own, operate or
control the generation asset in respect of which the application is made are
prevented [Part 9, Division 3, clauses 177(2) and 177(3)]. The concept of
`owning, controlling or operating' a generation asset is intended to have
the same meaning as the equivalent terms in laws relating to the regulation
of energy markets that require the registration of electricity generators.
The primary laws (and subordinate instruments) relating to the regulation
of energy markets that are likely to be relevant to the application of this
Part are:
· in relation to the National Electricity Market, the National
Electricity Rules as made and amended under Part 7 of the
Schedule to the National Electricity (South Australia) Act
1996 of South Australia and given force of law in other
jurisdictions through application legislation
· in relation to the Western Australian Wholesale Electricity
Market, the Wholesale Electricity Market Rules provided for
under section 123 of the Electricity Industry Act 2004 of
Western Australia and the Electricity Industry (Wholesale
Electricity Market) Regulations 2004.
5.25 Multiple applications cannot be made in respect of all or part of
a generation asset [Part 9, Division 3, clause 177(4)]. The recognition and
consideration of overlapping applications by the Authority could result in
an excessive issuance of certificates of eligibility for coal-fired generation
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assistance and of annual assistance factors, and thereby deliver additional,
unwarranted assistance in respect of some generation assets.
5.26 There are a number of requirements on an application for the
issuance of free Australian emissions units [Part 9, Division 3, clause 178]. In
particular, applications in respect of a generation asset that entered service
after 1 July 2004 are required to provide an independent engineering
report [Part 9, Division 3, clauses 178(1)(f) and 178(3)]. This information is
required to assist in the Authority's assessment of the emissions intensity
of such an asset under [Part 9, Division 3, clause 182(4)].
5.27 Regulations may require particular information, documents or
prescribed reports to be provided with an application for coal-fired
generation assistance [Part 9, Division 3, clauses 178(1)(c)-(e)]. The Government
intends to make regulations requiring this information, and these
documents and prescribed reports, to include, amongst other things, an
assurance of the application by an appropriate audit firm and, where
applicable, particular documents relating to the generation asset's
emissions intensity as calculated for the purpose of policies such as the
Commonwealth Government's `Generator Efficiency Standards' program
and the New South Wales Government's Greenhouse Gas Reduction
Scheme. Information may also need to be verified by statutory declaration
[Part 9, Division 3, clause 178(2)]. This upfront provision of information will
assist the Authority in making timely and appropriate decisions on
applications.
5.28 Having received an application, the Authority may consider that
it requires additional information to properly assess it. The Authority is
able to require further information to assist its assessment [Part 9, Division 3,
clause 179]. This may be an iterative process where the Authority requests
information more than once to clarify the issues involved. The Authority
is provided additional time to make its decision on an application where
additional information is required [Part 9, Division 3, clause 180(4)(a)].
The Authority's assessment
5.29 Ordinarily, the Authority will use its best endeavours to make an
assessment within a 90 day period from the date of the application [Part 9,
Division 3, clause 180(4)(b)(i)]. However, the Authority is not required to make
any decision until after 210 days after the commencement of the relevant
legislation [Part 9, Division 3, clause 180(4)(b)(ii)]. This is because the
Authority cannot reasonably ensure that a given application is mutually
exclusive in its coverage of generation units until all valid applications
have been received, which may not have occurred until 210 days after
commencement of the relevant legislation. Further, to ensure that the
Authority has sufficient time to make a decision, it can take an additional
90 days to make its decision on an application where additional
information has been requested [Part 9, Division 3, clause 180(4)(a)]. Where
more than one request for information is made, this applies to the latest of
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those requests. However, nothing prevents the Authority from making a
decision before the end of the standard or extended period where it is able
to do so.
5.30 The Authority's assessment of an application involves two key
elements:
· determining the eligibility of the generation asset in respect
of which the application is made
· determining an annual assistance factor in respect of that
generation asset.
The annual assistance factor is crucial to determining the total number of
free Australian emissions units that will be issued in respect of that
generation asset in accordance with this Part.
Determining eligibility
5.31 The Authority must apply the generation asset assistance
eligibility test to decide whether to issue a certificate of eligibility for
coal-fired generation assistance [Part 9, Division 3, clauses 181(1) and 180(2)]. In
order to issue such a certificate, the Authority must be satisfied that a
generation asset passes this test in one of two ways:
· a generation complex must pass the test by demonstrating
that it was, broadly, `in operation' in June 2007 [Part 9,
Division 3, clause 181(2)]
· a generation complex project must pass the test by
demonstrating, broadly, that it was fully committed as of
3 June 2007 [Part 9, Division 3, clause 181(3)].
5.32 Assistance for coal-fired electricity generators under this Part is
provided to address significant declines in the asset values of generation
assets that were invested in before the Commonwealth Government
announcement of support for a scheme to reduce pollution caused by
emissions of carbon dioxide and other greenhouse gases [Part 9, Division 1,
clause 174]. As explained in 5.11 above, this point in time was 3 June 2007.
5.33 Therefore, the generation asset assistance eligibility test seeks to
determine whether a generation complex was `in operation' in June 2007,
or whether a generation complex project was `committed' to be
constructed as of 3 June 2007. The use of the month of June 2007 for
generation complexes, in contrast to the date of 3 June 2007 for
generation complex projects, simply reflects the practicality of
determining whether a generation unit was in operation at any time during
that month, given that generation units that are `in operation' may be
offline for a period of time for various operational reasons.
5.34 Generation complex projects may receive assistance if, as of
3 June 2007, they were sufficiently committed that the project could not
have been substantially altered in response to the new information about
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Carbon Pollution Reduction Scheme Bill 2009
the Commonwealth Government's climate change policies that emerged at
that time. The Government considers that the definition of a `committed
project' from Rule 11.10A.1 of the National Electricity Rules, which sets
out criteria as to whether a generation project should be considered to be
fully committed by its proponent, is appropriate to replicate here for a
similar purpose. [Part 9, Division 3, clause 181(3)(b)]
5.35 Some generation assets are capable of reducing emissions at
relatively low cost by substituting coal in their generation process with an
alternative lower-emissions fuel, such as natural gas. Accordingly, the
Government decided that these assets are not eligible for assistance. To
pass the generation asset assistance eligibility test, generation complexes
must use coal as their primary energy supply, as indicated by 95 per cent
of the electricity it generated in financial year 2006-07 having been
attributable to the combustion of coal. [Part 9, Division 3, clause 181(2)(b)]
5.36 The Government has also determined that generation assets must
be connected to an electricity grid of a sufficient size that the asset could
be considered to be exposed to significant competition in order to warrant
assistance under the Electricity Sector Adjustment Scheme. Accordingly,
generation assets must be connected to a grid with a capacity of at least
100 megawatts in order to pass the generation asset assistance eligibility
test [Part 9, Division 3, clause 181(2)(c)]. The capacity of the grid used in the
bill is the same as the threshold size of an electricity grid used in the
Renewable Energy (Electricity) Act 2000 to determine those sales of
electricity that will be liable to the provisions of that Act. The method for
calculating the capacity of a grid used in the bill is also the same as under
the Renewable Energy (Electricity) Act 2000 and regulations made under
that Act, in that it excludes standby and privately-owned domestic
generation sources. [Part 9, Division 3, clause 181(4)]
5.37 In relation to generation complex projects, the Authority must
make assessments of whether a particular generation asset proposed to use
coal as its primary energy supply as of 3 June 2007, and whether it was
proposed to be connected to an electricity grid of a sufficient size that it is
exposed to significant competition as of 3 June 2007. [Part 9, Division 3,
clauses 181(3)(c) and 181(3)(d)]
5.38 If the Authority refuses to issue a certificate of eligibility for
coal-fired generation assistance, the Authority must notify the applicant of
this decision. [Part 9, Division 3, clause 180(5)]
Determining the annual assistance factor
5.39 A certificate of eligibility for coal-fired generation assistance
must include an annual assistance factor [Part 9, Division 3, clause 180(3)].
This factor is used to determine the correct number of Australian
emissions units to issue in respect of a particular generation asset [Part 9,
Division 2, clause 176(2)]. The annual assistance factor can be zero, in which
case no Australian emissions units would be issued in respect of that
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generation asset, even though it passed the generation asset assistance
eligibility test.
5.40 The determination of an appropriate annual assistance factor
involves some estimation and uncertainty. Therefore, [Part 9, Division 3,
clause 182(1)] makes clear that the annual assistance factor is the
Authority's reasonable estimate of the number calculated in accordance
with this clause, rather than a precise calculation of such a number.
5.41 The two key elements used in the formula to determine the
annual assistance factor for a generation asset are:
· its historical energy
· its emissions intensity.
[Part 9, Division 3, clause 182]
These elements are combined such that the annual assistance factor for a
generation asset is the product of its historical energy and the difference
between its emissions intensity in kilotonnes of carbon dioxide
equivalence of emissions per gigawatt hour of electricity and a `threshold'
level of emissions intensity of 0.86 kilotonnes of CO2 -e per gigawatt hour
of electricity generated. The manner in which the figure of 0.86 kilotonnes
of CO2 -e per gigawatt hour of electricity generated was reached was
described at pages 13-24 to 13-26 of the White Paper.
Historical energy
5.42 Ideally, the measure of historical energy used for a generation
asset would be its actual output over the three year period from 1 July
2004 to 30 June 2007. This measure is used for generation complexes that
entered service on or before 1 July 2004 [Part 9, Division 3, clause 182(1)(a)].
However, using this measure for generation assets that entered service
after 1 July 2004 would unfairly reduce their annual assistance factor, and
consequently the number of free Australian emissions units they receive.
Therefore, for generation complexes or generation complex projects that
entered service after 1 July 2004, the `nameplate rating' of the generation
asset is used to calculate a proxy for its likely energy output over a
notional three year period [Part 9, Division 3, clause 182(1)(b)] and [Part 9,
Division 3, clause 182(1)(c)].
5.43 The nameplate rating of a generation asset is its maximum
continuous electrical generation capacity as registered with the
appropriate energy market operator [Part 1, clause 5, definition of `nameplate
rating']. Accordingly, the output of the asset can be estimated by
considering the likely `capacity factor' of the asset, that is, the percentage
of its maximum output that an asset produces on average over a period of
time. Multiplying the nameplate rating of the generation asset in
megawatts by 21.024 approximates the energy output (in gigawatt hours)
of such a generation asset over a notional three year period if it operates at
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Carbon Pollution Reduction Scheme Bill 2009
an 80 per cent capacity factor over that period, that is, if its average output
over the period is 80 per cent of its maximum output. The number 21.024
has been worked out by firstly calculating the number of hours in a three
year period, which is the number of days in a year, 365, multiplied by the
number of hours in a day, 24, multiplied by the number of years in the
period, three. This number is then multiplied by 0.8 to reflect the assumed
80 per cent capacity factor of the generation asset. Lastly, this number is
divided by 1000 to convert a number that approximates the generation
asset's output in megawatt hours to a number that approximates its output
in gigawatt hours, as required by the formula.
Emissions intensity
5.44 Broadly, the emissions intensity of a generation asset is the
emissions produced by the asset divided by the amount of electricity it
generates. These two elements of emissions intensity could be either
estimated from the historical performance of an asset or from its likely
future performance. Therefore, as for historical energy, the draft bill uses
different methods to estimate a generation asset's emissions intensity
depending on whether or not it had entered service on or before 1 July
2004.
5.45 For a generation asset that entered service on or before 1 July
2004, the emissions intensity is estimated by reference to the actual
emissions and actual energy output of the asset over the three year period
from 1 July 2004 to 30 June 2007 [Part 9, Division 3, clause 182(2)].
Importantly, these emissions must be `emitted from the combustion of
fuel in the generation complex' and therefore do not include, for example,
emissions from the combustion of fuel to operate mining equipment.
Further, the combustion of fuel must be for `the purposes of the
generation of electricity' and therefore does not include, for example,
emissions created for the purposes of the production of steam in a
cogeneration plant. The energy output of the generation asset, described as
the gigawatt hours of electricity generated, is exactly the same number as
in [Part 9, Division 3, clause 182(1)(a)].
5.46 For a generation asset (whether a generation complex or a
generation complex project) that entered service after 1 July 2004, the
Authority has a broad discretion to estimate its emissions intensity [Part 9,
Division 3, clause 182(4)]. For example, the Authority might use design
documents to estimate the thermal efficiency of the generation asset, that
is, how efficiently it turns a quantity of fuel into electricity, and fuel
contracts to estimate the emissions released from the combustion of a
given quantity of the fuel used or intended to be used in the generation
asset. These two elements could allow the Authority to estimate the
theoretical emissions intensity of a generation asset, whether or not it has
yet entered service. These estimates should be supported by the
independent engineering report that is required to be provided with an
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application in respect of a generation asset that entered service after
1 July 2004 [Part 9, Division 3, clause 178(1)(f)].
5.47 The Authority may have regard to an estimate of the emissions
intensity of the generation asset based on its actual performance during
the period it has been in service, but the Authority is not required to adopt
this estimate as the emissions intensity of the asset [Part 9, Division 3, clause
182(4)(c) and 182(5)]. If the period the asset has been in service is short,
estimates of emissions intensity based on this period may be misleading
due to the small sample size of measurements of, for example, coal
quality. Further, the initial period of operation of a new generation asset
can involve activities that might cause estimates of the asset's emissions
intensity over this period to be unrepresentative of its likely general level
of performance. For example, a generation asset's early period of
operation might involve testing the asset's ability to operate at output
levels above or below its most efficient level of operation, or starting and
stopping the asset an unusually high number of times. These uncertainties
support the high level of discretion afforded the Authority in estimating
emissions intensity in this circumstance. The Authority will weigh up the
strength and veracity of the information presented in the application and
its own analysis in making its decision.
5.48 The definition of emissions intensity used for generation assets
that entered service after 1 July 2004 differs from that used for generation
assets that entered service on or before 1 July 2004 in being non-specific
in the period of time over which the estimate is made [Part 9, Division 3,
clause 182(5)]. For example, if a generation asset entered service on
1 July 2005, the Authority may be able to estimate the emissions intensity
of the asset over a period of operation spanning from 1 July 2005 to
around 1 January 2010. However, for a generation asset that did not enter
service until 1 July 2008, the Authority may only have a period from
1 July 2008 to around 1 January 2010 from which to consider
performance data.
5.49 Where the Authority's estimate of emissions intensity is less
than 0.86, the emissions intensity used in the annual assistance factor
formula is taken to be 0.86 [Part 9, Division 3, clauses 182(3) and 182(6)]. This
means that the annual assistance factor for such a generation asset will be
zero and, in turn, that no free Australian emissions units will be issued to
such an asset under [Part 9, Division 2, clause 176(2)]. These provisions
prevent the calculation of an annual assistance factor that is below zero,
which would distort the allocation methodology applied under [Part 9,
Division 2, clause 176(2)].
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How annual assistance factors are calculated
Example 5.1: A generation asset that entered service on or
before 1 July 2004
To estimate the historical energy of a generation asset that entered
service on or before 1 July 2004, the applicant should provide, and the
Authority should assess, historical data relating to the generation of
electricity by that generation asset over the period fro m 1 July 2004 to
30 June 2007. The Authority could verify this data through comparison
with data publicly available fro m independent bodies such as the
market operator in the market in wh ich the generation asset operates.
For examp le, this investigation might find that the historical energy of
the generation asset over the three year period in question was
22,950 gigawatt hours.
To estimate the emissions intensity of a generation asset that entered
service on or before 1 July 2004, the applicant should provide, and the
Authority should assess, historical information relating to the coal
usage and coal quality of the generation asset over the period fro m
1 Ju ly 2004 to 30 June 2007. For example, this investigation might find
that the generation asset used approximately 28,500,000 tonnes of coal,
with an average energy content of 11 g igajoules per tonne. Historical
analyses of coal quality might indicate that the combustion of the coal
produced, on average, 0.093 tonnes of CO2 -e per gigajoule of fuel
combusted. These estimates indicate that the generation asset produced
approximately (28 500,000 × 0.093 × 11) tonnes of CO2 -e, or
29,155.5 kilotonnes of CO2 -e, over the three year period in question.
Based on these estimates, the Authority's reasonable estimate of the
generation asset's emissions intensity would be 29,155.5 ÷ 22,950
kilotonnes of CO2 -e per g igawatt hour, or 1.270 kilotonnes of
CO2 -e per gigawatt hour.
Accordingly, the Authority would find the generation asset's annual
assistance factor to be 22,950 × (1.270 -- 0.86), or 9,409.500.
Example 5.2: A generation asset that entered service after 1
July 2004
To estimate the historical energy of a generation asset that entered
service after 1 July 2004, the applicant should provide the Authority
with the nameplate rat ing of the generation asset as registered with the
relevant market operator. For examp le, the generation asset's
nameplate rating might be 500 megawatts. This being the case, the
Authority would estimate the historical energy of the generation asset
over a notional three year period to be (500 × 21.024), or
10,512 gigawatt hours.
To assist the Authority to estimate the emissions intensity of a
generation asset that entered service after 1 July 2004, the applicant
should provide an independent engineering report setting out an
estimate of the emissions intensity of the generation asset. This report
might show, and the Authority might verify, facts such as:
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Chapter 5: Coal-fired electricity generation
· the thermal efficiency of the generation asset, for examp le, that the
generation asset is, on average, capable of converting
11.5 gigajoules of fuel into 1 megawatt hour of electricity
· analyses of the quality of the coal that have been or will be supplied
to the generation asset under its established fuel contracts, for
example, that the combustion of this coal produces approximately
0.089 tonnes of CO2 -e per gigajoule of fuel co mbusted.
The Authority can use estimates to calculate an estimated emissions
intensity of the generation asset. For examp le, the estimates above
would indicate that the generation asset in question would release
(11.5 × 0.089), or 1.024, tonnes of CO2 -e per megawatt hour of
electricity generated. This is also equivalent to 1.024 kilotonnes of
CO2 -e per gigawatt hour of electricity generated.
The Authority could verify these estimates by comparison with the
actual performance of the generation asset over its period of operation,
if th is data is available over a sufficient period of t ime to offer reliable
and represenative additional in formation.
Based on these estimates, the Authority would find the generation
asset's annual assistance factor to be 10,512 × (1.024 -- 0.86), or
1,723.968.
Issuing assistance
5.50 The Authority must decide whether or not to issue a certificate
of eligibility for coal-fired generation assistance in relation to each
individual application it receives and, if so, what the annual assistance
factor in the certificate should be [Part 9, Division 3, clause 180]. These
decisions are individually subject to the reconsideration and merits review
provisions of Part 24. In other words, the eligibility of, and annual
assistance factor calculated in respect of, each individual generation asset,
is determined independently of every other generation asset, and are
individually subject to the review processes in Part 24.
5.51 However, the number of free Australian emissions units that
should be issued in respect of a generation asset is a function of not only
the annual assistance factor specified in respect of that generation asset,
but also all other annual assistance factors specified in respect of all other
generation assets [Part 9, Division 2, clause 176(2)].
5.52 This is the case because the Authority must take the annual
assistance factor in each certificate of eligibility for coal-fired generation
assistance and divide it by the sum of all annual assistance factors in all
such certificates (the `total annual assistance factors for that eligible
financial year'). This number, which must be less than 1, is then
multiplied by the `generation assistance limit for that eligible financial
year' to determine the share of each year's pool of free Australian
emissions units that should be issued in respect of that generation asset for
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Carbon Pollution Reduction Scheme Bill 2009
that year (subject to the rounding provisions of [Part 9, Division 2,
clause 176(3)]).
5.53 In this way, the available pool of free Australian emissions units
per year is distributed amongst all eligible recipients of these units in each
of the first five years of the Scheme, and the Government's policy of
`capping' the total number of free Australian emissions units to be issued
under the Electricity Sector Adjustment Scheme is achieved. Units will be
issued on 1 September in each of the first five eligible financial years of
the Scheme [Part 9, Division 2, clause 176(2)]. The first issuance of units is
delayed to provide additional time for the Authority to determine
eligibility and calculate annual assistance factors in respect of all
applications for assistance.
Example 5.3: Calculating the number of free Australian
emissions units to issue to particular generation assets
Example 1.1 and Examp le 1.2 outlined the calculation of annual
assistance factors for two hypothetical generation assets. These
generation assets, which we shall call `Generat ion asset A' and
`Generation asset B', had annual assistance factors of 9 409.500 and
1 723.968 respectively.
Other generation assets are likely to be found to be elig ible for
assistance, and to be issued certificates of eligibility for coal-fired
generation assistance containing annual assistance factors. For
example, these annual assistance factors, including those of Generat ion
asset A and Generat ion asset B, might add up to 69 100.000.
In this case, Generat ion asset A and Generation asset B would receive
the following nu mber of free Australian emissions units in each of the
first, second, fourth and fifth years of assistance (provided they comply
with the power system reliability test and that the Minister has not
made a declaration in respect of those generation assets):
· Generation asset A = (9 409.500 ÷ 69 100.000) × 26,140,000
= 3 559 541.3
= 3 599 500 (after rounding)
· Generation asset B = (1 723.968 ÷ 69 100.000) × 26,140,000
= 652 161.63
= 652 200 (after rounding)
In the third year, the nu mber of free Australian emissions units issued
to these generation assets would depend on the number of additional
units issued as a result of review events. In the event that no successful
reviews of annual assistance factors were concluded prior to
1 September 2013, these generation assets would receive the number
of units calculated above in the third year of assistance.
5.54 Ordinarily, a review that changes the annual assistance factor
determined in respect of a generation asset would change the `total annual
assistance factors for that eligible financial year' and so would change the
number of free Australian emissions units that should have been issued in
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respect of all other generation assets with a certificate of eligibility for
coal-fired generation assistance. This situation would create significant
uncertainty for recipients of assistance as it could, for example, involve
the relinquishment of incorrectly issued units to the Authority. To prevent
this circumstance from requiring alterations to all previous issuances of
assistance, the definition of the `total annual assistance factors for that
eligible financial year' includes certificates purportedly issued by the
Authority, that is, it includes annual assistance factors in certificates that
were found to have been issued incorrectly by the Authority through a
review process [Part 9, Division 2, clause 176(2)]. This means that the `total
annual assistance for that eligible financial year' cannot change after
1 September of each financial year and that previous issuances of
assistance to a given generation asset cannot be altered due to a review of
an annual assistance factor determined in respect of a different generation
asset.
5.55 However, a review could require the issuance of additional free
Australian emissions units in respect of the generation asset that was the
subject of the review. In this event, the fact that other allocations are not
adjusted could mean that the number of units issued in a given financial
year could exceed the Government's cap for that year. The Government
has committed to issue 130,700,000 free Australian emissions units over
the first five years, or 26,140,000 Australian emissions units in each of
five years. To achieve this, the number of units to be issued (the
generation assistance limit for that eligible financial year) for the first,
second, fourth and fifth years of the Scheme is set at 26,140,000 [Part 9,
Division 2, clause 176(2)]. However, the generation assistance limit for that
eligible financial year is adjusted in the third year of the Scheme to ensure
that the number of units issued over the first three years of the Scheme
does not exceed 78,420,000 (or three times 26,140,000) when taking into
account the 26,140,000 units issued on each of 1 September 2011 and
1 September 2012, and any additional units that may have been issued as a
result of a review [Part 9, Division 2, clauses 176(2) and 176(4)]. The adjustment
also takes into account units withheld as a result of a generation complex
failing the power system reliability test [Part 9, Division 5, clause 188]. This
adjustment mechanism ensures that the Government's overall cap is not
breached as a result of any reviews of annual assistance factors that are
resolved prior to 1 September 2013. However, the Government's overall
cap could be breached in the unlikely event that a review of a generation
asset's annual assistance factor did not conclude until after 1 September
2013. The adjustment is performed in the third year so that it precedes the
windfall gain review, which affects the issuance of free Australian
emissions units in the fourth and fifth years of the Scheme.
5.56 The Authority's allocation decisions under [Part 9, Division 2,
clause 176] are
not subject to the review processes in Part 24 as they simply
involve the mechanical application of a formula to determine the correct
number of free Australian emissions units to issue in respect of a
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Carbon Pollution Reduction Scheme Bill 2009
particular generation asset, and the correct application of the provisions
that determine the correct recipient of assistance in respect of that
generation asset [Part 9, Division 2, clause 176(6)]. Judicial review is available
if, for example, the incorrect number of units are issued in respect of a
generation asset or units are issued to the wrong recipient.
5.57 The Authority must publish each certificate of eligibility for
coal-fired generation assistance as soon as practicable after it is issued
[Part 9, Division 3, clause 180(6)]. This is important because, as outlined above,
the number of free Australian emissions units issued in respect of a
generation asset, is a function of not only the annual assistance factor
specified in the certificate of eligibility for coal-fired generation assistance
issued in respect of that asset, but also all other annual assistance factors
specified in respect of all other generation assets. Accordingly, the public
disclosure of the issue of all certificates of eligibility for coal-fired
generation assistance, and the annual assistance factors in those
certificates, is important to ensure that all potential recipients of assistance
have access to information that impacts on the allocation of units under
this Part.
5.58 Free Australian emissions units that are issued in respect of a
particular generation asset are issued to the entity that was liable for the
emissions created from the operation of that asset as of the end of the
previous financial year [Part 9, Division 2, clause 176(6)]. To achieve this, it is
assumed that the generation asset was a facility, and that this facility
created sufficient greenhouse gas emissions to meet the Scheme's
threshold for liability. The provisions of the bill that determine liability for
emissions under the Scheme are then applied to identify the person who
would be liable for the emissions from the generation asset given those
assumptions. This person is the recipient of assistance [Part 9, Division 2,
clause 176(6)]. In this way, the recipient of assistance identified under this
clause is one of three possible persons:
· the controlling corporation of a group where one or more
members of the group has operational control of the
generation asset
· the non-group entity with operational control of the
generation asset
or
· the person with a liability transfer certificate in relation to the
facility that includes the generation asset (for example, a
company with financial control of the facility).
5.59 The issue of units under Part 9 is subject to all of the following:
· the person in receipt of those units must make a submission
to the Authority about whether or not the generation asset in
question is likely to receive a `windfall gain' (see below) due
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to the provision of free Australian emissions units before
30 September 2013
· the generation asset must not be the subject to a windfall gain
declaration and a determination by the Minister following the
assessment of whether or not a windfall gain is likely
· the generation asset must comply with the power system
reliability test
[Part 9, Division 2, clause 176(9)]
Windfall gain review
5.60 The issuance of free Australian emissions units in respect of any
given generation asset is subject to the provisions of Part 9, Division 4.
This Division implements the Government's policy that recipients of
coal-fired generation assistance must subject themselves to a review to
minimise the prospect of them receiving a `windfall gain' in respect of a
generation asset. This review applies individually to each generation asset
in respect of which free Australian emissions units are issued under this
Part.
5.61 The introduction of a scheme to reduce pollution caused by
emissions of carbon dioxide and other greenhouse gases would ordinarily
be expected to reduce the value of a generation asset that produces a large
amount of greenhouse gases. However, the introduction of such a scheme
could provide a generation asset with a `windfall gain' where, as part of
the introduction of the Scheme, the Government provides assistance in
respect of that asset and the value of the assistance exceeds the negative
impact of the introduction of the Scheme on the value of the asset.
5.62 However, it is impossible to precisely estimate the impact of the
introduction of the Scheme on the value of a generation asset. This is
particularly the case for projections of the likely impact of the Scheme on
a generation asset into the future, but also applies to estimations of the
impact of the Scheme on a generation asset made after the event as it can
be difficult to know in retrospect what would have occurred had the
Scheme never been introduced. These inherent uncertainties in the
windfall gain review are reflected in the design of the review as set out
below.
Decision-making process of the review
5.63 The decision-making structure of the windfall gain review
reflects the inherent uncertainty of the assessment at hand. The first step
of the process requires the Authority to apply the `windfall gain test' to
each generation asset in respect of which coal-fired generation assistance
is provided [Part 9, Division 4, clause 187]. This test essentially requires the
Authority to make an assessment of whether it is likely that the value of
assistance provided in respect of a given asset under the Part will exceed
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the impact of the Scheme on the value of that asset (see 5.86 for more
detail). The test requires a judgement of a windfall gain being `likely',
because such an assessment will be probabilistic rather than deterministic
in nature. If, the Authority is satisfied that a windfall gain is likely, that is,
the asset in question is assessed to pass the windfall gain test, the
Authority must make a `windfall gain declaration' in respect of that asset
[Part 9, Division 4, clause 186(2)(a)]. Conversely, if the Authority is not
satisfied that the generation asset passes the windfall gain test, the
Authority must not make a windfall gain declaration [Part 9, Division 4,
clause 186(2)(b)].
5.64 The Authority must consult on a draft of any windfall gain
declaration, and consider any submissions received within with the time
limit specified for consultation on this draft [Part 9, Division 4, clauses
186(3)(a)-(b)]. The time limit specified cannot be less than 30 days [Part 9,
Division 4, clause 186(3A)]. The Authority is also required to consult with the
Australian Energy Regulator, Australian Energy Market Commission and
appropriate energy market operators, to ensure that it has accessed
relevant energy market expertise in making its assessments [Part 9, Division
4, clause 186(3)(c)-(da)].
5.65 In deciding whether or not to make a windfall gain declaration,
the Authority may make such estimates and consider such matters as it
considers reasonable and relevant [Part 9, Division 4, clause 186(4)]. The
making of such estimates and consideration of such matters must be
relevant to the decision of the Authority under this section, namely the
Authority's consideration of whether or not a particular generation asset
passes or does not pass the windfall gain test, as provided for by [Part 9,
Division 4, clause 186(2)]. The Authority cannot make estimates and consider
matters not relevant to deciding whether or not the windfall gain test is
passed or not.
5.66 The Authority must provide a copy of a windfall gain
declaration, and a report setting out the Authority's reasons for making the
declaration, to the person who made a submission to the windfall gain
review in respect of that asset at least 14 days before providing the
declaration and report to the Minister, or publishing them [Part 9, Division 4,
clause 186(9)]. Amongst other things, this will give the affected person an
opportunity to request the Authority to remove commercial-in-confidence
information from the report, as provided for by [Part 9, Division 4,
clause 186(8)].
5.67 A decision to make a windfall gain declaration, or to refuse to
make a windfall gain declaration, in respect of a generation asset, is
subject to the review process in Part 24 of the bill. This allows affected
persons to fully argue their position in respect of whether a windfall gain
is likely to occur. The significance of a windfall gain declaration is also
such that the Australian Climate Change Regulatory Authority Bill 2009
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prohibits such a decision from being delegated. [Part 3, Division 4,
clause 35(3)]
5.68 The bill clarifies that a windfall gain declaration is not a
legislative instrument, and is therefore not subject to Parliamentary
disallowance [Part 9, Division 4, clause 186(10)]. This is appropriate as a
windfall gain declaration is an administrative decision applicable to one
entity, rather than a legislative decision of general application. Further, a
windfall gain declaration is subject to both merits review (as noted above)
and judicial review (for example, as provided by the Administrative
Decisions (Judicial Review) Act 1977).
5.69 The second step of the windfall gain review provides the
Minister administering the Act with discretion to make, or not make, a
determination that prevents the issue of free Australian emissions units to
a generation asset that is subject to a windfall gain declaration during the
final two years for which coal-fired generation assistance is available.
However, the Minister cannot make such a determination if a windfall
gain declaration is not in force in respect of this asset [Part 9, Division 4,
clause 183(2)].
5.70 The broad discretion afforded the Minister reflects the need for
judgement as to whether withholding assistance under this clause
undermines the policy objective of providing assistance, or whether the
provision of approximately three-fifths of the available assistance is likely
to have proved effective in supporting that objective and withholding the
remaining portion is a necessary measure to avoid providing the
generation asset in question a windfall gain. As the Ministerial decision is
in effect another form of review of the Authority's finding, which already
has an extensive merits review process, it is inappropriate to subject it to
another review process. Judicial review is available in respect of the
Minister's decision, for example, as provided by the Administrative
Decisions (Judicial Review) Act 1977.
5.71 The bill clarifies that a determination made by the Minister
under this clause is not a legislative instrument, and is therefore not
subject to Parliamentary disallowance [Part 9, Division 4, clause 183(5)]. This
is appropriate as a determination is an administrative decision applicable
to one entity, rather than a legislative decision of general application.
5.72 If a windfall gain declaration is over-turned by a court or
through a review process under Part 24, the Minister must revoke his or
her determination to withhold assistance and the Australian emissions
units that have been withheld must be issued in a timely manner [Part 9,
Division 4, clause 184].
The effect of the review
5.73 The effect of a windfall gain declaration being made in respect
of a generation asset is that no Australian emissions units are issued in
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respect of that asset for the last two of the five years for which assistance
is provided under this Part [Part 9, Division 4, clause 183(1)]. Accordingly,
approximately two-fifths of the free Australian emissions units available
in respect of any given generation asset are provided subject to the
windfall gain review, whilst approximately three-fifths are provided
without scope to be withheld under the review.
5.74 Part 9, Division 4 does not provide for part of the units that are
subject to the windfall gain review to be withheld. The windfall gain
review is not designed to allow a flexible amount of assistance to be
withheld so as to provide the maximum possible number of free
Australian emissions units while avoiding the occurrence of a windfall
gain. Designing the review in this way would not reflect the inherent
uncertainty in the extent of lost value for a given asset, and therefore the
uncertain amount of assistance that would offset this loss whilst avoiding
a windfall gain. Further, the intent of providing coal-fired generation
assistance was not to fully offset losses in asset value, but to partially
offset extreme losses in order to support investor confidence in the sector.
Within this context, the Minister will be able to consider, in respect of
each individual generation asset, whether withholding the full amount of
Australian emissions units that are subject to the review is appropriate
where this will mean that the assistance provided falls significantly short
of the loss of value in respect of that asset.
Information for the purposes of the review
5.75 The person issued units on 1 September 2013 must make a
submission to the Authority about whether or not a windfall gain is likely
[Part 9, Division 4, clause 185]. This is to be in a form approved by the
Authority and containing information and documents specified by the
Authority in a legislative instrument. The Authority is best placed to
determine what information is required to apply the windfall gain test and
so has been delegated the responsibility for setting these out in a
legislative instrument. The Legislative Instruments Act 2003 contains
relevant provisions which govern the making of these instruments,
including the consultation requirements set out in Part 3 of that Act.
5.76 While it will be important for the Authority to take into account
information from recipients of assistance and consider their views on the
likelihood of their generation assets receiving a windfall gain, it is
unlikely that this legislative instrument will need to require submissions to
include the outcomes of a modelling exercise indicating the likelihood of
a windfall gain. Many of the parameters affecting the likelihood of a
windfall gain for a given generation asset will be common to many
generation assets, such as the level of carbon prices or electricity prices.
As outlined below in 5.81, the implementation of the windfall gain test
may be best applied through a common modelling exercise undertaken by
the Authority in respect of all generation assets, rather than through
various separate modelling exercises undertaken by recipients of
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assistance. The latter approach would involve inconsistent assumptions
and methodologies between generation assets, creating issues of fairness
in terms of how the windfall gain test was applied between different
generation assets.
5.77 The Authority will also be able to draw upon information from
other regulatory bodies, such as the Australian Energy Regulator, through
its information sharing provisions.
5.78 Failure to make a submission that complies with the necessary
requirements will result in assistance being withheld [Part 9, Division 4,
clause 185(4)].
The windfall gain test
5.79 As set out above, the windfall gain test essentially requires the
Authority to make an assessment of whether it is likely that the value of
assistance provided in respect of a given generation asset under the Part
will exceed the loss of value experienced by that asset under the Scheme.
5.80 The extent of any loss of asset value experienced under the
Scheme must be assessed through a `with or without analysis', that is, an
analysis that looks at the value of the asset under the Scheme and its value
in the event the Scheme was not implemented. The value of an asset can
be determined by looking at the revenue the asset is likely to earn over the
period in question from generating electricity, and costs the asset is likely
to incur in generating that electricity. The difference between the revenue
earned by an asset and the costs it occurs in operating are described as the
asset's `net revenue' throughout Part 9, Division 4.
5.81 The Authority is likely to perform this analysis through detailed
modelling of the electricity generation sector. Typically this modelling
involves simulating the behaviour of existing and hypothetical new
entrant generators in the wholesale electricity market under various
conditions. These conditions could include different demand scenarios,
different scenarios for the price of various inputs to the generation process
(such as the cost of coal or natural gas, or the capital cost of new
generating equipment) or scenarios based on different projected carbon
prices (including a projection of an absence of any carbon price).
Sensitivity testing of different assumptions, or the use of different models
employing the same assumptions, can be used to analyse the range of
plausible outcomes in the electricity market under different circumstances,
and give indications of the likelihood of different scenarios. Necessarily
such an analysis requires a simplification of the real technical and
commercial constraints on the behaviour of existing and new generators in
the electricity market, and so can only give a broad simulation of the
impact of different scenarios on a given commercial entity.
5.82 The Authority must perform the analysis over a 15 year period
beginning on 1 July 2011 [Part 9, Division 4, clauses 187(4)-(7)]. Accordingly,
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this analysis will encompass both a historical period (that is, the period
from 1 July 2011 until the analysis is performed in 2013 or 2014), and a
future period (that is the period from 2013 or 2014 until 30 June 2025).
The modelling of future periods necessarily involves simulating possible
future outcomes for generators, such as their output, the costs they incur in
operating and the general level of electricity prices they can earn in the
electricity market. By contrast, modelling equivalent outcomes for a
historical period of time could involve simulating hypothetical outcomes
using known parameters, or could involve using observed data in place of
modelling where possible. However, not all data relevant to the windfall
gain test will be available for a given historical period of time. For
example, whilst the actual electricity output of a generator might be
known for a historical period, the costs incurred by the generator in
producing that output may not be. In practice, it is possible that the
Authority will use a combination of observed inputs (such as the observed
level of electricity and carbon prices) and modelling simulations to apply
the windfall gain test to a historical period. Using modelling to simulate
outcomes for generators over a historical period also reduces the risk that
the windfall gains test will provide incentives for generators to alter their
behaviour in that period to alter the outcome of the test.
5.83 To undertake the windfall gain test, the Authority must firstly
determine the value of the projected net revenue from the operation of the
generation asset, or the proposed generation complex, during the 15-year
period beginning on 1 July 2011 [Part 9, Division 4, clauses 187(4)-(7)]. This
analysis requires the Authority to look at the projected net revenue of the
generation asset or proposed generation complex under known policy
settings, such as the fact that the bill has been enacted to implement the
Scheme, and that the Renewable Energy (Electricity) Act 2000 will have
been amended to implement the Government's expanded national
Renewable Energy Target. By contrast, the alternative case requires the
Authority to assume that the bill was never enacted, and that the
Renewable Energy (Electricity) Act 2000 as in force at the start of
3 June 2007 was never amended [Part 9, Division 4, clauses 187(4)-(7)]. In this
way, the windfall gain test is structured to take into account the effect of
both the Scheme and the expanded national Renewable Energy Target on
generation assets. The difference between these two scenarios will
determine whether a generation asset experiences a projected long-term
net revenue loss or a projected long-term net revenue gain. As noted
earlier, given the inherent uncertainties involved in such an analysis, the
Authority's assessments of the extent of a projected long-term net revenue
loss or a projected long-term net revenue gain should be a broad and
probabilistic, rather than involving the calculation of a single, precise
value.
5.84 It is possible that the cost impact of the Scheme on a relatively
less emissions-intensive coal-fired generator could be smaller than the
increase in revenue enjoyed by that generator under the Scheme as its
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competitors face relatively larger increases in costs. This circumstance
would result in an increase in the value of the asset under the Scheme. It is
also possible that the increase in revenue enjoyed by a generator is
approximately the same as the cost impact it faces, and that the asset is
essentially indifferent to the introduction of the Scheme. Under these
circumstances, a generation asset can be considered to experience a
projected long-term net revenue gain as a result of the Scheme, and the
provision of any assistance in respect of this asset can be considered to
constitute a windfall gain. Accordingly, the Authority must firstly
determine whether a generation asset (whether a generation complex or a
generation complex project) is likely to experience a projected long-term
net revenue gain [Part 9, Division 4, clauses 187(6) and 187(7)]. Where an asset
enjoys a `projected long-term net revenue gain' under the Scheme, the
asset is deemed to pass the windfall gain test [Part 9, Division 4,
clause 187(2)(b)].
5.85 Conversely, where the cost impact of the Scheme on a coal-fired
generator is greater than the increase in revenue it enjoys under the
Scheme, that generator faces a `projected long-term net revenue loss'. The
Authority must determine both whether a projected long-term net revenue
loss is likely to occur for a generation asset (whether a generation
complex or a generation complex project), and the extent of that projected
long-term net revenue loss [Part 9, Division 4, clauses 187(4) and 187(5)].
5.86 Where an asset faces a projected long-term net revenue loss
under the Scheme, the outcome of the windfall gain test relies on a
comparison of the extent of this loss with the `total value of assistance'
provided in respect of that asset. The total value of assistance includes the
value of assistance that has not yet been provided but will be provided
subject to the windfall gain review [Part 9, Division 4, clause 187(3)]. If the
total value of assistance exceeds the projected long-term net revenue loss,
the generation asset is deemed to pass the windfall gain test and the
Authority must make a windfall gain declaration in respect of that asset
[Part 9, Division 4, clause 186(2)(a)] . This generation asset is then subject to the
Minister's power to make a determination withholding approximately
two-fifths of the Australian emissions units that could be issued in respect
of that asset. As noted earlier, the effect of such a determination is to
withhold all units that are subject to the review, which reflects the policy
intent that providing coal-fired generation assistance was not to fully
offset losses in asset value. The Government considers that partially
offsetting extreme losses in asset value is sufficient to support investor
confidence in the electricity generation sector.
5.87 The total value of assistance provided in respect of a generation
asset and the extent of a projected long-term net revenue loss or projected
long-term net revenue gain must be calculated in `net present value'
terms. That is, these losses or gains in value might occur at different
points in time, and accordingly have a different impact on a notional
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investor. For example, a cost borne or a benefit received today has a
greater impact on a notional investor than one borne or received in the
future, as the money lost or received could be used for or deprived from
an alternative purpose that provides a stream of benefits over time. To
truly compare the impact of these changes in value on a notional investor,
a net present value analysis `discounts' costs and benefits that occur over
a period of time to their value at the `present' time. This calculation
involves both a `discount rate' and a point in time to use as the present. In
this context, a discount rate is the extent to which a notional investor
prefers to receive a benefit or avoid a cost today rather than in the future,
so it can use the money received or cost avoided to make a new
investment earlier rather than later, and earn a return on that investment
earlier rather than later. To give greater certainty as to how these different
elements of the net present value calculation will be performed, the
Authority must publish a legislative instrument setting this out [Part 9,
Division 4, clause 187(8)].
5.88 Similarly, the Authority must set out how it will determine the
market value and the projected market value of Australian emissions units
[Part 9, Division 4, clause 187(8)], to clarify its calculation of the total value of
assistance and to estimate the impact of the Scheme on the operating costs
of generation assets. For example, the instrument might set out how the
Authority will use data relating to the trading of Australian emissions
units on a public exchange to determine the market value or projected
market value of these units. Finally, the Authority must set out how it will
determine net revenue and projected net revenue for the purposes of
determining whether there is a projected long-term net revenue loss or
projected long-term net revenue gain for an asset. For example, this
instrument might set out what costs will be deducted from the revenue of
a generation asset to determine its net revenue or projected net revenue.
5.89 The Government has decided that the Authority's considerations
in the windfall gain test should incorporate the effect of contracts entered
into prior to 3 June 2007. Such contracts, where they allow a generation
asset to pass a greater portion of its costs under the Scheme onto its
customers than its economic position in the market might otherwise allow,
could increase the likelihood of a generator receiving a windfall gain
through the Electricity Sector Adjustment Scheme. Accordingly, the
legislative instrument will set out how the Authority must take these
contracts into account when setting out how it will calculate the net
revenue or projected net revenue of generation assets [Part 9, Division 4,
clause 187(9)]. The Government expects that this instrument will set out
how the Authority will assess the extent of carbon cost pass through under
particular contracts, and adjust the net revenue and projected net revenue
calculations for generation assets in light of this and other elements of
contracts.
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5.90 However, the extent of the matter is limited to the specific
consideration of individual contracts entered into before 3 June 2007. The
Authority should take into account the general market value of electricity
sold by generators in assessing the net revenue and projected net revenue
of generators under the windfall gain test. This assessment should be
informed by considering prevailing prices for electricity reflected in hedge
contracts or direct supply contracts entered into after 3 June 2007.
However, such contracts have been, and will be, made with full
knowledge of the potential impact of the Scheme on the respective parties
to the contract. The intent is that the Authority does not take into account
the specific terms of individual contracts entered into after 3 June 2007,
but is not prevented from considering the general level of electricity prices
as revealed through activity in markets for hedge contracts or direct
supply contracts. This approach does not give generators an incentive to
enter into disadvantageous or perverse contractual arrangements to distort
the effect of the windfall gain review, whilst allowing the Authority to
generally consider revealed prices in contract markets as a useful input
into its assessments of net revenue and projected net revenue.
5.91 If, in undertaking a windfall gain test, the Authority took into
account the fact that the owner of a generation asset had, for example,
modified the asset to improve its efficiency, or planned to do so, its
calculation of the projected long-term net revenue loss of the asset would
be likely to be lower (reflecting its improved efficiency) and therefore
would be more likely to be less than the total value of assistance provided
in respect of that asset. Therefore, if actual, planned or possible upgrades
to generation assets were taken into account as part of the windfall gain
test, the test itself would discourage efficiency improvements or other
modifications to generation assets that might reduce emissions of
greenhouse gases. This, in turn, would undermine the overall objective of
the Scheme. Therefore, the Authority is required to not take these into
account in undertaking the windfall gain test [Part 9, Division 4,
clauses 187(13) and 187(14)].
5.92 To ensure proper consultation on this legislative instrument, the
Authority is required to publish a draft and invite submissions [Part 9,
Division 4, clause 187(10)]. The Authority is also required to consider
submissions provided within the time limit specified for consultation,
which must not be less than 30 days [Part 9, Division 4, clauses 187(10)(b) and
187(11)]. To give sufficient time for applicants to consider these matters
before making a submission (which must occur by 30 September 2013),
the Authority must take all reasonable steps to ensure that the draft and
final instruments are published before 1 April 2013 and 1 July 2013
respectively [Part 9, Division 4, clause 187(12)].
5.93 The nature of this legislative instrument is that it sets out a
manner in which certain values and parameters must be calculated by the
Authority [Part 9, Division 4, clause 187(8)]. It is not intended that the
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instrument would set out the value that the Authority will use as the
market value or projected market value of Australian emissions units over
the period of the test. Instead, the instrument should set out a manner in
which this value is to be determined. Similarly, the instrument must set
out a manner in which the Authority will calculate the net revenue or
projected net revenue for various generation assets, but cannot set out a
value for the net revenue or projected net revenue of a given generation
asset in the instrument. In relation to net present value calculations, it is
possible that the instrument might set out not only the mathematical
formula the Authority will use to discount a stream of costs and benefits
over time to a net present value, but also the discount rate it will apply
when doing so. This would be appropriate as, for reasons of fairness, the
discount rate applied should be consistent for all generation assets. Given
the consultation requirements in place, this legislative instrument would
appear to be an appropriate method by which the Authority may
determine and set out the discount rate to apply in the windfall gain test in
a transparent and up-front manner.
5.94 In undertaking the windfall gain test, the Authority is required to
assume that all Australian emissions units are issued in respect of each
generation asset [Part 9, Division 4, clause 187(15)]. This is because the
windfall gain test is designed to consider what the impact of the Scheme,
and the assistance provided under this Part, would be if the full amount of
Australian emissions units available in respect of each generation asset
were issued to that asset. The windfall gain test is not designed to consider
what would happen in the event that units are withheld under the windfall
gain review or the power system reliability test (which is set out in Part 9,
Division 5). If this approach were adopted, the windfall gain review
would become circular.
Power system reliability test
5.95 The Government has designed the provision of assistance to
coal-fired generators under this Part in a way that minimises the risk of
giving recipients incentives to change their future production decisions to
increase the amount of assistance they receive. However, in response to
stakeholder views, the Government has decided to impose a limited form
of conditionality on the provision of assistance that may alter the
decisions of some owners, operators or controllers of generation assets in
respect of which assistance is available to withdraw generating capacity
from Australia's electricity markets.
5.96 Part 9, Division 5 requires generation assets to comply with the
`power system reliability test' in order to receive assistance available
under this Part. This creates an incentive for owners, operators or
controllers of generation assets (specifically, those in respect of which
assistance is available) to comply with the power system reliability test,
which in turn reduces the risk of unexpected behaviour impacting on the
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reliability of supply in Australia's electricity markets. An example of such
unexpected behaviour might be where the reduction in asset value of a
generator causes its creditors to force a generator to shut down even
though it is still required to operate to maintain sufficient supply in an
electricity market.
5.97 The power system reliability test does not apply to generation
complex projects [Part 9, Division 5, clause 188]. Although assistance can be
provided in respect of generation complex projects, generation assets that
were found to be eligible for coal-fired generation assistance as a
generation complex project may, as a matter of fact, satisfy the definition
of a generation complex at some point in time prior to the final issue of
free Australian emissions units under this part on 1 September 2015. At
that point in time, the generation asset would satisfy [Part 9, Division 5,
clause 188(1)(b)] and therefore become subject to the power system
reliability test, regardless of the fact that it received assistance on the basis
of eligibility as a generation complex project.
5.98 Free Australian emissions units are not to be issued in respect of
a generation complex where it does not meet the power system reliability
test [Part 9, Division 5, clause 188]. This test must be applied to each
generation complex individually each time Australian emissions units are
issued in respect of that asset [Part 9, Division 2, clauses 176(2) and 176(9)].
5.99 The power system reliability test is structured around concepts
and processes established outside the bill in laws relating to the regulation
of energy markets [Part 9, Division 5, clause 189]. The primary laws (and
instruments made under those laws) that are likely to be applied in the
Authority's assessments of the power system reliability test are:
· in relation to the National Electricity Market, the National
Electricity Rules
· in relation to the Western Australian Wholesale Electricity
Market, the Wholesale Electricity Market Rules.
5.100 These laws require generators to register with the operator of the
energy market in which they operate. Rule 2.2 of the National Electricity
Rules requires the person who engages in the activity of owning,
controlling or operating a generator in the National Electricity Market to
register with the National Electricity Market Management Company
(NEMMCO), unless it is the subject of an exemption. Similar ly,
Regulations 14 and 19 of Western Australia's Electricity Industry
(Wholesale Electricity Market) Regulations 2004 require a person who
engages in the activity of owning, controlling or operating a generator in
the Western Australian Wholesale Electricity Market to register with the
Independent Market Operator of Western Australia, subject to exemptions
and a minimum capacity requirement. Registration as a generator under
these two laws requires compliance with a range of technical and
operational conditions. In turn, compliance with these conditions supports
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the reliable and safe operation of the National Electricity Market and
Western Australian Wholesale Electricity Market, and gives the respective
energy market operators powers necessary to manage system security.
5.101 Accordingly, the power system reliability test supports the
reliable and safe operation of the National Electricity Market and Western
Australian Wholesale Electricity Market by using the value of assistance
available under this Part to create incentives that impact on the decision of
a recipient of assistance to cease its registration as a generator, or reduce
its nameplate rating'. A generation complex's nameplate rating is defined
in the bill as its maximum continuous electrical output in megawatts of the
generation complex, as registered with the appropriate energy market
operator. The National Electricity Rules and the Western Australian
Wholesale Electricity Market Rules require registered generators to
register various parameters relating to the generating capacity of their
various generation units and generation complexes. Of these various
parameters, the Authority will need to determine which registered
parameter most closely fits the definition of the nameplate rating in the
bill, and therefore which parameter must be considered when applying the
power system reliability test. Where a particular parameter is provided in
relation to individual generation units, the various values mights need to
be aggregated to the level of the generation complex in respect of which
assistance is provided for the purpose of the power system reliability test.
5.102 For example, Schedule 3.1 of the National Electricity Rules
requires a person classified as a scheduled generator to register the `full
load' in megawatts for each `generating unit', and the `total station
registered capacity' in megawatts for a `power station' with NEMMCO.
Either of these parameters could be considered by the Authority to be the
nameplate rating of a generation complex (although the full generating
load of a generating unit may need to be aggregated to be consistent with
the boundaries of the generation complex in question). Whilst the
National Electricity Rules separately defines the concept of a `nameplate
rating', this parameter is not registered with NEMMCO under the
National Electricity Rules, and so would not fit the definition of a
nameplate rating under the bill. Clause (b)(ii) of Appendix 1 of the
Western Australian Wholesale Electricity Market Rules requires a
scheduled generator to register its nameplate capacity in megawatts with
the Independent Market Operator of Western Australia. The nameplate
capacity registered in this way could be considered by the Authority to be
the nameplate rating of a generation complex, once appropriately
aggregated.
5.103 The power system reliability test focuses on changes to a
generation complex's nameplate rating because the reliability of a power
system depends, in part, on the maximum continuous electrical output of
all the generators connected to the system being sufficient to supply the
maximum likely demand for electricity within the system, whilst also
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allowing for contingencies such as malfunctions of generators and
technical constraints on the safe operation of the system. Both the
National Electricity Rules and the Western Australian Wholesale
Electricity Market Rules set out various power system reliability
standards.
5.104 A generation complex passes the power system reliability test if
the nameplate rating of that generation complex remains the same as, or
exceeds, the level it was on 3 June 2007 [Part 9, Division 5, clauses 189(2)(a)
and 189(2)(b)]. Under this circumstance, the generation complex in respect
of which assistance is provided under this Part has not reduced its
maximum continuous generation capacity, and so has not reduced its
ability to contribute to satisfying the maximum likely demand for
electricity within the system. Further, the generation complex that is
registered with this capacity is, through the act of remaining registered,
required to comply with technical and operational requirements that
improve the likelihood that it will be physically capable of supplying that
amount of electricity at times of high demand when it is most required.
Therefore, breaches of the power system reliability standards cannot be
reasonably attributed to the actions of generation complexes that comply
with either [Part 9, Division 5, clause 189(2)(a)] or [Part 9, Division 5,
clause 189(2)(b)], but are more likely to be due to insufficient investment in
new generation capacity to satisfy growth in demand for electricity.
5.105 It is possible that the Scheme will change the relative cost of
different generators within a given energy market such that the owner,
operator or controller of a generation complex will seek to retire all or part
of that generation complex from service. A retired generation unit or
generation complex would be unlikely to comply with the range of
conditions required as part of remaining registered. Accordingly, the
owner, operator or controller would be likely to seek to reduce the
nameplate rating of a generation complex, or to cease its registration
entirely, under such a circumstance.
5.106 It is unlikely that a generator would seek to reduce the
nameplate rating of a generation complex, or cease its registration as a
generator, at a time when the supply of generation capacity was low
relative to demand in the system. Such a circumstance would be likely to
correspond with a period of high prices for electricity (in the National
Electricity Market) or for `capacity credits' in the Western Australian
Wholesale Electricity Market, which would reduce the incentive to exit
the market. However, as noted earlier, the power system reliability test is
designed to guard against unexpected behaviour reducing the reliability of
supply in Australia's electricity markets.
5.107 Therefore, the power system reliability test allows a generator to
reduce the nameplate rating of a generation complex where there is
unlikely to be a breach of applicable power system reliability standards
within two years after that event, taking into account the reduction in
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generation capacity from the generation complex in question [Part 9,
Division 5, clause 189(2)(c)]. The power system reliability test also allows a
generator to cease its registration where there is unlikely to be a breach of
applicable power system reliability standards within two years, taking into
account the removal of the generation capacity of the generation complex
in question from the market [Part 9, Division 5, clause 189(2)(d)].
5.108 The technical assessments that underpin this element of the
power system reliability test are best performed by the appropriate energy
market operator, that is, the Australian Energy Market Operator (the
successor of NEMMCO as the energy market operator in relation to the
National Electricity Market) and the Independent Market Operator of
Western Australia in relation to the Western Australian Wholesale
Electricity Market, rather than the Authority. For this reason, the
Authority is required to rely on an appropriate certification by the
appropriate energy market operator, rather than on its own judgement of
the circumstances [Part 9, Division 5, clauses 189(2)(c) and 189(2)(d)] . These
provisions require owners, operators or controllers of generation assets in
respect of which assistance is provided to obtain appropriate
documentation from the Australian Energy Market Operator or the
Independent Market Operator of Western Australia to the satisfaction of
the Authority in the event that they wish to cease their registration as a
generator or reduce the nameplate rating of a generation complex.
5.109 A person who owns, controls or operates a generation complex
may apply to the appropriate energy market operator for a certification to
the effect that a reduction in the generation complex's nameplate rating, or
a cessation of its registration, would pass the power system reliability test
[Part 9, Division 5, clauses 189A and 189B] . The appropriate energy market
operators operating may consider a range of power system reliability
standards that might be affected by a reduction in a generation complex's
nameplate rating, or the cessation of a generator's registration, in
considering whether to provide such a certification. The appropriate
energy market operator may choose not to certify positively or negatively
in response to the application. If, within 120 days after the application, the
appropriate energy market operator has not certified positively or
negatively in response to the application, the Authority must take the
energy market operator to have certified that the reduction or cessation
passes the power system reliability test [Part 9, Division 5, clauses 189A(4) and
189B(4)]. This places an effective time limit on the considerations of the
appropriate energy market operator, giving recipients of assistance
certainty that their applications for certifications in respect of the power
system reliability test will be considered in a timely manner.
5.110 Nothing prevents a person who owns, controls or operates a
generation complex from applying to the appropriate energy market
operator for a certification in writing after a reduction in a generation
complex's nameplate rating has already taken place, or after a cessation of
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its registration has occurred. However, if the certification is not received
before 1 September of a given eligible financial year, that person would
face the risk that Australian emissions units available to be issued in that
year in respect of the generation complex in question might be withheld
under the power system reliability test.
First-year Australian emission units
5.111 Persons who are issued units under Part 9 for the first year of the
Scheme should note the special nature of the Australian emissions units
issued with a vintage year beginning on 1 July 2011. In particular, they
cannot be used for subsequent years of the Scheme. The limited nature of
the carbon market during the first year of the Scheme means that it is
necessary to implement a buy-back arrangement for Australian emissions
units issued for the first year of the Scheme [Part 4, Division 2, clause 103B].
The facility will be open o requests from 15 July 2011 until 1 December
2012, and allows persons to receive $10 for each unit they wish to sell
back to the Authority, discounted by a factor specified in the regulations.
The factor used to discount the buy-back amount will broadly reflect the
present value of the units at the time they are sold back. If a person makes
a request, the Authority must cancel the unit on a day specified in the
regulations and, as soon as practicable after that day, pay the relevant
amount to the person.
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Chapter 6
Reforestation
Outline of chapter
6.1 This Chapter describes the rules in Part 10 of the bill for issuing
free Australian emissions units for eligible reforestation projects. The
Chapter also sets out the circumstances in which emissions units must be
relinquished and the rules for maintaining forests if units are not
relinquished.
Context
6.2 Forests sequester carbon dioxide as they grow. Issuing free
units, in addition to the Scheme cap, for net increases in greenhouse gas
removals creates an incentive for reforestation. It will also allow the
Scheme cap to be achieved at lower cost than would otherwise be
possible.
Summary of reforestation scheme
6.3 A recognised reforestation entity may apply to the Authority for
the issue of a certificate of reforestation that entitles the entity to receive
free units for net increases in greenhouse gas removals from an eligible
reforestation project [Part 10, Division 3, clause 192]. Provided all relevant
requirements under the reforestation scheme in Part 10 have been met,
such a certificate will be issued to the entity.
6.4 A certificate of reforestation is issued, broadly, on the basis that
the entity is the holder of the `carbon sequestration right' in relation to an
eligible reforestation project that meets scheme requirements and has
reported a net increase in greenhouse gas removals resulting from the
project.
6.5 The Authority will issue a notice of relinquishment if units have
been issued in excess of the unit limit for the project or if the recognised
reforestation entity, in effect, withdraws the project from the scheme
[Part 10, Division 10, clauses 232, 233].
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6.6 If the requisite number of units is not relinquished by the
recognised reforestation entity, generally, the land on which the
reforestation project was carried out will become subject to a forest
maintenance obligation. This obligation is to manage and maintain the
forest such that the amount of net greenhouse gas removals when the
forest is mature is equivalent to the total number of units that have been
issued in respect of the reforestation project less any units that have been
relinquished [Part 10, Division 10, clause 226].
6.7 The following diagram provides a broad outline of the various
requirements and processes involved in the reforestation scheme under
Part 10. Part 10 also includes a simplified outline [Part 10, Division 1,
clause 190].
Becoming a Scheme
Recognised reforestation entity (Division 4)
participant
(Divisions 4 and 14)
Eligible reforestation project (Division 5) Reforestation unit
(Divisions 5, 12 and13) limit (Division 6)
(Divisions 6 and 15)
Adjust reforestation
Obtaining Australian
Reporting (Divisions 7, 8 and 11) unit limit
(Division 6) unit
emission units
limit
(Division 6)
Certificate of reforestation (Division 3) Free Australian
emission units
(Division 2)
Variation and revocation (Division 5)
Relinquishment obligations and
enforcement
Relinquishment (Division 10)
Forest maintenance obligation (Division 9)
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Detailed explanation of reforestation scheme
Becoming a scheme participant
Recognised reforestation entities
6.8 A person must be a `recognised reforestation entity' to
participate in the reforestation scheme under Part 10 of the bill.
Application process
6.9 A person (whether an individual, a body corporate or a body
politic such as a State or a Territory) may apply to the Authority to
become a recognised reforestation entity [Part 10, Division 4, clause 198].
6.10 The regulations will specify any information or documents that
will be required to accompany an application [Part 10, Division 4, clause 199].
6.11 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
enable a decision to be made on an application. Where that information is
not provided within the time frame specified in the notice the Authority
may refuse to consider or take any further action in relation to the
application [Part 10, Division 4, clause 200].
6.12 The regulations may specify an application fee [Part 10, Division 4,
clause 199].
The purpose of the fee is to enable the Authority to recover
costs associated with processing the application. An application fee is
considered appropriate given that participation in the reforestation scheme
under Part 10 will be voluntary, open to any entity, and will deliver
financial benefits. Moreover, the Authority will incur costs in the process
of determining whether the person is a `fit and proper person'.
6.13 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days of the making of the
application or, where relevant, the receipt of further information. If the
Authority refuses the application, the applicant must be given written
notice of this [Part 10, Division 4, clause 201].
Criteria for recognition
6.14 The Authority may recognise the applicant as a reforestation
entity if satisfied that, among other things, the applicant is a fit and proper
person. In making this assessment the Authority must have regard to
matters that include any convictions the applicant has under a law of the
Commonwealth, a State or a Territory relating to dishonest conduct,
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breaches by the applicant of the Scheme legislation or the associated
provisions and any other matters the Authority considers relevant. The
Authority must also have regard to any orders made by the Australian
Competition and Consumer Commission under section 76 of the Trade
Practices Act 1974 in relation to business dealings by the applicant. In
addition, the Authority must be satisfied that the applicant, where an
individual, is not an insolvent under administration or, where a body
corporate, is not under external administration [Part 10, Division 4, clause 201].
6.15 The regulations may specify additional criteria, such as a
requirement that the applicant has some other type of approval or licence
under a Commonwealth, State or Territory law that is relevant to
reforestation.
6.16 The application of a fit and proper person test seeks to minimise
the risk of any fraudulent, deceptive or unfair conduct by entities involved
in the reforestation scheme.
6.17 The Authority will have the power to cancel a person's
recognition as a reforestation entity where the Authority is no longer
satisfied that the person remains a fit and proper person, assessed against
the same criteria as for recognition, or no longer meets one or more other
requirements [Part 10, Division 4, clause 202].
6.18 A person may surrender their recognition as a reforestation
entity by written notice to the Authority [Part 10, Division 4, clause 203].
6.19 If an entity is a recognised reforestation entity, the entity's
recognition is not transferable [Part 10, Division 4, clause 204].
Eligible reforestation projects
6.20 Under the reforestation scheme in Part 10, free units can only be
obtained in respect of a reforestation project that has been declared by the
Authority, under clause 209, to be an `eligible reforestation project'. A
declaration that a proposed project is an eligible reforestation project can
only be made if the proposed project meets the requirements of the
scheme. A declaration made under clause 209 must identify the `project
area' or areas involved in the project -- that is, the area or areas of land
on which the project will be carried out -- and any other project attributes
as may be specified in the regulations [Part 10, Division 5, clause 209].
6.21 The bill clarifies that a declaration of an eligible reforestation
project is not a legislative instrument [Part 10, Division 5, clause 209(5)]. This
provision is simply to assist readers, as the instrument is not a legislative
instrument within the meaning of section 5 of the Legislative Instruments
Act 2003, and therefore the procedures in that Act, including for example
disallowance, do not apply.
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Application process
6.22 A person may apply to the Authority to have a reforestation
project declared to be an eligible reforestation project [Part 10, Division 5,
clause 205].
6.23 The regulations will specify any information and documents that
must accompany an application [Part 10, Division 5, clause 206].
6.24 The regulations may specify an application fee [Part 10, Division 5,
clause 206].
The purpose of the fee is to enable the Authority to recover
costs associated with processing the application.
6.25 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. Where that information is not provided
within the time frame stated in the notice the Authority may refuse to
consider or take any further action in relation to the application [Part 10,
Division 5, clause 207].
6.26 An application can be withdrawn at any time before the
Authority has made a decision on the application [Part 10, Division 5,
clause 208]. This might occur where, after an application has been made, it
is considered that changes should be made to the proposed project to
ensure Scheme eligibility requirements will be satisfied.
6.27 If an application is withdrawn, the Authority is required to
refund any application fee that has been paid [Part 10, Division 5, clause 208].
6.28 The withdrawal of an application does not prevent the applicant
from making a fresh application in relation to the same or a similar project
[Part 10, Division 5, clause 208].
6.29 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days. If a declaration is
made, the Authority must give the applicant a copy of it. If the Authority
decides to refuse to make the declaration sought, the applicant must be
notified of this in writing [Part 10, Division 5, clause 209].
Criteria for declaration
6.30 An application for a declaration of an eligible reforestation
project must relate to a `reforestation project'. The term `reforestation
project' is defined to mean a project for the establishment,
management -- including harvest -- and maintenance of one or more
`forest stands' or the management and maintenance of one or more
existing forest stands [Part 1, clause 5, definition of `forest stand'].
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Carbon Pollution Reduction Scheme Bill 2009
6.31 The definition of `forest stand' in clause 5 of the bill
incorporates the various elements of Australia's definition of a forest for
reforestation and afforestation purposes under the Kyoto Protocol. A
`forest stand' is a stand of forest that:
· has been established by direct human induced methods (as
defined in the regulations)
· has trees with a potential height of at least two metres
· has trees with a potential crown cover of at least 20 per cent
of the area occupied by the stand
· occupies an area of land of 0.2 hectares or more
· is on land that, as at 31 December 1989, was clear of trees
with a potential height of at least two metres and a potential
crown cover of at least 20 per cent
· meets any other requirements specified in regulations.
6.32 It is envisaged that the regulations will specify requirements for
the purpose of estimating and reporting net greenhouse gas removals,
including that the trees comprising a forest stand be established at the
same time within a single encompassing boundary (and excluding all non
forest stand areas) and are of the same (set of) species (for example, a
mixed species planting or a single species plantation) and are subject to
the same management regime.
6.33 The Authority may declare that a reforestation project is an
`eligible reforestation project' provided that certain requirements are met:
· the applicant must be a recognised reforestation entity
· the applicant must hold the `carbon sequestration right' in
relation to the project (in essence, the exclusive legal right to
obtain the benefit of carbon sequestration by the forest stand
or stands involved in the reforestation project)
· the `project area' or areas (i.e. the land on which the project
is to be carried out) must be freehold Torrens system land, or
Crown land (whether or not Torrens system land)
· the project area or areas cannot be general law land (i.e. land
that is neither freehold nor Crown land), or land that is
excluded by the regulations
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Chapter 6: Reforestation
· if the project is to be carried out on State or Territory Crown
land (and the applicant for the declaration is not the Crown),
the State or Territory must have certified that the applicant
holds the `carbon sequestration right' in relation to the
project, and that the land in question will not be dealt with in
a way that would defeat or otherwise be inconsistent with
that right
· the project must satisfy any other eligibility requirements
specified in the regulations
· the holders of certain kinds of interests in the land on which
the project is to be carried out must have consented to the
making of the application for the declaration of the
reforestation project [Part 10, Division 5, clause 209].
6.34 The consent of certain other interest holders is a precondition to
the declaration of a project as an eligible reforestation project because, in
some limited circumstances, an area of land involved in a project can
become subject to the forest maintenance obligation (explained in
paragraphs 135 -- 140 below). Depending on the circumstances, that
obligation may have to be satisfied by a person other than the applicant
for the declaration of a project as an `eligible reforestation project'.
Therefore, it is important to ensure that any person who might become
responsible for satisfying the forest maintenance obligation, or whose
interest in the land might be affected by that obligation, has agreed to the
land being brought into the reforestation scheme.
6.35 It is envisaged that the form of consent will include information
to inform interest holders of potential obligations under the reforestation
scheme in Part 10.
6.36 The need to obtain the consent of other relevant interest holders
creates an opportunity for negotiation between the person who would
obtain a direct benefit under the scheme (i.e. the applicant for the
declaration) and those other interest holders.
Example 1.1: Consent of farmer
A farmer has the freehold in an area of land. Five years ago he granted
a lease over the land for a certain price.
The lessee wants to bring a reforestation project on the leased land into
the reforestation scheme (by having it declared to be an `eligib le
reforestation project'). She needs to obtain the farmer's consent to do
this.
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Carbon Pollution Reduction Scheme Bill 2009
As the farmer could potentially beco me subject to the forest
maintenance obligation, he might refuse to consent to this.
Alternatively, the farmer might give consent in return for a fixed sum,
or a proportion of any units that might be issued under the scheme in
respect of the reforestation project.
6.37 The Government aims to move amendments which would allow
projects over multiple land titles.
6.38 The amendments would also aim to enable projects to be
declared on land granted under Commonwealth, State or Territory land
rights legislation (or held for the benefit of Aboriginal peoples or Torres
Strait Islanders under Commonwealth, State or Territory legislation), and
land subject to native title rights.
When a declaration takes effect
6.39 A declaration made under clause 209 takes effect either
immediately after it is made or, with the applicant's consent, on an earlier
date specified in the declaration. The declaration cannot take effect before
1 July 2010, and cannot be backdated more than 5 years prior to the day
on which the application was made [Part 10, Division 5, clause 209].
6.40 Australian emissions units can be issued for net greenhouse gas
removals from the date that the eligible project declaration takes effect.
Allowing a declaration to be backdated gives small forest growers time to
assess the merits of scheme participation following forest establishment.
Forestry right
6.41 Clause 241 defines the term `forestry right', for the purposes of
the bill. In order to be the holder of the `forestry right' in relation to a
reforestation project, a person must have a legal estate or interest in the
area of land on which the project is (or is to be) carried out which gives
the person the exclusive legal right to establish, maintain and manage --
including harvest -- a forest on that area of land [Part 10, Division 14,
clause 241].
6.42 Under the bill, only a proprietary estate or interest in land can
result in the holder having a `forestry right' -- a personal right, such as a
licence or a mere contractual right, is not enough. It should be noted,
however, that some State legislation deems certain forestry-related rights
to be estates or interests in land, and rights that are subject to such
legislation can be `forestry rights', for the purposes of the bill.
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Chapter 6: Reforestation
6.43 Various kinds of estates or interests in an area of land may give
a person the `forestry right' in relation to a reforestation project carried
out on that area. For example:
· in relation to an area of Torrens system freehold land, the
person who holds the estate in fee simple will have the
forestry right unless he or she has granted to another person
an interest in the land (such as, for example, a lease) which
gives them that right;
· a lease over an area of Torrens system freehold land under
which the lessee has exclusive possession of the area will
generally give the lessee the forestry right (unless the lessee
has granted it to someone else -- for example, a sublessee);
· where a reforestation project is carried out on Crown land in
a State or Territory, the State or Territory itself will hold the
forestry right in relation to the project, unless that right has
been granted to someone else (for example, under a lease).
6.44 In a case where the land on which a person carries out a
reforestation project is Torrens system land, the person's estate or interest
in the land will only be a `forestry right' if it is registered on the certificate
of title.
6.45 It is important to realise that the reforestation scheme in Part 10
does not itself create forestry rights (or any other kind of rights) in relation
to land. Rather, the legislation simply sets out the characteristics that a
right held by a person must have in order to be a `forestry right', for the
purposes of the reforestation scheme.
Carbon sequestration right
6.46 The concept of a `carbon sequestration right' is central to the
operation of the reforestation scheme in Part 10 of the bill. This is
because, under that Part, the only person who can obtain free units in
respect of an eligible reforestation project is the person who holds a right
that comes within the definition of `carbon sequestration right'.
6.47 It should be noted that, as with forestry rights, the legislation
will not itself create carbon sequestration rights. Rather, the scheme will
enable a recognised reforestation entity to obtain free units in respect of an
eligible reforestation project if the entity already has the carbon
sequestration right in relation to the project. In other words, being the
holder of the carbon sequestration right is a prerequisite to a recognised
entity's participation in the reforestation scheme.
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Carbon Pollution Reduction Scheme Bill 2009
6.48 A person will only hold the carbon sequestration right in relation
to an eligible reforestation project if the person holds a particular kind of
right in relation to the area or areas of land on which the project is (or is to
be) carried out. The definition in clause 240 sets out the characteristics a
right must have in order to be a `carbon sequestration right', for the
purposes of the bill [Part 10, Division 14, clause 240].
6.49 In essence, a carbon sequestration right is the exclusive legal
right to obtain the benefit of sequestration of carbon dioxide by trees to
which an eligible reforestation project relates. As with a forestry right,
various kinds of estates or interests in land on which eligible reforestation
projects may be carried out can give the holder of the estate or interest the
exclusive legal right to obtain that benefit. For example:
· in relation to an area of Torrens system freehold land, the
holder of the estate in fee simple will have the carbon
sequestration right unless he or she has granted to another
person an interest in the land (such as, for example, a lease)
which gives them that right
· a lease over an area of Torrens system freehold land under
which the lessee has exclusive possession of the area will
generally give the lessee that right.
6.50 It is likely that, in many cases, the person who holds the forestry
right in relation to an eligible reforestation project will also be the holder
of the carbon sequestration right. For example, a person who is to carry
out an eligible reforestation project on an area of land might do so under a
lease which gives the person the right to establish, maintain and manage a
forest on that land -- that is, the `forestry right' in relation to the project.
Unless the lessee has granted to another person the exclusive legal right to
obtain the benefit of carbon sequestration by trees involved in the project,
the lessee will be the holder of the `carbon sequestration right'.
6.51 However, the definition of `carbon sequestration right' also
allows for the possibility that that the two rights might be separated and
held by different persons. The diagram below (adapted from a diagram
provided by Landgate, Government of Western Australia) illustrates a
range of property rights that can exist with respect to an area of land.
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Chapter 6: Reforestation
6.52 There are, however, certain requirements that must be satisfied
in a case where the holder of the carbon sequestration right does not also
hold the forestry right. First, if the right relates to an area of Torrens
system freehold land, the right must be registered on the certificate of title.
The right must also be one that runs with the land -- that is, it must be
such that successors in title to estates or interests in the land will take
those estates or interests subject to that right. If a carbon sequestration
right itself arises from an estate or interest in the land in question -- for
example, a registered lease -- then, by virtue of the State or Territory
Torrens system legislation, it will run with the land. But, in certain cases,
such a right may run with the land even if it is not an estate or interest in
the land. This will be so in a case where State or Territory carbon property
rights legislation deems the right to be such an estate or interest in land, or
otherwise has the effect that such a right runs with the land.
6.53 It should be noted that, while Part 10 of the bill will allow for
eligible reforestation projects to be carried out on Torrens system land and
Crown land (whether Torrens system land or not), the reforestation
scheme will not apply so as to allow a person to obtain free units in
respect of projects carried out on general law land, i.e. land that is neither
Torrens system land nor Crown land. (State and Territory legislation
provides for the conversion of general law land to Torrens title land.)
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Carbon Pollution Reduction Scheme Bill 2009
Reforestation unit limit
6.54 As soon as practicable after declaring a project to be an eligible
reforestation project, the Authority will issue to the carbon sequestration
right holder a notice specifying the reforestation unit limit for the project
[Part 10, Division 6, clause 220].
6.55 The unit limit represents the maximum total number of units that
can be issued, over time, in respect of an eligible reforestation project.
6.56 The unit limit will be based, in part, on calculations that may be
undertaken by a computer program of net greenhouse gas removals
resulting from the individual forest stands within the project. It is intended
that, in accordance with the regulations, this calculation will be based on
an average of cumulative net greenhouse gas removals over the time
period specified in regulations. These regulations may be amended from
time to time, following a period of notice, to reflect changes in the
accounting rules and the estimation methodology.
6.57 To enable the calculation of the unit limit, the carbon
sequestration right holder will be required to provide information on:
· forest management actions, intended and actual (e.g. forest
establishment date, species planted and any harvesting
events).
· natural disturbances such as fire and wind-throw (if and
when they occur).
6.58 The calculation of the unit limit will also take into account the
2008 carbon stock baseline for the project and any sale of abatement from
the reforestation project to schemes or projects outside of the Carbon
Pollution Reduction Scheme.
6.59 The unit limit for an eligible reforestation project can be
increased [Part 10, Division 6, clause 221] or decreased [Part 10, Division 6,
clause 222] to reflect changes in circumstances resulting in an increase or
decrease in net greenhouse gas removals arising from the project.
6.60 The bill clarifies that neither a declaration of a reforestation unit
limit, nor a notice of an increase or decrease in that limit, is a legislative
instrument [Part 10, Division 5, clauses 220(5), 221(5), 222(5)]. These provisions
are simply to assist readers, as the instruments are not legislative
instruments within the meaning of section 5 of the Legislative Instruments
Act 2003, and therefore the procedures in that Act, including for example
disallowance, do not apply.
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Chapter 6: Reforestation
6.61 The Authority will notify the carbon sequestration right holder
where there are any changes to the unit limit [Part 10, Division 6,
clause 221, 222].
Decision by a computer program
6.62 The Authority will have the capacity to make use of a computer
program for the purpose of working out the reforestation unit limit [Part 10,
Division 6, clause 220].
6.63 It is envisaged that the computer program used for this purpose
will incorporate an updated version of the National Carbon Accounting
Toolbox.
6.64 The National Carbon Accounting Toolbox is a project level tool
for estimating greenhouse gas emissions and removals from forest
activities.
Obtaining Australian e missions units
Reforestation reports
6.65 The recognised reforestation entity who is also the carbon
sequestration right holder in respect of an eligible reforestation project
must submit a reforestation report to the Authority in the manner and form
specified by regulations [Part 10, Division 8, clause 225].
6.66 The regulations may specify the data that will be required in
reports, for example, information on forest establishment date, forest
species, harvesting and thinning schedules (if any) and natural disturbance
events (if any). The information may relate to a matter arising before,
during or after the reporting period.
6.67 The regulations will specify that reforestation reports need to
include information on all forest stands included in the reforestation
project.
6.68 Making of false and misleading statements in a reforestation
report may be an offence under the Criminal Code.
Reforestation reporting periods
6.69 The person who holds the carbon sequestration right in relation
to an eligible reforestation project must submit the first reforestation
report in respect of the project within 5 years but not earlier than
12 months after the project was declared to be eligible [Part 10, Division 7,
clause 223].
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6.70 Subsequent reforestation reports must be submitted within
5 years but not earlier than 12 months after the previous report was
submitted [Part 10, Division 7, clause 224].
6.71 A reporting period for a project does not need to be nominated
in advance. A reporting period is, in effect, nominated when a report is
submitted [Part 10, Division 7, clauses 223, 224].
Issue of Australian emissions units
6.72 The Authority will issue to the holder of a certificate of
reforestation the number of free Australian emissions units specified in the
certificate. Units will be issued as soon as practicable after the certificate
has been issued.
6.73 The financial year in which the units are issued will be the
vintage year of the units other than the eligible financial year beginning on
1 July 2011. Australian emissions unit issued to the holder of a certificate
of reforestation during the financial year beginning on 1 July 2011 are to
have a vintage year beginning on 1 July 2012. No units will be issued in
the first year of the Scheme because a reforestation report can only be
submitted 12 months after the initial declaration. [Part 10, Division 2,
clause 191]. The reason for issuing vintages beginning on 1 July 2012 for
sequestration that occurred in 2010-11 is that 2011-12 vintage units will
be issued for a fixed charge of $10 which is expected to be lower than the
prices of later vintages. Further 2011-12 vintage units cannot be banked
for use in future years.
6.74 Units can only be issued if the entity has a Registry account
[Part 10, Division 2, clause 191].
Certificate of reforestation
6.75 A certificate of reforestation specifies the number of free
Australian emissions units that will be issued to the certificate holder.
6.76 Under the reforestation scheme, only recognised reforestation
entities will be eligible to apply for a certificate of reforestation [Part 10,
Division 3, clause 195].
6.77 A certificate of reforestation is not transferable [Part 10, Division 3,
clause 197].
Application process
6.78 An application for a certificate of reforestation can be made if
the entity has submitted a reforestation report to the Authority -- that is, a
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report relating to an eligible reforestation project [Part 10, Division 3,
clause 192].
6.79 An application must be in a form approved by the Authority
[Part 10, Division 3, clause 193].
6.80 An application may be set out in the same document as the
reforestation report [Part 10, Division 3, clause 192].
6.81 It is anticipated that all Scheme documents will be available, and
able to be completed and submitted electronically, via the internet.
6.82 The Authority may by written notice require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. Where that information is not provided
within the time frame specified in the notice, the Authority may refuse to
consider or take any further action in relation to the application [Part 10,
Division 4, clause 194].
6.83 The Authority must take all reasonable steps to ensure that a
decision is made on the application within 90 days of being given the
application or, where relevant, further information. If the Authority
refuses to issue a certificate, written notice of this must be given to the
applicant [Part 10, Division 4, clause 195].
Criteria for issuance
6.84 Following submission of a reforestation report, the Authority
must issue the certificate if the following conditions are met:
· the Authority is satisfied that the applicant is a recognised
reforestation entity and has the `carbon sequestration right' in
relation to the eligible reforestation project
· the applicant is not subject to a requirement under Part 10 to
relinquish units issued in relation to a reforestation project
· the applicant is not subject to an outstanding requirement to
pay an administrative penalty in relation to a reforestation
project
· over the period covered by the report, the reforestation
project has resulted in a net increase in greenhouse gas
removals of at least one tonne
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Carbon Pollution Reduction Scheme Bill 2009
· the total net total number of tonnes of greenhouse gases
removed by the project are greater than the net total number
of units issued in respect of the project
· units have not yet been issued up to the unit limit for the
project
· the Authority is satisfied that, if the regulations specify any
additional eligibility requirements, those requirements have
been met.
[Part 10, Division 3, clause 195]
6.85 Regulations will specify the way in which the `net total number
of tonnes of greenhouse gases removed' as a result of a reforestation
project is to be worked out, which will involve the application of a
formula. Clause 195(8) authorises the making of regulations providing for
a number that is a component of such a formula to be worked out using a
computer program. It is intended that the Authority will use the National
Carbon Accounting Toolbox for this purpose.
6.86 The net total number of units issued in respect of the
reforestation project is calculated by subtracting from the total number of
units that have been issued for the project less the total number of units
that have already been relinquished in relation to the project [Part 10,
Division 15, clause 242].
Unit entitlement
6.87 The unit entitlement for a reforestation reporting period to be
specified in a certificate of reforestation will be the lesser of [Part 10,
Division 3, clause 196]:
· the net total number of tonnes of greenhouse gases removed
by the forest stand or stands in the project less the net total
number of units issued in relation to the project; or
· the reforestation unit limit less the net total number of units
issued in relation to the project.
6.88 The intention is that the calculation of the unit entitlement will
be undertaken using information provided by the carbon sequestration
right holder on:
· forest management actions (e.g. forest establishment date,
species planted and any harvesting events)
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· natural disturbances such as fire and wind-throw.
6.89 Scheme units will only be issued as net greenhouse gas removals
occur, not in advance.
Decision by a computer program
6.90 The Authority will have the capacity to make use of a computer
program for the purpose of working out the unit entitlement to be
specified in a certificate of reforestation [Part 10, Division 3, clauses 195, 196].
6.91 It is envisaged that the computer program used for this purpose
will incorporate an updated version of the National Carbon Accounting
Toolbox.
6.92 The National Carbon Accounting Toolbox is a project level tool
for estimating greenhouse gas emissions and removals from forest
activities.
Variation and revocation of an eligible reforestation project
Voluntary variation
6.93 A carbon sequestration right holder in relation to an eligible
reforestation project can apply to vary the boundaries of the area or areas
of land involved in the project [Part 10, Division 5, clause 210]. If accepted,
such a variation would be effected by means of the variation of the
declaration of the project as an eligible reforestation project.
6.94 It is intended that an application for a variation could be made at
the same time as a reforestation report on the project is submitted.
6.95 An application must be in the approved form and must be
accompanied by the information and documents (if any) specified in the
regulations [Part 10, Division 5, clause 210].
6.96 The regulations may specify an application fee. The purpose of
the fee is to enable the Authority to recover costs associated with
processing the application.
6.97 The criteria on which the Authority is to decide an application
for variation of a project (set out in clause 212) are the same as those that
apply where the Authority is considering whether to declare a
reforestation project to be an `eligible reforestation project' (see clause
209). The Authority cannot make the variation requested by the carbon
sequestration right holder unless satisfied that the project (as varied) will
meet those criteria [Part 10, Division 5, clause 212].
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6.98 An application for variation of a project can be withdrawn at any
time before the Authority has made a decision on the application [Part 10,
Division 5, clause 211].
6.99 If an application is withdrawn, the Authority is required to
refund any application fee paid by the applicant [Part 10, Division 5,
clause 211].
6.100 Withdrawal of an application does not prevent the applicant
from making a fresh application for variation of the project boundaries
[Part 10, Division 5, clause 211].
6.101 The Authority must take all reasonable steps to ensure that a
decision is made on an application for variation within 90 days of the
application or, if the applicant was required to provide further information
in connection with the application, receipt of that information.
6.102 A variation takes effect immediately after it is made. The
Authority must give a copy of the variation to the applicant as soon as
practicable after it is made.
6.103 If the Authority decides to refuse to make the requested
variation, the applicant must be given written notice of this [Part 10,
Division 5, clause 212].
Unilateral variation
Clearing of part of a forest
6.104 In certain circumstances, the Authority will be required to vary
the declaration of a project as an eligible reforestation project. Under
clause 213, such a variation must be made if a part of the project area (or a
project area) involved in the project has remained clear of an area of forest
for a continuous period of 5 years [Part 10, Division 5, clause 213].
6.105 In these circumstances, the Authority must, in writing, vary the
declaration so as to exclude the area of land that has remained clear of a
forest stand [Part 10, Division 5, clause 213].
· This will reduce the scope for `gaming' in relation to the unit
limit for a project by means of the inclusion in the project of
areas of land on which it is not in fact intended that a forest
will be established.
Eligibility criteria not met
6.106 The Authority may unilaterally vary the declaration of a project
as an eligible reforestation project if a part of the project area (or a project
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area) involved in the project ceases to meet one or more of the eligibility
criteria relating to eligible reforestation projects [Part 10, Division 5,
clause 214].
· This could occur, for example, if it were determined that the
vegetation established for the purposes of a reforestation
project is comprised of species that do not have the potential
to reach a height of at least 2 metres.
6.107 Before varying a declaration on this basis, the Authority must
inform the carbon sequestration right holder of the proposed variation, and
invite that person to make a submission about the proposal. If such a
submission is made, the Authority must consider this in deciding whether
to vary the declaration.
6.108 The carbon sequestration right holder in relation to a project will
be notified as soon as practicable of any unilateral variation of the project
made by the Authority [Part 10, Division 5, clauses 213, 214].
Voluntary revocation
6.109 The person who holds the carbon sequestration right in relation
to a reforestation project may apply to the Authority for the revocation of
the declaration that declares the project to be an eligible reforestation
project.
6.110 In effect, this provision allows a carbon sequestration right
holder to `opt out' of the reforestation scheme.
6.111 If an applicant for such a revocation has relinquished the net
total number of units (if any) that have been issued in relation to the
project, the Authority must revoke the declaration [Part 10, Division 5,
clause 215, 216].
6.112 An application must be in the approved form [Part 10, Division 5,
clause 215, 216].
6.113 As soon as practicable after revoking the declaration, the
Authority will given the carbon sequestration right holder in relation to
the project a copy of the revocation [Part 10, Division 5, clause 215, 216].
Unilateral revocation
Forest cleared
6.114 If the whole of the project area (or areas) involved in a project
has remained clear of an area of forest for a continuous period of at least
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5 years, the Authority must revoke the declaration of the project as an
eligible reforestation project [Part 10, Division 5, clause 217].
· This could occur because, for example, the reforestation
project was not undertaken, or the forests involved in the
project are cleared and not re-established. If units have been
issued in respect of the project, a relinquishment notice
would be issued following such a revocation.
Eligibility criteria not met
6.115 The Authority may unilaterally revoke the declaration of a
project as an eligible reforestation project if satisfied that the project does
not satisfy one or more reforestation scheme eligibility requirements
[Part 10, Division 5, clause 218].
· This could occur where, for example, the forest involved in
the project was harvested and subsequent re-establishment
used a species that did not have the potential to reach a height
of at least 2 metres, or establishment was not properly carried
out and, as a result, the vegetation did not have the potential
to attain a crown cover of at least 20 percent.
6.116 Before revoking a declaration on this basis, the Authority must
inform the carbon sequestration right holder of the proposed revocation,
and invite that person to make a submission about the proposal. If such a
submission is made, the Authority must consider this in deciding whether
to revoke the declaration.
Transfer of carbon sequestration right
6.117 The Authority must revoke the declaration of a project as an
eligible reforestation project where the person who held the carbon
sequestration right in relation to the project ceases to hold that right, and,
within 90 days of that occurrence, there was no `relinquishment obligation
transfer agreement' in force [Part 10, Division 5, clause 219].
6.118 A person may cease to hold a carbon sequestration right for a
number of reasons, for example:
· The carbon sequestration right has been sold to another
person.
· The carbon sequestration right resulted from the person
holding an interest in the relevant area of land -- for
example, a lease -- for a fixed period of time, and that period
has expired.
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· The carbon sequestration right has passed to a beneficiary
under a will.
6.119 If units have been issued in relation to an eligible reforestation
project and the person who held the carbon sequestration right in relation
to the project ceases to hold that right, the person must, within 90 days
after the cessation occurs, notify the Authority [Part 10, Division 11,
clause 235].
6.120 The bill clarifies that the instruments which vary and revoke a
declaration of an eligible reforestation project are not legislative
instruments [Part 10, Division 5, clauses 212(1), 213(5), 214(7), 215(5), 216(5),
217(4), 218(6), 219(4)]. These provisions are simply to assist readers, as the
instruments are not legislative instruments within the meaning of section 5
of the Legislative Instruments Act 2003, and therefore the procedures in
that Act, including for example disallowance, do not apply.
Relinquishment of Australian Emissions Units
Relinquishment -- revocation of eligible project
6.121 The Authority will issue a notice of relinquishment to the holder
of the carbon sequestration right in relation to a project if the declaration
of the project as an eligible reforestation project has been revoked and
units have been issued for the project [Part 10, Division 10, clause 232].
6.122 The notice of relinquishment will be for the net total number of
units issued in relation to the reforestation project.
6.123 The Authority must not issue such a notice if 130 years have
passed since the first units were issued in relation to the project [Part 10,
Division 10, clause 232].
6.124 Chapter 9 of the explanatory memorandum contains a detailed
discussion of the penalties for failure to comply with a requirement to
relinquish Australian emissions units.
Relinquishment -- decrease in reforestation unit limit
6.125 The Authority will issue a notice of relinquishment to the holder
of the carbon sequestration right in relation to an eligible reforestation
project if there is a decrease in the unit limit for the project and the
number of units that have already been issued exceeds this decreased
number.
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Carbon Pollution Reduction Scheme Bill 2009
6.126 The notice must specify the number of units that must be
relinquished, which will be the difference between the net total number of
units issued and the new (lower) unit limit for the project.
6.127 The Authority must not issue such a notice if 130 years have
passed since the first units were issued for the project [Part 10, Division 10,
clause 233].
6.128 Chapter 9 of the explanatory memorandum contains a detailed
discussion of the penalties for failure to comply with a requirement to
relinquish Australian emissions units.
Relinquishment obligation transfer agreement
6.129 A relinquishment obligation transfer agreement is an agreement
between a carbon sequestration right holder in relation to an eligible
reforestation project and a person to whom that right is or has been
transferred (the transferee) [Part 10, Division 10, clause 234].
6.130 Clause 234(2) sets out the conditions that must be satisfied if an
agreement is to constitute a `relinquishment obligation transfer
agreement', for the purposes of the bill. First, the transferee must be a
recognised reforestation entity. Secondly, a relinquishment obligation
transfer agreement must state that the transferee accepts responsibility for
complying with any requirements to relinquish units that may in future be
imposed on the transferee in relation to the project. Thirdly, the Authority
must have given written approval of the agreement.
6.131 A further condition is that, if the Authority has required the
transferee to give security to the Commonwealth in relation to the
fulfilment by the transferee of any potential future requirement to
relinquish units, the transferee must have given that security.
6.132 A relinquishment obligation transfer agreement remains in force
until the transferee ceases to hold the carbon sequestration right in relation
to the project to which the agreement relates [Part 10, Division 10, clause 234].
Relinquishment -- transfer of carbon sequestration right
6.133 The consequences that will follow from a person ceasing to hold
the carbon sequestration right in relation to an eligible reforestation
project (whether by voluntary transfer or otherwise) will depend on the
circumstances in which this occurs. There are two possibilities:
· if a relinquishment obligation transfer agreement is in place,
the transferee effectively takes the place of the original
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carbon sequestration right holder in relation to the eligible
reforestation project in question; or
· if no such agreement is in place within 90 days of the original
carbon sequestration right holder ceasing to hold that right,
the Authority will unilaterally revoke the declaration of the
project as an eligible reforestation project and issue to that
person a notice requiring relinquishment of the net total
number of units issued for the project (in accordance with
clause 232).
6.134 A holder of the carbon sequestration right in relation to an
eligible reforestation project may cease to hold that right in a variety of
different circumstances:
Example 6.1: Transfer of a carbon sequestration right
Carbon Sinks Australia holds the carbon sequestration right in relat ion
to an eligib le reforestation project but no underlying estate or interest
in the land. The co mpany no longer wants to be involved in
reforestation activities.
Another recognised reforestation entity, Forests Forever, wants to
expand their carbon sink business.
Carbon Sinks Australia and Forests Forever enter into a relinquishment
obligation transfer agreement and Forests Forever buys the carbon
sequestration right fro m Carbon Sin ks Australia.
Forests Forever becomes the new reforestation scheme participant with
respect to the eligib le reforestation project. Fro m th is point in time
Forests Forever will be responsible for meeting scheme reporting
requirements and any future relinquishment requirements in relat ion to
the project. They will also be able to apply for and be issued with a
certificate of reforestation, and be issued with units.
If Carbon Sinks Australia had been issued with a relinquishment notice
before they sold the carbon property right, this notice and any
administrative penalty payable for a failure to relinquish units,
continues to apply to them and not to Forests Forever.
Example 6.2: Transfer of freehold land with reforestation project
Mr and Mrs MacDonald have a farm that includes an eligib le
reforestation project -- consisting of fully gro wn trees planted along
fence lines. They have received 10,000 units for this project and will
not receive further units because the trees are fully grown. They want
to move to Queensland to be closer to family.
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Carbon Pollution Reduction Scheme Bill 2009
A neighbour is interested in buying the property. He doesn't have any
plans to cut down the trees but recognises that he will have to
relinquish units if he changes his mind and wants to remove the trees
in future. For this reason, he is not willing to pay as much for the land
as he would have done if it did not include the elig ible refores tation
project.
The MacDonalds and the neighbour agree to a reduced sale price that
takes account of the potential obligation to relinquish units if the trees
were subsequently removed. They enter into a relinquishment
obligation transfer agreement and the neighbour becomes the new
reforestation scheme part icipant with respect to the eligible
reforestation project.
Example 6.3: Cessation of a carbon sequestration right
Forests Forever has an eligib le reforestation project -- the Big Trees
Project -- in an area which, since the trees were established, has had
below average rainfall. Forests Forever has received 20, 000 units in
relation to the project but is concerned that the rate of return on the
project will be lower than expected.
A developer wants to buy the land to build a logistics depot. The
developer offers Forests Forever a price for the land that is reduced to
reflect the number of units they would have to relinquish when they
remove the forest.
Instead, Forests Forever decide to have the declaration of the Big Trees
project as an eligib le reforestation project revoked and to meet the
related relinquishment obligation themselves. The company has
5,000 units wh ich it has received in relation to other reforestation
projects but has not yet sold. The company buys another 15,000 units
fro m the carbon market. It relinquishes the 20,000 units that it has
received in relat ion to the Big Trees Project. The declarat ion of that
project as an eligib le reforestation project would be revoked and no
further Scheme obligations would apply.
The land is sold to the developer at a higher price than would have
been paid if it was subject to potential Scheme obligations.
Forest maintenance obligation
6.135 In very limited circumstances, a person may become subject to a
forest maintenance obligation in relation to an area of land that is or was a
project area involved in an eligible reforestation project. The forest
maintenance obligation can only take effect where a relinquishment notice
is issued to the person who holds or held the carbon sequestration right in
relation to the project but is not complied with within 90 days. The person
who is required to satisfy the forest maintenance obligation is the person
who, at any point in time while the obligation operates, holds the forestry
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right in relation to the land in question [Part 10, Division 9, clause 226]. This
may or may not be the same person who holds the carbon sequestration
right in relation to the project.
6.136 The Government aims to move amendments which would
modify the forest maintenance obligation so that, generally, landowners
would not be required to re-establish a forest, if they were not responsible
for having cleared it.
6.137 At the time the forest maintenance obligation comes into
operation, one or more forest stands may or may not be in existence on the
land in question. Therefore, the obligation will require the holder of the
forestry right either:
· where forest stands are in existence on the relevant land, to
ensure that one or more of those stands are maintained such
that it is reasonable to expect that, at maturity, the net
number of tonnes of greenhouse gases removed by the stand
or stands are equivalent to the net total number of units
issued in relation to the project; or
· where no forest stand is in existence on the land, establish
and maintain a forest stand or stands such that it is reasonable
to expect that, at maturity, the net number of tonnes of
greenhouse gases removed by the stand or stands are
equivalent to the net total number of units issued in relation
to the project [Part 10, Division 9, clause 226].
6.138 The Authority will be able to use a computer program to
determine whether forest stands established and maintained for the
purposes of the forest maintenance obligation will achieve an amount of
net greenhouse gas removals that is equivalent to the net total number of
units that have been issued for the project [Part 10, Division 9, clause 226].
6.139 The forest maintenance obligation will cease when:
· the penalty payable under clause 287 of the bill in respect of
the carbon sequestration right holder's failure to comply with
the relinquishment notice is paid in full, including any late
payment penalty; or
· the forestry right holder relinquishes the net total number of
units issued in respect of the eligible reforestation project; or
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Carbon Pollution Reduction Scheme Bill 2009
· at the end of 130 years after the first occasion on which an
Australian emissions unit was issued in relation to the
project.
6.140 It should be noted that the cessation of the forest maintenance
obligation will not mean that the forest can be dealt with contrary to any
other obligations or requirements that may apply under other legislative
regimes, such as, for example, State or Territory planning or vegetation-
related laws.
Injunctions
6.141 The Authority may apply to the Federal Court for an injunction
requiring a person to do or not do something to ensure the forest
maintenance obligation is complied with [Part 10, Division 9, clause 227, 230,
231].
6.142 The Federal Court may grant an interim injunction before
considering the application for an injunction [Part 10, Division 9, clause 228].
6.143 The Federal Court may discharge or vary any injunction granted
with respect to a forest maintenance obligation [Part 10, Division 9,
clause 229].
Register of Reforestation Projects
6.144 The Authority must keep a public, electronic register of
reforestation projects [Part 10, Division 13, clause 238].
6.145 The Register will contain information about eligible
reforestation projects including :
· the project boundaries
· the name of the person who is the carbon sequestration right
holder in relation to the project
· the unit limit for the project
· the number of units that have been issued in relation to the
project and the person or persons to whom they have been
issued
· the number of units (if any) that have been relinquished in
connection with the project
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Chapter 6: Reforestation
· whether the land involved in the project is subject to a forest
maintenance obligation
· such further information (if any) relating to the reforestation
project as the Authority considers appropriate [Part 10, Division
13, clause 239]
6.146 The register will serve two purposes. The first is to provide
information to prospective buyers of interests in the land on which an
eligible reforestation project is being, or was, carried out about potential
scheme benefits, as well any liabilities that have arisen in connection with
the project. The second is to provide information to the market about the
number of units likely to be issued in respect of net greenhouse gas
removals resulting from eligible reforestation projects.
Entries in title registers
6.147 Clause 236 of the bill is concerned with the making of entries
by State or Territory Registrars of Title (or similar) in land titles registers
in relation to eligible reforestation projects that are, or were, carried out on
areas of land included in those registers [Part 10, Division 12, clause 236].
6.148 Such entries will ensure that, if an area of land is the subject of
an eligible reforestation project, prospective purchasers of interests in the
land are made aware of that fact and can then ascertain what, if any,
implications this may have under the reforestation scheme.
6.149 Clause 237 is specifically concerned with the making of entries
in land titles registers to ensure that, where an area of land included in
such a register is subject to a forest maintenance obligation under the
reforestation scheme, prospective purchasers' attention is drawn to that
fact [Part 10, Division 12, clause 237].
6.150 It is intended that the Authority will have administrative
arrangements in place to ensure that State and Territory land titles
officials receive timely notification of the declaration of eligible
reforestation projects, variations and revocations of such declarations, and
when land becomes subject to a forest maintenance obligation.
Transitional provisions
6.151 Forests have been part of other greenhouse gas abatement
schemes such as the New South Wales and Australian Capital Territory
Greenhouse Gas Reduction Scheme and the Australian Government's
Greenhouse Friendly scheme.
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Carbon Pollution Reduction Scheme Bill 2009
6.152 These forests could be included in eligible reforestation projects
under the reforestation scheme in Part 10 of the bill.
6.153 The Government aims to move amendments to provide
transitional arrangements for these forests.
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Chapter 7
Destruction of synthetic greenhouse
gases
Outline of chapter
7.1 This chapter describes the circumstances under which free
Australian emissions units may be issued for the destruction of synthetic
greenhouse gases.
7.2 The chapter explains how an application for a certificate of
eligible synthetic greenhouse gas destruction is to be made, pursuant to
which free Australian emissions units will be issued. The chapter also
outlines the process of recognising a person as a synthetic greenhouse gas
destruction customer -- one type of entity eligible to apply for a
certificate of eligible synthetic greenhouse gas destruction.
Context of new law
7.3 As outlined in Chapter 1, liability for synthetic greenhouse gas
emissions is imposed on entities which import or manufacture synthetic
greenhouse gases, based on the carbon dioxide equivalence of these gases.
Applying liability in this way assumes that gases are emitted. However a
portion of these gases may be recovered from the equipment in which they
are employed, and may be destroyed in high temperature incineration
devices.
7.4 Free Australian emissions units will be issued to companies that
destroy, or arrange for the destruction of, synthetic greenhouse gases in
accordance with scheme verification requirements. This will provide an
incentive for the recovery and disposal of these gases. It will also enable
persons to recoup the cost of scheme liability imposed on gases that are
subsequently recovered and destroyed. By increasing available abatement
options, this will enable the Scheme cap to be achieved at a lower cost
than would otherwise be possible.
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Carbon Pollution Reduction Scheme Bill 2009
Summary of new law
7.5 The Authority may, upon application by an eligible entity, issue
a certificate of eligible synthetic greenhouse gas destruction. [Part 11,
Division 3, clause 246] A certificate may be issued to a recognised synthetic
greenhouse gas destruction customer or the operator of an approved
synthetic greenhouse gas destruction facility and is issued, broadly, on the
basis that the customer or facility has destroyed or arranged for the
destruction of eligible synthetic greenhouse gases in accordance with
scheme requirements.
7.6 The certificate must state that a specified number is the unit
entitlement in respect of the certificate. [Part 11, Division 3, clause 249] The
Authority must issue, to the holder of a certificate of eligible synthetic
greenhouse gas destruction, a number of free Australian emissions units
equal to the number specified in the certificate as the unit entitlement for
that certificate . [Part 11, Division 2, clause 245]
7.7 A simplified outline is included in Part 11 of the bill. [Part 11,
Division 1, clause 244]
Detailed explanation of new law
Eligibility to apply for a certificate of eligible synthetic greenhouse gas
destruction
7.8 Only recognised customers of synthetic greenhouse gas
destruction facilities and operators of an approved synthetic greenhouse
gas destruction facility will be eligible to apply for a certificate of eligible
synthetic greenhouse gas destruction, in respect of which free Australian
emissions units may be issued. [Part 11, Division 3, clause 246]
Approved customers of SGG destruction facilities
7.9 A company that is not an operator of an approved synthetic
greenhouse gas destruction facility will need to be recognised as a
synthetic greenhouse gas destruction customer before it is entitled to make
an application for a certificate of eligible synthetic greenhouse gas
destruction. A company must apply to the Authority to become a
recognised synthetic greenhouse gas destruction customer. [Part 11,
Division 4, clause 253]
7.10 The regulations will specify information and documents (if any)
that a person will be required to submit as part of an application. The
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purpose of such information and documents is to enable the Authority to
make a decision on an application. [Part 11, Division 4, clause 254]
7.11 The Authority may, by written notice, require an applicant to
provide additional information that the Authority considers necessary to
make a decision on an application. In the event that information is not
provided within the time frame stated on the notice, the Authority may
refuse the application. [Part 11, Division 4, clause 255]
7.12 The regulations may specify an application fee. The purpose of
the fee is to enable the Authority to recover costs associated with
processing the application. An application fee is considered appropriate
given that participation in destruction under the scheme will be voluntary,
open to any company, and will deliver financial benefits. Moreover, the
Authority will incur costs in the process of conducting fit and proper
person tests. [Part 11, Division 4, clause 254]
7.13 The Authority may recognise a company as a synthetic
greenhouse gas destruction customer if satisfied that the company is a fit
and proper person. In making this assessment the Authority must have
regard to matters that include any convictions against a law of the
Commonwealth, State or Territory relating to dishonest conduct, breaches
of this Act or the associated provisions, and whether the company is under
external administration. The Authority may also consider such other
matters (if any) that it considers relevant. [Part 11, Division 4, clause 256]
7.14 The regulations may specify additional eligibility criteria, such
as a requirement that the applicant have some other type of approval or
licence under a Commonwealth, State or Territory law that is relevant to
synthetic greenhouse gas destruction.
7.15 The application of a fit and proper person test seeks to minimise
the risk of any fraudulent activity in relation to destruction of synthetic
greenhouse gases under the Scheme.
7.16 The Authority will have the power to cancel a company's
recognition where the Authority is no longer satisfied that the company
remains a fit and proper person having regard to the same criteria. [Part 11,
Division 4, clause 257]
7.17 A recognised synthetic greenhouse gas destruction customer
may surrender the customer's recognition by written notice to the
Authority. [Part 11, Division 4, clause 258]
7.18 If a company is a recognised synthetic greenhouse gas
destruction customer, the company's recognition is not transferable.
[Part 11, Division 4, clause 259]
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Approved SGG destruction facilities
7.19 The term `approved synthetic greenhouse gas destruction
facility' is defined by reference to the meaning it is proposed it be given in
the Ozone Protection and Synthetic Greenhouse Gas Management
Regulations 1995 . [Part 1, clause 5, definition of `approved synthetic greenhouse gas
destruction facility'] This definition anticipates amendments to the Ozone
Protection and Synthetic Greenhouse Gas Management Regulations 1995
that will provide for the approval of synthetic greenhouse gas destruction
facilities.
7.20 It is anticipated that the approval process would build on
existing processes in place to approve `refrigerant destruction facilities'
and `extinguishing agent destruction facilities' and involve, amongst other
things, the applicant:
· demonstrating that the facility can destroy one or more of the
three classes of synthetic greenhouse gas --
hydrofluorcarbons (HFCs), perfluorocarbons (PFCs) and
sulphur hexafluoride (SF6 )
· passing a fit and proper person test similar to that required of
recognised customers of synthetic greenhouse gas destruction
facilities.
Certificate of eligible synthetic greenhouse gas destruction
Application process
7.21 Applications for a certificate of eligible synthetic greenhouse
gas destruction can be made within 4 months of the end of a financial
year. [Part 11, Division 3, clause 246] An application must be in an approved
form and must be accompanied by such information and documents (if
any) as specified in the regulations. [Part 11, Division 3, clause 247]
7.22 The Authority may, by written notice require an applicant to
give further information in respect of an application. If the applicant fails
to provide the required information within the period specified in the
notice the Authority may refuse to consider the application or refuse to
take any action, or any further action in relation to the application. [Part 11,
Division 3, clause 248]
7.23 An application must specify one or more synthetic greenhouse
gas destruction events. [Part 11, Division 3, clause 246]
7.24 A synthetic greenhouse gas destruction event means an event
that consists of the destruction of a particular quantity of a particular kind
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of synthetic greenhouse gas. [Part 1, clause 5, definition of `synthetic greenhouse
gas destruction event']
7.25 An application may be made by a person in the person's
capacity as an approved synthetic greenhouse gas destruction facility, or a
recognised customer of a synthetic greenhouse gas destruction facility, but
not both. [Part 11, Division 3, clause 246]
7.26 Allowing approved synthetic greenhouse gas destruction
facilities, or recognised customers of synthetic greenhouse gas destruction
facilities, to apply for a certificate of eligible synthetic greenhouse gas
destruction will increase opportunities for this form of abatement. This
also enables destruction facilities and their customers to determine the
most efficient option for submitting applications for synthetic greenhouse
gas destruction.
7.27 A test based on entitlement to receive consideration under a
contract is used to distinguish between:
· when a destruction facility contracts a recognised customer to
supply the destruction facility with waste synthetic
greenhouse gas that the destruction facility subsequently
destroys, and
· when a recognised customer contracts a destruction facility to
provide a destruction service.
[Part 11, Division 3, clause 250(2)] [Part 11, Division 3, clause 250(3)]
7.28 To be eligible for free Australian emissions units, an application
must also be for a minimum amount of synthetic greenhouse gas
destruction. The purpose of this threshold is to ensure that the Authority is
not burdened by a large number of applications for small destruction
events or a large number of applications from small operations. This will
also increase the efficiency of synthetic greenhouse gas destruction.
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Issue of certificate to recognised synthetic greenhouse gas destruction
customer
7.29 The Authority may issue a certificate to a recognised synthetic
greenhouse gas destruction customer who makes an application in that
capacity where:
· the Authority is satisfied that the following conditions are
met in relation to each synthetic greenhouse gas destruction
event specified in the application:
- the event occurred during the relevant financial year
- the applicant was a recognised synthetic greenhouse gas
destruction customer at the time the event occurred
- the synthetic greenhouse gas was destroyed at an
approved synthetic greenhouse gas destruction facility
under a contract between the applicant and the operator of
the facility
- the applicant incurred expenditure under the contract in
respect of the destruction
- the approved synthetic greenhouse gas destruction facility
was authorised under the Ozone Protection and Synthetic
Greenhouse Gas Management Regulations 1995 to carry
out the destruction of the synthetic greenhouse gas
- the destruction complied with the Ozone Protection and
Synthetic Greenhouse Gas Management Regulations 1995
- the gas was eligible waste.
· the total quantity of synthetic greenhouse gas destroyed
exceeds the quantity specified in the regulations.
[Part 11, Division 3, clause 250 (2)]
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Issue of certificate to operator of an approved synthetic greenhouse gas
destruction facility
7.30 The Authority may issue a certificate to the operator of an
approved synthetic greenhouse gas destruction facility who applies in that
capacity, where:
· the Authority is satisfied that the following conditions are
met in relation to each synthetic greenhouse gas destruction
event specified in the application:
- the event occurred during the relevant financial year
- the synthetic greenhouse gas was destroyed at an
approved synthetic greenhouse gas destruction facility
operated by the applicant
- the destruction of the synthetic greenhouse gas was not
carried out under a contract between the applicant and
another person
- the applicant was not entitled to receive any consideration
for carrying out the destruction of the synthetic
greenhouse gas
- the approved synthetic greenhouse gas destruction facility
was authorised under the Ozone Protection and Synthetic
Greenhouse Gas Management Regulations 1995 to carry
out the destruction of the synthetic greenhouse gas
- the destruction complied with the Ozone Protection and
Synthetic Greenhouse Gas Management Regulations 1995
- the gas was eligible waste.
· the total quantity of synthetic greenhouse gas destroyed
exceeds the quantity specified in the regulations.
[Part 11, Division 3, clause 250(3)]
Destruction of synthetic greenhouse gases in accordance with the Ozone
Protection and Synthetic Greenhouse Gas Management Regulations
1995
7.31 It is anticipated that amendments to the Ozone Protection and
Synthetic Greenhouse Gas Management Regulations 1995 will require
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destruction facilities, when operating as approved synthetic greenhouse
gas destruction facilities, to destroy synthetic greenhouse gases in
accordance with certain verification requirements. These will be designed
to enable verification of quantities and kinds of synthetic greenhouse
gases destroyed during synthetic greenhouse gas destruction events.
Eligible waste
7.32 Regulations will be made to define the types of waste that will
be eligible under the Scheme. The intent of these regulations is to ensure
that there are no perverse incentives to stockpile synthetic greenhouse
gases prior to Scheme commencement for the purpose of destroying them
to gain Australian emissions units.
Issue of certificate of eligible synthetic greenhouse gas destruction
7.33 If the Authority is satisfied that a recognised synthetic
greenhouse gas destruction customer or operator of an approved synthetic
greenhouse gas destruction facility meets the relevant eligibility criteria,
and the amount of gas specified in the application exceeds a threshold
specified in the regulations, the Authority may issue a certificate of
eligible synthetic greenhouse gas destruction. [Part 11, Division 3, clause 250]
7.34 The issue of a certificate of eligible synthetic greenhouse gas
destruction entitles the holder of a certificate to a unit entitlement -- a
specified number of free Australian emissions units. [Part 11, Division 3,
clause 249]
7.35 A certificate of eligible synthetic greenhouse gas destruction is
not transferable. [Part 11, Division 3, clause 252]
7.36 As soon as practicable after the day on which a certificate of
eligible synthetic greenhouse gas destruction was issued the Authority
must issue a number of free Australian emissions units equal to the
number specified in the certificate as the unit entitlement for that
certificate. [Part 11, Division 2, clause 245]
7.37 The unit entitlement will be determined by calculating a
provisional number for each synthetic greenhouse gas event to which the
certificate relates and adding together those provisional numbers. Each
provisional number will be calculated by multiplying the amount of
synthetic greenhouse gas submitted for destruction in the destruction
equipment (in tonnes of carbon dioxide equivalence) by a destruction
efficiency factor for the approved destruction facility at which the event
took place. [Part 11, Division 3, clause 251]
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7.38 The application of a destruction efficiency factor recognises that
the efficiency of destruction may vary for different types of destruction
equipment and different classes of synthetic greenhouse gases.
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Chapter 8
Assessment, surrender, relinquishment
and voluntary cancellation
Outline of chapter
8.1 This chapter describes how liability is calculated, advisory
assessments of an entity's emissions number, the obligation to surrender
and shortfalls. It also describes the surrender, relinquishment and
voluntary cancellation mechanisms.
8.2 It relates to Parts 5, 6, 14 and 15 of the bill.
Context
8.3 The Carbon Pollution Reduction Scheme imposes obligations on
liable entities in relation to the emissions or potential emissions for which
they are responsible. Details of these concepts are provided in Chapter 1
of this explanatory memorandum.
8.4 Liable entities will be required to report emissions or potential
emissions under the National Greenhouse and Energy Reporting Act
2007, which is to be amended. The proposed amendments to that Act are
described in a separate explanatory memorandum on the proposed Carbon
Pollution Reduction Scheme (Consequential Amendments) Bill 2009 (the
consequential amendments bill).
8.5 This chapter focuses on the mechanisms within the Carbon
Pollution Reduction Scheme Bill for assessment and surrender of eligible
emissions units. It also addresses the mechanisms for:
· relinquishment of units by, for example, the recipient of units
under the emissions-intensive trade-exposed assistance
program
· voluntary cancellation of units.
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Summary
The emissions number
8.6 A liable entity is required to surrender one eligible emissions
unit for each tonne of emissions for which the entity is responsible. The
total quantity of emissions for which the entity is responsible is known as
the `emissions number'. This number is calculated using the following
formula:
Entity's emissions number = the sum of its provisional emissions
numbers - the excess surrender number + the make good number.
8.7 Each of these concepts is explored in the Detailed Explanation
section below.
8.8 Part 5 of the bill relates to emissions numbers. It includes a
simplified outline [Part 5, clause 124].
Assessments
8.9 The Scheme is based on a self-assessment approach where liable
entities calculate their own emissions numbers and report them under the
National Greenhouse and Energy Reporting Act 2007, which will be
amended.
8.10 The Authority may issue assessments of the emissions number
to a liable entity if no report of its greenhouse gas emissions was lodged in
accordance with the requirement in the National Greenhouse and Energy
Reporting Act 2007 or if the Authority has reasonable grounds to believe
that the emissions number specified in the report is incorrect.
8.11 These assessments are advisory in nature. An assessment does
not make an entity liable. Liability arises from, for example, the emission
of greenhouse gas from the operation of a facility, and does not
necessarily involve assessment by the Authority.
Surrender
8.12 Each liable entity is required to surrender sufficient eligible
emissions units to meet its obligation for a financial year, by
15 December of the following financial year.
8.13 An entity has a shortfall if it has not surrendered sufficient
eligible emissions units to meet its obligation by 15 December.
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8.14 The penalty for a shortfall is a monetary penalty and a `make
good' requirement. The monetary penalty is due and payable on
31 January in the following year. It is an administrative penalty. If it is not
paid by that date, a late payment penalty applies and the Authority may
take action to recover the debt. These and other penalties are addressed in
Chapter 9 of this explanatory memorandum.
8.15 The Authority is empowered to make an assessment of unit
shortfall.
8.16 Part 6 of the bill relates to surrender. It includes a simplified
outline [Part 6, Division 1, clause 128].
8.17 There are special rules for the surrender, relinquishment and
voluntary cancellation of Australian emission units of the 2011-12
vintage. They are described in Chapter 3 of this explanatory
memorandum.
Relinquishment
8.18 The process for relinquishment is separate but comparable to
that for surrender. Persons will be required to relinquish units in the
following situations:
· in the emissions-intensive trade-exposed assistance program,
where, for example, planned production ceases during a year
· various situations where Australian emissions units have
been issued in connection with reforestation -- for example,
where the person ceases to hold the carbon sequestration
right in relation to a reforestation project and a
relinquishment obligation transfer agreement is not in force
· where a court has ordered relinquishment following
conviction under specified provisions of the Criminal Code
relating to fraudulent conduct, including those relating to
false or misleading statements in information given to the
Authority.
8.19 The situations in which a person is required to relinquish units
are described in Chapter 4, 6 and 9 of this explanatory memorandum. This
chapter addresses the mechanism and the consequences of
non-compliance, which are provided by Part 15 of the bill. Part 15
includes a simplified outline [Part 15, Division 1, clause 285].
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Voluntary cancellation
8.20 A registered holder of Australian emissions units, Kyoto units or
non-Kyoto international emissions units may request the Authority to
cancel one or more of those units. The mechanism is included in Part 14
of the bill and is described in this chapter. Part 14 includes a simplified
outline [Part 14, clause 281].
Detailed explanation of new law
Emissions number
8.21 Liability will be based on the emissions number which liable
entities must include in their report to the Authority, in accordance with
proposed amendments to the National Greenhouse and Energy Reporting
Act 2007. (See the consequential amendments bill, Schedule 1, Part 2,
Item 181).
8.22 The emissions number is calculated using the following formula
[Part 5, clause 125] :
Entity's emissions number = the sum of its provisional emissions
numbers - the excess surrender number + the make good number
8.23 The following paragraphs describe the concepts which make up
this formula: the provisional emissions number, excess surrender number
and make good number.
8.24 A provisional emissions number represents the emissions which
give rise to liability under the Scheme. Part 3 of the bill describes the
situations which result in a provisional emissions number. These include
the emission of greenhouse gases from facilities by direct emitters or
holders of liability transfer certificates relating to such facilities (Part 3,
Division 2); the import, manufacture and supply of synthetic greenhouse
gas (Part 3, Division 3); the supply or use of eligible upstream fuel (Part 3,
Division 4); and the receipt of eligible upstream fuels by persons quoting
an OTN (Part 3, Division 4).
8.25 An excess surrender number can arise because the liable entity
surrendered an excess number of emissions units for the previous financial
year [Part 6, Division 4, clause 143(1)]. It only benefits the entity in the
following financial year.
8.26 An excess surrender number cannot arise from excess surrender
of units with the following year's vintage (`borrowing'). An entity can
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only surrender borrowed units when its emissions number is entered on
the Authority's Information Database [Part 6, Division 2, clause 129(5)]. An
entity can only surrender the number of borrowed units up to 5 per cent of
its emissions number [Part 6, Division 4, clause 143(2)]. If, despite this, an
entity surrenders more borrowed units than is permitted, then the excess
units are extinguished but the excess does not form part of the entity's
excess surrender number in the following year.
8.27 The make-good number reflects the unit shortfall of the liable
entity for the previous financial year [Part 6, Division 4, clause 142(1)].
8.28 The purpose of including a `make good' requirement is to ensure
that liable entities are required to surrender eligible emissions units to
meet their obligations, not simply pay a financial penalty. It thus
safeguards the environmental integrity of the scheme.
8.29 In cases where liability is transferred from a controlling
corporation to a member of its group (through the issue of a liability
transfer certificate by the Authority) and the group member which holds
the certificate incurs a unit shortfall, then that shortfall is reflected in the
make-good number of the controlling corporation rather than that of the
member of the group [Part 6, Division 4, clause 142(2)].
Example 1.1: Calculation of emissions number
In 2014-15, Co mpany A is a controlling corporation of a group that
contains two other entities B and C.
Co mpany B has operational control of a facility that emits less than
25,000 tonnes of carbon dioxide equivalence and the facility is
therefore exempt fro m the scheme.
Co mpany C has operational control of a facility that emits
530,000 tonnes.
Co mpany A's provisional emissions number is therefore 530,000.
In the previous financial year (2013-14), Co mpany A surrendered
insufficient units and incurred a shortfall of 5,000 units. Co mpany A
therefore has a make good number of 5,000.
Co mpany A's emissions number is 530,000 + 5,000 = 535,000.
Example 1.2
Entity Y imports synthetic greenhouse gases with a carbon dio xide
equivalence of 30,000 tonnes. It re-supplies the gas to customers who
do not quote an OTN.
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Its provisional emissions number is therefore 30,000.
It surrendered an excess of 2,000 units for the previous financial year
2,000.
Entity Y's emissions number is 30,000 -- 2,000 = 28,000.
Assessment
8.30 There are two circumstances in which the Authority may make
an assessment of the person's emissions number for a financial year and
provide the person with written notice of it:
· when a liable entity has provided a report under section 22A
of the National Greenhouse and Energy Reporting Act 2007
(see the consequential amendments bill, Schedule 1, Part 2,
Item 181) by 31 October but the Authority has reasonable
grounds to believe that the number specified in the report as
the person's emissions number is incorrect [Part 5, clause 126].
· where no such report has been provided by 31 October and
the Authority has reasonable grounds to believe that the
person is a liable entity for the financial year [Part 5,
clause 127].
8.31 In both cases the assessment must be accompanied by a
statement setting out the effect of clause 132 (the obligation to surrender
sufficient emissions units) [Part 5, clauses 126(3) and 127(3)].
8.32 Each of these assessments may be amended by the Authority at
any time. If this is done, then written notice of it must be provided [Part 5,
clauses 126(4), 126(5), 127(4), 127(5)].
8.33 The original and any amended assessments are advisory in
nature [Part 5, clauses 126(7) and 127(7)]. This underlines that the obligation to
surrender eligible emissions units stems from the emissions number, not
from any action taken by the Authority.
Surrender
The obligation to surrender
8.34 When a liable entity has an emissions number for the financial
year of 1 or more (and there is a national scheme cap in place), then the
person must surrender sufficient units by 15 December in the following
financial year to ensure that it does not have a unit shortfall [Part 6,
Division 4, clause 132].
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What is a unit shortfall
8.35 If a liable entity has surrendered no eligible emissions units by
15 December, then its unit shortfall [Part 6, Division 3, clause 130] is the same
as its emissions number [Part 6, Division 3, clause 130(2)]. Similarly, if the
liable entity has surrendered some eligible emissions units in the period
ending 15 December, then the unit shortfall is its emissions number less
the number of surrendered units [Part 6, Division 3, clause 130(3)].
8.36 If surrendered Australian emissions units representing more than
5 per cent of the emissions number are `borrowed' (that is, their vintage
year follows the relevant financial year to which the surrender relates),
then the excess number of units over the 5 per cent are not regarded as
surrendered for the relevant financial year [Part 6, Division 3, clause 130(4)].
Example 8.1: Calculation of shortfall
On 31 October 2018, a liable entity submits its report under the
National Greenhouse and Energy Reporting Act 2007 for the financial
year 2017-18. The report indicates that the entity's emissions number
is 100,000. On 15 December 2018, the liable entity transmits a notice
to the Authority specifying the surrender of the follo wing units for the
financial year 2017-18:
Vintage of units Number of units
2015-16 10,000
2016-17 10,000
2017-18 70,000
2018-19 10,000
Total 100,000
The surrender of units with vintages belonging to the current year and
previous financial years will be accepted. However, only 5 per cent of
100,000 units, or 5,000 units, with a 2018-19 vintage may be
surrendered for the year 2017-18. The liable entity will therefore have
a unit shortfall of 5,000 for the financial year 2017-18.
Which units are eligible emissions units
8.37 Only `eligible emissions units' can be used for surrender. This
phrase is defined to mean Australian emissions units and eligible
international emissions units [Part 1, clause 5, definition of `eligible emissions
unit'].
8.38 Australian emissions units of the current or earlier vintage years
may be surrendered [Part 6, Division 2, clause 129(4)]. This in effect allows for
`banking' of units.
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8.39 As indicated above, there is a limit on the number of `borrowed'
units (that is, units of the next vintage year) which can be used for
surrender [Part 6, Division 3, clause 130(4)]. In addition, `borrowed' units can
only be surrendered within a specified period when the entity's emissions
number is known [Part 6, Division 2, clause 129(5)].
8.40 A unit is an eligible international emissions unit [Part 1, clause 5,
definition of `eligible international emissions unit'] if it is:
· a certified emission reduction other than a temporary
certified emission reduction or a long-term certified emission
reduction
· an emission reduction unit
· a removal unit
· a prescribed unit issued in accordance with the Kyoto rules
· a non-Kyoto international emissions unit.
8.41 Certified emission reductions, emission reduction units, and
removal units are specific types of units established under the Kyoto
Protocol. An explanation of the reasons for framing this definition in this
way is included in Chapter 2 of this explanatory memorandum.
8.42 Eligible international units cannot be surrendered in the fixed --
price period. The fixed price period is intended to provide certainty over
the price for Australian emissions units for the 2011-12 financial year.
Should the international price fall below the fixed price the ability to
surrender eligible international emissions units would be contrary to
providing certainty over the price. It is more likely that the international
price will be above the fixed price in which case the ability to surrender
eligible international emissions units would not offer any benefit to liable
entities [Part 6, Division 2, clause 129(6A)].
8.43 An Australian emissions unit with a vintage year beginning on
1 July 2011, which was issued in accordance with the emissions-intensive
trade-exposed assistance program or Part 9 (which relates to coal-fired
electricity generation) can only be surrendered with respect to that year
[Part 6, Division 2, clause 129(5A)].
8.44 Kyoto units must not be surrendered if the surrender would
breach regulations made for the purpose of clause 113 (carry-over
restrictions) [Part 6, Division 2, clause 129(6)]. The carry-over restrictions are
explained in Chapter 2 of this explanatory memorandum.
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8.45 Regulations may specify that an eligible international emission
unit must not be surrendered in relation to a particular year [Part 6,
Division 2, clause 129(7)]. In making a recommendation to the
Govenor-General about such regulations, the Minister may have regard to:
· Australia's international objectives and its obligations under
the Climate Change Convention the Kyoto Protocol;
· the environmental integrity of the Scheme; and
· such other matters (if any) as the Minister considers relevant
[Part 6, Division 2, clause 129(7A)].
Including these provisions is consistent with the policy that a type of
eligible international emission unit can be disallowed for surrender at any
time to ensure the environmental integrity of the Scheme and consistency
with Australia's international objectives. However, the regulation-making
power is restricted in that it cannot specify a past year or the current year.
8.46 In addition:
· Certain removal and emission reduction units may only be
surrendered in relation to the first three years of the Scheme
[Part 6, Division 2, clause 129(8)].
· A non-Kyoto international emissions unit must not be
surrendered if this would breach the surrender restrictions
[Part 6, Division 2, clause 129(9)].
How are eligible emissions units surrendered
8.47 A person may surrender eligible emissions units by electronic
notice transmitted to the Authority [Part 6, Division 2, clause 129(1)].
8.48 What constitutes an `electronic notice transmitted to the
Authority' is described in clause 8 of the bill. This allows the Authority to
require the use of particular information technology requirements [Part 1,
clause 8].
8.49 The notice must specify the eligible emissions units being
surrendered, the financial year to which the surrender relates and the
person's relevant account number [Part 6, Division 2, clause 129(2)].
When must eligible emissions units be surrendered
8.50 As indicated above, eligible emissions units must be surrendered
by 15 December. However, to provide for the remote possibility that
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Carbon Pollution Reduction Scheme Bill 2009
entities cannot gain computer access to the Authority in the period shortly
before the deadline, the Authority is empowered to extend the deadline by
legislative instrument [Part 6, Division 5, clause 143A].
What happens when a unit is surrendered
8.51 When an Australian emissions unit is surrendered, it is cancelled
and the Authority must remove the entry for the unit from the Registry
account of the person who has surrendered it [Part 6, Division 2,
clause 129(10)].
8.52 However, different processes are required in relation to eligible
international emissions units. When an eligible international emissions
unit is surrendered, the Authority must remove the unit from the Registry
account of the person who has surrendered it. In addition:
· If the unit is a Kyoto unit, the Authority must make an entry
for the unit in a Commonwealth holding account [Part 6,
Division 2, clause 129(11)]. This enables the Commonwealth to
use the Kyoto unit to meet Australia's emissions reduction
target under the Kyoto Protocol.
· If a non-Kyoto international emissions unit is surrendered,
then the action required of the Authority will be specified in
the regulations [Part 6, Division 2, clause 129(12)].
8.53 It is necessary to provide that this action will be specified in the
regulations because the concept of a `non-Kyoto international emissions
unit' provides for units issued under future international agreements and
units issued outside Australia under a law of a foreign country [Part 1,
clause 5, definition of `non-Kyoto international emissions unit']. It therefore seeks
to provide for future recognition of new and additional units without
amending the Act.
Assessment of unit shortfall
8.54 The Authority is empowered to make an assessment of a
person's unit shortfall and give notice of this to the person [Part 6,
Division 3, clause 131].
8.55 The Authority can do this at any time if it had reasonable
grounds to believe that the person had made a false or misleading
statement to the Authority which is relevant to ascertaining the person's
unit shortfall that year, or otherwise engaged in relevant fraudulent
conduct [Part 6, Division 3, clause 131(2)].
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8.56 In other circumstances the Authority can only make such an
assessment during the four years after the relevant financial year [Part 6,
Division 3, clause 131(3)]. This period is broadly consistent with amendment
periods under current business tax provisions for entities with complex
affairs.
8.57 The Authority can amend such assessments [Part 6, Division 3,
clause 131(5) and (6)]. It can also rely on a report provided by the person
under proposed section 22A of the National Greenhouse and Energy
Reporting Act 2007 in making an assessment [Part 6, Division 3, clause 131(4)].
8.58 An assessment of unit shortfall is of an advisory character [Part 6,
Division 3, clause 131(9)].
What happens if there is a unit shortfall
8.59 If a person has a shortfall as at 15 December following the
relevant financial year, then the person will have a make-good number
[Part 6, Division 4, clause 142] which is discussed above, and is liable to pay
an administrative penalty [Part 6, Division 4, clause 133]. The administrative
penalty is worked out using the formula:
[Nu mber o f units in the unit shortfall] x [prescribed amount for the
current financial year].
8.60 The amount mentioned in the second part of the formula is
$11 in relation to the financial year beginning on 1 July 2011. In relation
to later years it is expected to be specified in regulations. In that case, the
maximum prescribed amount (and the default amount if no regulations are
made) is 110 per cent of the `benchmark average auction price' [Part 6,
Division 4, clause 133].
8.61 The `benchmark average auction price' for a particular financial
year is the greater of: the average auction price of units issued as the result
of auctions at all auctions in the financial year or the average auction price
of units issued at the last auction conducted in the financial year [Part 6,
Division 4, clause 141]. It must be calculated and published by the Authority
as soon as practicable after the end of each financial year [Part 6, Division 4,
clause 133(3)].
8.62 The administrative penalty becomes due and payable on
31 January following the relevant financial year [Part 6, Division 4,
clause 134].
8.63 From this time, a late payment penalty will accrue at a rate of
20 per cent per annum (or a lower rate if prescribed in regulations). The
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Authority may remit the late payment penalty in whole or part [Part 6,
Division 4, clause 135].
8.64 The administrative penalty and the late payment penalty are a
debt due to the Commonwealth which can be recovered by the Authority
in a court with the relevant jurisdiction [Part 6, Division 4, clause 136].
8.65 Amounts of a kind specified in regulations and due from the
Commonwealth may be set off against the amount due to the
Commonwealth in respect of the administrative or late payment penalty
[Part 6, Division 4, clause 137]
8.66 Overpayments of the administrative penalty or late payment
penalty can be refunded [Part 6, Division 4, clause 139].
8.67 Where liability has been transferred to another member of a
corporate group under a liability transfer certificate, the controlling
corporation which consented to the transfer is taken to have guaranteed
the payment of the administrative and late payment penalty [Part 6,
Division 4, clause 138].
Relinquishment
When is relinquishment required
8.68 The situations in which relinquishment of Australian emissions
units can be required are discussed in other parts of this explanatory
memorandum. In brief, persons will be required to relinquish units in the
following situations:
· in the emissions-intensive trade-exposed assistance program,
where, for example, units are provided at or before the
beginning of each financial year but planned production
ceases during a year. Relinquishment is required to prevent
both windfall gains from units associated with production
that does not take place and reductions in the supply of units
that would otherwise be available for auction.
· various situations where Australian emissions units have
been issued in connection with reforestation -- for example,
where an area of land that was the subject of a reforestation
project has remained clear of a forest stand for a period of at
least 5 years
· where a court has ordered relinquishment following
conviction under specified provisions of the Criminal Code,
including those relating to false or misleading statements in
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information provided to the Authority. In this case,
relinquishment is required because the units would not have
been issued if fraudulent conduct had not occurred.
How are Australian emissions units relinquished
8.69 A person who holds Australian emissions units can relinquish
them by electronic notice transmitted to the Authority. The notice must
specify, among other things, the reason for relinquishment [Part 15,
Division 2, clauses 286(1) and (2)].
What happens to relinquished units
8.70 Those units relinquished in connection with reforestation or
destruction of synthetic greenhouse gases are cancelled and the Authority
removes the entry from the person's registry account [Part 15, Division 2,
clauses 286(3) and (6)].
8.71 If the relinquishment is not connected with these provisions,
then the Authority must transfer the relevant units to the Commonwealth
relinquished units account and property in the unit is transferred to the
Commonwealth [Part 15, Division 2, clauses 286(4) and (5)]. These are then
auctioned [Part 4, Division 2, clause 100].
8.72 The auction process is described in Chapter 3 of this explanatory
memorandum.
8.73 Australian emission units issued with a vintage year of 2011-12
which are relinquished (irrespective of which relinquishment requirement
applies) will be cancelled. This is because 2011-2012 Australian emission
units are not issued based on a scheme cap, and so should be cancelled in
all circumstances (and not transferred to the Commonwealth relinquished
units account to be auctioned).
Failure to comply with relinquishment requirements
8.74 The consequences of a failure to comply with a relinquishment
requirement are comparable to the consequences of a unit shortfall
described above [Part 15, Division 3, clauses 287-291].
8.75 The significant differences are:
· There is no `make good' requirement
· The maximum and default amount of the administrative
penalty is 200 per cent of the benchmark average auction
price [Part 15, Division 3, clause 287(2)].
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8.76 The reason for this approach is that the entity may no longer be
in the business nor be liable in the future.
8.77 Special provision is made for relinquishment requirements
arising before 1 July 2012. If the requirement arose under the
emissions-intensive trade-exposed assistance program before
31 July 2012, then the administrative penalty is $10 per unit of shortfall. If
the requirement arose before 1 July 2012, but is not connected with the
emissions-intensive trade-exposed program, then the administrative
penalty is $20 per unit of shortfall.
Voluntary cancellation
8.78 The bill provides for the voluntary cancellation of Australian
emissions units, Kyoto units and non-Kyoto international emissions units
[Part 14, clauses 282, 283 and 284]. This implements the Government's policy
that voluntary cancellation allows individuals and organisations to
contribute to stronger national climate change mitigation, regardless of
whether they have obligations under the Scheme, by reducing the supply
of eligible emissions units.
8.79 Australia emissions units issued in the fixed-price period, that is
with a vintage year commencing on 1 July 2011, are not able to be
voluntarily cancelled [Part 14, clause 282(2A)]. One implication of the fixed
price period is that there is an unlimited number of Australian emissions
units. There is no clear relationship between these units and Australia's
Kyoto units. It is therefore not appropriate to allow for the cancellation of
such units.
8.80 For units that may be subject to voluntary cancellation, the
registered holder of the emissions units transmits an electronic notice to
the Authority requesting the Authority to cancel the units. The notice must
specify the units to be cancelled and the person's relevant accounts.
8.81 The action to be taken by the Authority varies depending on the
type of unit.
8.82 If the request relates to an Australian emissions unit, then the
unit is cancelled and removed from the person's registry account, and the
Minister must direct the Authority to transfer a Kyoto unit from the
Commonwealth holding account to a voluntary cancellation account
before the end of the `true-up period' for the relevant Kyoto commitment
period [Part 14, clause 282(3)]. For example, an Australian emissions unit
with a vintage year 2012-13 corresponds to emissions in the second
commitment period and will be backed at the national level by a Kyoto
unit for the second commitment period. Therefore, when a 2012-13
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Australian emissions unit is cancelled it will be the corresponding second
commitment period Kyoto unit that is transferred to the voluntary
cancellation account for that period. This provision implements the
Government's policy which recognises that in order for the voluntary
cancellation of an Australian emissions unit to lead to additional global
abatement a Kyoto unit needs to be voluntarily cancelled within the
relevant commitment period.
8.83 If the request relates to a Kyoto unit, and if the Authority is
satisfied that the transfer would not breach the regulations made for the
purposes of implementing the Kyoto rules or the regulations made to
comply with the commitment period reserve, then it must transfer the unit
to a voluntary cancellation account [Part 14, clause 283(3)]. Again, this
implements the Government's policy on voluntary cancellation and allows
private entities to cancel Kyoto units, which means they cannot be used by
Australia or another Kyoto Party for the purposes of meeting their
emission reduction targets and therefore leads to additional global
abatement.
8.84 If the request relates to a non-Kyoto international emissions unit,
further action by the Authority is dependent on the regulations [Part 14,
clause 284]. The bill provides for the voluntary cancellation of non-Kyoto
units but the detailed arrangements will be specified in regulations which
would not be made until an international unit has actually been prescribed
as a non-Kyoto international emissions unit. Chapter 2 discusses
arrangements for non-Kyoto international emissions units more generally.
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Chapter 9
Compliance and enforcement
Outline of chapter
9.1 This Chapter addresses the various mechanisms provided in the
bill which relate to compliance and enforcement. These include
information gathering, record keeping, monitoring, liability of company
officers, administrative penalties and the make good requirement, criminal
and civil penalties, enforceable undertakings and the anti-avoidance
provisions.
9.2 The relevant provisions are in Parts 13, and 17 to 23 of the bill.
The provisions relating to avoidance of thresholds are clauses 23 and 30.
The provisions relating to the administrative penalty and make good
requirement are in Parts 6 and 15.
Context
9.3 The Authority is responsible for ensuring compliance with the
Scheme. Effective enforcement arrangements are vital to achieving the
objectives of the Scheme. Non-compliance with obligations could bring
the Scheme into disrepute and undermine its environmental integrity.
Appropriate compliance and enforcement mechanisms are therefore
essential.
Summary
9.4 The bill provides a series of mechanisms needed to ensure
compliance and for enforcement.
9.5 They are listed below with references to the simplified outlines
or provisions:
· Information-gathering powers [Part 17, clause 295]
· Requirements to keep records [Part 18, clause 301]
· Monitoring powers [Part 19, Division 1, clause 305]
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Carbon Pollution Reduction Scheme Bill 2009
· Provisions relating to liability of officers of bodies corporate
[Part 20, clause 323]
· Administrative penalties and the make good requirement
[Part 6, Division 4, clauses 133 and 142] [Part 15, Division 3, clause 287]
· Civil penalties [Part 21, clause 326]
· Various criminal penalties including offences relating to
administrative penalties and fraudulent conduct [Part 13,
clause 279] [Part 22, clause 339]
· Enforceable undertakings [Part 23, clause 342]
· Anti-avoidance provisions [Part 3, Division 2, clause 23] [Part 3,
Division 3, clause 30].
9.6 The possibility of a court order to relinquish units following
conviction for various offences under the Criminal Code connected with
the Scheme can also be seen as an enforcement mechanism. The
relinquishment mechanism is addressed in Chapter 8 of this explanatory
memorandum, as are the situations in which relinquishment can be
ordered.
9.7 The other mechanisms referred to above, for example
information gathering and monitoring, are standard for a regulator with
functions comparable to those which the Authority has.
Detailed explanation of new law
Information-gathering powers
9.8 If the Authority believes on reasonable grounds that a person has
information or a document that is relevant to the operation of the Act or
associated provisions, the Authority will be empowered to require, by
written notice, that person to give information or documents, or to provide
copies [Part 17, clause 296].
9.9 The phrase `associated provisions' is defined to include the
proposed Carbon Pollution Reduction Scheme Regulations, the provisions
in the National Greenhouse and Energy Reporting Act 2007 relating to
liable entities (including registration and reporting), and specified
provisions of the Criminal Code in so far as those sections relate to the
Scheme [Part 1, clause 5, definition of `associated provisions'].
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9.10 The written notice must provide at least 14 days' notice [Part 17,
clause 296(3)].
9.11 This is a civil penalty provision, as are the ancillary
contraventions. General provisions relating to civil penalties, including the
pecuniary penalties are included in Part 21 of the bill.
9.12 Inspection, copying and retention of documents produced to the
Authority are addressed [Part 17, clause 298]. Compensation for a
requirement to provide copies is also addressed [Part 17, clause 297].
9.13 The Authority may retain possession of documents produced for
as long as is necessary. However, provision is made for supply of a
certified copy to the person otherwise entitled to possession [Part 17,
clause 299].
9.14 A person is not excused from giving information or producing a
document following notice from the Authority on the ground that it might
incriminate them or expose them to a penalty. However, the information
given or document produced, the giving of the information or document
and any information, document, or thing obtained as a consequence is not
admissible in evidence against an individual in specified circumstances:
· civil proceedings for the recovery of other than
administrative penalties and late payment penalties in respect
of failure to surrender or relinquish units
· criminal proceedings, unless the proceedings are for an
offence that relates to information-gathering by the
Authority, involving the provision of false or misleading
information or documents.
[Part 17, clause 300].
Self-incrimination is addressed in more detail below, in
connection with clause 312.
Record-keeping requirements
9.15 Records will need to be kept by various Scheme participants to
support the information which they provide under the Scheme. This will
enable the Authority and, where relevant, inspectors and auditors, to
check the accuracy and completeness of information provided to the
Authority, for example information provided in applications leading to the
administrative allocation of Australian emissions units.
9.16 The capacity to audit emissions data is essential to monitoring
compliance and ensuring the integrity of the Scheme. Record keeping
obligations already apply to reports under the National Greenhouse and
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Carbon Pollution Reduction Scheme Bill 2009
Energy Reporting Act 2007. These obligations are expanded by
amendments included in the consequential amendments bill.
9.17 The detailed record-keeping obligations where the information is
relevant to the Carbon Pollution Reduction Scheme Bill will be specified
in the regulations [Part 18, clause 302].
9.18 Record-keeping obligations are also imposed on:
· suppliers where a recipient quotes its OTN in relation to the
supply [Part 18, clause 303]
· suppliers where the recipient has quoted its OTN but the
supplier has rejected the quotation [Part 18, clause 304].
9.19 These provisions require the records to be kept for five years and
are civil penalty provisions. This period is consistent with obligations
under the taxation system.
9.20 These requirements and the ancillary contraventions are civil
penalty provisions [Part 18, clauses 302-304].
Monitoring powers
Introduction
9.21 In brief, Part 19 provides for the appointment of inspectors who
may enter premises for the purpose of determining whether the Act or
associated provisions have been complied with or substantiating
information provided under the Act or associated provisions. The most
usual duties of an inspector are expected to be examining documentation,
for example records held by liable entities and operators of facilities
covered by the Scheme. Entry must be with the consent of the occupier of
the premises or under a monitoring warrant. An inspector who enters
premises may exercise monitoring powers. He or she may be assisted by
other persons if that assistance is necessary and reasonable. The rights and
responsibilities of the occupier of the premises are also described.
Appointment of inspectors
9.22 The Authority may appoint a member of its staff or a member of
the Australian Federal Police as an inspector for the purposes of the Act.
The staff member may be at the SES level (or acting SES level) or at the
APS Executive Level 1 or 2, or equivalent (or performing these
functions). It is envisaged that inspectors will require detailed knowledge
of the Scheme and the ability to identify and interpret technical data, such
as data used in the measurement of emissions at the facility or
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Chapter 9: Compliance and enforcement
organisational level, which are used to calculate a liable entity's emissions
number. For this reason, it is necessary to allow for APS Executive Level
1 and 2 staff to be appointed as inspectors, as well as SES level staff. The
person must have suitable qualifications and experience, and comply with
any direction of the Authority. If such a direction is given in writing, it is
not a legislative instrument [Part 19, Division 2, clause 306]. This provision is
included to assist readers, as the instrument is not a legislative instrument
within the meaning of section 5 of the Legislative Instruments Act 2003.
9.23 The Authority is required to issue an identity card which must be
carried by the inspector. The form of the card is to be prescribed. Failure
to return the card is an offence [Part 19, Division 2, clause 307].
Powers of inspectors
9.24 An inspector can enter premises and exercise monitoring powers
to determine whether this Act or the associated provisions have been
complied with or for the purpose of substantiating information provided
under the Act or associated provisions. The inspector can only enter
premises with the consent of the occupier or under a monitoring warrant
[Part 19, Division 3, clause 308].
9.25 The monitoring powers of the inspector are specified. They
include the power to search the premises and to inspect any document on
the premises. An inspector may operate electronic equipment to see
whether it contains relevant information. The inspector may also secure
things for up to 24 hours if entry to the premises was under a monitoring
warrant. This period can be extended by a magistrate [Part 19, Division 3,
clause 309].
9.26 Inspectors may be assisted by other persons if this is necessary
and reasonable. A person assisting an inspector may enter the premises
and exercise monitoring powers in relation to them but only in accordance
with a direction given by the inspector. The relevant provision states that
if such a direction is in writing, it is not a legislative instrument. This is to
assist readers, as the instrument is not a legislative instrument within the
meaning of section 5 of the Legislative Instruments Act 2003 [Part 19,
Division 3, clause 310].
9.27 Where the inspector has entered the premises with the consent of
the occupier, then he or she may ask the occupier to answer relevant
questions or produce relevant documents. When entry was under a
monitoring warrant, the inspector may require the occupier to answer
relevant questions or produce relevant documents. It is an offence not to
comply with such a requirement. The penalty is up to 6 months'
imprisonment or 30 penalty units, or both [Part 19, Division 3, clause 311].
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Carbon Pollution Reduction Scheme Bill 2009
9.28 It is not an excuse from giving an answer or producing a
document in response to such a requirement that the answer or production
of the document might tend to incriminate the person. However, in the
case of an individual, the answer or document, the giving of the answer
and producing the document, and any information, document or thing
obtained as a consequence is not admissible in evidence in specified
circumstances [Part 19, Division 3, clause 312]. The circumstances are the
same as in the self-incrimination provision in the information gathering
powers [Part 17, clause 300].
9.29 Provisions under which a person may be required to answer
questions or to produce information or documents are a common
enforcement mechanism in Commonwealth legislation. These provisions
are appropriate when such powers will assist in the administration of
Commonwealth legislation.
9.30 Clauses 300 and 312 override an individual's privilege against
self incrimination, but provides an individual with immunity such that
self-incriminatory disclosures cannot be used against the person who
makes the disclosure, either directly in court (known as `use' immunity)
or indirectly to gather other evidence against the person (known as
`derivative use' immunity) with limited exceptions [Part 17, clause 300]
[Part 19, Division 3, clause 312]. However, the information could be used
against a third party, such as an accomplice.
9.31 The effective administration of the Scheme is an issue of major
public importance with a significant impact on the Australian community
and business. Non-compliance could undermine the Scheme's capacity to
drive cuts in greenhouse gas emissions to meet Australia's international
climate change obligations, result in unfair competition between
compliant and non-compliant businesses, and reduce auction revenues
which are used to assist households and businesses adjust to the Scheme.
Clauses 300 and 312 enhance the ability of the Australian Climate Change
Regulatory Authority to monitor and ensure compliance with the Scheme
in a way that is consistent with the views of the Scrutiny of Bills
Committee, as well as Commonwealth legal policy regarding the privilege
against self-incrimination [Part 17, clause 300] [Part 19, Division 3, clause 312] .
9.32 Part 19 also addresses:
· Consent of the occupier, including limitations and
withdrawal of consent [Part 19, Division 4, clause 313]
· The announcement that must be made by an inspector before
entering premises under a monitoring warrant [Part 19,
Division 4, clause 314]
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Chapter 9: Compliance and enforcement
· The need to be in possession of the warrant to execute it
[Part 19, Division 4, clause 315]
· The requirement that the inspector provide a copy of the
warrant to the occupier who is present and inform him or her
of the rights and responsibilities of the occupier [Part 19,
Division 4, clause 316]
· Using expert assistance to operate electronic equipment
[Part 19, Division 4, clause 317]
· Compensation for damage to electronic equipment [Part 19,
Division 4, clause 318].
9.33 The occupier is entitled to observe the execution of a monitoring
warrant, but not if he or she impedes the execution [Part 19, Division 5,
clause 319].
9.34 The occupier must provide the inspector and persons assisting
the inspector with all reasonable facilities and assistance where there is a
monitoring warrant applying to the premises. Failure to do so is an
offence. The penalty is a maximum of 30 penalty units [Part 19, Division 5,
clause 320].
Monitoring warrants
9.35 The requirements for the issue of a monitoring warrant by a
magistrate and the content of the warrant are specified [Part 19, Division 6,
clause 321].
9.36 The power to issue a monitoring warrant is conferred on a
magistrate in his or her personal capacity. It need not be accepted but
when it is exercised the magistrate has the same protection and immunity
as if he or she were exercising the power as a member of the court of
which the magistrate is a member [Part 19, Division 7, clause 322].
Liability of executive officers of bodies corporate
9.37 Where a body corporate contravenes a civil penalty provision,
and its executive officer knew that (or was reckless or negligent as to
whether) the contravention would occur, the officer will be subject to a
civil penalty if he or she was in a position to influence the conduct of the
body corporate, in relation to the contravention, but failed to take all
reasonable steps to prevent it [Part 20, clause 324].
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Carbon Pollution Reduction Scheme Bill 2009
9.38 The phrase `executive officer' is defined to mean a director,
chief executive officer, chief financial officer or secretary of the body
corporate [Part 1, clause 5, definition of `executive officer'].
9.39 The terms `reckless' and `negligent' are explained for the
purpose of this provision [Part 20, clause 324(2) and (3)]. This is necessary
because the provisions are civil penalty provisions.
9.40 The Court may have regard to all relevant matters in
determining whether an executive officer failed to take all reasonable
steps. These matters may include what action (if any) the officer took
directed towards ensuring (to the extent that the action is relevant to the
contravention) that the body corporate arranges regular professional
assessments of its compliance with civil penalty provisions. The word
`professional' refers to the qualifications and experience of the person
undertaking the assessment and does not require, on every occasion, that
the assessment be undertaken by a person outside the organisation [Part 20,
clause 325].
9.41 Extended accessorial liability is appropriate in this context. The
aim is to ensure that compliance with obligations under the Scheme is
taken seriously at a high level within liable entities. Liability is not being
imposed simply because the person is an officeholder at the relevant time
but requires a degree of blame before a civil penalty can be imposed.
Example 1.1
A director or ch ief executive officer may be aware that his or her
company was failing to comp ly with its forest maintenance obligation
and was in a position to influence this conduct, but failed to take all
reasonable steps to prevent this contravention.
Example1.2
A chief financial officer could be aware that the company was quoting
a bogus OTN and receiving fuel without a carbon price, and was in a
position to influence this conduct, but failed to take all reasonable steps
to prevent this.
Administrative penalties and make good requirements
Unit shortfall
9.42 A liable entity may be liable because it is responsible for a
facility which has more greenhouse gas emissions than the threshold
amount in a particular year and for potential emissions from the fuel it
supplies as an upstream fuel supplier.
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Chapter 9: Compliance and enforcement
9.43 Each of these will generate a provisional emissions number.
9.44 In the first year of the scheme, the sum of a liable entity's
provisional emissions numbers will be the entity's emissions number.
9.45 If the liable entity does not surrender any or sufficient units by
15 December to meet its emissions number, then it will have a unit
shortfall [Part 6, Division 3, clause 130].
Administrative penalty and make good number -- unit shortfall
9.46 An administrative penalty is imposed for a unit shortfall [Part 6,
Division 4, clause 133].This is explained in more detail in Chapter 8 of this
explanatory memorandum. The entity will also have a `make good'
number for the following financial year [Part 6, Division 4, clause 142]. This
means that it will be required to surrender additional units in relation to
the following year, equivalent to the number that it failed to surrender in
relation to the initial year. The aim of this mechanism is to reinforce the
environmental integrity of the Scheme. Failure to surrender sufficient
units in the following year will, in turn, result in a further administrative
penalty and make good number.
9.47 The administrative penalty, referred to above, is $11 with
respect to the 2011-12 financial year [Part 6, Division 4, clause 133].
9.48 After that, it is calculated in accordance with the formula:
[Nu mber o f units in the unit shortfall] x [prescribed amount for the
current elig ible financial year]
9.49 The amount referred to in this formula is expected to be
prescribed by regulations. The maximum and default amount is 110 per
cent of the benchmark average auction price for the previous financial
year [Part 6, Division 4, clause 133].
9.50 The benchmark average auction price is calculated by the
Authority and published on its website as soon as practicable after the end
of each financial year [Part 6, Division 4, clause 133(3)]. It is the higher of (a)
the average auction price for units issued at all auctions in the relevant
year and (b) the average auction price for units issued at the last auction in
the relevant year [Part 6, Division 4, clause 141].
9.51 The administrative penalty is due and payable on 31 January
[Part 6, Division 4, clause 134] and from that date, a late payment penalty will
start accruing [Part 6, Division 4, clause 135]. The late payment penalty will be
calculated on the basis of 20 per cent per annum (or if a lower rate is
prescribed, that amount) of the amount that is unpaid. The rate of the late
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Carbon Pollution Reduction Scheme Bill 2009
payment penalty is likely to be set at a rate higher than the standard bank
lending rate [Part 6, Division 4, clause 135(1)].
9.52 The Authority is empowered to remit the late payment penalty in
part or in whole if it is satisfied that certain criteria are met. An example
of the criteria included is that there are special circumstances that make it
reasonable to remit some or all of the penalty [Part 6, Division 4,
clause 135(2)].
9.53 Other aspects of the surrender process are addressed in
Chapter 8 of this explanatory memorandum.
Administrative penalty -- relinquishment
9.54 The relinquishment mechanism is also described in Chapter 8 of
this explanatory memorandum.
9.55 Failure to relinquish units as required also results in an
administrative penalty [Part 15, Division 3, clause 287]. The administrative
penalty, referred to above, is calculated in accordance with the formula:
[Nu mber o f units required to be relinquished - number of
relinquished units] x [p rescribed amount for the relevant financial
year]
9.56 As in the case of the administrative penalty for a unit shortfall,
special provision is made for relinquishment requirements arising before
1 July 2012. If the requirement arose under the emissions-intensive
trade-exposed assistance program before 31 July 2012, then the
administrative penalty is $10 per unit of shortfall. If the requirement arose
before 1 July 2012, but is not connected with the emissions-intensive
trade-exposed program, then the administrative penalty is $20 per unit of
shortfall Part 15, Division 3, clause 287(3)].
9.57 In relation to other years, the penalty provisions refer to a
maximum and default amount. This is 200 per cent of the benchmark
average auction price for the previous financial year [Part 15, Division 3,
clause 287(3)]. The reason for having a higher multiple than for a unit
shortfall is that there is no make good requirement following a failure to
relinquish. A make good requirement is only appropriate where there is an
expectation that the entity will be a liable entity with respect to the next
financial year. Relinquishment may be required in situations where no
liable entity is involved, for example where a person has been issued units
for the destruction of synthetic greenhouse gases on the basis of false
information.
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Chapter 9: Compliance and enforcement
9.58 The administrative penalty is due and payable 30 days after the
compliance deadline [Part 15, Division 3, clause 287(4)].
9.59 From this point a late payment penalty will accrue [Part 15,
Division 3, clause 288]. The Authority is empowered to remit the late
payment penalty in part or in whole if it is satisfied that certain criteria are
met. An example of the criteria included is that there are special
circumstances that make it reasonable to remit some or all of the penalty
[Part 15, Division 3, clause 288(2)].
9.60 Other aspects of the relinquishment mechanism are addressed in
Chapter 8 of this explanatory memorandum.
Civil penalties
Which provisions are civil penalty provisions?
9.61 The majority of penalty provisions in the Scheme legislation are
civil penalty provisions. Ancillary contraventions, such as aiding a
contravention, are also civil penalty provisions.
List of civil penalty provisions
50A Notification of change of name or address of OTN holder
52 Mandatory quotation of OTN -- large user of fossil fuels
53 Mandatory quotation of OTN -- retailer of natural gas
54 Mandatory quotation of OTN -- liquid petroleu m gas marketer
55 Mandatory quotation of OTN -- use of liquid petro leu m gas as
a feedstock
65 Rejection of quotation of OTN -- re-supply of eligib le
upstream fuel
66A Unauthorised mandatory quotation of OTN
67 Misuse of OTN
68 Quotation of bogus OTN
163 Use and disclosure of information obtained fro m the Registry
164 Regulations about the Registry
173 Co mpliance with EITE reporting and record-keeping
requirements
225 Reforestation reports
226 Forest maintenance obligations
235 Notification requirement -- ceasing to hold carbon
sequestration right
293 Notification of significant holding -- controlling corporation of
a group
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Carbon Pollution Reduction Scheme Bill 2009
294 Notification of significant holding -- non-group entity
296 Regulator may obtain informat ion and documents
302 Record-keeping requirements -- general
303 Record-keeping requirements -- quotation of OTN
304 Record-keeping requirements -- rejection of quotation of OTN
324 Civil penalties for executive officers of bodies corporate
9.62 The first reason for choosing to make these civil penalty
provisions is that contraventions of these provisions do not involve
conduct of such serious moral culpability that criminal prosecution is
warranted. Further, as most liable entities are expected to be bodies
corporate, financial disincentives provided by civil penalties are likely to
be most useful and effective.
Civil penalty orders -- jurisdiction and amount
9.63 Both the Federal Court and competent State and Territory courts
can make civil penalty orders [Part 21, clause 326A].
9.64 It is for the Court to determine whether a person has contravened
a civil penalty provision and to order the person to pay a penalty [Part 21,
clause 327].
9.65 The maximum amount of the pecuniary penalty is specified, as
are the matters which the court is required may have regard to in
determining the amount of the penalty [Part 21, clauses 327(3) and (4)].
9.66 They include the nature and extent of the contravention,
previous contraventions, and, in the case of a body corporate, whether it
has exercised due diligence to avoid the contravention. These factors
reflect the approach indicated in A Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Powers. They follow the
Australian Law Reform Commission Report 95: Principled Regulation:
Federal Civil and Administrative Penalties in Australia.
9.67 For the majority of civil penalty provisions, the maximum is
10,000 penalty units for a body corporate and 2,000 penalty units for other
persons [Part 21, clause 327(4)(d) and (6)(c)]. The phrase `penalty unit' is
defined by reference to section 4AA of the Crimes Act 1914 [Part 1,
clause 5, definition of `penalty unit']. Currently, a penalty unit is $110.
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9.68 Exceptions to the above maximum penalty level are:
· the penalty for quotation of a bogus OTN [Part 3, Division 5,
clause 68(1) and (2)]) -- the greater of
- 10,000 penalty units for a body corporate or three times
the total value of the benefits obtained from the
contravention [Part 21, clause 327(5)]
- 2,000 penalty units for a person that is not a body
corporate [Part 21, clause 327(6)].
· The penalty for failure by an OTN holder to notify a change
or name or address [Part 3, Division 5, clause 50A]
- 500 penalty units for a body corporate [Part 21,
clause 327(4)(b)]
- 100 penalty units for other persons [Part 21, clause 327(6)(b)].
· the penalty on the supplier who accepts the quotation of an
OTN which is not on the register (a bogus OTN) [Part 3,
Division 5, clause 68(3) and (4)]
- 500 penalty units for a body corporate [Part 21, clause
327(4)(b)]
- 100 penalty units for other persons [Part 21, clause 327(6)(a)].
· the penalty for contravening provisions relating to `spam',
based on information obtained from the Registry (clause 163)
- 500 penalty units for a body corporate [Part 21, clause
327(4)(c)]
- 100 penalty units for other persons [Part 21, clause 327(6)(a)].
9.69 Adherence to requirements for reporting emissions and the use
of obligation transfer numbers (which determine whether an entity has a
liability under the scheme for fuel it receives), for example, will be
essential to maintaining the integrity of the Scheme and ensuring that
Australia meets current and future emissions reduction targets in
accordance with its international obligations.
9.70 Substantial penalties are therefore required to provide an
adequate deterrent against inaccurate record keeping or reporting, and
misuse of obligation transfer numbers. Substantial financial gains are
expected to be able to made from contravention of the obligations under
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Carbon Pollution Reduction Scheme Bill 2009
the Scheme. For example, the maximum penalty of 10,000 penalty units
(or $1,100,000) is equivalent to 44,000 emissions units at $25 per unit,
which may be a small proportion of the emissions number of many liable
entities covered by the Scheme.
9.71 The possible penalty for a body corporate for quoting a bogus
OTN is three times the total benefits that are reasonably attributable to the
contravention [Part 21, clause 327(5)]. The purpose is to ensure that the
penalty directly reflects the considerable profit that could be made from
quoting a bogus OTN, acquiring fuel without a carbon price, selling it on
the basis that the carbon price has been paid and not surrendering units to
the Authority as a holder of an OTN would usually be required to do. The
financial advantage to the entity quoting the bogus OTN is thus at the
expense of the Commonwealth.
9.72 Lower penalties apply to a supplier of fuel who fails to check an
obligation transfer number (as there is a greater onus on the user of the
OTN, ie the recipient of fuel supplies) and for the misuse of information
obtained from the registry [Part 21, clause 327(4)(b) and (6)(a)].
9.73 Amendments to the civil penalties included in the National
Greenhouse and Energy Reporting Act 2007 are included in the
consequential amendments bill. They reflect the significance of the
reporting and auditing regime for the Carbon Pollution Reduction Scheme
as a whole.
Evidential burden
9.74 There are two civil penalty provisions which are framed in such
a way as to alter the usual evidential burden.
9.75 The first is clause 163 which addresses misuse of information
obtained from the registry. It is framed as a broad prohibition with
exceptions to achieve the aim of restricting the uses to which this
information can be put [Part 7, Division 6, clause 163].
9.76 The second is clause 336 which relates to a mistake of fact and,
in general terms, provides that a person is not liable to have a civil penalty
order made against him for a contravention of a civil penalty provision if
the person considered whether or not facts existed and was under a
mistaken but reasonable belief about those facts and had those facts
existed, the conduct would not have constituted a contravention of the
civil penalty provision. A person who wishes to rely on the relevant
subsections bears an evidential burden in relation to that matter [Part 21,
clause 336].
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Chapter 9: Compliance and enforcement
9.77 This approach is justified where a matter is peculiarly within the
defendant's knowledge and not available to the prosecution. This is
particularly the case in mistake of fact and misuse of information from the
registry.
Continuing contraventions
9.78 A person who contravenes specified civil penalty provisions
which involve, for example, a requirement to do something within a
particular period, commits a separate contravention on each of the days on
which it fails to comply [Part 21, clause 338].
9.79 Generally, the penalty is limited to 5 per cent (each day) of the
penalty for the initial contravention. However, in the case of a
contravention of a requirement by the Authority to provide information or
documents [Part 17, clause 296(4)] the penalty is up to 10 per cent (each day)
of the penalty for the initial contravention [Part 21, clause 338(3)].
9.80 Other examples of provisions in relation to which continuing
contraventions can occur are those dealing with compliance with the
record-keeping requirements [Part 8, Division 3, clause 173] and a failure to
comply with a requirement from the Authority to provide information or
documents [Part 17, clause 296].
9.81 The Australian Climate Change Regulatory Authority needs to
have access to sufficient information to assess compliance. These
provisions will assist in achieving this.
Other provisions about civil penalties
9.82 While the Crown in each of its capacities is bound by the Act,
the Crown is not liable to a pecuniary penalty. This protection does not
apply to authorities of the Crown or to administrative penalties or late
payment penalties [Part 1, clause 9].
9.83 Other aspects of the civil penalty regime are also addressed in
Part 21. Of particular significance are:
· Only the Authority may apply for a civil penalty order
[Part 21, clause 328]
· A requirement that the rules of evidence and procedure for
civil matters be applied when hearing proceedings for a civil
penalty order [Part 21, clause 331]
9.84 Other provisions address the grouping of proceedings [Part 21,
clause 329], the
6 year time limit on initiating civil penalty proceedings
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Carbon Pollution Reduction Scheme Bill 2009
and the relationship between civil and criminal
[Part 21, clause 330]
proceedings initiated with respect to the conduct which is substantially the
same [Part 21, clauses 332 to 335].
9.85 The provisions also address the situation where the person who
contravenes the civil penalty provision was, for example, under the
mistaken belief about facts which, if true, would mean that there would
not have been a contravention of the civil penalty provision [Part 21,
clause 336].
9.86 Special provision is made for the state of mind of a person who
does not comply with a requirement of the Authority under clause 296(4),
for example, to give the Authority particular information [Part 21,
clause 337]. The reason for this provision is that it is reasonable to expect
those subject to the provision will take steps to guard against any
inadvertent contravention.
Criminal provisions
9.87 As indicated above, the provisions in the bill which are criminal
offences are only those involving such culpability that criminal penalties
are justified.
Criminal provisions
160 Making a false entry in the Registry
161 Falsified documents
307 Identity cards for inspector
311 Inspector may ask questions and seek production of documents
320 Occupier to provide inspector with facilities and assistance
340 Scheme to avoid existing liab ility to pay administrative penalty
341 Scheme to avoid future liability to pay admin istrative penalty
9.88 Those few provisions in this Bill which are framed as criminal
offences generally relate to behaviour which involves dishonest or
fraudulent conduct, or could involve considerable harm to society or the
environment.
9.89 Thus making a false entry in the Registry [Part 7, Division 6,
clause 160]includes hacking into the registry and moving emissions units
from account to account, or making entries for non-existent units. It could
have a profound impact on specific account holders and impact on the
functional integrity and reputation of the scheme. The maximum penalty
is 7 years or 2,000 penalty units, or both.
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Chapter 9: Compliance and enforcement
9.90 Liable entities are likely to have far more information about
their emissions than the Australian Climate Change Regulatory Authority,
particularly if they have failed to report. It is therefore essential for the
operation of the Regulator that the information gathering and monitoring
powers are adequate and that the requirements of inspectors are complied
with [Part 19, Division 3, clause 311] [Part 19, Division 5, clause 320] . The
maximum penalty for contravention of clause 311 (which relates to a
failure to answer questions or produce documents to an inspector) is
6 months' imprisonment or 30 penalty units or both. The maximum
penalty for contravention of clause 320 (which relates to assistance to an
inspector under a monitoring warrant) is 30 penalty units.
9.91 Entering into schemes aimed at ensuring that a body corporate
or trust will, for example, be unable to pay an existing or future liability to
pay an administrative penalty is a criminal offence [Part 22, clauses 340
and 341]. These provisions are comparable to those which apply in relation
to various taxes. They are aimed at artificial schemes involving, for
instance, `asset-stripping'.
9.92 The maximum penalties specified in these provisions are
10,000 penalty units or 10 years' imprisonment, or both. The maximum
penalties are justified by the considerable financial incentive to avoid
payment of liabilities under the scheme.
9.93 In general, the penalties are designed to ensure there is an
adequate penalty for the worst possible case.
9.94 The evidential burden is altered in one provision which relates to
the failure of an inspector to return his or her identity card promptly after
ceasing to be an inspector [Part 19, Division 2, clause 307]. This is justified
because the punishment is a fine of 1 penalty unit; the approach taken is
likely to significantly enhance the effectiveness of the enforcement regime
in deterring offences and it will place those appointed as inspectors on
notice to guard against the possibility of any contravention.
9.95 Ancillary contraventions, such as aiding a contravention, are
addressed by the Criminal Code.
9.96 As indicated above, the Crown in each of its capacities will be
bound by the Act, but the Crown is not liable to be prosecuted for an
offence. This protection does not apply to an authority of the Crown
[Part 1, clause 9].
9.97 In addition to the specific criminal provisions listed above,
conduct in relation to the Scheme may constitute contravention of
provisions of the Criminal Code. Conviction for an offence against
specified provisions of the Criminal Code is one of the preconditions for a
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Carbon Pollution Reduction Scheme Bill 2009
court order to relinquish units [Part 13, clause 280]. The offences specified
include making a statement in information provided to the Authority or in
an application for a benefit (such as free Australian emissions units),
knowing that it is false. An example is a false statement in an application
for a registry account or an obligation transfer number.
9.98 The specified provisions in the Criminal Code are also included
in the list of `associated provisions' [Part 1, clause 5, definition of `associated
provisions'].
9.99 Contravention of these provisions is therefore relevant to
recognition as a synthetic greenhouse gas destruction customer and
recognition as a reforestation entity. It is also relevant to the breadth of the
information gathering and monitoring powers of the Authority, and to the
matters which may be addressed in enforceable undertakings.
Enforceable undertakings
9.100 The Authority is empowered to accept enforceable undertakings
[Part 23, clause 343].
A person may, for example, undertake to take specified
action directed towards ensuring that the person complies with the Act.
9.101 Such undertakings are published on the Authority's website
[Part 23, clause 343(5)].
9.102 They are enforceable by the Authority in the Federal Court. The
Court has a wide discretion as to the orders it can make. These include an
order directing the person to comply with the undertaking [Part 23,
clause 344].
9.103 Enforceable undertakings are useful mechanisms for the
Authority to help ensure compliance without necessarily taking court
action. This power could be used when a liable entity has lodged
inadequate emissions reports and is found to have inadequate internal
systems to produce adequate reports to meet its obligations. It may be
willing to enter into an enforceable undertaking specifying the processes
which it would implement so that it can produce adequate reports in the
future.
Anti-avoidance provisions
9.104 While provisions referred to above address `asset-stripping',
other provisions address the avoidance of liability under the Scheme by
artificial schemes aimed to bring facilities or activities below thresholds.
A significant threshold which appears in a number of provisions in the bill
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Chapter 9: Compliance and enforcement
is 25,000 tonnes of greenhouse gas emissions per facility for direct
emitters.
9.105 Artificial schemes aimed at obtaining the benefit of this
threshold are addressed generally [Part 3, Division 2, clause 23] and in the
context of the synthetic greenhouse gas provisions [Part 3, Division 3,
clause 30].
9.106 The schemes to which these provisions refer are those entered
into or commenced after 15 December 2008, when the White Paper was
released.
Court orders to relinquish units
9.107 Following conviction for an offence against certain specified
provisions of the Criminal Code, the court may order that the offender
relinquish a specified number of Australian emissions units [Part 13,
clause 280]. Before making such an order, the court must be satisfied that
the issue of any or all of the units was attributable to the offence. The
provisions in the Criminal Code which are specified include section 137.1
which relates to giving false or misleading information to a
Commonwealth entity.
9.108 A person is required to comply with such an order even if he or
she is not the registered holder of any Australian emissions units [Part 13,
clause 280(5)].
9.109 The procedure for relinquishment is addressed in Part 15 of the
bill and Chapter 8 of this explanatory memorandum.
Example 1.3
SXG Ltd is a synthetic greenhouse gas destruction customer
recognised under the Scheme. In November 2012, SXG applies to the
Authority for a certificate of eligib le synthetic greenhouse gas
destruction, and knowingly includes false informat ion in the
application, regard ing the quantity of synthetic greenhouse gas
destroyed. As a result, the Authority issues to SXG a certificate and
200 mo re emissions units than SXG is entitled to.
The fraudulent conduct is discovered and SXG is found guilty of the
offence. SXG is exposed to the criminal penalty under section 136.1
(False or mislead ing statements in applications) of the Criminal Code.
The court also orders the company to relinquish 200 emissions units.
The Authority cancels the recognition of the company under
clause 257(1)(a).
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Carbon Pollution Reduction Scheme Bill 2009
SXG then fails to relinquish the units by the specified time, and is
further exposed to an administrative penalty of under clause 287 of the
bill. The relevant benchmark average auction price is $26. The
`prescribed a mount' for calculating the penalty is 200 per cent of this
price. The penalty is therefore $52 x 200 units = $10,400.
232
Chapter 10
The Australian National Registry of
Emissions Units
Outline of chapter
10.1 This chapter outlines the purposes and functions of the
Australian National Registry of Emissions Units (the Registry), the rules
for opening and closing accounts in the Registry, and the different types
of Registry accounts. The chapter also outlines the circumstances in which
an entry in the Registry may be corrected or rectified and outlines general
rules in relation to the Registry contained in Part 7 of the bill.
Context
10.2 The Registry serves two primary purposes:
· to track the issuance, holding, transfer, surrender,
cancellation, and retirement of emissions units under the
Scheme (emissions units are discussed in detail in Chapter 2
of this explanatory memorandum)
· to meet Australia's obligations under the Kyoto Protocol.
10.3 To hold and surrender units, a person must have an account in
the Registry. The Australian Climate Change Regulatory Authority (the
Authority) will be able to open an account in the Registry for any person
subject to their identity being confirmed.
10.4 Access to the Registry will be online. The Registry will enable
companies and individuals holding accounts to:
· view unit holdings
· receive units purchased at primary auctions or received via
allocation
· transfer units to other account holders
· surrender or relinquish units to meet Scheme obligations
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Carbon Pollution Reduction Scheme Bill 2009
· cancel units in order to help reduce emissions on a voluntary
basis.
10.5 Some information held in the Registry will be published on the
Authority's website and on the Liable Entities Publication Information
Database. (Public information is discussed in detail in Chapter 12 of this
explanatory memorandum.)
10.6 Participants may trade in units for reasons other than compliance
with the Scheme. They will be able to hold and transfer any type of Kyoto
unit, regardless of whether it can be surrendered to meet Scheme
obligations.
10.7 Australia is required, as part of its obligations under the Kyoto
Protocol and other Kyoto rules, to have a national registry to ensure
accurate accounting of the issuance, holding, transfer, acquisition,
cancellation, and retirement of Kyoto units. Australia's Registry, with
functionality required to meet Kyoto obligations, was established and
linked to the international Kyoto Protocol registry system in December
2008 but the registry is not yet operational.
10.8 The continued existence of the Registry in the context of the
commencement of the bill is provided for in Part 7. [Part 7, Division 2,
clause 145] The remainder of this chapter outlines the provisions in Part 7
of the bill that will govern the Registry.
Summary
10.9 The Registry will be maintained by electronic means by the
Authority. The Registry will have a dual function -- namely, to act as a
registry for Australian emission units and Australia's national registry for
Kyoto units.
10.10 A person will be able to open an account in the Registry where
they can hold Australian emissions units, Kyoto units and, when
prescribed, non-Kyoto international emissions units.
10.11 The Commonwealth will also have a number of accounts for the
purposes specified by the Kyoto rules.
10.12 A simplified outline of the Registry provisions is provided in
clause 144 of Part 7. [Part 7, Division 1, clause 144]
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Chapter 10: The Australian National Registry of Emissions Units
Detailed explanation of new law
Registry
10.13 The Registry which is established under the Commonwealth's
executive power before the commencement of the legislation will
continue in existence after commencement of the legislation. [Part 7,
Division 2, clause 145]
10.14 The Registry will have a dual function -- namely, to act as a
registry for Australian emission units and Australia's national registry for
Kyoto units. [Part 7, Division 1, clause 145]
10.15 The Registry must be maintained by electronic means by the
Authority. This is consistent with Kyoto rules, which requires that a Party
to Kyoto's national registry be in the form of a `standardized electronic
database which contains, inter alia, common data elements relevant to the
issuance, holding, transfer, acquisition, cancellation and retirement of
Kyoto units.' [Part 7, Division 2, clause 145(2)-(3)]
10.16 The Registry must set out the total amount of Australian
emissions units in each Registry account that have the same vintage year.
[Part 7, Division 3, clause 151]
Registry accounts
10.17 The rules in relation to Registry accounts are contained in
Division 3 of Part 7 of the bill. A person must have a Registry account in
order to hold Australian emissions units or Kyoto units, as emissions units
only exist within the electronic registry system. As the administrator of
the Registry, the Authority will open registry accounts in the name of a
particular person.
General rules
10.18 Each Registry account will be identified by a unique number,
known as the `account number' of the Registry account. [Part 7, Division 3,
clause 146]
10.19 A person may have one or more Registry accounts. [Part 7,
Division 3, clause 146 (4)]
10.20 A Registry account, held immediately before the
commencement of the bill, will continue in existence after
commencement. This ensures that a person's Registry account, and the
units contained in the account, will be recognised under the bill when it
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Carbon Pollution Reduction Scheme Bill 2009
commences. (See Item 95, Part 1, Schedule 1 of the draft consequential
amendments bill.)
Opening accounts -- general
10.21 The Authority may, upon the request of a person, open a
Registry account in the name of that person. This allows the Authority to
identify the legal entity who wishes to open an account and will be
responsible for the units held in that account.
10.22 The Authority may open an account in the name of a particular
person where:
· the person requests the Authority to open a Registry account
in the person's name in accordance with the relevant
requirements contained in regulations, and
· that request is accompanied by the fee (if any) that is
specified in a legislative instrument made by the Authority
for the purposes of that application, and
· the Authority has carried out the `applicable identification
procedure' in respect of the person.
[Part 7, Division 3, clause 147]
10.23 Applicable identification procedure will have the meaning as
specified in the regulations. [Part 1, clause 5, definition of applicable identification
procedu re] The purpose of requiring the Authority to carry out an
identification procedure is to ensure that the Authority can be satisfied of
a particular person's identity before opening an account for that person.
10.24 Once a person has opened an account, the registry is designed to
allow that person to designate agents to act on its behalf in relation to that
account. Examples of agents include employees of a company that have
the statutory power to act on behalf of that company, brokers that have a
contract with a person to act on that person's behalf and a person that has
the power of attorney for the person that holds the account.
Closure of accounts -- general
10.25 The Authority must close a person's Registry account if:
· there are no entries for any Australian emissions units, Kyoto
units and non-Kyoto units in the account, and
· the person requests the Authority to close the account.
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Chapter 10: The Australian National Registry of Emissions Units
[Part 7, Division 3, clause 152]
10.26 Australian emissions units, Kyoto units and non-Kyoto
international emissions units only exist electronically within the Registry
system. That is, they will always be in a registry account within the
(Australian) Registry or a foreign registry while they exist. Consistent
with this it will not be possible to close accounts that continue to hold any
units as such units cannot exist without the Registry account.
Change of a person's name
10.27 If a Registry account holder changes their name, they can apply
in writing to the Authority to have their name changed in the Registry. If
satisfied that the person's name has changed, the Authority must make the
necessary alterations in the Registry. [Part 7, Division 4, clauses 153-154]
Opening Commonwealth Registry accounts
10.28 This section outlines Australia's obligations regarding the
opening of Commonwealth Registry accounts. It does not apply to
companies or individuals.
10.29 The Kyoto rules stipulate that each Party's registry must contain
several specific types of accounts to facilitate the tracking of units and
registry transactions by the international transaction log. The mandatory
account types for each national registry are:
· holding account(s): each registry must contain at least one
account for holding the Party's Kyoto Protocol units. If, like
Australia has, the Party has authorised legal entities to
participate in the Kyoto mechanisms, then the registry must
also contain a separate holding account for each legal entity
· a retirement account into which the Party must transfer units
that it intends to use to meet its Kyoto target
· cancellation accounts: each registry must contain four
distinct types of cancellation accounts:
- a net source cancellation account that is reserved for units
that the Party cancels to account for net emissions for
forestry activities under Articles 3.3 and 3.4 of the Kyoto
Protocol
- a non-compliance cancellation account reserved for
transfer of units when the Compliance Committee
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Carbon Pollution Reduction Scheme Bill 2009
determines that the Party is in non-compliance with its
Article 3.1 commitment under the Kyoto Protocol
- a voluntary cancellation account for voluntary
cancellation of units not required by the Kyoto Protocol
rules
- a mandatory cancellation account for cancellation of
invalid units.
· replacement accounts: each registry must also contain at least
four replacement accounts:
- a temporary certified emission reduction replacement
account to receive units used to replace expired temporary
certified emission reductions
- a long-term certified emission reduction replacement
account to receive units used to replace expired long-term
certified emission reductions
- a long-term certified emission reduction replacement
account to receive units to account for emissions where a
long-term certified emission reduction has been subject to
a reversal of storage
- a long-term certified emission reduction replacement
account to receive units used to replace long-term
certified emission reductions for which a required
certification report has not been submitted.
10.30 The replacement of Kyoto units is discussed in more detail in
Chapter 2 of the explanatory memorandum.
10.31 The bill provides for Commonwealth Registry accounts with
designations for each of the mandatory accounts. In the event that the
Kyoto rules require a further mandatory account at some point in the
future it can be added to the designated Commonwealth account by
regulations. [Part 7, Division 3, clause 148]
10.32 New Commonwealth registry accounts can be opened at the
direction of the Minister. [Part 7, Division 3, clause 149]
10.33 Transitional provisions relating to Commonwealth registry
accounts are included in the draft consequential amendments bill.
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Chapter 10: The Australian National Registry of Emissions Units
10.34 Kyoto units that have been transferred to a retirement account, a
cancellation account, or a replacement account cannot be transferred
further. For example, a Party would only transfer a Kyoto unit to the
retirement account if it intended to use that unit to meet its Kyoto target.
This is because it would undermine the compliance regime of the Kyoto
Protocol if Kyoto units that had been retired could then be transferred for
an additional use. Similarly, Kyoto units transferred to a cancellation
account are for all intents and purposes cancelled, and therefore cannot be
transferred to a further account. Consistent with this, the bill provides that
Kyoto units in Commonwealth accounts designated as a retirement
account, cancellation account, or replacement account, cannot be
transferred or surrendered. [Part 7, Division 3, clause 150]
Correction and rectification of Registry
Clerical errors / obvious defects
10.35 The Authority may alter an entry in the Registry for the purposes
of correcting a clerical error or obvious defect. [Part 7, Division 5, clause 155]
Examples of clerical errors or obvious defects include a typographical
error or an entry which is clearly incorrect. The purpose of the provision is
to allow the Authority to make a correction of an uncontroversial nature
without having to consult the affected parties.
Kyoto units and non-Kyoto international emissions units
10.36 The Authority may also make such alterations to the Registry as
the Authority considers appropriate for the purposes of ensuring that the
relevant provisions of the Kyoto rules or the relevant provisions of an
international agreement, to the extent that the agreement relates to a
non-Kyoto international emissions unit, are complied with. [Part 7,
Division 5, clauses 157-158]
10.37 The Authority may make the alterations as a result of a request
by a person to alter the Registry, or on the Authority's own initiative.
[Part 7, Division 5, clause 157-158(2)]
10.38 In these circumstances, the Authority is not required to consult
with persons whose interests could be affected by the alteration.
10.39 Where the Authority alters the Registry under these provisions,
the Authority must publish a notice on the Authority's website setting out
the details of the alteration. [Part 7, Division 5, clause 157-158(3)]
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Carbon Pollution Reduction Scheme Bill 2009
Rectification of Registry
10.40 A decision of the Authority to correct an entry in the Registry is
a `reviewable decision'. This means that, if the decision is made by a
delegate of the Authority, a person may apply to the Authority for review
of that decision in the first instance, and may also apply to the
Administrative Appeals Tribunal if the Authority affirms or varies the
decision. [Part 24, clauses 346-348 and 350]
10.41 A person aggrieved by one of the following matters may make
an application for rectification of the Registry to the Federal Court in
respect of:
· the omission of an entry
· an entry made without sufficient cause
· an entry wrongly existing
· an error or defect in an entry
· an entry wrongly removed.
10.42 The Authority may also apply to the Federal Court for a
rectification order if the Authority is concerned about any of those
matters. This is designed to provide a mechanism for the Authority to
resolve problems with entries in the Registry which go beyond its powers
to resolve clerical errors or obvious defects.
10.43 The Authority must comply with an order of the court directing
rectification of the Registry. The purpose of this provision is to allow a
person to apply directly to the Federal Court for an order for rectification
of the Registry. [Part 7, Division 5, clause 159]
Miscellaneous provisions
10.44 A person commits an offence if the person makes causes or
concurs in the making of an entry in the Registry which the person knows
is false. [Part 7, Division 6, clause 160] It is also an offence to tender in
evidence a document which falsely purports to be a copy or extract from
an entry in the Registry or of an instrument given to the Authority under
Part 7. [Part 7, Division 6, clause 161]
10.45 The purpose of these provisions is to maintain the integrity of
the Registry and to ensure that it accurately reflects unit holdings and
actions such as transfers. The rationale for penalties applying to these
offences is provided in Chapter 9 of this explanatory memorandum.
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Chapter 10: The Australian National Registry of Emissions Units
10.46 The Authority may supply a copy of or extract from the Registry
or any instrument lodged with the Authority under Part 7, certified by an
official of the Authority, which will be admissible in all courts and
proceedings without further proof of the original. This facilitates
proceedings by avoiding the need to produce an original. [Part 7, Division 6,
clauses 162-163]
10.47 A person must not use or disclose information obtained from the
Registry about another person to contact or send material to them, unless
the information is relevant to the holding, or rights associated with the
holding of, Australian emission units or Kyoto units recorded in the
Registry. This is a civil penalty provision and is analogous to the
limitation on the use of share registry data and is included to prevent the
use of Registry data for purposes such as advertising (spam). [Part 7,
Division 6, clause 163]
10.48 Many actions in relation to the Registry, such as the transfer of
units may be done through electronic means only. An electronic notice
transmitted to the Authority is defined in the bill. Regulations may
prescribe requirements in relation to the security and authenticity of
notices transmitted to the Authority including identification checking
processes and encryption of those processes. This is to give the Authority
the power to determine the level of encryption and identification checking
required for different actions in order to maintain the integrity of the
Registry.
10.49 If an electronic notice is transmitted to the Authority it is taken
to have been transmitted on the day on which the electronic
communication is sent. For example, an email sent to the Authority at
6:45 pm on Friday that waits on the server (not downloaded) until
Monday morning will be taken as sent at 6:45 pm on Friday. This will
provide certainty for the sender. [Part 1, clause 8]
10.50 Regulations may make further provision in relation to the
Registry. [Part 7, Division 6, clause 164] It is expected that regulations will be
required to set out detailed rules for the use of accounts and the registry.
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Chapter 11
Public information
Outline of chapter
11.1 This chapter relates to the various requirements in the bill for
information to be made public.
11.2 Its focus is Part 12 of the bill.
Context
11.3 For units to flow to their highest value uses, their price needs to
reflect all available information. This will provide a price signal that will
inform business investment.
11.4 Provision of relevant market information and predictable
medium-term policy will assist Scheme participants and financial market
analysts to identify and understand the overall supply and demand
conditions for units, allowing efficient price discovery.
11.5 Announcements by the Government and Authority about, for
example, policy decisions, reported emissions and other information are
of particular significance in this context. However, the decision to allow
unlimited imports and surrender of certain types of international units will
also be relevant to the degree of price-sensitivity of domestic
announcements.
Summary
11.6 The bill includes provisions which will require the public
disclosure of information about Scheme operations, emissions,
participants and compliance.
11.7 Part 12 of the bill includes a simplified outline [Part 12, Division 1,
clause 260].
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Carbon Pollution Reduction Scheme Bill 2009
Detailed explanation of new law
11.8 Information will be made publicly available regarding liable
entities, holders of Registry accounts and regarding units (Part 12).
Information about liable entities
11.9 The Authority will keep a database known as the Liable Entities
Public Information Database [Part 12, Division 2, clause 261].
11.10 Since liability in some situations is determined at the end of the
financial year, it is not completely certain at any one point during the year
which entities will be liable. For this reason, the test for inclusion on the
Database is whether the Authority has reasonable grounds to believe that a
person is or is likely to be a liable entity for a particular financial year
[Part 12, Division 2, clause 262]. When the Authority makes such an entry, it
must give written notice of it to the person [Part 12, Division 2, clause 262(1A)].
There is provision for removal of entries [Part 12, Division 2, clause 262(2)]
and for correction of the Database [Part 12, Division 2, clause 268].
11.11 The Database will also include the emissions number (from a
report under the National Greenhouse and Energy Reporting Act 2007 or
an assessment or amended assessment of the Authority) [Part 12, Division 2,
clause 263].
11.12 Details of the number and types of units surrendered by each
liable entity will be included on the Database [Part 12, Division 2, clause 266].
The number of units relinquished will also be included [Part 12, Division 2,
clause 267C].
11.13 Unit shortfalls and relinquishment requirements will also be
entered on the Database, but there is provision for annotations indicating
that particular decisions are under review [Part 12, Division 2, clause 264][ Part
12, Division 2, clause 267A]. In addition, unpaid administrative penalties for
unit shortfalls will be included [Part 12, Division 2, clause 265] as will unpaid
penalties for failure to relinquish [Part 12, Division 2, clause 267B].
11.14 The number of voluntarily cancelled Australian emissions units,
Kyoto units or non-Kyoto international emissions units by a liable entity
will be entered separately on the Database [Part 12, Division 2, clause 267].
11.15 The purpose of disclosing this information is to ensure that the
market is fully informed about the demand for eligible emissions units.
11.16 As well as the information about emissions units voluntarily
cancelled by liable entities, which is referred to above, the Authority is
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Chapter 11: Public information
required to publish comparable information about emissions units
voluntarily cancelled by other persons [Part 12, Division 5, clause 278A-278C].
11.17 Comparable information about relinquishment requirements for
persons other than liable entities will also be made public. The
information is about relinquishment requirements [Part 12, Division 2,
clause 278D], unpaid administrative penalties following a requirement to
relinquish [Part 12, Division 2, clause 278E] and about the number of units
relinquished [Part 12, Division 2, clause 278F].
Information about holders of Registry accounts
11.18 The Authority will publish on its website the name of each
person with a Registry account and the person's address last known to the
Authority [Part 12, Division 3, clause 269].
11.19 The holding within an account which includes only Australian
emissions units will not be published.
11.20 Further information is required by the Kyoto Rules to be
published about Kyoto unit holdings. This is addressed below.
Information about units
11.21 The Authority is required to publish information about:
· the charge per unit issued as a result of an auction and the
number of units issued for that charge [Part 12, Division 4,
clause 270]
· the aggregate number of units issued at a fixed charge in each
of the periods when this facility is available [Part 12, Division 4,
clause 272]
· the identity of recipients and the number of units provided
free of charge under the emissions-intensive trade-exposed
program, for coal-fired electricity generation, reforestation or
the destruction of synthetic greenhouse gas [Part 12, Division 4,
clause 273].
11.22 In addition, the Authority must publish various aggregate
figures:
· relating to the issue of free Australian emissions units [Part 12,
Division 4, clause 274]
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Carbon Pollution Reduction Scheme Bill 2009
· the surrender of borrowed and banked eligible emissions
units [Part 12, Division 4, clause 275]
· total emissions numbers and unit shortfalls [Part 12, Division 4,
clause 277].
11.23 The Authority will be required to publish the information
specified in the regulations which is required to be published by the Kyoto
Rules. It is also required to publish information about the total number of
certified emissions reductions and emission reduction units in the
Australian registry [Part 12, Division 4, clause 276].
Information about significant holdings
11.24 Where the members of a controlling corporation's group hold a
total of 5 per cent or more of the national scheme cap number for the
particular vintage year, then the controlling corporation must give written
notice of this to the Authority [Part 16, clause 293]. In other cases, the
obligation rests on the entity holding the units [Part 16, clause 294]. These
are civil penalty provisions which also address ancillary contraventions.
11.25 The Authority must publish the notices on its website [Part 16,
clauses 293(6) and 294(6)].
11.26 This provides additional information to the market which may
be relevant to price.
11.27 Part 16 of the bill, which relates to significant holdings, includes
a simplified outline [Part 16, clause 292].
Other information
11.28 Other sources of information about the Scheme and its
participants include:
· The Obligation Transfer Number Register [Part 3, Division 5,
clause 49]
· The Register of Reforestation Projects [Part 10, Division 13,
clause 238]
· Publication of the `benchmark average auction price' by the
Authority (which relates to setting the administrative penalty
for unit shortfalls and failure to relinquish units) [Part 6,
Division 4, clause 133(3)]
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Chapter 11: Public information
· Publication of each certificate of eligibility for coal-fired
generation assistance [Part 9, Division 3, clause 180(6)]
· Publication of a list of large landfill facilities [Part 12,
Division 7, clause 278G]
· Publication monthly of information about the average auction
price over the last 6 months (which is relevant to the
adjustments to fuel taxes which will take place every 6
months) [Part 12, Division 4, clause 271].
11.29 Related legislation also permits disclosure of relevant
information. This includes:
· Clause 52 of the Australian Climate Change Regulatory
Authority Bill, for example, will also permit the disclosure of
summaries and statistics of protected information, if they are
not likely to enable the identification of a person
· The National Greenhouse and Energy Reporting Act 2007,
which is to be amended by the consequential amendments)
bill.
11.30 In addition, the Authority will be required to publish a statement
setting out a concise description of the characteristics of Australian
emissions units and eligible international units [Part 12, Division 4, clause 278].
11.31 This statement will assist in providing information to retail
investors about emissions units. No product disclosure statement or
prospectus would be issued by the Commonwealth under the relevant
provisions of the Corporations Act 2001 in relation to Australian
emissions units.
247
Chapter 12
Independent reviews
Outline of chapter
12.1 Part 25 of the bill provides for independent reviews of the
Carbon Pollution Reduction Scheme (the Scheme). A simplified outline is
at [Part 25, Division 1, clause 352].
Context
12.2 The Scheme is a significant, long-term reform. It is essential that
regular, expert, independent and public reviews are carried out to ensure
the integrity of the Scheme.
12.3 In particular, such reviews are required to provide a considered
basis for periodic decisions on whether to maintain, change or extend
national targets and Scheme caps.
Summary
12.4 Expert advisory committees will be constituted periodically to
conduct public reviews of the Scheme. The bill sets out the matters such
committees must address in their reviews. These include the effectiveness
and efficiency of the Scheme and whether national targets relating to
emissions of greenhouse gases should be changed or extended.
12.5 The first review will be completed by 30 June 2014, so that any
improvements to the Scheme can be made before the start of the fifth year
of the Scheme on 1 July 2015. Subsequent reviews must be carried out
and completed every five years.
12.6 Expert advisory committees must make provision for public
consultation, and once a review report is complete it must be tabled in
Parliament. The Commonwealth Government must also table a response
to any recommendations made by the expert advisory committee. These
requirements will ensure a high level of transparency and openness in the
conduct of the reviews and in the Government's response to the reviews.
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Carbon Pollution Reduction Scheme Bill 2009
12.7 In addition to the periodic reviews of the Scheme, the Minister
may at any time commission special reviews to investigate matters
identified by the Minister.
12.8 The bill contains provisions directed towards ensuring that
expert advisory committees:
· have appropriate expertise
· are independent
· are appropriately resourced.
Detailed explanation of new law
12.9 The bill provides for the establishment of expert advisory
committees to carry out five-year, mandatory reviews of the Scheme. In
addition, such committees can carry out special reviews of particular
matters relating to the Scheme.
12.10 The bill sets out:
· timelines for periodic reviews
· the terms of reference for periodic reviews
· provision for special reviews, if required
· a requirement for public consultation
· a requirement to table review reports in Parliament
· a requirement to table responses to review report
recommendations in Parliament
· provisions directed towards ensuring that review
committees
- have appropriate expertise
- are independent
- are appropriately resourced.
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Chapter 12: Independent reviews
Periodic reviews
12.11 The first periodic review must be completed before the end of
30 June 2014. [Part 25, Division 2, clause 353(2)]
12.12 Subsequent periodic reviews must be completed each five years,
measured from the tabling of the Government's response to the previous
review. [Part 25, Division 2, clause 353(3)]
12.13 For the purposes of these timelines, a review is `completed'
when the report of the review is given to the Minister . [Part 25, Division 2,
clause 353(4)]
12.14 Periodic reviews must review certain matters set out in the bill
[Part 25, Division 2, clause 353(1)] . These matters, which are set out in detail in
the bill, include:
· the effectiveness and efficiency of the Scheme
· whether national targets relating to emissions of greenhouse
gases should be changed or extended
· the regulations that should be made for the purposes of
setting national scheme caps and gateways
· the emissions-intensive, trade-exposed assistance program
· the arrangements for the governance and implementation of
the Scheme
· such other matters relating to the Scheme, if any, that the
Minister specifies.
12.15 Matters relating to the emissions-intensive, trade-exposed
program are set out in some detail and are described below . [Part 25,
Division 2, clause 353(1)(h)]
12.16 As noted above, the Minister may specify additional matters an
expert advisory committee must review. The bill provides that the
instrument by which the Minister specifies additional matters is not a
legislative instrument. [Part 25, Division 2, clause 353(7)] This is declaratory of
the law, rather than being an exemption from the Legislative Instruments
Act 2003.
12.17 The report resulting from a review may set out recommendations
to the Commonwealth Government. In formulating a recommendation for
particular action, the expert advisory committee must assess the costs and
benefits of the action. [Part 25, Division 2, clause 354(4)]
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Carbon Pollution Reduction Scheme Bill 2009
Review of matters related to the emissions-intensive trade-exposed
assistance program
12.18 The package of new measures for the Scheme, announced by the
Prime Minister's on 4 May 2009, included commitments relating to the
conduct of reviews of the emissions-intensive trade-exposed assistance
program, which amended and built on the White Paper.
12.19 The Government has given legislative expression to these
commitments as outlined in the table below. The commitments are set out
in the column on the left as they appear in Attachment A of the
4 May 2009 press release by the Prime Minister, the Treasurer and the
Minister for Climate Change, titled Carbon Pollution Reduction Scheme:
Support in Managing the Impact of the Global Recession.
Paragraph in Attachment A of Relevant clause in bill
the 4 May 2009 press release
When conducting their five- 353(1) Reviews of the following matters are to be
yearly emissions-intensive trade- conducted by an expert advisory committee:
exposed reviews, the Expert (h) the emissions intensive trade exposed
Advisory Committee will assistance program, including:
consider the following issues
(amending and building on the
position in the White Paper):
(a) the review of eligibility whether additional activities should be identified
assessment for activities (e.g. as emissions intensive trade exposed activities,
taking into account falls in having regard to changes in the coverage of the
commodity prices etc as outlined carbon pollution reduction scheme, commodity
in policy position 12.8 in the price movements and any other relevant matters
White Paper)16 [Part 25, Division 3, clause 355(1)(h)(i)]
(b) whether modifications should whether the assistance provided under the
be made to the emissions- emissions intensive trade exposed assistance
intensive trade-exposed program is an appropriate means of giving effect
assistance program on the basis to the aim and objects of Part 8
of whether it continues to be [Part 25, Division 3, clause 355(1)(h)(ii)]
consistent with the rationale for whether the emissions-intensive trade-exposed
assistance or is conferring assistance program supports the competitiveness
windfall gains on entities of emissions-intensive trade-exposed activities
conducting activities carried on in Australia.
[Part 25, Division 3, clause 355(1)(h)(iii)]
16
White Paper policy position 12.8 refers to both commodity price movements and the
possible extension of the Scheme to cover agricultural emissions to be decided no e arlier
than 2013.
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Chapter 12: Independent reviews
the extent to which persons carrying out
emissions-intensive trade-exposed activities in
Australia have been able to pass on cost increases
resulting from the carbon pollution reduction
scheme
[Part 25, Division 3, clause 355(1)(h)(vi)]
whether the emissions-intensive trade-exposed
assistance program is conferring windfall gains on
persons carrying out emissions-intensive trade-
exposed activities in Australia
[Part 25, Division 3, clause 355(1)(h)(vii)]
(c) the extent to which the the extent to which the carbon pollution reduction
Scheme has resulted in an scheme has resulted in an increase in the cost of
increase in the cost of electricity electricity, and the extent to which the increased
and the extent of pass through to cost has been passed through to persons carrying
entities conducting emissions- on emissions-intensive trade-exposed activities in
intensive trade-exposed activities Australia
[Part 25, Division 3, clause 355(1)(h)(v)]
(d) the extent to which the extent to which persons carrying out
emissions-intensive trade- emissions-intensive trade-exposed activities in
exposed firms are making Australia are making progress towards world best
progress towards world's best practice energy and emissions efficiency for the
practice energy and emissions industry sector to which those activities relate
efficiency for their industry [Part 25, Division 3, clause 355(1)(h)(iv)]
sector
(e) the future shape of the permit the provisions that should apply in relation to the
price cap, recognising the need to issue of Australian emissions units for a fixed
balance the development of charge (to act as a price cap)
market mechanisms and business [Part 25, Division 3, clause 355(1)(ea)]
certainty
(f) international developments, whether sufficient measures (to reduce emissions
including the extent to which in respect of markets in which emissions -intensive
Australia has entered trade-exposed activities compete) have been, or
international agreements, are likely to be, implemented and, if so, how
tangible emissions abatement assistance under the emissions intensive trade
commit ments have been made by exposed assistance program may be terminated
countries which compete with [Part 25, Division 3, clause 355(1)(h)(viii)]
emissions-intensive trade- whether sufficient measures (to reduce emissions
exposed industries, and major in respect of foreign countries that are responsible
partners or competing countries for the substantial majority of the world's
have introduced carbon emissions) have been, or are likely to be,
constraints into their own implemented and, if so, how assistance under the
economies emissions-intensive trade-exposed assistance
(g) whether broadly comparable program may be terminated
carbon constraints (whether [Part 25, Division 3, clause 355(1)(h)(ix)]
imposed through an explicit This wording reflects that, to give effect to the aim
carbon price or by other and object of Part 8 as a whole, the assessment of
regulatory measures) are the sufficiency of industry or economy wide
applying internationally, at either market or regulatory measures to reduce emissions
an industry or economy-wide will need to draw upon analysis of carbon prices
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Carbon Pollution Reduction Scheme Bill 2009
level, or an international and shadow carbon prices imposed by those
agreement involving Australia measures in major economies. It will also need to
and all major emitting economies draw heavily upon the state of international
is concluded, in which case the developments at that point in time to determine
Committee would make what measures are likely to be implemented.
recommendations to Government Accordingly, as announced, the Government
with regard to the withdrawal of intends to commission detailed work on this
EITE assistance; this assessment initially from the Productivity Commission to
will draw on analysis by an inform the review.
independent expert body This analysis will then allow the expert advisory
(initially the Productivity committee to make an assessment of whether there
Commission) of quantitative are broadly comparable carbon constraints such
measures of carbon prices or that the assistance is no longer warranted to meet
shadow carbon prices in major its primary aim and objects.
economies
As a matter of policy, the Minister would direct
the expert advisory committee to consider all of
the elements of paragraphs (f) and (g) of the press
release in coming to judgements about `sufficient
measures'. (Under clause 353(1)(j), the Minister
may refer `other matters' that relate to the Scheme
to the expert advisory committee).
Five years' notice will be whether any changes should be made to the
provided for any modifications to emissions-intensive trade-exposed assistance
the EITE assistance program, program as a result of consideration of a matter
unless the modifications were mentioned in any of the above subparagraphs and,
required for compliance with if so, the timing of those changes having regard to
Australia's international trade the general principle that industry should be given
obligations. at least 5 years notice of material changes to the
provision of assistance under the program
[Part 25, Division 3, clause 355(1)(h)(x)]
As a matter of policy, the Government will meet
the commitment in this statement. The term
`material changes' is used to allow technical
amendments to be made to the program in a timely
manner.
The continuation of the Global The bill provides for the expert advisory
Recession Buffer beyond five committee to review other matters specified by the
years will be reviewed in light of Minister in a written instrument that relate to the
domestic and international Scheme. As a matter of Government policy, this
economic conditions and other issue will be referred to the first five-yearly
relevant factors. review.
[Part 25, Division 3, clause 355(1)(j)]
A price cap will apply from the provisions that should apply in relation to the
commencement of the Carbon issue of Australian emissions units for a fixed
Pollution Reduction Scheme, charge (to act as a price cap)
with the 5-year EITE review to [Part 25, Division 3, clause 355(1)(ea)]
look at whether the price cap (The price cap is provided for in clause 89 of the
should continue into the future. Bill.)
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Chapter 12: Independent reviews
Special reviews
12.20 In addition to the mandatory periodic reviews, the Minister may
request an expert advisory committee to conduct a review of any specified
matter related to the Scheme. [Part 25, Division 3, clause 355(1)]
12.21 The bill provides that the instrument by which the Minister
specifies additional matters for review is not a legislative instrument.
[Part 25, Division 2, clause 355(4)] This is declaratory of the law, rather than
being an exemption from the Legislative Instruments Act 2003.
12.22 Routine reviews of administrative or operational matters may
also be undertaken to ensure the effective delivery of the Scheme. No
specific legislative powers are required to undertake such reviews.
Public consultation
12.23 Advisory committees must make provision for public
consultation in conducting a review. [Part 25, Division 2, clause 353(5)] [Part 25,
Division 3, clause 355(2)]
Tabling of review reports
12.24 An expert advisory committee will provide its report to the
responsible Minister. [Part 25, Division 2, clause 354(1)] [Part 25, Division 3,
clause 356(1)]
12.25 The Minister must, within 15 sitting days of receiving the report,
cause the report to be tabled in both Houses of Parliament . [Part 25,
Division 2, clause 354(2)] [Part 25, Division 3, clause 356(2)]
Government response to review reports
12.26 If a report makes recommendations to the Commonwealth
Government, the Government must respond to those recommendations as
soon as practicable. This response must be tabled in each House of
Parliament within 6 months from receipt of the report. [Part 25, Division 2,
clause 354(6)-(7)] [Part 25, Division 3, clause 356(6)-(7)]
Membership
12.27 An advisory committee must have three to five members,
including the Chair. [Part 25, Division 4, clause 359] They are appointed by
the Minister [Part 25, Division 4, clause 357] for the period, not exceeding
five years, specified in the instrument [Part 25, Division 4, clause 361].
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Carbon Pollution Reduction Scheme Bill 2009
12.28 The bill provides that the instrument by which the Minister
appoints an advisory committee member is not a legislative instrument.
[Part 25, Division 2, clause 355(4)] This is declaratory of the law, rather than
being an exemption from the Legislative Instruments Act 2003.
12.29 The committee's functions are described in Part 25 [Part 25,
Division 4, clause 358].
12.30 The Minister can appoint acting members if there is a vacancy
on the committee [Part 25, Division 4, clause 362(1)-(2)]. There will be a
vacancy if there are less than five members. [Part 1, clause 7]
Example 12.1
Three members are appointed to an independent expert review
committee. In the course of the review the Chair requests that
another member with particular expert ise is required. The Min ister
can appoint another acting member.
12.31 The Minister can also appoint an acting Chair or acting member
of the committee where the Chair or member is overseas or for some other
reason unable to perform their duties. [Part 25, Division 4, clause 362(1)-(2)]
12.32 The Minister can grant the Chair a leave of absence, and the
Chair can grant committee members a leave of absence. [Part 25, Division 4,
clause 368]
12.33 A member may resign his or her appointment by writing to the
Minister. [Part 25, Division 4, clause 369]
Expertise
12.34 The Minister may only appoint a person to an advisory
committee where the Minister is satisfied that the member has substantial
experience and knowledge and significant standing in at least one of these
fields:
· economics
· law
· Australian industry
· climate science
· energy measurement and reporting
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Chapter 12: Independent reviews
· greenhouse gas emissions measurement and reporting
· greenhouse gas abatement
· financial markets
· trading of environmental instruments.
[Part 25, Division 4, clause 360(1)-(2)]
Independence
12.35 Expert advisory committees are to be independent from
government. To this end:
· The Chair, and a majority of members of the committee,
may not be Commonwealth employees. [Part 25, Division 4,
clause 360(3)-(4)]
· The Minister may only terminate the appointment of a
committee member on narrow grounds, including
misbehaviour or physical or mental incapacity [Part 25,
Division 4, clause 370]
12.36 The bill provides that the instrument by which the Minister
specifies additional matters for review is not a legislative instrument.
[Part 25, Division 2, clause 355(4)] This is declaratory of the law, rather than
being an exemption from the Legislative Instruments Act 2003.
12.37 The Minister can notify expert advisory committees of relevant
Commonwealth Government policies, and while the committee must have
regard to those policies it is not bound by them. [Part 25, Division 2,
clause 353(6)] [Part 25, Division 3, clause 355(3)] .
12.38 The bill also seeks to ensure that committee members are free
from conflicts of interest. The bill includes:
· a general requirement that members must give written
notice to the Minister of all interests, pecuniary or
otherwise, that could conflict with the proper performance
of the member's functions [Part 25, Division 4, clause 364]
· a specific requirement that members disclose conflicts of
interest to the committee, and absent themselves from any
deliberation or decision with respect to that matter unless
determined otherwise by the committee [Part 25, Division 4,
clause 365]
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Carbon Pollution Reduction Scheme Bill 2009
· a prohibition on an expert advisory committee member
engaging in any paid employment that may conflict with
the proper performance of his or her duties [Part 25,
Division 4, clause 366]
· a prohibition on a director, officer or employee of a liable
entity being appointed as a member [Part 25, Division 4,
clause 360(5)].
Resourcing
12.39 Advisory committee members are to be paid at a rate determined
by the Remuneration Tribunal, the independent tribunal established under
the Remuneration Tribunal Act 1973 to handle the remuneration of key
Commonwealth offices. Where no determination has been made by the
Tribunal, committee members are paid at the rate prescribed in
regulations. Members' allowances are to be prescribed [Part 25, Division 4,
clause 367]
12.40 Other terms and conditions (if any) are to be determined by the
Minister [Part 25, Division 4, clause 371].
12.41 The Authority, Department of Climate Change and other
Commonwealth Departments, agencies, and authorities are given
authority to assist an advisory committee. This can include the provision
of information, advice, resources and facilities. [Part 25, Division 4,
clause 372]
12.42 In addition, the Chair of an advisory committee can directly
engage consultants on terms and conditions determined in writing by the
Chair. [Part 25, Division 4, clause 373]
Procedures
12.43 Regulations may set out the procedures to be followed at or in
relation to meetings of expert advisory committees . [Part 25, Division 4,
clause 363(1)]
12.44 The bill provides the flexibility for expert advisory committees
to pass resolutions without meeting, where all members are informed of
the resolution or reasonable efforts are taken to inform all members of the
proposed resolution. [Part 25, Division 4, clause 363(2)]
258
Chapter 13
Review of decisions and miscellaneous
provisions
Outline of chapter
13.1 This chapter addresses those provisions which provide for merits
review by the Administrative Appeals Tribunal, and the miscellaneous
provisions (other than transitional provisions) which are not addressed in
other chapters.
13.2 It focuses on Parts 24 and 26 of the bill.
Context
13.3 The Government has committed to sound appeals processes for
decisions under the Carbon Pollution Reduction Scheme, including judicial
review pursuant to the Administrative Decisions (Judicial Review) Act
1977 and merits review by the Administrative Appeals Tribunal.
13.4 The context of the various other provisions addressed in this
chapter is included in the detailed explanation below.
Summary
13.5 The bill includes provision for merits review of the discretionary
decisions of the Authority. It does not exclude judicial review.
13.6 The miscellaneous provisions which this chapter also addresses
include further functions of the Authority, concurrent operation of State
and Territory law, delegation by the Minister, alternative constitutional
bases for the Scheme and commencement.
13.7 A simplified outline of Part 24, which relates to merits review, is
included in the bill [Part 24, clause 345].
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Carbon Pollution Reduction Scheme Bill 2009
Detailed explanation of new law
Merits review
Decisions which are subject to merits review
13.8 There is an extensive list of decisions by the Authority which are
subject to merits review [Part 24, clause 346]. The objective of this approach
is to ensure fair treatment of all persons affected by a decision, and to
encourage high quality, consistency, openness and accountability in
decisions made by the Authority.
13.9 The list does not include those decisions where the Authority has
no discretion.
13.10 Additional decisions will be prescribed in the regulations to be
made in connection with the emissions-intensive trade-exposed assistance
scheme [Part 24, clause 346, item 27].
Internal reconsideration
13.11 A person who seeks the review of a reviewable decision will
need to seek internal reconsideration if the decision was made by a
delegate of the Authority [Part 24, clause 347].
13.12 Such an application must be made within 28 days after being
informed of the decision or within the period extended by the Authority
[Part 24, clause 347(4)].
13.13 The Authority must make a decision on the application within
90 days of receiving it [Part 24, clause 349].
13.14 That decision may be to affirm, vary or revoke the decision and a
written statement of reasons must be provided to the applicant within
28 days after making the reconsidered decision [Part 24, clause 348].
Applications to the Administrative Appeals Tribunal
13.15 Applications may be made to the Administrative Appeals
Tribunal if the Authority has affirmed or varied the decision. Where the
original decision was not made by a delegate, then an application may be
made to the Tribunal without the need to go through internal
reconsideration [Part 24, clause 350].
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Chapter 13: Review of decisions and miscellaneous provisions
Stay of proceedings
13.16 The court is empowered to stay proceedings for recovery of an
administrative penalty or late payment penalty while an assessment is
being reconsidered by the Authority or when a decision relating to an
assessment is subject to an application for review by the Administrative
Appeals Tribunal [Part 24, clause 351].
Miscellaneous functions of the Authority
13.17 As well as the specific functions of the Authority provided
through the bill, the Authority will monitor and promote compliance,
conduct and co-ordinate education programs and advise and assist persons
(and their representatives) in relation to their obligations [Part 26, clauses
374(a), (b), (c), (e) and (f)]. This is expected to be a significant part of the
Authority's work in the period leading to the commencement of the
Scheme and the initial years of the Scheme's operation.
13.18 The Authority will also be empowered to collect, analyse,
interpret and disseminate statistical information relating to the operation of
the Scheme [Part 26, clause 374(h)].
13.19 This is expected to add to the body of information available to
participants in the carbon market and other people who are interested in
how the Scheme is operating. Other sources of information are the public
information released under Part 12 and the Authority's annual report.
13.20 The Authority will also liaise with regulatory and other relevant
bodies about co-operative arrangements for matters relating to the Scheme
or emissions trading schemes more generally [Part 26, clause 374(g)]. This
liaison may be with domestic or overseas bodies, and will be important in
handling the international transfers of units and will enable the Authority
to learn from experience with other trading schemes.
13.21 The Authority will also advise the Minister on matters relating to
the Scheme and other emissions trading schemes [Part 26, clause 374(d)].
States and Territories
Concurrent operation of State and Territory law
13.22 The bill is not intended to exclude or limit the operation of a law
of a State or Territory that is capable of operating concurrently with it
[Part 26, clause 376].
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Carbon Pollution Reduction Scheme Bill 2009
Arrangements with the States and Territories
13.23 The Minister is empowered to make arrangements with a
Minister of a State, the ACT, Northern Territory or Norfolk Island with
respect to the administration of the bill, including arrangements for the
performance of the functions by magistrates and the exercise of certain
powers by land registration officials. A copy of each instrument by which
such an arrangement is made is to be published in the Commonwealth
Gazette, but it is not a legislative instrument [Part 26, clause 378].
13.24 This provision may be used, for example, to establish
arrangements for magistrates to exercise power in relation to the granting
of monitoring warrants [Part 19, Division 6, clause 321-322] and for the exercise
of powers by land registration officials [Part 10, Division 12, clause 236-237].
Commonwealth
Delegation by the Minister
13.25 The Minister will be able to delegate any or all of his or her
functions or power under the Act or regulations to the Secretary or a senior
executive service (SES), or acting SES, employee of the Department. This
power does not extend to making, varying or revoking legislative
instruments. The delegate must comply with any direction of the Minister
[Part 26, clause 375].
13.26 The Minister has various powers under the bill. They include the
power to direct the Authority to issue to the Commonwealth, in accordance
with the Kyoto rules, a specified number of assigned amount units for a
specified commitment period [Part 4, Division 3, clause 105].
Executive power
13.27 The Act does not, by implication, limit the executive power of
the Commonwealth [Part 26, clause 380].
13.28 This is to make it clear that the bill does not, for example, limit
the Commonwealth's executive power to take various actions to meet
Australia's obligations under the Kyoto Protocol.
Notional payments by the Commonwealth
13.29 The Crown, in each of its capacities, will be bound by the bill.
While the bill does not make the Crown liable to a pecuniary penalty or to
be prosecuted for an offence, this protection does not apply to an
administrative penalty or late payment penalty under the Act [Part 1,
clause 9].
262
Chapter 13: Review of decisions and miscellaneous provisions
13.30 To accommodate this, by ensuring such amounts are notionally
payable by the Commonwealth, provision is made for the Minister
administering the Financial Management and Accountability Act 1997 to
give written directions relating to, among other things, transfers of
amounts within or between accounts operated by the Commonwealth
[Part 26, clause 381].
Alternative constitutional bases
13.31 Clause 382 of the bill provides for the operation of the bill and
the associated provisions on several alternative constitutional bases. It does
this by providing for the operation of the provisions (or some of the
provisions) as if they were expressly limited in certain ways -- for
example, as if each reference to a liable entity were expressly confined to a
constitutional corporation, in reliance on the corporations power (section
51(xx) of the Constitution) [Part 26, clause 382].
Compensation for acquisition of property
13.32 If the operation of the Act or regulations would result in an
acquisition of property from a person other than on just terms, the
Commonwealth is liable to pay a reasonable amount of compensation to
the person. Provision is included for the institution of proceedings to
recover such compensation if agreement has not been reached. The terms
`acquisition of property' and `just terms' have the same meaning as in
section 51(xxxi) of the Constitution [Part 26, clause 383].
Regulations
13.33 The bill includes a general regulation-making power [Part 26,
clause 387].
13.34 The regulations may apply, adopt, or incorporate with or without
modification, a matter contained in another instrument as it exists from
time to time, despite subsection 14(2) of the Legislative Instruments Act
2003. The instrument referred to must be published on the Authority's
website unless this would infringe copyright [Part 26, clause 384].
13.35 An example would be adoption of a matter contained in a
standard published by International Organization for Standardisation, as in
force from time to time.
13.36 In addition, the regulations may confer a power to make a
decision of an administrative character on the Authority [Part 26, clause 385].
13.37 This provision is expected to be used in connection with the
emissions-intensive trade-exposed assistance program, which will be
263
Carbon Pollution Reduction Scheme Bill 2009
implemented through regulations. In particular, the Authority will need to
make administrative decisions about a person's eligibility for, and
quantum of, assistance in accordance with the requirements in the
regulations. It may also need to make administrative decisions to require
the relinquishment of Australian emission units, such as on the closure of a
facility [Part 8, Division 2, clause 168].
Liability for damages
13.38 Certain specified persons are not liable to an action for damages
in relation to acts done in good faith (or omissions) in the performance of
their functions or powers under the Act or the associated provisions. (The
provision includes where such acts or omissions are done in the purported
performance of functions or powers.) The persons include the Minister,
the Authority and members of the expert advisory committee [Part 26,
clause 379].
Legal professional privilege
13.39 The doctrine of legal professional privilege has been described
by the High Court in Daniels Corporation International Pty Ltd v
Australian Competition and Consumer Commission (2002) 213 CLR 543
as follows:
`It is now settled that legal professional privilege is a ru le of
substantive law which may be availed of by a person to resist the
giving of informat ion or the production of documents which would
reveal co mmunicat ions between a client and his or her lawyer made
for the dominant purpose of giving or obtaining legal advice or the
provision of legal services, including representation in legal
proceedings.'
13.40 The Act will not affect the law relating to legal professional
privilege [Part 26, clause 377].
Transitional -- definition
13.41 Transitional provision is made for definitions that pick up the
meaning of an expression from the National Greenhouse and Energy
Reporting Act 2007, which is being amended by the consequential
amendments bill [Part 26, clause 386].
Computerised decision-making
13.42 The Authority will have the capacity to make use of a computer
program for the purposes of decision making in relation to Part 10 [Part 26,
264
Chapter 13: Review of decisions and miscellaneous provisions
clause 374A].These decisions will include calculation of the unit limit and
unit entitlement in relation to reforestation. It is expected that the computer
program for this purpose will incorporate an updated version of the
National Carbon Accounting Toolbox. This is discussed further in Chapter
6 of this explanatory memorandum.
Simplified outlines
13.43 To assist readers, the bill includes a simplified outline of the
Scheme [Part 1, clause 4].
13.44 Each Part also contains a simplified outline of that Part's
contents.
Commencement
13.45 While substantive provisions of the proposed Act will commence
28 days after Royal Assent [Part 1, clause 2], the first year in relation to
which entities will be liable under the Scheme will commence on
1 July 2011. This is achieved by use of the phrase `eligible financial year'
which is defined to mean the financial year beginning on 1 July 2011 or a
later financial year.
13.46 Early commencement of the proposed Act will allow liable
entities and the Authority to prepare for the Scheme and for the Authority
to operate the National Registry in relation to Kyoto units. Preparation will
include:
· Education and assistance for entities which are likely to be
liable and their representatives
· Receipt and assessment of applications for, for example,
certificates of eligibility for coal-fired generation assistance,
registry accounts, obligation transfer numbers, emissions-
intensive trade-exposed assistance and in relation to
reforestation
· The holding of at least one auction.
265
Index
Part 1: Preliminary
Bill reference Paragraph
number
Claus e 2 13.45
Claus e 3 2.3, 3.2
Claus e 4 13.43
Claus e 5, definition of `application to own use' 1.144
Claus e 5, definition of `approved synthetic greenhouse gas 7.19
destruction facility'
Claus e 5, definition of `assigned amount unit' 2.70
Claus e 5, definition of `associated provisions' 9.9, 9.98
Claus e 5, definition of `carbon dioxide equivalence' 1.33
Claus e 5, definition of `certified emission reduction' 2.71, 2.72
Claus e 5, definition of `designated large landfill facility' 1.49
Claus e 5, definition of `eligible emissions unit' 2.38
Claus e 5, definition of `eligible emissions unit' 8.37
Claus e 5, definition of `eligible international emissions unit' 2.41
Claus e 5, definition of `eligible international emissions unit' 8.40
Claus e 5, definition of `eligible international emissions units' 2.117
Claus e 5, definition of `eligible upstream fuels' 1.102
Claus e 5, definition of `emission reduction unit' 2.74
Claus e 5, definition of `exec utive officer' 9.38
Claus e 5, definition of `facility' 1.41
Claus e 5, definition of `forest stand' 6.30
Claus e 5, definition of `generation asset' 5.18, 5.19
Claus e 5, definition of `generation complex project' 5.18, 5.21
Claus e 5, definition of `generation complex' 5.18, 5.20
Claus e 5, definition of `generation unit' 5.18, 5.20
Claus e 5, definition of `greenhouse gas' 1.30
Claus e 5, definition of `Kyoto unit' 2.68
Claus e 5, definition of `landfill facility' 1.42
267
Carbon Pollution Reduction Scheme Bill 2009
Claus e 5, definition of `nameplate rating' 5.43
Claus e 5, definition of `non-group entity' 1.38
Claus e 5, definition of `non-Kyoto international emissions unit' 8.53
Claus e 5, definition of `non-Kyoto international emissions unit' 2.43, 2.117
Claus e 5, definition of `operational control' 1.82
Claus e 5, definition of `penalty unit' 9.67
Claus e 5, definition of `person' 1.35
Claus e 5, definition of `potential greenhous e gas emissions' 1.109
Claus e 5, definition of `prescribed wholesale gas market' 1.136
Claus e 5, definition of `recognised transformation' 1.127, 1.244
Claus e 5, definition of `removal unit' 2.73
Claus e 5, definition of `supply' 1.114
Claus e 5, definition of `synthetic greenhouse gas destruction 7.24
event'
Claus e 5, definition of applicable identification procedure 10.23
Claus e 5, definitions of `eligible upstream fuels', `liquid 1.241
petroleum fuels' and `exempt hydrocarbon solvent'
Claus e 5, definitions of `Kyoto rules', `Kyoto Protocol' and 2.64
`decision of the Meeting of the Kyoto Parties'
Claus e 5, definitions of `liquid petroleum fuels' and `exempt 1.104
hydrocarbon solvent'
Claus e 5A 1.117
Claus e 8 10.49
Claus e 6 1.115
Claus e 6(1) 1.116
Claus e 7 12.30
Claus e 8 8.48
Claus e 9 1.36
Claus e 9 9.82, 9.96
Claus e 9 13.29
Claus e 10 1.279
Claus e 11 1.280
Claus e 11A 1.283
Claus e 12 1.282
268
Index
Part 2: National scheme cap and national Scheme gateway
Bill reference Paragraph
number
Claus e 13 2.11
Claus e 14 2.14, 3.4
Claus e 14(2) 2.14
Claus e 14(3) 2.14
Claus e 14(4) 2.15
Claus e 14(5)(a) 2.18
Claus e 14(5)(c)(i) 2.22
Claus e 14(5)(c)(ii) 2.23
Claus e 14(5)(c)(iii) 2.25
Claus e 14(5)(c)(iv) 2.26
Claus e 14(5)(c)(v) 2.31
Claus e 14(5)(c)(vi) 2.32
Claus e 14(7) 2.34
Claus e 15 2.35
Claus e 15(3) 2.17
Claus e 15(4) and (6) 2.35
Part 3: Liable entities
Bill reference Paragraph
number
Division 1, clause 16 1.28
Division 2 1.71, 1.242
Division 2, clauses 17(1)-(3), 18(1)-(3), 19(1)-(3), 20(1)-(3), 1.39
21(1)-(3), 22(1)-(3)
Division 2, clauses 17(1), 18(1), 19(1), 20(1), 21(1), 22(1) 1.54
Division 2, clauses 17(1), 18(1), 20(1), 21(1) 1.58
Division 2, clause 17(5) 1.56
Division 2, clause 17(6) 1.98
Division 2, clauses 17(6) and claus e 20(7) 1.99
Division 2, clauses 17(7)-(8) 18(7)-(8), 19(6)-(7), 20(9)-(10), 1.73
21(9)-(10) and 22(8)-(9)
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Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 2, clauses 17(9)-(10), 18(9)-(10), 19(8)-(9), 20(11)- 1.76
(12), 21(11)-(12) and 22(10)-(11)
Division 2, clauses 17, 18, 20 and 21 1.45
Division 2, clauses 17, 20 1.93
Division 2, clauses 17-22 1.146
Division 2, clauses 18 and 21 1.96
Division 2, clause 18(5) 1.56
Division 2, clauses 19 and 22 1.46, 1.97
Division 2, clauses 19(1), 22(1) 1.59
Division 2, clause 19(5) 1.56
Division 2, clause 20(13) 1.47
Division 2, clause 20(5) 1.56
Division 2, clause 20(6) 1.51
Division 2, clause 20(7) 1.98
Division 2, clauses 20(8), 21(8), 22(8) 1.77
Division 2, clauses 20(9-12), 21(9-12, 22(8-11)] 1.77
Division 2, clause 21(13) 1.47
Division 2, clause 21(5) 1.56
Division 2, clause 21(6) 1.51
Division 2, clause 22(12) 1.47
Division 2, clause 22(5) 1.56
Division 2, clause 22(6) 1.51
Division 2, clauses 22A - 22C 1.283
Division 2, clause 23 9.5, 9.105
Division 2, clauses 23 and 30 1.60
Division 2, clauses 23, 30 1.157
Division 2, clause 24 1.61
Division 2, clause 25 1.67
Division 3, clauses 26, 27 1.151
Division 3, clauses 26-27 1.162
Division 3, clause 26(2) 1.158
Division 3, clause 26(4) 1.152
Division 3, clause 26(5) 1.154
Division 3, clause 26(6) 1.155
Division 3, clause 26(7) 1.160
270
Index
Bill reference Paragraph
number
Division 3, clause 26(9) 1.163
Division 3, clause 27(2) 1.158
Division 3, clause 27(4) 1.152
Division 3, clause 27(5) 1.156
Division 3, clause 27(7) 1.160
Division 3, clause 27(8) 1.163
Division 3, clause 28 1.164, 1.165
Division 3, clause 28 1.250
Division 3, clause 29 1.215
Division 3, clause 30 9.5
Division 3, clause 30 9.105
Division 4 1.242
Division 4, clause 31(2) 1.123
Division 4, clause 31(4) 1.124
Division 4, clause 31(5) 1.120
Division 4, clause 31-32 1.76, 1.118
Division 4, clauses 31-33, 35, 37 1.101
Division 4, clause 32(2) 1.123
Division 4, clause 32(4) 1.124
Division 4, clause 32(5) 1.120
Division 4, clause 33 1.126, 1.228, 1.243
Division 4, clause 33(1)-(2) 1.129
Division 4, clauses 33(1), 33A(1), 37(1) 1.134
Division 4, clause 33(4) 1.131
Division 4, clause 33A 1.133
Division 4, clause 33A (2) 1.137
Division 4, clauses 34, 36, 38 and 39 1.143
Division 4, clauses 34(1), 36(1), 38(1), 39(1) 1.145
Division 4, clauses 34(2), 36(2), 38(2), 39(2) 1.148
Division 4, clause 35 1.126, 1.243
Division 4, clause 35(2) 1.129
Division 4, clause 35(3) 5.67
Division 4, clause 35(4) 1.131
Division 4, clause 37 1.139
Division 4, clause 37(2) 1.140
271
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 4, clause 37(4) 1.141
Division 4, clause 40 1.215
Division 4, clauses 31(1), 32(1), 33(1), 33A(1), 34(1), 35(1), 1.108
36(1), 37(1), 38(1), 39(1) and 40(1)
Division 4, clauses 38-39 1.149
Division 5 1.168
Division 5, clause 41 1.173
Division 5, clause 42-43 1.175
Division 5, Clause 43 4.66
Division 5, clause 44-45 1.176
Division 5, clause 46 1.178
Division 5, clause 47 1.181
Division 5, clause 48 1.172
Division 5, clause 49 1.182
Division 5, clause 49 11.28
Division 5, clause 50 1.203
Division 5, clause 50A 1.185
Division 5, clause 50A 9.68
Division 5, clause 51 1.187
Division 5, clause 51(1) 1.186
Division 5, clauses 51A-51B 1.188, 1.189
Division 5, clause 51BA 1.197
Division 5, clause 51C 1.195
Division 5, clause 51D 1.196
Division 5, clause 51E 1.204
Division 5, clauses 51F -51G 1.198
Division 5, clause 52 1.218
Division 5, clauses 52-64AA 1.26
Division 5, clause 52(1) 1.222
Division 5, clauses 52(1)(aa), 53(1)(aa), 56(1)(aa), 56(2)(aa), 1.170
58(aa), 59(aa), 60(aa)
Division 5, clause 52(2)-(3) 1.219
Division 5, clause 52(4) 1.223
Division 5, clauses 52, 56 1.169
Division 5, clause 53 1.218
272
Index
Bill reference Paragraph
number
Division 5, clauses 53(2)-(3) 1.219
Division 5, clause 53-54 1.169, 1.227
Division 5, clause 54 1.218, 1.228
Division 5, clauses 54(2)-(3) 1.219
Division 5, clause 55 1.218, 1.229
Division 5, clauses 55(2)-(3) 1.219
Division 5, clauses 55, 58, 60-64AA 1.169
Division 5, clause 56 1.231
Division 5, clause 56(1) 1.232, 1.234
Division 5, clauses 56(2)-(8) 1.237
Division 5, clause 56(9) 1.233
Division 5, clause 58 1.231, 1.239
Division 5, clause 59 1.169, 1.244
Division 5, clause 59 1.128, 1.231
Division 5, clause 60 1.231, 1.245
Division 5, clause 63 1.231, 1.247
Division 5, clause 64 1.231, 1.249
Division 5, clauses 64A-64B 1.193
Division 5, clause 64AA 1.231, 1.251
Division 5, clause 65 1.206
Division 5, clause 65(3) 1.208
Division 5, clauses 65(4)-(5) 1.209
Division 5, clause 66 1.211
Division 5, clause 66A 1.221
Division 5, clause 67 1.214
Division 5, clause 67(2)-(3) 1.216
Division 5, clause 67(4) 1.215
Division 5, clause 68 1.199, 1.200
Division 5, clauses 68(1) and (2) 9.68
Division 5, clauses 68(3) and (4) 9.68
Division 5, clauses 68(3)-(5) 1.202
Division 5, Subdivision D 1.231
Division 6 1.260
Division 6, clause 69 1.258
Division 6, clause 70 1.270
273
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 6, clause 70(3) 1.261
Division 6, clause 71 1.271
Division 6, clause 72 1.267, 1.268, 1.272
Division 6, clause 73 1.258
Division 6, clause 74 1.270
Division 6, clause 75 1.271
Division 6, clause 76 1.267, 1.268, 1.272
Division 6, clause 77 1.273, 1.274, 1.275
Division 6, clause 78 1.276
Division 6, clauses 78-79 1.278
Division 6, clause 79 1.277
Division 6, clause 80 1.259
Division 6, clause 81 1.265
Part 4: Emissions units
Bill reference Paragraph
number
Division 1, clause 82 2.37
Division 2, clause 83 2.45
Division 2, clause 84 2.46
Division 2, clause 85 2.47
Division 2, clause 86 2.48
Division 2, clause 87 2.45
Division 2, clause 87(2) 2.46
Division 2, clause 88 2.52, 3.6
Division 2, clause 89 3.33, 3.38, 3.32
Division 2, clause 89(2) 3.35
Division 2, clause 89(5) 2.51, 3.43
Division 2, clause 89(6) 3.43
Division 2, clause 89(7) 3.39
Division 2, clause 89(10) 3.40
Division 2, clause 89(11) 3.41
Division 2, clause 90 3.23, 3.37
274
Index
Bill reference Paragraph
number
Division 2, clause 91 3.24
Division 2, clause 92 2.54, 3.7
Division 2, clause 93 2.54, 3.8
Division 2, clause 94 2.55
Division 2, clause 95 2.59
Division 2, clause 96 2.60
Division 2, clause 97 2.60, 2.62
Division 2, clause 98 2.60
Division 2, clause 98A 2.57
Division 2, clause 99 3.17
Division 2, clause 100 3.26, 3.29
Division 2, clause 100 8.71
Division 2, clause 101 3.26
Division 2, clause 101 3.19
Division 2, clause 102 3.32
Division 2, clause 103 3.18
Division 2, clause 103(5) 3.19
Division 2, clause 103A 2.50, 3.45
Division 2, clause 103B 3.45, 4.69, 5.111
Division 2, clause 103B(2) 3.47
Division 2, clause 103B(5) 3.48
Division 3 2.63
Division 3, clause 104 2.75
Division 3, clause 105 2.78
Division 3, clause 105 13.26
Division 3, clause 105(5) 2.79
Division 3, clause 106 2.81
Division 3, clause 107 2.83
Division 3, clause 108 2.87
Division 3, clauses 108(5) and 109(7) 2.85
Division 3, clause 109 2.92
Division 3, clauses 109(1) and 111 2.92
Division 3, clause 109(4) 2.94
Division 3, clause 110 2.97
Division 3, clause 110(1)(b) 2.98
275
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 3, clause 110(1)(c) 2.99
Division 3, clauses 110(1) and 111 2.97
Division 3, clauses 110(1), 112 and 116A 2.102
Division 3, clause 110(2) 2.103
Division 3, clause 111 2.91
Division 3, clause 111(3) 2.91
Division 3, clauses 112 and 109(3)(a)(i) 2.95
Division 3, clause 112(1) 2.86
Division 3, clause 112(2) 2.86
Division 3, clause 113 2.106
Division 3, clause 114 and 109(3)(a)(ii) 2.96
Division 3, clause 115 2.111
Division 3, clause 116 2.113
Division 3, clause 116A 2.114
Division 3, clause 116B, 116C 2.89
Division 4, clauses 108(3), 112, 114, 116A 2.88
Division 4, clause 117 2.120
Division 4, clause 118 2.123
Division 4, clause 119 2.125, 2.126
Division 4, clauses 119(5) and 120(7) 2.124
Division 4, clause 120 2.128
Division 4, clause 121 2.130
Division 4, clause 121(2) 2.131
Division 4, clause 122 2.121
Division 4, clause 122A, 122B 2.127
Division 4, clause 123 2.122, 2.129
Part 5: Emissions number
Bill reference Paragraph
number
Claus e 124 8.8
Claus e 125 8.22
Claus e 126 8.30
276
Index
Bill reference Paragraph
number
Claus e 126(3) and 127(3) 8.31
Claus e 126(4), 126(5), 127(4), 127(5) 8.32
Claus e 126(7) and 127(7) 8.33
Claus e 127 8.30
Part 6: Surrender of eligible emissions units
Bill reference Paragraph
number
Division 1, clause 128 8.16
Division 2, clause 129(1) 8.47
Division 2, clause 129(2) 8.49
Division 2, clause 129(4) 2.49
Division 2, clause 129(4) 8.38
Division 2, clause 129(5) 8.26, 8.39
Division 2, clause 129(5A) 2.50, 3.45
Division 2, clause 129(5A) 8.43
Division 2, clause 129(6) 8.44
Division 2, clause 129(6A) 2.39
Division 2, clause 129(6A) 8.42
Division 2, clause 129(7) 2.100
Division 2, clause 129(7) 8.45
Division 2, clause 129(7A) 8.45
Division 2, clause 129(8) 8.46
Division 2, clause 129(9) 8.46
Division 2, clause 129(10) 2.58
Division 2, clause 129(10) 8.51
Division 2, clause 129(11) 8.52
Division 2, clause 129(12) 8.52
Division 3, clause 130 8.35
Division 3, clause 130 9.45
Division 3, clause 130(2) 8.35
Division 3, clause 130(3) 8.35
Division 3, clause 130(4) 8.36, 8.39
277
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 3, clause 131 8.54
Division 3, clause 131(2) 8.55
Division 3, clause 131(3) 8.56
Division 3, clause 131(4) 8.57
Division 3, clause 131(5) and (6) 8.57
Division 3, clause 131(9) 8.58
Division 4, clause 132 3.7
Division 4, clause 132 8.34
Division 4, clause 133 8.59, 8.60
Division 4, clause 133 9.46, 9.47, 9.49
Division 4, clauses 133 and 142 9.5
Division 4, clause 133(3) 8.61
Division 4, clause 133(3) 9.50
Division 4, clause 133(3) 11.28
Division 4, clause 134 8.62
Division 4, clause 134 9.50
Division 4, clause 135 8.63
Division 4, clause 135 9.51
Division 4, clause 135(1) 9.51
Division 4, clause 135(2) 9.52
Division 4, clause 136 8.64
Division 4, clause 137 8.65
Division 4, clause 138 1.98
Division 4, clause 138 8.67
Division 4, clauses 138 and 142(2) 1.261
Division 4, clause 139 8.66
Division 4, clause 141 8.61
Division 4, clause 141 9.50
Division 4, clause 142 8.59
Division 4, clause 142 9.46
Division 4, clause 142(1) 8.27
Division 4, clause 142(2) 8.29
Division 4, clause 143(1) 8.25
Division 4, clause 143(2) 8.26
Division 4, clause 143(3) 3.45
278
Index
Bill reference Paragraph
number
Division 5, clause 143A 8.50
Part 7: Australian National Registry of Emission Units
Bill reference Paragraph
number
Division 1, clause 144 10.12
Division 1, clause 145 10.14
Division 2, clause 145 10.13
Division 2, clause 145 10.8
Division 2, clause 145(2)-(3) 10.15
Division 3, clause 146 10.16
Division 3, clause 146 (4) 10.17
Division 3, clause 147 10.22
Division 3, clause 148 2.115
Division 3, clause 148 10.31
Division 3, clause 149 10.32
Division 3, clause 150 10.34
Division 3, clause 151 10.16
Division 3, clause 152 10.25
Division 4, clause 153-154 10.27
Division 5, clause 155 10.35
Division 5, clauses 157-158 10.36
Division 5, clauses 157-158(2) 10.37
Division 5, clauses 157-158(3) 10.39
Division 5, clause 159 10.43
Division 6, clause 160 9.89
Division 6, clause 160 10.44
Division 6, clause 161 10.44
Division 6, clauses 162-163 10.46
Division 6, clause 163 10.47
Division 6, clause 163 9.75
Division 6, clause 164 10.50
279
Carbon Pollution Reduction Scheme Bill 2009
Part 8: Emissions-intensive trade-exposed assistance program
Bill reference Paragraph
number
Division 1, clause 165(1) 4.31
Division 1, clause 165(2) 4.32
Division 1, clause 165(2)(a) 4.33
Division 1, clause 165(2)(b) 4.34
Division 1, clause 165(2)(c) 4.35
Division 1, clause 165(2)(d) 4.36
Division 1, clause 165(2)(e) 4.36
Division 1, clause 165(2)(f) 4.38
Division 1, clause 166 4.24
Division 2, clause 167(1)(a) 4.41
Division 2, clause 167(1)(b) 4.41
Division 2, clause 167(2)(a) 4.42
Division 2, clause 167(2)(b) 4.42
Division 2, clause 167(3) 4.43
Division 2, clause 168 4.44
Division 2, clause 168 13.37
Division 2, clause 168(1)(a) 4.45
Division 2, clause 168(1)(b) 4.44
Division 2, clause 168(2) 4.45
Division 2, clause 169 4.47
Division 2, clause 170 4.49
Division 2, clause 171 4.51
Division 2, clause 171(1)-(3) 4.51
Division 2, clause 172 4.51, 4.54
Division 3, clause 173 4.56
Division 3, clause 173 9.80
Division 3, clause 173(1) 4.48
Division 3, clause 173(2) 4.50
Division 3, clause 173(4) 4.57
Division 4, clause 173A 4.59
Division 4, clause 173A(3) and 173A(5) 4.60
Division 4, clause 173B 4.61
Division 4, clause 173C 4.61
280
Index
Part 9: Coal-fired electricity generation
Bill reference Paragraph
number
Division 1, clause 174 5.12, 5.13, 5.32
Division 1, clause 175 5.13
Division 2, clause 176 5.56
Division 2, clause 176(2) 5.39, 5.49, 5.51,
5.53, 5.54, 5.55
Division 2, clauses 176(2) and 176(4) 5.55
Division 2, clauses 176(2) and 176(9) 5.98
Division 2, clause 176(3) 5.52
Division 2, clause 176(6) 5.23, 5.56, 5.58
Division 2, clause 176(9) 5.59
Division 3, clause 177(1) 5.22, 5.23
Division 3, clauses 177(2) and 177(3) 5.24
Division 3, clause 177(4) 5.25
Division 3, clause 177(8) 5.22
Division 3, clause 178 5.26
Division 3, clauses 178(1)(c)-(e) 5.27
Division 3, clause 178(1)(f) 5.46
Division 3, clauses 178(1)(f) and 178(3) 5.26
Division 3, clause 178(2) 5.27
Division 3, clause 179 5.28
Division 3, clause 180 5.50
Division 3, clause 180(3) 5.39
Division 3, clause 180(4)(a) 5.28, 5.29
Division 3, clause 180(4)(b)(i) 5.29
Division 3, clause 180(4)(b)(ii) 5.29
Division 3, clause 180(5) 5.38
Division 3, clause 180(6) 5.57
Division 3, clause 180(6) 11.28
Division 3, clauses 181(1) and 180(2) 5.31
Division 3, clause 181(2) 5.31
Division 3, clause 181(2)(a) 5.20
Division 3, clause 181(2)(b) 5.35
Division 3, clause 181(2)(c) 5.36
281
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 3, clause 181(3) 5.31
Division 3, clause 181(3)(b) 5.34
Division 3, clauses 181(3)(c) and 181(3)(d) 5.37
Division 3, clause 181(4) 5.36
Division 3, clause 182 5.41
Division 3, clause 182(1) 5.40
Division 3, clause 182(1)(a) 5.42, 5.45
Division 3, clause 182(1)(b) 5.42
Division 3, clause 182(1)(c) 5.42
Division 3, clause 182(2) 5.45
Division 3, clauses 182(3) and 182(6) 5.49
Division 3, clause 182(4) 5.26, 5.46
Division 3, clauses 182(4)(c) and 182(5) 5.47
Division 3, clause 182(5) 5.48
Division 4, clause 183(1) 5.73
Division 4, clause 183(2) 5.69
Division 4, clause 183(5) 5.71
Division 4, clause 184 5.72
Division 4, clause 185 5.75
Division 4, clause 185(4) 5.78
Division 4, clause 186(10) 5.68
Division 4, clause 186(2) 5.65
Division 4, clause 186(2)(a) 5.63, 5.86
Division 4, clause 186(2)(b) 5.63
Division 4, clause 186(3)(a)-(b) 5.64
Division 4, clause 186(3)(c)-(da) 5.64
Division 4, clause 186(3A) 5.64
Division 4, clause 186(4) 5.65
Division 4, clause 186(8) 5.66
Division 4, clause 186(9) 5.66
Division 4, clause 187 5.63
Division 4, clause 187(10) 5.92
Division 4, clauses 187(10)(b) and 187(11) 5.92
Division 4, clause 187(12) 5.92
Division 4, clauses 187(13) and 187(14) 5.91
282
Index
Bill reference Paragraph
number
Division 4, clause 187(15) 5.94
Division 4, clause 187(2)(b) 5.84
Division 4, clause 187(3) 5.86
Division 4, clauses 187(4) and 187(5) 5.85
Division 4, clauses 187(6) and 187(7) 5.84
Division 4, clause 187(8) 5.87, 5.88, 5.93
Division 4, clause 187(9) 5.89
Division 4, clauses 187(4)-(7) 5.82, 5.83
Division 5, clause 188 5.55, 5.97, 5.98
Division 5, clause 188(1)(b) 5.97
Division 5, clause 189 5.99
Division 5, clause 189(2)(a) 5.104
Division 5, clauses 189(2)(a) and 189(2)(b) 5.104
Division 5, clause 189(2)(b) 5.104
Division 5, clause 189(2)(c) 5.107
Division 5, clauses 189(2)(c) and 189(2)(d) 5.108
Division 5, clause 189(2)(d) 5.107
Division 5, clauses 189A and 189B 5.109
Division 5, clauses 189A (4) and 189B(4) 5.109
Part 10: Reforestation
Bill reference Paragraph
number
Division 1, clause 190 6.7
Division 2, clause 191 6.73, 6.74
Division 3, clause 192 6.3, 6.80
Division 3, clause 192 6.78
Division 3, clause 193 6.79
Division 4, clause 194 6.82
Division 4, clause 195 6.83
Division 3, clause 195 6.76, 6.84
Division 3, clauses 195, 196 6.90
Division 3, clause 196 6.87
283
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 3, clause 197 6.77
Division 4, clause 198 6.9
Division 4, clause 199 6.10, 6.12
Division 4, clause 200 6.11
Division 4, clause 201 6.13, 6.14
Division 4, clause 202 6.17
Division 4, clause 203 6.18
Division 4, clause 204 6.19
Division 5, clause 205 6.22
Division 5, clause 206 6.23, 6.24
Division 5, clause 207 6.25
Division 5, clause 208 6.26
Division 5, clause 208 6.27, 6.28
Division 5, clause 209 6.20, 6.29, 6.33,
6.39
Division 5, clause 209(5) 6.21
Division 5, clause 210 6.93, 6.95
Division 5, clause 211 6.98, 6.100
Division 5, clause 211 6.99
Division 5, clause 212 6.97, 6.103
Division 5, clauses 212(1), 213(5), 214(7), 215(5), 216(5), 6.120
217(4), 218(6), 219(4)
Division 5, clause 213 6.104, 6.105
Division 5, clauses 213, 214 6.108
Division 5, clause 214 6.106
Division 5, clauses 215, 216 6.111
Division 5, clauses 215, 216 6.112, 6.113
Division 5, clause 217 6.114
Division 5, clause 218 6.115
Division 5, clause 219 6.117
Division 5, clauses 220(5), 221(5), 222(5) 6.60
Division 6, clause 220 6.54, 6.62
Division 6, clause 221 6.59
Division 6, clauses 221, 222 6.61
Division 6, clause 222 6.59
284
Index
Bill reference Paragraph
number
Division 7, clause 223 6.69
Division 7, clauses 223, 224 6.71
Division 7, clause 224 6.70
Division 8, clause 225 6.65
Division 9, clause 226 6.135
Division 9, clause 226 6.137, 6.138
Division 10, clause 226 6.6
Division 9, clauses 227, 230, 231 6.141
Division 9, clause 228 6.142
Division 9, clause 229 6.143
Division 10, clause 232 6.121, 6.123
Division 10, clauses 232, 233 6.5
Division 10, clause 233 6.127
Division 10, clause 234 6.129, 6.132
Division 11, clause 235 6.119
Division 12, clause 236 6.147
Division 12, clauses 236-237 13.24
Division 12, clause 237 6.149
Division 13, clause 238 6.144
Division 13, clause 239 6.145
Division 14, clause 240 6.48
Division 14, clause 241 6.41
Division 15, clause 242 6.86
Part 11: Destruction of synthetic greenhouse gases
Bill reference Paragraph
number
Division 1, clause 244 7.7
Division 2, clause 245 7.6, 7.36
Division 3, clause 246 7.5, 7.8, 7.21, 7.23,
7.25
Division 3, clause 247 7.21
Division 3, clause 248 7.22
Division 3, clause 249 7.6, 7.34
285
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 3, clause 250 7.33
Division 3, clause 250 (2) 7.29
Division 3, clause 250(2) 7.27
Division 3, clause 250(3) 7.27, 7.30
Division 3, clause 251 7.37
Division 3, clause 252 7.35
Division 4, clause 253 7.9
Division 4, clause 254 7.10, 7.12
Division 4, clause 255 7.11
Division 4, clause 256 7.13
Division 4, clause 257 7.16
Division 4, clause 258 7.17
Division 4, clause 259 7.18
Part 12: Publication of information
Bill reference Paragraph
number
Division 1, clause 260 11.7
Division 2, clause 261 11.9
Division 2, clause 262 11.10
Division 2, clause 262(1A) 11.10
Division 2, clause 262(2) 11.10
Division 2, clause 263 3.34
Division 2, clause 263 11.11
Division 2, clause 264 11.12
Division 2, clause 265 11.13
Division 2, clause 266 11.12
Division 2, clause 267 11.14
Division 2, clause 267A 11.13
Division 2, clause 267B 11.13
Division 2, clause 267C 11.12
Division 2, clause 268 11.10
Division 3, clause 269 11.18
286
Index
Bill reference Paragraph
number
Division 4, clause 270 3.12
Division 4, clause 270 11.21
Division 4, clause 271 11.28
Division 4, clause 272 11.21
Division 4, clause 273 4.63
Division 4, clause 273 11.21
Division 4, clause 273(1) 4.63
Division 4, clause 274 4.63, 4.64
Division 4, clause 274 11.22
Division 4, clause 274(b) 4.64
Division 4, clause 274(c) 4.65
Division 4, clause 275 11.22
Division 4, clause 276 11.23
Division 4, clause 277 11.22
Division 4, clause 278 11.30
Division 2, clause 278E 11.17
Division 2, clause 278F 11.17
Division 2, clause 278D 11.17
Division 5, clause 278A-278C 11.16
Division 7, clause 278G 11.28
Part 13: Fraudulent conduct
Bill reference Paragraph
number
Claus e 279 9.5
Claus e 280 9.97, 9.107
Claus e 280(5) 9.108
287
Carbon Pollution Reduction Scheme Bill 2009
Part 14: Voluntary cancellation of emissions untis
Bill reference Paragraph
number
Claus e 281 8.20
Claus e 282(2A ) 8.79
Claus e 282(2A ) 3.45
Claus e 282(3) 2.58
Claus e 282(3) 8.82
Claus e 282(3) 2.58
Claus es 282, 283 and 284 8.78
Claus e 283(3) 8.83
Claus e 284 8.84
Part 15: Relinquishment of Australian emissions units
Bill reference Paragraph
number
Division 1, clause 285 8.19
Division 2, clause 286 2.58, 4.46
Division 2, clauses 286 (2A) and (3) 3.30
Division 2, clauses 286(1) and (2) 8.69
Division 2, clause 286(2A) 3.45
Division 2, clauses 286(3) and (6) 8.70
Division 2, clause 286(4) 3.29
Division 2, clauses 286(4) and (5) 8.71
Division 3, clause 287 4.62
Division 3, clause 287 9.5, 9.55
Division 3, clause 287(2) 8.75
Division 3, clause 287(3) 9.57
Division 3, clause 287(4) 9.58
Division 3, clauses 287-291 8.74
Division 3, clause 288 9.59
Division 3, clause 288(2) 9.59
288
Index
Part 16: Notification of significant holding of Australian
emissions units
Bill reference Paragraph
number
Claus e 292 11.27
Claus e 293 11.24
Claus es 293(6) and 294(6) 11.25
Claus e 294 11.24
Part 17: Information-gathering powers
Bill reference Paragraph
number
Claus e 295 9.5
Claus e 296 9.8, 9.80
Claus e 296(3) 9.10
Claus e 296(4) 9.79
Claus e 297 9.12
Claus e 298 9.12
Claus e 299 9.13
Claus e 300 9.14, 9.28, 9.30,
9.31
Part 18: Record-keeping requirements
Bill reference Paragraph
number
Claus e 301 9.5
Claus e 302 9.17
Claus es 302-304 9.20
Claus e 303 9.18
Claus e 304 9.18
289
Carbon Pollution Reduction Scheme Bill 2009
Part 19: Monitoring powers
Bill reference Paragraph
number
Division 1, clause 305 9.5
Division 2, clause 306 9.22
Division 2, clause 307 9.23, 9.94
Division 3, clause 308 9.24
Division 3, clause 309 9.25
Division 3, clause 310 9.26
Division 3, clause 311 9.27, 9.90
Division 3, clause 312 9.28, 9.30, 9.31
Division 4, clause 313 9.32
Division 4, clause 314 9.32
Division 4, clause 315 9.32
Division 4, clause 316 9.32
Division 4, clause 317 9.32
Division 4, clause 318 9.32
Division 5, clause 319 9.33
Division 5, clause 320 9.34
Division 5, clause 320 9.90
Division 6, clause 321 9.35
Division 6, clause 321-322 13.24
Division 7, clause 322 9.36
Part 20: Liability of executive officers of bodies corporate
Bill reference Paragraph
number
Claus e 323 9.50
Claus e 324 9.37
Claus es 324(2) and (3) 9.39
Claus e 325 9.40
290
Index
Part 21: Civil penalty orders
Bill reference Paragraph
number
Claus e 326 9.5
Claus e 326A 9.63
Claus e 327 1.202, 1.210,
1.216, 1.220
Claus e 327 9.64
Claus es 327(3) and (4) 9.65
Claus e 327(4)(b) 9.68
Claus es 327(4)(b) and (6)(a) 9.72
Claus e 327(4)(c) 9.68
Claus es 327(4)(d) and (6)(c) 9.67
Claus e 327(5) 9.68, 9.71
Claus e 327(6) 9.68
Claus e 327(6)(a) 9.68
Claus e 327(6)(b) 9.68
Claus e 328 9.83
Claus e 329 9.84
Claus e 330 9.84
Claus e 331 9.83
Claus es 332 to 335 9.84
Claus e 336 9.76, 9.85
Claus e 337 9.86
Claus e 338 9.78
Claus e 338(3) 9.79
Part 22: Offences relating to administrative penalties
Bill reference Paragraph
number
Claus e 339 9.5
Claus es 340 and 341 9.91
291
Carbon Pollution Reduction Scheme Bill 2009
Part 23: Enforceable undertakings
Bill reference Paragraph
number
Claus e 342 9.5
Claus e 343 9.100
Claus e 343(5) 9.101
Claus e 344 9.102
Part 24: Review of decisions
Bill reference Paragraph
number
Claus e 345 13.7
Claus e 346 13.8
Claus e 346, item 27 13.10
Claus es 346-348 and 350 10.40
Claus e 347 13.11
Claus e 347(4) 13.12
Claus e 348 13.14
Claus e 349 13.13
Claus e 350 13.15
Claus e 351 13.16
Part 25: Independent reviews
Bill reference Paragraph
number
Division 2, clause 353(1)(b) 2.21
Division 2, clause 353(1)(c) and (d) 2.21
Division 1, clause 352 12.1
Division 2, clause 353(1) 12.14
Division 2, clause 353(1)(h) 4.70
Division 2, clause 353(1)(h) 12.15
Division 2, clause 353(2) 12.11
Division 2, clause 353(3) 12.12
292
Index
Bill reference Paragraph
number
Division 2, clause 353(4) 12.13
Division 2, clause 353(5) 12.23
Division 2, clause 353(6) 12.37
Division 2, clause 353(7) 12.16
Division 2, clause 354(1) 12.24
Division 2, clause 354(2) 12.25
Division 2, clause 354(4) 12.17
Division 2, clause 354(6)-(7) 12.26
Division 2, clause 355(4) 12.21, 12.28, 12. 36
Division 3, clause 355(1) 12.20
Division 3, clause 355(1)(ea) 12.19
Division 3, clause 355(1)(h)(i) 12.19
Division 3, clause 355(1)(h)(ii) 12.19
Division 3, clause 355(1)(h)(iii) 12.19
Division 3, clause 355(1)(h)(iv) 12.19
Division 3, clause 355(1)(h)(ix) 12.19
Division 3, clause 355(1)(h)(v) 12.19
Division 3, clause 355(1)(h)(vi) 12.19
Division 3, clause 355(1)(h)(vii) 12.19
Division 3, clause 355(1)(h)(viii) 12.19
Division 3, clause 355(2) 12.23
Division 3, clause 355(3) 12.37
Division 3, clause 356(1) 12.24
Division 3, clause 356(2) 12.25
Division 3, clause 356(6)-(7) 12.26
Division 4, clause 357 12.27
Division 4, clause 358 12.29
Division 4, clause 359 12.27
Division 4, clause 360(1)-(2) 12.34
Division 4, clause 360(3)-(4) 12.35
Division 4, clause 360(5) 12.38
Division 4, clause 361 12.27
Division 4, clause 362(1)-(2) 12.30, 12.31
Division 4, clause 363(1) 12.43
Division 4, clause 363(2) 12.44
293
Carbon Pollution Reduction Scheme Bill 2009
Bill reference Paragraph
number
Division 4, clause 364 12.38
Division 4, clause 365 12.38
Division 4, clause 366 12.38
Division 4, clause 367 12.39
Division 4, clause 368 12.32
Division 4, clause 369 12.33
Division 4, clause 370 12.35
Division 4, clause 371 12.40
Division 4, clause 372 12.41
Division 4, clause 373 12.42
Part 26: Miscellaneous
Bill reference Paragraph
number
Claus es 374(a), (b), (c), (e) and (f) 13.17
Claus e 374(d) 13.21
Claus e 374(g) 13.20
Claus e 374(h) 13.18
Claus e 374A 13.42
Claus e 375 13.25
Claus e 376 13.22
Claus e 377 13.40
Claus e 378 13.23
Claus e 379 13.38
Claus e 380 13.27
Claus e 381 13.30
Claus e 382 13.31
Claus e 383 13.32
Claus e 384 4.55
Claus e 384 13.34
Claus e 385 4.55
Claus e 385 13.36
Claus e 386 13.41
Claus e 387 13.33
294