The system of partial exemptions is envisaged to operate as follows.

•                                        An entity involved in carrying on an EITE activity may apply to the Regulator for a PEC in relation to RET-liable electricity used in carrying on that activity at a particular site for a particular year.

•                                        The Regulator will issue a PEC to the applicant setting out the amount in MWh of the electricity to be exempted for the year and including the name of the liable entity in relation to the electricity (usually the retail supplier). Regardless of when during the year an applicant is issued with a PEC, the value of the partial exemption will be based on the full year’s production of relevant product.

•                                        It is envisaged that the entity to whom a PEC has been issued will voluntarily provide a copy of the PEC to the liable entity (their electricity retailer) which will remove the RET liability for that supply of electricity.

•                                        As part of the RET compliance process in February each year, the liable entity can claim exemption from RET liability for the amount of electricity set out on the PEC by providing a copy to demonstrate its entitlement to the partial exemption.

•                                        The methodology for calculating the amount of partial exemption to appear on the PEC has the following key elements.

–                                       The proposed method has been designed to minimise complexity and transaction costs by utilising where practicable the information reported through the development and implementation of the EITE assistance program under the CPRS. The EITE assistance program under the CPRS will be based around annual reporting (each October) of the amount or volume of relevant product produced in the previous financial year (ending 30 June).

–                                       The calculation is based on the annual production level data and the industry‑average electricity intensity as set out under the draft CPRS EITE assistance program. This provides a simple, uniform and transparent basis for calculating the partial exemption which avoids the additional cost and complexity involved in measuring and reporting annually on actual electricity use associated with an activity.

–                                       Electricity used for a particular compliance year must be estimated in advance. This is accomplished by using the actual production for the financial year ending on 30 June in the prior year as reported under the CPRS EITEs program, to estimate the production for the relevant RET compliance year. This is to account for the fact that RET compliance is based on a calendar year whereas reporting under the CPRS is to be based on a financial year ending 30 June.

–                                       Consistent with the CPRS, the annual production estimate for the current financial year may be adjusted to include estimates for new entrants and for significant expansions, as well as a further adjustment or ‘ true-up’ to offset any difference between the production used for the previous year’s allocation and the actual production in that financial year.

–                                       The assistance rates for the two emissions-intensity classifications (90 per cent and 60 per cent) are incorporated in factors that account for the increased impact of the expansion of RET targets above the original 9,500 GWh under the old MRET scheme, and separately for the impact of higher REC prices in relation to the original 9,500 GWh.

–                                       To avoid providing windfall partial exemptions for electricity that is not liable under the RET, the calculation also accounts for any such electricity, whether generated on‑site or separately supplied to the site.

•                                        If during a compliance year there is a change of electricity supplier, hence a change to the relevant liable entity, an additional PEC may be issued for that activity, site and year. The policy is simply to pro-rata the existing certificate amount based upon the number of days that the new retailer will be the liable entity in respect of the site. The original PEC is then adjusted so that the total exemption for that activity, site and year remains unchanged.

•                                        Activities partly undertaken at multiple sites are dealt with by allowing product to be referrable to particular sites, under prescribed circumstances. The policy intent for
multi-site cases is that:

–                                       a PEC may be issued in respect of each site where a significant amount of electricity is used, regardless of whether any relevant product is produced there;

–                                       the share of the total exemption for the activity which goes to a site is to be based on the site’s estimated share of total liable electricity used in the activity; and

–                                       the calculation of partial exemptions for the all sites involved in the particular activity is to retain the standard overall methodology which utilises production for the year, the electricity baseline for the EITE activity and adjustment for non-liable generation.

Scope of regulatory amendments

The measures in the Act empower regulations to specify certain aspects of the administration of the partial legislative exemptions.

The regulations relating to PECs are a new Part 3A of the general regulations made under the Act. There is also a new Schedule 6 which will define EITE activities, classify activities as highly or moderately emissions‑intensive and provide the baseline level of MWh per unit of product.

The Regulations deal with the following matters.

Definition of EITE activities

•                                        EITE activities are prescribed in draft regulation 22D and detailed in Schedule 6 to the Principal Regulations. The activities and their details reflect those currently defined in the draft EITE assistance program regulations for the CPRS. More activities will be added to Schedule 6 as they are added to the draft CPRS EITE regulations. The CPRS EITE regulations, once they come into force, will define which activities are EITE, and their applicable physical and chemical transformations for the purposes of the RET.

Who may apply for PECs

•                                        New regulations 22F to 22M provide seven types of ‘prescribed person’ who may apply for a PEC in relation to the relevant activity, site and year. These regulations also ensure that only one valid application for a PEC in relation to a particular EITE activity, site and year can exist at a time.

Information to be included in applications for PECs.

•                                        The information to be included in applications for PECs, as empowered under subsection 46A(1) of the Act, is set out in regulations 22N to 22U.

Timing and manner of lodgement of applications.

•                                        The timing and manner of lodgement of applications is dealt with under new regulations 22V to 22Y of the Regulations. Applications can be made immediately after the relevant regulations come into force. However, there are time limits on when these applications must be made. The Regulations provide flexibility in lodgement timeframes for the first year of operation (2010) in recognition that some EITE activities are still being defined.

Calculation of the amount of a partial exemption.

•                                        New regulations 22Z to 22ZG detail the method for calculating the amount of partial exemption in respect of a particular EITE activity, site and (calendar) compliance year.

Form of PEC.

•                                        New regulations 22ZI and 22ZJ prescribe the information to be included on the PEC.

Time limits for issue of a PEC following an application

•                                        New regulations 22ZK to 22ZM prescribe the time periods for issuing PECs.

Circumstances under which a PEC may be amended

•                                        New regulations 22ZN to 22ZS prescribe circumstances under which the Regulator may amend a PEC and matters that the Regulator must have regard to in deciding whether to amend.

Publication of information and record keeping

•                                        New regulation 22E prescribes information required to be published about partial exemptions.

•                                        New regulation 22ZT prescribes matters relating to record keeping.

Attachment C

Details of the proposed Renewable Energy (Electricity) Amendment Regulations 2010 (No. 1)

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Renewable Energy (Electricity) Amendment Regulations 2010 (No. 1).

Regulation 2 – Commencement

This regulation provides for the Regulations to commence on the day after they are registered on the Federal Register of Legislative Instruments.

Regulation 3 – Amendment of Renewable Energy (Electricity) Regulations 2001

This regulation provides for Schedule 1 to the Regulations to amend the Renewable Energy (Electricity) Regulations 2001 (the Principal Regulations).

SCHEDULE 1 - AMENDMENTS

Item [1] After Part 3

This item inserts a new Part 3A into the Principal Regulations. This new Part comprises provisions to administer the provision of partial exemptions from liability under the Renewable Energy (Electricity) Act 2000 (the Act) in respect of electricity used by entities carrying on emissions-intensive trade-exposed (EITE) activities. The part includes several divisions which deal with applications for partial exemption certificates (PECs), calculation of the amounts of partial exemptions, the form of PECs and their issuance and amendment, record keeping and publication of information relating to partial exemptions.

Part 3A Partial Exemption Certificates

Division 1 Interpretation

Regulation 22A - Interpretation

This regulation inserts a number of definitions for the purposes of the Principal Regulations.

Subregulation 22A(1) defines the meanings of a number of terms by reference to other legislation, other subregulations within regulation 22A, or other regulations within the Regulations. These terms include:

•                                        ABN;

•                                        ACN;

•                                        acquired;

•                                        activity group;

•                                        Department of Climate Change and Energy Efficiency (DCCEE);

•                                        facility;

•                                        financial control;

•                                        group;

•                                        highly emissions-intensive;

•                                        member;

•                                        moderately emissions-intensive;

•                                        operational control; and

•                                        referrable to a site.

It is noted that the DCCEE was previously established as the DCC. The DCC previously administered the National Greenhouse and Energy Reporting Act 2007 and so the definition refers to that department up until the point when the new department was created.

Subregulation 22A(1) also defines the following terms.

applicant means a person, as prescribed under one of regulations 22G to 22 M inclusive, that makes an application for a PEC.

controlling corporation means a corporation to which paragraph 51(xx) of the Constitution applies, that does not have a holding company incorporated in Australia. The controlling corporation is intended to be the corporation at the top of the corporate hierarchy in Australia. The definition includes all constitutional corporations, that is foreign corporations and trading and financial corporations formed within the limits of the Commonwealth. A controlling corporation will either have subsidiaries or be a single corporation, but in either case will not have a holding company incorporated in Australia. The definition of ‘controlling corporation’ is consistent with the definition in the National Greenhouse and Energy Reporting Act 2007 (the NGER Act).

joint venture means an unincorporated enterprise carried on by two or more entities in common otherwise than as a partnership. This definition is consistent with the implementation of the definition of joint venture in the NGER Act.

product means an output that is specified in Division 3 of a Part in Schedule 6, as the basis for the issue of a PEC in relation to an EITE activity. A single activity may have more than one product specified. For example, the EITE activity entitled ‘integrated production of lead and zinc’ (Part 9 of Schedule 6) includes specifications for both lead metal and zinc in fume.

REC means a renewable energy certificate created under division 4 of part 2 of the Act.

relevant product has meanings defined in two contexts. Paragraph 22A(1)(a) provides the meaning in relation to an application for a PEC, and paragraph 22A(1)(b) provides the meaning in relation to a PEC that has been issued. In both cases a ‘relevant product’ is stipulated to be a product (as defined elsewhere in subregulation 22A(1)), that is, one which meets the requirements specified in Division 3 of the relevant Part in Schedule 6. For most EITE activities, one requirement is that the product be of saleable quality. Subregulation 22A(1) notes that the meaning of ‘saleable quality’ is defined in regulation 22C.

Subregulation 22A(2) provides that entities are taken to be a group if all entities are part of a corporate group under the NGER Act. This is set out in section 8 of the NGER Act. These entities include the controlling corporation, subsidiaries (provided, inter alia, that the controlling corporation is incorporated in Australia), partnerships (in certain circumstances) and joint ventures (also in certain circumstances).

Subregulation 22A(3) provides that an activity is deemed to be ‘highly emissions‑intensive’ if the base rate for calculating the partial exemption for the activity is as set out in column 2 of the table in subregulation 22ZA(2) or 22ZA(5). Schedule 6, which defines EITE activities, includes the classification of the activity as highly or moderately emissions-intensive. This classification mirrors that under the Comonwealth’s proposed EITE assistance program.

Subregulation 22A(4) provides that an entity is a member of a controlling corporation’s group if that entity is a member of the controlling corporation’s group under the NGER Act. Entities include corporations, joint ventures and partnerships as outlined in relation to subregulation 22A(2).

Subregulation 22A(5) provides that an activity is deemed to be ‘moderately emissions-intensive’ if the base rate for calculating the partial exemption for the activity is as set out in column 3 of the table in subregulation 22ZA(2) or 22ZA(5). Schedule 6, which defines EITE activities, includes the classification of the activity as highly or moderately emissions-intensive. This classification mirrors that under the Commonwealth’s proposed EITE assistance program.

Subregulation 22A(6) provides that an entity is taken to have operational control over a facility if that entity has operational control of the facility under the NGER Act. Section 11 of the NGER Act provides that a member of a controlling corporation’s group is considered to have operational control over the facility or facilities if, inter alia, it has greatest authority to implement operating and environmental policies for the facility. Section 9 of the NGER Act provides that a facility is an activity or series of activities (including ancillary activities) that fall into one industry sector, and form a single undertaking or enterprise. In this context, entities could include corporations, joint ventures, partnerships or any other person.

Subregulation 22A(7) provides that a particular amount or volume of a relevant product, as detailed in an application for a PEC, is taken to be referrable to a site provided certain conditions are met in relation to the site including the nomination made in the application and the amount or volume of relevant product. The conditions for production to be referrable to a site are further detailed in regulation 22B.

The concept of referring or attributing an amount of relevant product to a particular site is used as part of the method for calculating the amount of a partial exemption. Where an EITE activity is carried on wholly at one site, all of the production of a relevant product will be attributed to that site for the purposes of calculating the partial exemption. The conditions set out in subregulation 22A(7) and regulation 22B apply where an EITE activity is carried on partly at one site and partly at one or more other sites, to govern the proportion of production from the EITE activity as a whole which is attributed or referred to each site.

Example of where multi-site activities may exist

As an example, a multi-site activity may involve primary transformations at a site (site 1) to produce intermediate products along with small amounts or volumes of relevant product. Another site (site 2) may transform the bulk of the intermediate product to produce most of the relevant product. There may also be an additional site (site 3), where some incidental operation is undertaken, for example finalising, storing or transporting intermediate or relevant (final) product. It is also possible that while all of the relevant product may be produced at one site, significant electricity may be used at another site or sites that undertake only intermediate transformations.

In particular, one instance of white titanium dioxide pigment production has involved the principal chemical transformation being conducted at one site (including the transformation to titanium tetrachloride and subsequent oxidation to titanium dioxide base pigment) and the final processing into white titanium dioxide pigment which conforms with ASTM classification D476-00 being carried on at a second site. The intermediate product is transferred by truck between the two sites. Similarly, newsprint manufacturing has involved pulp being shipped between sites conducting the one overall activity.

Subregulation 22A(8) provides that electricity is acquired for use at a site only if the electricity is used at the site and, in relation to that electricity, there was a relevant acquisition, as defined under sections 31 to 33 of the Act, between the point of generation of the electricity and the point of use.

Subregulation 22A(9) defines all sites carrying on components of a particular instance of an EITE activity, generally where intermediate products need to be transported between sites in order to make the relevant (final) product, as an ‘activity group’. Two or more sites may always constitute an ‘activity group’ (such as the titanium dioxide production assessed during the base period used for eligibility) or may constitute an activity group on only one occasion. For instance, there may be two sites which generally calcine magnesite into caustic calcined magnesia and no intermediate products are transferred between the sites. However, for three months in one particular year there was a problem with the calcining process at one of the sites and an intermediate product was transferred to the second site to be fully calcined to caustic calcined magnesia. In that circumstance, both sites are included in an activity group and the total production for both sites will need to be referred through regulation 22B.

It is also the case that the ‘intermediate product’ referred to could be a relevant product. For instance, caustic calcined magnesia could be produced at one site, transferred to another site and transformed into deadburned magnesia. Both sites will constitute an activity group.

Consistent with section 21 of the Acts Interpretation Act 1901, the relevant sites for the conduct of on an EITE activity must be within the Commonwealth of Australia.

It is important to note that the word ‘site’ takes its meaning from its use in section 46A of the Act and should be understood in that context. It is recognised that the site of an EITE activity may be quite expansive given the amount of heavy equipment generally involved in the complex set of transformations which are defined as EITE activities.

Regulation 22B – Conditions for production to be referrable to a site

This regulation sets out the conditions referred to in subregulation 22A(7) which defines the term – referrable to a site where a single instance of an EITE activity is carried out across more than one site. The conditions include that a unit of relevant product can only be referred to one site. This is to avoid double counting in calculating partial exemptions. The site must also carry out substantive transformations necessary for production of the relevant product. Processes such as transport (for example by pumping) or storage, particularly where they involve only small amounts of electricity, are generally seen as incidental or ancillary rather than substantive processes in the transformations that define the EITE activity. Other examples of sites which may conduct an activity in an ancillary way or are not otherwise relevant to the apportionment of relevant product include:

·        mining operations which partly crush or grind an input which is being transformed or conduct minor input preparations away from the principal site of the transformation;

·        sites which produce an anode, cathode or other product or flux which facilitates the principal transformation;

·        sites which may blend and store inputs before being transported to a site where the substantive parts of the transformation occur;

·        sites which produce steam or electricity for use in the transformation;

·        sites which produce utility gases for use in an activity; and

·        sites which undertake finishing, final processing or packaging of a relevant product which has already been created.

The regulation also sets out (in subregulation 22B(2)) how the amount of relevant product referrable to a particular site, for calculation of the amount of partial exemption applicable, is to be calculated. The method involves allocating the total amount of the partial exemption amongst sites in the ‘activity group’ that carry on substantive parts of the activity, broadly in proportion to the amount of electricity they consume in carrying on the EITE activity and which attracts a liability under the Act.

Consistent with the intent to keep transaction costs low, the regulation does not require precise figures for electricity consumed in the activity at the site, but rather requires only a reasonable approximation of the amount of electricity used. If the EITE activity uses less than 80 per cent of total site electricity, the amount of liable electricity used in the activity is to be estimated directly; otherwise an estimate of total liable electricity for the site may be used. The following example illustrates this calculation:

Example of multiple sites

Assume that company Elsie Rylee Ltd carries on an EITE activity partly at each of three sites as follows:

Site 1

•                                        produces most of an intermediate product and 400 tonnes of relevant product per year; and

•                                        uses 5,000 megawatt-hours (MWh) at the site, 70 per cent or 3,500 MWh of which is used in the EITE activity. We assume also that all of the electricity used in the EITE activity is a relevant acquisition under section 31 of the Act.

Site 2

•                produces most of the relevant product (1,600 tonnes per year); and

•                uses 8,000 MWh of electricity at the site, of which around 90 per cent is used in the activity. Again, we assume that all of the electricity used in the EITE activity is a relevant acquisition under section 31 of the Act.

Site 3

•                undertakes only ancillary tasks of storage and pumping relevant product to a cargo ship; and

•                uses 100 MWh of electricity.

The amount of relevant product referrable to a site (SP) for the year, according to the method in paragraph 22B2(b) is found using the generic formula SP = PT x (ES / ET), where:

PT is the total of relevant product across all sites = 1,600 + 400 + 0 = 2,000 tonnes;

ES is a reasonable estimate of electricity used, for example:

•                ES(Site1) is, because the activity uses less than 80 per cent of site electricity, a reasonable estimate of the amount of liable electricity acquired for use in the activity = 3,500 MWh.

•                ES(Site2) is, because the activity uses more than 80 per cent of site electricity, a reasonable estimate of the liable electricity acquired for use at the site = 8,000 MWh.

ET is the sum of ES at all sites undertaking significant (non-ancillary) transformations under the definition of the activity. In this case:

ET = ES(Site1) + ES(Site 2) = 8,000 + 3,500 = 11,500 MWh.

Based on the above:

SP(Site1) = 2,000 x (3,500/11,500) = 609 tonnes of relevant product is referrable to site 1;

SP(Site2) = 2,000 x (8,000/11,500) = 1,391 tonnes of relevant product is referrable to site 2; and

SP(Site3) = 0 tonnes is referrable to site 3 as it undertakes only ancillary parts of the activity.

Note that each year Elsie Rylee Ltd will need to put in two applications for the one EITE activity (one for Site 1 and one for Site 2). There is no need to put in any application regarding site 3 (as it will not receive any partial exemption). The applications will nominate the tonnes of relevant product referrable to each site in accordance with subregulation 22A(7) and regulation 22B each year and the partial exemption for each site is calculated accordingly.

If it were the case that the activity had multiple relevant products (e.g. magnesia) and one of the relevant products (such as deadburned magnesia) was only produced on one of the sites, both relevant products will still be apportioned between the two sites relative to the electricity use of each site as outline above.

Regulation 22C – Meaning of saleable quality

Regulation 22C defines the central concept of products of ‘saleable quality’ (often referred to as saleable products), which is relevant to many of the products that form the basis for the calculation of a partial exemption (see Division 3 of each Part of the Schedule which defines an EITE activity). It is intended that the definition of a saleable product in these regulations and the EITE assistance program will be consistently applied.

The definition makes clear that saleable product is intended to have the meaning as understood by the relevant industry, subject to subregulations 22C(2) to 22C(5). The product should be understood to be the output of the relevant process and have commercial value as that output. For instance, misshapen glass containers may have value as an input into a flat glass process, but not value as a glass container.

If there are grades of high quality and lower quality product, the term ‘saleable’ is not intended to mean that only the highest quality product is relevant.

As set out in the note, the output may meet particular industry standards or specifications (either general specifications or those set by particular customers). It may also meet internal standards by which it can be used by the firm as part of another process conducted by the firm.

The note also makes clear that outputs that are of saleable quality do not need to be sold in the year of production. Therefore, an output that is produced and entered on an inventory can be of saleable quality.

The recycling of sub-standard products back into a process is common in many of these activities, but applicants should not be able to claim assistance for the same material as a relevant product twice. Products which are lost or scrapped before being packaged as a final product should also not be included. This may include products damaged in transport between the site where the activity is conducted and the inventory or final packaging site.

Division 2 Emissions-intensive trade-exposed activities

Regulation 22D – Emissions-intensive trade-exposed activities

The notes to this regulation describe the linkages between the definitions of EITE activities in the Regulations and those in the ‘EITE assistance program’ regulations for the CPRS. The EITE assistance program is to be created by regulations under subclause 167(1) of the Carbon Pollution Reduction Scheme Bill 2010.

The activity details in Schedule 6 to the Regulations define the physical and chemical transformations that make up the activity, classify the activity as either highly or moderately emissions-intensive, and quantify the so-called ‘electricity baseline’, an amount which represents the electricity intensity of production of the relevant output(s) of the activity. The
emissions-intensity classification and the electricity baseline are both used in calculating the amount of a partial exemption.

The activities and their details as set out in Schedule 6 reflect those currently defined in the draft EITE assistance program regulations for the CPRS. It is intended that the EITE assistance program will be a Schedule to the general CPRS regulations. More activities will be added to Schedule 6 as they are added to the draft CPRS EITE regulations.

The CPRS regulations to establish the EITE assistance program, once they come into force, define which activities are EITE, and their applicable physical and chemical transformations for the purposes of the RET. This is achieved by the definition of ‘emissions-intensive trade-exposed activity’ in section 5 of the Act. That definition provides that the regulations may define EITE activities but, once the EITE assistance program is made, that program will define the transformations which are EITE activities. This change in definitions will occur as soon as the regulations establishing the EITE assistance program are formally made.

However, the details of Schedule 6 relating to the emissions-intensity classification and the electricity baseline will continue to apply for calculating partial exemptions. These are in Divisions 2 and 3 of each Part of Schedule 6. It is intended that these will be amended as necessary to maintain consistency with the CPRS EITE regulations.

Division 3 Publication of Information

Regulation 22E – Information about partial exemptions to be published – section 38C of the Act

This regulation specifies information about partial exemptions, additional to that specified under section 38C of the Act, which is to be published by the Renewable Energy Regulator (the Regulator) by 1 October in the year following the year to which the partial exemptions apply.

Subregulation 22E(1) requires that for each liable entity that has received a partial exemption, in addition to the name and estimated total value of the partial exemption, each of the EITE activities which make up a liable entity’s partial exemption is also to be named. For instance, retailer A may have received a partial exemption of 100,000 MWh, estimated by the Regulator to be worth $320,000, which was made up of PECs for the EITE activities of the production of flat glass, manufacture of newsprint and smelting zinc. In this case, retailer A’s name together with the estimated value of $320,000, and the list of relevant EITE activities (in this case flat glass production, newsprint manufacture and zinc smelting) is published.

Subsection 38C(2) of the Act requires the Regulator to publish other information in relation to partial exemptions as is required by the regulations. Consequently:

•                subregulation 22E(2) requires that the Regulator publish on its website within 14 days after a PEC is issued under section 46B (1) of the Act for each year, the name of the person to whom the PEC is issued, and the relevant EITE activity; and

•                subregulation 22E(3) requires that by 1 October in each application year the Regulator must also publish the total amount of partial exemptions given for each EITE activity. For instance, in 2020 it may be the case that a certain activity received partial exemptions totalling 21,000,000 MWh, which was the total of the amounts on all PECs that were submitted by liable entities against their 2020 liabilities and accepted by the Regulator, in respect of that EITE activity.

Division 4 Applications for partial exemption certificates

Subdivision A Who may apply – prescribed persons

Regulation 22F – Prescribed persons – subsection 46A(1) of the Act

This regulation provides that Subdivision A of Division 4 prescribes the persons under subsection 46A(1) of the Act who can apply to the Regulator for a PEC for a year in relation to an EITE activity.

Only a ‘prescribed person’ is eligible to apply for a PEC. This flows from subsection 46A(1) of the Act which allows the regulations to create a class of persons who are eligible to make applications. It is intended that the ‘prescribed person’ is a legal person involved in the carrying out of the EITE activity and not a person unrelated to the activity, or simply the retailer who supplies electricity to the site. It is also important that there are not multiple applications in relation to the same site and EITE activity so that assistance is only allocated once for a given use of electricity. Regulations 22G to 22M prescribe broad categories of persons in different situations.

•                Regulations 22G – 22J are essentially capturing the legal person with the closest connection to the electricity supply arrangements with the site.

•                Regulation 22K is a flexible mechanism whereby the person prescribed above can nominate an entity with a more overarching connection to the activity, principally the types of entities who may have liability under the CPRS for the emissions from the activity (whether as a person with operational control over the facility, as a controlling corporation or a person with financial control).

•                Regulation 22L provides for a second and third prescribed person for the site and activity in the circumstances where the liable entity has changed from the liable entity mentioned on the certificate.

•                Regulation 22M provides for the situation where there are multiple liable entities in respect of an activity at a site, for example where the electricity consumed by the EITE activity is supplied simultaneously by more than one retailer.

When a prescribed person submits an application for a site and activity, no further applications may be made in relation to the site and activity for that year other than those made under regulation 22L.

Regulation 22G – Prescribed person – person with contract for supply of electricity to site

This regulation inserts conditions under which a person with a contract for supply of electricity to a site where an EITE activity is undertaken is entitled to apply to the Regulator for a PEC.

The key to eligibility under this regulation is that the person was a party to a contract for the supply of electricity consumed at the site during all or part of the year immediately preceding the year for which the PEC is to apply, and that the contract was with a liable entity. Generally, this person is the person paying an electricity retailer for the electricity consumed at the site. It is not intended that the liable entity itself is eligible under this regulation.

It is recognised that in some circumstances the person with the contract with the liable entity (e.g. a retailer) may then supply the electricity to a third person who operates the site which carries on the EITE activity. Regulation 22G is intended to prescribe the person with the contract with the liable entity rather than the person who contracts with that person for supply to the activity. This person is often referred to as an intermediary. Regulation 22K is intended to allow the intermediary to nominate the person with operation control of the EITE activity if this is more appropriate.

To avoid double-dipping of partial exemptions and remove the potential for the Regulator to be required to consider multiple simultaneous applications, subparagraph 22G(e)(ii) prescribes a condition that prevents more than one PEC being issued for a year for a particular supply of electricity to an EITE activity at a site, and allows no more than one valid application for a PEC relating to the same particular supply of electricity, EITE activity and site to exist at any time.

Regulation 22H – Prescribed person – liable entity with operational control

This regulation inserts conditions under which a person who conducts an EITE activity at a site and is also the liable party under the Act for the relevant acquisitions which occur in the supply of electricity to the site is entitled to apply to the Regulator for a PEC.

A number of firms which carry on EITE activities are market customers in the national electricity market. They make relevant acquisitions from the Australian Energy Market Operator when they purchase electricity from the wholesale pool. Other firms may be a liable entity because they operate their own generation onsite and this generation is not exempt under the Act. A firm may also purchase electricity from a third party in circumstances that give rise to a relevant acquisition. This regulation captures these entities by adopting from the NGER Act the concepts of ‘operational control’ and the principal ‘facility’ which is carried on at the site. This avoids developing another test to identify a person who is conducting an activity and who is also a liable entity. For the person to be the prescribed person under 22H, they may be the liable entity for either a substantial portion (more than 30 per cent) of the electricity consumed at the site, or the majority of the electricity which gives rise to a relevant acquisition under the Act. This is to ensure that if a person is only a liable entity in relation to a very small amount of electricity consumed at the site and another entity is the liable entity for the majority of electricity, that person cannot use regulation 22H to receive the full partial exemption which will ordinarily be given to the primary liable entity.

Paragraph 22H(e) acts to avoid double-dipping of partial exemptions and remove the potential for the Regulator to be required to consider multiple simultaneous applications in similar manner to subparagraph 22G(e)(ii).

Regulation 22I – Prescribed person – liable entity for future activity

This regulation inserts conditions under which a person who will have operational control of an EITE activity that is about to be conducted for the first time at a site, and who will also be the liable entity for electricity consumed in the EITE activity, is entitled to apply to the Regulator for a PEC.

This regulation, like regulation 22H, uses the concepts of ‘operational control’ and the principal ‘facility’ which is carried on at the site, avoiding the need to develop another test to identify a person who is conducting an activity and who is also a liable entity. For the person to be the prescribed person under regulation 22I, they must be the liable entity for a substantial portion (more than 30 per cent) of the electricity consumed at the site. As with regulation 22H, this is to ensure that if a person will only be a liable entity in relation to a very small amount of electricity consumed at the site and another entity is the liable entity for the majority of electricity, that person cannot use regulation 22I to receive the entire partial exemption which will ordinarily be given to the primary liable entity.

Regulation 22J – Prescribed person – person with a new contract for supply of electricity

This regulation inserts conditions under which a person with a contract for supply of electricity to a site where an EITE activity is undertaken is entitled to apply to the Regulator for a PEC.

It is anticipated that there will almost always be a person under regulations 22G, 22H or 22I in relation to a site. Even when the site is being constructed, electricity is usually required for that construction to take place. However, there is a recognition that circumstances may arise where contractual arrangements governing the existing supply of electricity are not yet in place.

Regulation 22J allows for the person with a contract for the first supply of electricity to the site in the coming year to be a prescribed person in relation to the site and activity.

Like for regulations 22G, 22H and 22I, this regulation includes conditions to avoid double‑dipping of partial exemptions and remove the potential for the Regulator to be required to consider multiple simultaneous applications.

Regulation 22K – Prescribed person – nominated person

This regulation allows a person prescribed under regulations 22G to 22J to nominate, by giving written notice to the Regulator, another person to be the prescribed person in relation to the site and activity. These nominated persons may be:

•                the person with operational control of the principal facility at the site;

•                the controlling corporation that has a member of its group with operational control of the facility; or

•                a person, other than the person with operational control, who has financial control over the facility.

This provides flexibility to enable entities who undertake EITE activities, but which do not have direct contractual arrangements with a liable entity, to be issued with a PEC. This is not intended to provide a means for the EITE end-user of the electricity to bypass an intermediary with a direct contract with the liable party without the intermediary’s agreement. To ensure this, the regulation provides that to become a prescribed person, the person must be nominated by the person prescribed under regulations 22G, 22H or 22I.

Subregulation 22K(4) defines the concept of financial control over a facility in the same manner as in clause 81 of the Carbon Pollution Reduction Scheme Bill 2010. Accordingly, the person with financial control is prescribed with reference to the following contexts:

•                the operator operates the facility, under a contract, on behalf of the person with financial control alone or with one or more other persons;

•                the person with financial control is able to control the trading or financial relationships of the operator, in relation to the facility;

•                the person with financial control receives the economic benefits from the facility,

•                the person with financial control receives a share of the economic benefits from the facility that is at least as large as the other party in a two-party joint venture, or has the largest share of the economic benefits in a three or more party joint venture or partnership; or

•                the person with financial control is able to direct or sell the output of the facility.

Regulation 22L – Prescribed person – liable entity changes

This regulation deals with the case where the liable entity (typically the electricity retailer) may change during a year. In this circumstance, it is intended that a separate PEC be able to be issued for the EITE activity, site and year, in respect of the liable electricity provided by the new retailer over the remainder of the year.

It is also intended that when the new PEC is issued, the original PEC for the activity, site and year is to be adjusted so that the total of the amount of the old and new partial exemptions equals that originally set out on the old PEC.

This regulation specifies that the person who has been issued with a PEC for the relevant EITE activity, site and year may apply again, before the end of the relevant year, for a second PEC.

Regulation 22L also allows for one further (third) PEC to be issued for the relevant EITE activity, site and year for a second change of retailer.

In addition to regulation 22L, the following regulations are relevant to changes in liable entity:

•                regulation 22S prescribes the information required as part of an application for a new PEC in respect of a change in the liable entity;

•                regulation 22W and 22X specify the time period within which an application for a new PEC in respect of a change in liable entity must be made, depending on the relevant year;

•                regulation 22ZF prescribes the method for calculating the amount of the partial exemption for a new certificate issued as a result of a change of liable entity; and

•                regulation 22ZP prescribes the method for amending the original PEC to offset the amount of partial exemption calculated for a new PEC issued in relation to a change in liable entity.

Regulation 22M – Prescribed person – multiple liable entities

The case may arise where electricity consumed in an EITE activity at a site involves two or more liable entities simultaneously. For example, a site may have two connection points to the grid, with electricity supplied by separate (liable) retailers. Alternatively, a person who undertakes an EITE activity at a site and who purchases (liable) electricity directly from the wholesale market, may decide to purchase additional (liable) electricity for the site from a second source (this will normally involve a separate site connection).

Accordingly, this regulation prescribes that if a person has been granted a PEC in relation to a particular EITE activity, site and liable entity and at the start of a compliance year there are (simultaneously) additional liable entities in relation to electricity consumed at the site, and the prescribed person has not applied for or been granted a further PEC under regulation 22L, this person may apply for an additional PEC for the activity, site, year and liable entity likely to supply the most liable electricity to the site (other than the liable entity named in the original PEC).

The key sequential steps in the process, to be outlined in an example to be included in this regulation, comprise the following:

•                Firstly, application under one of regulations 22G, 22H, 22I, 22J or 22K for, and issue of, a PEC naming one of the liable entities for whom the full partial exemption will apply. This will normally be the liable entity who supplies the most electricity to the site.

•                Secondly, application under this regulation for an additional PEC which will name the supplier of the most liable electricity (other than the liable entity named on the original PEC) to the site. This application will include information specified under regulation 22T.

•                Thirdly, calculation by the Regulator of the value of the new PEC in accordance with regulation 22ZG, issue of the new PEC and reduction of the value of the original PEC in accordance with regulation 22ZQ.

It is theoretically possible that there may be three or more liable entities in relation to a site. After the first liable entity is chosen, the second liable entity must be the one who is the next largest. For instance, if the smallest liable entity is chosen first, the largest one must be chosen second. If the largest liable entity is chosen first, the second largest must be chosen second. This provides some flexibility for applicants to determine which of the three liable entities should be listed on the two PECs.

Subdivision B Information to be included in applications under subsection 46A (1) of the Act

As with the EITE assistance program, it is essential that the Regulator is presented with a range of information to support an application upfront in the decision making process. This will facilitate timely decisions and reduce the need for the Regulator to request additional information to carry out its assessment of the application.

It is intended that the information requirements for partial exemptions and for the EITE assistance program will be consistently expressed so that applicants do not need to make substantive changes to the material used to support applications for both programs. Under paragraph 46A(2)(a) of the Act the Regulator will approve a form to detail how this information is presented in an application.

Regulation 22N Information to be included

This regulation introduces the Subdivision which prescribes the information that must be included under subsection 46A(1) of the Act in the application for a PEC for an EITE activity carried on at a site during the year.

Regulation 22O – Information to be included with all applications

This regulation inserts the relevant information that must be included in all applications for a PEC as required by regulation 22M.

Subregulation 22O(1) provides that the following information is required for all applications.

•                Basic contact information essential for the application to be progressed, including the applicant’s name, address and contact details, ABN and ACN and the name and work contact details of a contact person regarding the details of the application.

•                A description of the basis upon which the applicant is a prescribed person. There are a number of ways in which a person can be a prescribed person in Division 4 of Part 3A. It will be important for the applications to address how each of the relevant requirements is met for a particular application. For instance, if the person is a prescribed person because of a contractual arrangement with a liable entity, some description of what is involved in that contractual relationship will be important (e.g. date entered into, amount to be supplied, relevant parties and the contract’s end date).

•                An explanation of how the EITE activity will be carried on at the site in the year and how any requirements relating to the conduct of the activity will be met. The application should describe how the processes carried on at the site constitute the EITE activity as defined in Schedule 6 to the Regulations. The descriptions of each activity include requirements for when a transformation satisfies an activity definition. For instance, the transformation of silica to silicon only constitutes an EITE activity when the silicon output is equal to or greater than 98 per cent purity. The application should explain the basis on which the applicant represents that this concentration requirement is met with regards to the processes at their site. The application should also set out how the transformation process is conducted in accordance with the overall chemical equation(s) listed in the regulations.

•                An explanation of the amount or volume of relevant production, and other numbers relevant to the application of the method in Division 5 (calculation of the amount of partial exemption), including:

–               the basis on which such amounts have been calculated;

–               how any amounts or volumes of relevant product have been measured and the frequency of the measurements;

–               how the nomination of amounts or volumes of a relevant product satisfy the conditions in regulation 22B for them to be referrable to the sites to the PEC application; and

–               how any other requirements relating to those amounts have been met.

The first applications for each year (i.e. those not for a change of retailer or for a second liable entity at the site) are to set out and justify the production amounts or volumes used to calculate the partial exemptions. For instance, the activity of silicon production is allocated on the basis of the total tonnes of saleable silicon of 98 per cent purity and which result from carrying out the activity as described. The application should set out how the silicon product is weighted, the accuracy of those measurements, how the measurements are generally undertaken in the industry, what testing methods for impurities were conducted and to what percentage of the output they applied, how lost or discarded silicon is accounted for in the number and whether any silicon was remelted (such that it cannot be counted twice). In doing this, the applicant should address the key considerations which the Regulator is required to consider in assessing the amount or volume of relevant production in regulation 22ZC. Before the EITE assistance program commences, these considerations will include:

–               any relevant requirements imposed by or under the National Measurement Act 1960;

–               the way in which the amount or volume of relevant product is measured by the industry;

–               accredited industry test methods for measuring the amount or volume of relevant product;

–               whether the measurement of the amount or volume of the relevant product is frequent enough to produce data that is representative and unbiased;

–               the risk of the relevant product not meeting the quality requirements stipulated in Schedule 6 to the Regulations; and

–               the administrative costs in implementing more accurate testing methods for measuring the amount or volume of relevant product at the site.

There may not be relevant requirements or standards under each of these headings for each relevant product, but a general indication of these matters will assist the Regulator make a timely decision on the application.

Where there are multiple sites in an activity group, the application is also to set out how production has been referred to a particular site in accordance with regulation 22B. In particular, this should set out the sites involved in the activity group and whether any of those sites carry out the activity only in an ancillary way. If there is one main site and a number of ancillary sites, all of the production is referrable to the main site.

For applications for a change of retailer (refer to regulation 22L) or for an additional liable entity at the site (refer to regulation 22M), the production amounts or volumes are not relevant to the application of the method in Division 5 and so do not need to be provided. Instead the relevant inputs to regulation 22ZF (the relevant days) and 22ZG (the expected relevant acquisitions) should be explained.

A statement of the amount of the partial exemption that should be set out in the PEC and how that amount should be calculated in accordance with Division 5 – ‘Calculating amount of partial exemption’. The application should set out the amount of partial exemption which the applicant thinks should be included in the PEC based upon the formula in Division 5, along with details of the underpinning calculations. This will primarily be based upon production amounts or volumes referrable to the site.

If, for a particular application year, the application is made before the Regulator has published the volume weighted average market price for a REC for the year under regulation 22ZG — the estimate of that price used by the applicant in the calculation of the amount of the partial exemption should be included.

Applicants do not need to wait until the volume weighted market price for a REC is published by the Regulator. They can apply beforehand by making their own assumption as to the REC price and carrying out the calculation on that basis.

The actual partial exemption included on the PEC will be as calculated by the Regulator in accordance with regulation 22ZA.

Subregulation 22O(2) provides that the following additional information is required for all applications other than those for a change of retailer (refer to regulation 22L) or for an additional liable entity at the site (refer to regulation 22M):

•                A map that sets out the following:

–               the site in respect of which the application is made;

–               where on the site the EITE activities are carried on;

–               the sources of electricity generation that are part of the site and the nameplate rating in megawatts (MW) of each of those sources;

–               any point at which electricity is delivered to the site other than by means of an electricity grid with a capacity of 100 MW or more; and

(Electricity supplied from power grids of less than 100 MW capacity is exempt from liability under the Act.)

–               how the site is connected to an electricity grid with a capacity that is 100 MW or more.

This will assist the Regulator understand how the activity is conducted and the likelihood of non-liable electricity being supplied to the activity.

•                The name of the liable entity to whom the partial exemption will apply.

This will ordinarily be the liable entity (e.g. retailer) who will be liable for the electricity acquisitions at the start of the application year. However, any liable entity which satisfies the conditions in paragraph 46A(1)(b) of the Act may be listed on the initial certificate.

•                If an EITE activity is proposed to be carried on at the site but at the time of the application has not yet commenced, then the applicant will need to provide information on all local, state/territory or Commonwealth government approvals necessary to allow the EITE activity to be carried on at the site. The application should state what those approvals are and whether the prescribed person has obtained them at the time of making the application.

•                Information about any on-site electricity generation capacity and whether the electricity supplied from this capacity gives rise to a relevant acquisition (attracts a liability under the Act). This is relevant to the application of regulation 22ZE which prescribes a method for quantifying the factor (factor ‘G’ - refer regulation 22ZA) used in calculating the partial exemption, which accounts for the proportion of non-liable electricity consumed in the EITE activity.

•                Information about any electricity used at the site that, under subsection 31(2) of the Act, is not a relevant acquisition of electricity. Subsection 31(2) includes grid capacity,
self-ownership, distance and line-sharing conditions that govern exemption of electricity from liability under the Act.

•                Information as to whether the applicant intends to apply under regulation 22M in respect of a second liable entity for the EITE activity at the site. If the person intends to apply under regulation 22M because they have a second liable entity (e.g. a second retailer), this must be disclosed in the application. The person may wish to include a draft of that application so that the Regulator can do preparatory work to enable it to be quickly processed after a PEC has been issued for the first application.

Regulation 22P – Information to be included in some applications only

For 2010 applications

This regulation details that, if a particular application has been made for a PEC for the 2010 year, and an audit report or other information has been provided to the then DCC or the DCCEE regarding the amount or volume of relevant product from the relevant EITE activity, which is to be used in determining the partial exemption, then that information must be provided as part of the application for the PEC.

This is relevant as the 2006-07 and 2007-08 production information was submitted to then DCC in 2009 to establish the eligibility of each activity. This information was audited to a reasonable assurance standard and formed the basis of each of the baselines for the relevant products.

In the event that the amount or volume of production specified in the audit report or other information provided to the DCC or DCCEE and the information supplied in the application for a PEC for the 2010 year is different, then information explaining this variance is also to be provided in the application. There may be good reasons for this difference, but these should be clearly explained in the application.

For applications for 2011 or a later year

This regulation also details that, for the 2011 year or later, if an audit report has been prepared in relation to the proposed EITE assistance program, and the report deals with the site mentioned in the PEC application, then that report must be included in the PEC application. Under the proposed EITE assistance program, audits of production information will be required to a reasonable assurance standard. By using the existing audit reports, additional auditing requirements are rendered unnecessary.

Regulation 22Q – Information to be included in applications for new entrant site

This regulation prescribes additional information to be provided in an application for a PEC in respect of an EITE activity at a site that meets the criteria specified in subregulation 22ZD(3) in relation to a new entrant site.

For new entrants, the allocation (amount or volume of expected new production of relevant product) will be based on expected production levels and the previous year’s production (if relevant). As expected production needs to be estimated, regulation 22Q requires a range of information to be submitted with the application to allow the Regulator to judge whether the applicant’s assessment of expected production is the ‘best estimate’. By having this information up front, the Regulator is less likely to need to commission further reports and seek a large amount of additional information before being able to make a decision on the application. The applicant must also be clear about any risks or uncertainties surrounding their production projections.

Information about contracts or other arrangements to buy the output of the activity will be relevant to determining the likelihood of production proceeding as scheduled and will support the expected production estimate. The intention is to gain insight into the volumes of output that are firmly contracted and those volumes where uptake is optional. As the note makes clear, there is no need to discuss the pricing of the outputs as this is not relevant to assessing the volume of production which will take place.

Information about commissioning and re-commissioning will give a clear indication of the readiness of the equipment to produce the estimated level of production. This is relatively simple if all equipment has been commissioned or re-commissioned at the time of the application.

Where equipment is still being constructed, commissioned or re-commissioned at the time of the application, it is important that the person constructing, commissioning or re-commissioning the principal equipment explain the status and progress of the process. It will not be expected that this explanation will exhaustively consider every possible risk, but will rather address the core risks that the equipment will not be ready in time.

It is recognised that different persons may construct and commission equipment. It is expected that, if the equipment was still being constructed at the time of the application, the constructor provides the statement but, if in the commissioning stage, it is the person commissioning who provides the statement.

A general overview of the financial arrangements that are in place for the installation of new equipment will be important in confirming the likelihood that all will go as expected with that installation. It is not intended that this is a full disclosure of the project finance arrangement but is relevant to assessing the degree of confidence that the project will be completed as outlined in the application. This should provide a horizon view to events that influence the project proceeding.

It is also intended that the applicant disclose any other issues which will stop or delay the activity (e.g. problems negotiating access to infrastructure to export the product).

The application requirements for new entrants will be the same in the proposed EITE assistance program as in these regulations to ensure that the same information can be submitted to both programs. It is intended that the provisions will be consistently applied.

Example of new entrant

It is June 2010 and Jessica Ann will soon start a new facility in Perth to produce carbon black, which is defined as an EITE activity in Schedule 6 to the Regulations. She has been installing equipment over time and expects to run full commissioning and testing from September to November of the coming financial year. Over the year, she expects to produce 700 tonnes of pelletised carbon black on a dry weight basis. Jessica’s application for a partial exemption for 2011 should:

–               set out why and how Jessica expects to produce 700 tonnes of carbon black during the financial year (which may include expected production for each month after November);

–               set out the arrangements and timetable for commissioning the equipment;

–               include a statement from the contractors constructing the principal equipment that it is likely to be fully constructed and installed by September;

–               include the factors of which Jessica is aware that will stop or delay the commissioning in September to November (such as equipment purchased from overseas not arriving or failing to function in accordance with its specifications);

–               set out, in general terms, Jessica’s actions to raise equity and loans to finance the equipment; and

–               set out how Jessica plans to sell her carbon black, including a description of what contracts or other arrangements have been entered into (but with no requirement to provide the price or other technical details of those contracts).

Regulation 22R – Information to be included in applications for significantly expanded site

This regulation prescribes additional information to be provided in PEC applications which pertain to a significant expansion of an existing site. For sites which satisfy the relevant requirements under subregulation 22ZD(4), the method for calculating the partial exemption reflect the additional production that is expected to take place. This additional production is the amount or volume of relevant product expected to be produced above the amount of production reported in respect of the previous financial year.

Example of significant expansion and expected production

Angus Fred’s silicon plant produced 1000 tonnes of silicon in the previous financial year (the financial year ending six months before the compliance year to which the PEC will apply), but is undergoing a capacity expansion of greater than 20 per cent that meets the criteria specified under subregulation 22ZD (4) of the Regulations for a ‘significant expansion’. Angus is expected to produce 1300 tonnes of silicon in the financial year which begins six months before the application year. The Regulator will use 1300 tonnes as the basis of the partial exemption (1000 of which is the past year’s production component and 300 of which is the ‘expected production’ component).

In a similar way to the regulations for new entrants, regulation 22R requires a range of information to be submitted with applications to allow the Regulator to judge whether the applicant's assessment of expected production is the best estimate of how much additional product is reasonably likely to be produced.

The information requirements have been designed to both satisfy the Regulator that a significant expansion has taken place (which is based upon the change in the maximum productive capacity of the equipment) and then to estimate an expected production level for the relevant financial year. These are two related, but separate tasks.

The assessment of the maximum productive capacity is based upon a before and after analysis of the nameplate capacity of the equipment associated with the activity. This assessment accounts for the addition of new equipment which is expected to increase that productive capacity and also for the decommissioning of any equipment to be replaced or retired which is expected to reduce the productive capacity. It is also possible that some equipment may be modified to increase its maximum productive capacity.

Paragraphs 22R(1)(h) to 22R(1)(l) are equivalent to the requirements for new entrants in regulation 22Q and should be interpreted in the same way.

Where there are multiple baselines for an activity, subregulation 22R(2) makes clear that the information on expected production of a relevant product only relates to the products directly affected by the use of the equipment which has increased the maximum productive capacity of production. For instance, a printing and writing paper manufacturer may have doubled its pulp capacity but made no changes to its paper production. The additional pulp production is allocated as ‘expected production’ but there is no additional allocation for the paper relevant product.

The application requirements for significant expansions will be the same in the proposed EITE assistance as in these regulations to ensure that the same information can be submitted to both programs. It is intended that the provisions will be consistently applied.

Example of information required for a significant expansion

In applying for a significant expansion as described above, Angus may need to:

–               set out his new furnace commissioning process, timetable and results of early commissioning phases;

–               describe whether any of his existing furnaces or other relevant equipment will be retired once the new furnace is operating;

–               state that 1000 tonnes were previously produced by this plant and explain the basis on which an additional 300 tonnes of production is expected in the coming year;

–               set out the maximum productive capacity of the silicon plant before he started to install his new furnace and the maximum productive capacity after all the equipment is installed (which may be expressed as the maximum daily tonnes of silicon that the site can produce with the equipment on hand);

–               identify the contracts which have pre-ordered the silicon from the site (to show the volumes of output ordered rather than the price being paid);

–               set out how other equipment at the site will cope with the expanded production (e.g. storage capacity or particular contractual arrangements for the delivery of the output);

–               include a statement from the construction firm about the status of construction and commissioning of the principal equipment; and

–               set out, in general terms, what relevant financing arrangements have been finalised (for example, any loan arrangement to cover the costs of the expansion).

Regulation 22S – Information to be included if prescribed person is a person prescribed under regulation 22L

This regulation details the information, additional to that required under regulation 22M, to be included in an application for a PEC if the application is in relation to the change of a liable entity for the supply of electricity during the year.

This additional information includes:

•                the circumstances in which the liable entity (the ‘old liable entity’) mentioned in paragraph 22L(1)(b) or 22K(2)(a) ceased to be the liable entity;

•                evidence of the date on which the old liable entity mentioned in paragraph 22L(1)(c) or 22L(2)(b) ceased to be the liable entity and the date the ‘new liable entity’ became the liable entity; and

•                evidence that both the old and new liable entity have been informed of the application.

This information will make it clear that the criteria in regulation 22K are met and that the old liable entity is aware that its partial exemption is about to be reduced. This will enable the old liable entity to raise legitimate concerns or activate any contractual mechanisms it has put in place if the full value of the partial exemption has already been provided to the prescribed person.

Regulation 22T – Information to be included if prescribed person is a person prescribed under regulation 22M

This regulation details the additional information required to be included in an application for a PEC if the application is in relation to a second liable entity for the site. The application should describe the liable entities and set out the expected relevant (liable) electricity acquisitions each liable entity will make in the application year. It must also provide evidence that both liable entities have been informed of the application. This allows them to raise any legitimate concerns with the application.

Regulation 22U – Information to be verified

This regulation provides that all information accompanying an application for a PEC must be verified by statutory declaration by a director, a chief executive officer (however described), the chief financial officer (however described) or the secretary of the entity making the application.

It is intended that a statutory declaration under the Statutory Declarations Act 1959 of the Commonwealth as to the accuracy of the information presented in the application, including proposed amounts or volumes of relevant product, will satisfy this verification requirement.

Subdivision C Time and manner of lodging applications under section 46A of the Act

Regulation 22V – Time for lodging

This regulation provides that Subdivision C is made for paragraph 46A(2)(c) of the Act.

Regulation 22W – Time for lodging – applications for 2010

This regulation provides that applications for a PEC for the 2010 compliance year in relation to a prescribed person in regulation 22G (person with contract for supply of electricity to site), regulation 22H (liable entity with operational control), regulation 22I (liable entity for future activity), regulation 22J (person with a new contract for supply of electricity) or regulation 22K (nominated person) must be made on or before 31 October 2010.

This regulation also provides that applications for a PEC in relation to a prescribed person in regulation 22L (liable entity changes) or regulation 22M (second liable entity at a site), must be made before 1 January 2011.

Regulation 22X – Time for lodging – applications after 2010

This regulation provides that applications for a PEC in relation to a prescribed person in regulation 22G – (person with contract for supply of electricity to site), regulation 22H (liable entity with operational control), regulation 22I (liable entity for future activity), regulation 22J (person with a new contract for supply of electricity) or regulation 22K (nominated person), must be made before 1 January of the year to which the application relates. This aligns with the longest period during which applications may be made under the EITE assistance program.

On the other hand, this regulation provides that applications for a PEC in relation to a prescribed person in Regulation 22L ( liable entity changes), must be made before 1 January of the year immediately following the year to which the application relates. This allows time for the applications to be dealt with before the 14 February compliance deadline.

This regulation also provides that applications for a PEC in relation to a prescribed person in Regulation 22L (second liable entity), must be made before 1 July of the application year. This ensures that certainty is provided to retailers as to whether a second application will be made by the middle of the year.

Regulation 22Y – Manner of lodging

This regulation provides the manner in which an application for a PEC is lodged to the Regulator – which must be sent by post or fax. If the application is sent by fax, the original application must also be sent by post to the Regulator.

The current postal address of the Regulator is GPO Box 621, Canberra ACT 2601. The application details will be further detailed in the form approved by the Regulator under paragraph 46A(2)(a) of the Act.

Division 5 Calculating amount of partial exemption

Subdivision A General

Regulation 22Z – Method for calculating amount of partial exemption

This regulation provides that the Division prescribes the method for calculating the amount of a liable entity’s partial exemption for a year in relation to an EITE activity and site mentioned in an application. The regulation sets out, in the general terms, the nature of each subdivision. It also recognises paragraph 46B(1)(a) of the Act as the basis for the Division.

The method for the calculation of the amount of a partial exemption gives effect to the policy commitments to a 90 per cent and 60 per cent rate of exemption in respect of the portion of the annual targets (set out in section 40 of the Act) above 9,500 gigawatt‑ hours (GWh) plus, after completion of passage of the CPRS legislation, an additional exemption component in relation to the first 9,500 GWh of each annual target and based on the amount by which an average REC price over a 12-month period exceeds $40. It also draws heavily upon the structure and considerations relevant to the calculations under Part 9 of the proposed EITE assistance program under the CPRS. The aim is that for an activity conducted wholly within one site, the same production information is submitted and used for the purposes of both assistance regimes in the exact same manner. This should minimise compliance costs and promote timely decision making.

The Division provides a different method for three different circumstances in which the person is a prescribed person.

•                Firstly, Subdivision B, along with Subdivisions C, D and F, sets out the general method for determining the first PEC for a site, activity and year. The method for this circumstance is based primarily upon the emissions-intensity classification of the activity, the production related to the activity and electricity baseline per unit of production for the activity. This method is used when the person is a prescribed person because of regulations 22G to 22K.

•                Secondly, regulation 22ZF in Subdivision E deals with the situation where a PEC has been issued based upon the calculation in Subdivision B and the liable entity changes during the year, with a new certificate being sought for the new liable entity. In that circumstance, the person is a prescribed person because of regulation 22L. The method essentially pro-rata’s the exemption given in the first PEC by the number of days in the year for which the new liable entity will be the liable entity for the site.

•                Thirdly, regulation 22ZG in Subdivision E deals with the situation where a partial exemption has been issued based upon the calculation in Subdivision B, there are two or more liable entities at the start of a year for a site and the applicant applies for a second partial exemption for the largest of the liable entities who is not included in the first certificate. In that circumstance the person is a prescribed person because of regulation 22M. The method pro-ratas the exemption for the first PEC in proportion to the expected relevant acquisitions of the first and second liable entities.

It is important to note that the partial exemption is designed to be delivered in relation to the RET liability associated with the electricity used in an EITE activity. It is not designed to be delivered in relation to all of the liable electricity used at a site regardless of whether classified as part of an EITE activity or otherwise. For example, electricity used in mining operations and corporate functions is not classified as part of an EITE activity. There are also sites which conduct more than one EITE and those activities may not have the same emissions-intensity classification.

The electricity intensity baselines developed for the EITE assistance program are used in the Regulations to calculate the amounts of partial exemption in relation to each site and activity. The development of these baselines is further discussed in relation to Schedule 6 to the Regulations. Production information is more readily accessible and verifiable than estimation of electricity used in a particular activity. Accordingly, the use of production information as the basis for the method for the calculation of partial exemptions will simplify the administrative task of determining an appropriate level of assistance, avoid rewarding or incentivising the co‑location of an EITE activity with other activities and provide a fairer outcome.

Subdivision B Method for calculation

Regulation 22ZA - Method

This regulation provides the general method for the calculation of the amount of the partial exemption based upon production volumes and an adjustment for non-liable acquisitions of electricity (factor G).

Conceptually, the partial exemption is intended to exempt from liability an amount of MWh of electricity consumed in the EITE activity at the site for that calendar year. This amount is intended to account for:

•                the emissions-intensity classification of the particular EITE activity (whether highly or moderately emissions-intensive);

•                the additional liability under the Act, in terms of MWh, which is due to the expansion of the renewable energy target for the year, section 40 as amended by the Amendment Act, above a level of 9,500 gigawatt-hours (GWh); and

•                once the CPRS legislation has passed in Parliament and received Royal Assent, the additional liability for the year in respect of the first 9,500 GWh of the renewable energy target for the year, which is due to the increase above $40 of the Regulator’s reasonable estimate for the weighted average market price of RECs for the year.

As discussed in relation to regulation 22Z, it is intended that the method be designed to minimise complexity and transaction costs by utilising where practicable the information reported through the development and implementation of the EITE assistance program under the CPRS. The EITE assistance program under the CPRS is based around annual reporting (each October) of the amount or volume of relevant product produced in the previous financial year (ending 30 June). A constant industry-average electricity intensity of production in terms of MWh per unit of relevant product (called the electricity baseline), which is used in calculating EITE assistance under the CPRS, is determined for each EITE activity and included in the activity details in the CPRS regulations and replicated in Schedule 6 to the Regulations. Multiplying the amount of annual production by the electricity intensity of production yields an amount representing the electricity used for the year in the EITE activity at the site.

This provides a simple, uniform and transparent basis for calculating the partial exemption which avoids the additional cost and complexity involved in measuring and reporting annually on actual electricity use associated with an activity.

The partial exemption for a particular compliance year must be estimated in advance. This is accomplished by using the actual production for the financial year ending on 30 June in the prior year as reported under the CPRS EITE assistance program to estimate the production for the relevant compliance year under the Act. The method includes a further adjustment (essentially a true-up factor) to offset any difference between the production figure used for the previous year’s allocation and the actual production in that financial year.

Consistent with the CPRS methodology, the method includes the flexibility to accommodate new entrants and significant expansions by applying an upfront estimate of additional expected production for the current financial year.

The method also accounts for the fact that in some cases, not all of the electricity used in carrying on an EITE activity attracts a liability under the RET. For example, some electricity may be exempt under the Act’s self-generation provisions. It is important to account for this, where material, to avoid providing a windfall in respect of non-liable electricity. The method chosen for dealing with non-liable generation recognises the additional complexity and costs of measuring and reporting around additional sources of non-liable electricity and excludes any generation from plant smaller than 1MW capacity from consideration.

The essential formula for the calculation of a partial exemption is:

PE^ia_t = EP^a × ASP^ia_t × k^a_t × G^ia_t

where:

•                PE is the amount of the liable entity’s partial exemption measured in MWh.

•                i represents the liable entity.

•                a represents the EITE activity carried on at the site and mentioned in the application.

•                t represents the year to which the application relates and during which the activity is, or is to be, carried on at the site.

•                EP is the electricity (intensity) baseline set out in Division 3 of a Part (other than Part 1) in Schedule 6 in respect of the activity.

•                ASP is the amount or volume of relevant product produced by the activity as determined under Subdivision C (and in particular the formula in regulation 22ZB). It is the amount of relevant product produced at the site to be used in calculating the partial exemption, adjusted to account for any expected new or additional production, and also to account for the difference between production as allocated for the previous year and the actual production in that financial year.

•                k^a_t, in relation to the year, is the partial exemption assistance rate for the activity for the year and is the sum of:

base k^a_t, as set out in subregulation 22ZA (2) which represents 90 per cent or 60 per cent of the percentage of the annual target for the year (in section 40 of the Act) which is above 9,500 GWhs; and

additional k^a_t, as worked out under the formula in subregulation 22ZA(3) which factors in the 90 per cent or 60 per cent assistance rate and the amount by which an average REC price exceeds $40 as applied to the first 9,500GWh of the annual target for a year. This additional component is only to be applied from 2011 or later, and only if the Carbon Pollution Reduction Scheme Act 2010 has received Royal Assent.

•                G is an adjustment for the generation or acquisition of electricity (that does not constitute a relevant acquisition) and is worked out under subregulation 22ZE(1) and expressed as a percentage. The method for establishing this factor reduces complexity and transaction costs by taking as a proxy that proportion of total electricity consumed at the site over the prior financial year which is liable electricity, and allowing electricity from generators smaller than 1 MW nameplate capacity to be disregarded.

As noted above, factor k comprises two additive components:

•                The first component, called ‘base k’, combines the factor (90 per cent or 60 per cent) representing the emission intensity classification of the activity with the proportion of the annual target for the year which is above 9,500 GWh.

For example, for the compliance year 2010 for a moderately emission-intensive activity, this component is [60% x (12,500 – 9,500) / 12,500)] = 14.40 per cent.

•                The second component, called ‘additional k’, is applied subject to the circumstances referred to above and detailed in subregulation 22ZA(4). It will combine the emission intensity factor with the proportion of the weighted average REC price which exceeds $40 and the proportion of the relevant annual renewable energy target that 9,500 GWh represents. Regulation 22ZH prescribes that each year the Regulator must estimate the weighted average market price of a REC for the preceding 12 months ending 30 September and must publish this number on its website by 31 October.

As the higher annual targets under section 40 of the Act (as amended by the Amendment Act) do not take effect until January 2010, the earliest compliance year in which this component of partial exemption is provided is 2011. However, in recognition that additional costs are incurred in respect of the 2010 liability, the component for 2011 is calculated on the average REC price determined for the 12 months to end September 2010, and uses the renewable energy target for 2010 as the basis for working out the proportion that 9,500 GWh represents. This method applies for each year meaning that, in effect, this additional component of partial exemption is provided the following year.

For example, assuming the average REC price for 2010 year is determined to be $60, and given the 2010 target is 12,500 GWh, this additional component for 2011 is

[(60% x 9500/12500) x (60 – 40)/60) = (45.60% x 33.33%)] = 15.2 %.

Subregulations 22ZA(2) and 22ZA(5) include tables which assist in determining these components.

Subregulation 22ZA(6) makes clear that where there are multiple relevant products for the same EITE activity, the formula must be applied independently to each of those relevant products and the result summed to work out the total amount of the partial exemption. For instance, for integrated lead and zinc production, the tonnes of lead are run through the formula to produce a number of MWhs and the tonnes of zinc in fume are run through the formula to produce another number of MWhs. Both MWhs amounts will then be summed for the amount of the partial exemption on the PEC.

Example

A full example of the calculation is set out after the explanation of regulation 22ZH. This will assist readers understand the complexities of each part of the formula.

Calculation of the REC price

Subregulation 22ZA(3) outlines the method for working out the REC price to be used when calculating any additional partial exemption in circumstances where the REC price exceeds $40. The REC price is to be the Regulator's reasonable estimate (as published on the Regulator’s website in accordance with regulation 22ZH) for the volume-weighted average market price of a REC for the 12-month period ending on 30 September in the previous year. The 30 September date will enable early processing of PEC applications for the following year.

In arriving at a reasonable estimate for the volume-weighted average price over a 12-month period, it is envisaged that the Regulator will use a methodology which is transparent and utilises objective and quantifiable data from arms-length transactions available in the public domain. For these reasons, it is envisaged that the Regulator will base his estimate primarily upon on the spot market price. The spot market is transparent and is reported publicly, for example by the Australian Financial Markets Association which provides a weekly update.

Longer-term contracts tend to be commercially sensitive, and are not public. As RECs are often bundled with the physical electricity in these contracts, the REC price is not clear. It may also be difficult to establish whether or not the transactions are at arm’s-length. The intent is to ascertain a market price, rather than a price paid by a particular entity. As such, contract information will also need to be available for all or a significant proportion of the market, to be representative.

Subregulation 22ZA(3) allows some flexibility for the Regulator in the method for estimating the weighted average REC price as the best method for estimating these prices is likely to change over time as the REC market grows and evolves.

Subdivision C Matters relating to factor ASP

Regulation 22ZB – Factor - ASP

This regulation sets out how the relevant amounts or volumes of relevant production are put together to make an amount determined to be the adjusted site production (ASP) for the purposes of the formula in subregulation 22Z(1).

Subregulation 22ZB(1) sets out a particular rule for the first year (2010) that any one of the three previous financial years may be used for the purposes of the calculation method, or, if no relevant product was produced in any of those years, an estimate of the production likely in the 2009-10 financial year. This production must be referrable to the site mentioned in the application and be accurate or a best estimate under regulation 22ZB.

Subregulations 22ZB(2) to 22ZB(5) sets out the general rules for the years 2011 and later based upon the formula in the proposed EITE assistance program. As for the first year (2010), the production must be referrable to the site mentioned in the application and be accurate or a best estimate under regulation 22ZC. The general rule for calculating the ASP factor for years 2011 onwards provides that the production amount or volume is the sum of the following:

•                the amount or volume of the relevant product (factor SP) produced in the previous financial year (i.e. production in 2009-10 is relevant for the 2011 calendar year);

•                any amount of new or expected additional production for which the site might be eligible because it is a new entrant or has undergone a significant expansion (factor EASP), as defined in the EITE assistance program and reflected in subregulations 22ZD(3) and 22ZD(4) respectively; and

•                a ‘true-up’ amount of production (factor ST) which relates to whether the previous year’s allocation was under or over the production which did occur in the previous financial year. This is calculated in the same manner as in the EITE assistance program. Subregulation 22ZB(4) provides that no true-up amounts are used for new entrants or where there was no application in relation to the previous year.

Subregulation 22ZB(5) also provides that for the 2011 year, the year chosen in 2010 is to be used for the purposes of the calculation. For instance, if 2006-07 production volumes were used in 2010 as the basis for the partial exemption under subparagraph 22ZB(1)(a)(i), then that production volume is used in the true-up formula.

Regulation 22ZC – Regulator must be satisfied about amount or volume

This regulation is central to the decision-making process for production amounts and volumes. Subregulation 22ZC(1) provides the key principle that the Regulator must be satisfied that the amount or volume is accurate or the best estimate of the relevant amount or volume possible in all the circumstances.

There is a need to ensure that the reported amounts or volumes have been, or will be, produced in the relevant years because production amounts or volumes will be the key determinant of the amount of a partial exemption in relation to the conduct of a given activity. If production amounts or volumes are not adequately scrutinised, the Regulator may be granting incorrect amounts of partial exemption for a given activity. The decision-making criteria are designed to draw the appropriate balance between managing risks of over-allocation and minimising the compliance and administration burdens for all parties. In particular, flexibility in measurement is provided to avoid a prescriptive approach to measurement standards, while recognising that such flexibility consequently requires greater scrutiny to be available to the Regulator.

‘Accurate’ and ‘best estimate’

Applicants need to use the available information to put forward their accurate figure for, or best estimate of, the production amount or volume which meets the relevant requirements of the EITE assistance program, as reflected in the Regulations. Given that the vast majority of PEC applications are only concerned with past production volumes, and particularly given the inventory production of saleable products is an essential component of financial auditing, this is not expected to be difficult for most applicants. Nonetheless, it is essential that the justification for production amounts or volumes demonstrate why the Regulator should be satisfied that the amounts or volumes proposed are accurate or a best estimate. The words ‘possible in the circumstances’ recognise that practical constraints may operate in determining a relevant amount or volume, particularly for estimates of future production levels. For instance, it is often not practical or necessary to measure the impurities in every single tonne of product which is produced. However, this does not mean that only tonnes which were measured can be counted. Where this is the case, the Regulator should be made aware that the measurements taken demonstrate the properties of the production used in the application.

It should be noted that the Regulator’s task is most difficult with regard to estimates of ‘new or expected additional production’ which has not yet occurred. A range of factors are relevant in determining the reasonable likelihood that a particular amount or volume of relevant product will be produced. The Regulator will need to draw upon the additional information required by regulations 22Q and 22R in forming a view of whether the estimate is the best estimate possible in all the circumstances.

Considerations

Subregulation 22ZC(4) sets out the key matters the Regulator must have regard to in deciding whether or not they are satisfied in relation to an amount or volume.

Paragraph 22ZC(4)(b) is relevant to the first year (the 2010 calendar year) as production volumes may cover the same time period as was used to assess the eligibility of each activity. In this case, audit reports and production volumes have already been scrutinised by DCC or DCCEE. The intention of this paragraph is to ensure that issues are not re-litigated and administrative costs are kept to a minimum.

Paragraph 22ZC(4)(b) ensures that when the proposed EITE assistance program is made, the same considerations that are set out in that program apply for decision-making in the Regulations. This is to ensure that the Regulator is not forced to make a different decision in relation to the same production amount or volume because of any differences identified in the drafting of the provisions. Clauses 803, 903, 904 and 1401 of the draft regulations to establish the EITE assistance program are particularly important when they are formally made.

Paragraph 22ZC(4)(c) articulates the key considerations that are used in the EITE assistance program during the period before that program is formally established. This paragraph of the Regulations will cease to have effect after the program is established as all the matters are covered in the program. These matters are explained below.

Correct and reasonable measurements

Paragraph 22ZC(4)(c) focuses on the general issue of measurement of amounts or volumes of relevant product. This includes whether the accuracy of the particular measurement techniques was appropriate and whether the range of uncertainty that has resulted is acceptable, given the value of the assistance. For example, a concentration requirement may have been estimated by a technique which is not accurate enough to demonstrate that the qualities required of the product have actually been met. Where it can be demonstrated that there is little risk of products falling below the necessary specifications in the activity, relatively simple and risk-based approaches to testing and sampling are likely to be reasonable. However, where there are greater risks of particular products not satisfying the requirements of a definition, more detailed testing and sampling may be required. In such cases, should appropriate testing not be carried out, it is appropriate to reduce the amount or volume of the relevant product in the light of the uncertainties and risks that all of the product claimed may have not met the necessary specifications. The key considerations are further explained below.

•                Requirements by or under the National Measurement Act 1960 are often relevant to the measurement of products for sale and may also be useful in situations where they do not apply by force of law.

•                The measurement methods usually adopted by the industry are often a good indication of the standard expected in the market place for products which are sold. Where these produce robust results, it is not intended that different and costly methods be adopted solely for the purposes of the assistance. For instance, it may be the case that an activity is defined in such a way that the same person also conducts the downstream processing and does not require the same levels of measurement as for external sales.

•                The accredited industry test methods are often useful benchmarks for products. These are particularly relevant to impurity testing and calibration of this equipment to the necessary standard of accuracy.

•                It is important to consider whether the measurement was frequent enough to produce data that is representative and unbiased. This is a concept that is also used in greenhouse and energy reporting. There may be risks that biased sampling techniques could overestimate the amount of relevant product and result in an unduly high partial exemption. The testing regime should be designed and conducted at an appropriate frequency to address the intrinsic risks with the particular relevant product being measured. This will differ for each relevant product.

•                The risk of the relevant product not satisfying the relevant qualities required by Schedule 6 deals with the materiality of situations in which the equipment may not produce products which meet the necessary purity or concentration requirements. Some processes may be more likely to produce products which do not qualify as relevant products and this will indicate a greater level of testing should be undertaken to ensure the amounts and volumes are accurate.

•                The administrative cost of more accurate testing methods is an important issue to consider. The level of testing and the expense which is incurred should be proportionate to the value of the partial exemptions being delivered. It is not intended that expensive testing methods be implemented which is disproportionate to the value of the partial exemption in each case. It is, however, necessary that some measurement does take place.

Paragraph 22ZC(4)(d) ensures that the Regulator may consider any other relevant matter. It may be that a company with a history of inaccurate reporting is looked at more closely than one with a strong compliance record. It also may be the case that sufficient records have not been kept and the Regulator needs to draw on other information and make a range of assumptions to make a best estimate of the production amount or volume.

Regulation 22ZD – Factor – EASP^ia_tfincurr

Regulation 22ZD both explains the concept of ‘new or expected additional production’ and sets out the criteria for when it is relevant to a PEC application. This regulation picks up the concepts of a ‘significant expansion’ and a ‘new entrant’ under the EITE assistance program and it is intended that these concepts are consistently applied. In particular, the time period for which the expansions and new entrants are assessed is the financial year which begins six months before the year of the exemption. This ensures that the production estimates and time periods are exactly the same under these regulations and the EITE assistance program.

It is important to note that the drafting of the EITE assistance program uses the term ‘facility’ and regulation 22ZD is drafted in terms of a ‘site’. This is necessary because under the framework established by the Act the partial exemptions must be based around a site, whereas the framework for liability and assistance under the CPRS is determined on a facility basis. Generally, there is not intended to be any difference in approach despite the different words used.

The concept of ‘new or expected additional production’ differs between ‘new entrants’ and ‘significant expansions’. For a new entrant (subregulations 22ZD(1) and (3)), it is the amount or volume of relevant product that is reasonably likely to be produced in the financial year that begins six months before the calendar year to which the application relates. For a significant expansion (subregulations 22ZD(2) and (4)), it is the amount of production reasonably likely to be produced above the amount produced in the previous financial year (that ends six months before the calendar year to which the application relates). For example, in 2012 if a new entrant firm was reasonably likely to produce 1000 tonnes of relevant product in the financial year beginning 1 July 2011, that is the amount of ‘new or expected additional production’. Similarly, in 2012 a firm which has undergone a significant expansion as a result of which it is reasonably likely to produce 1000 tonnes of relevant product in the financial year beginning 1 July 2011 and produced 600 tonnes of relevant product in the financial year beginning 1 July 2010 (the previous year) has 400 tonnes of ‘new or expected additional production’.

Criteria for a new entrant site

As specified under subregulation 22ZD(3), a new entrant site includes both new projects (greenfield sites) and sites which have been closed or have not conducted the activity for an extended period of time (brownfield sites). Where the EITE activity was not carried out at all in the financial year which began 18 months before the application year, the site is taken to be a new entrant. This could be because the activity was never conducted before, or was not conducted during that period because the existing EITE activity equipment was ‘mothballed’ or in a state of ‘care and maintenance’ during that financial year.

A new entrant site also includes those sites where the activity was conducted for the first time in the previous financial year (which began 18 months before the application year), or was carried out in that financial year for the first time after a break of at least 12 months, and (for both those circumstances) there was no application for a partial exemption in the previous year. In that case the production in that year will not have received a partial exemption. The effect of this is that the partial exemption is based upon the sum of the production which did occur in that previous financial year and the expected production for the financial year which began six months before the start of the application year.

Example of a new entrant

Emma Kate operates a high purity ethanol plant which had been undergoing refurbishment since 1 January 2010. Emma Kate reopens the plant in April 2011 but had not applied for a PEC for the 2011 calendar year. From April 2011 to 30 June 2011 Emma produced 300kL of relevant product. She expects to produce 1500kL of relevant product in the 2011-12 financial years. Before 1 January 2012 Emma Kate can apply as a new entrant site for the 2012 calendar year and her adjusted production is the 300kL produced in 2010-11 plus the 1500kL expected to be produced in 2011-12 (1800kL in total).

The new entrant criteria are the same in the EITE assistance program as in these regulations and are based upon the same financial years.

Criteria for a significant expansion site

As specified under subregulation 22ZD(4), a ‘significant expansion’ is defined as a situation in which the installation of equipment increases the maximum productive capacity of the activity by more than 20 per cent after it is commissioned. This will generally be determined by comparing the nameplate capacity of the equipment before and after the new equipment is installed. It is intended that the definition of a significant expansion in these regulations and the EITE assistance program is consistently applied.

The provisions relating to significant expansions allow an applicant to receive a partial exemption for expected production above the production of the previous financial year upfront rather than waiting for an allocation through the true-up mechanism. The provisions are intended to deal with situations in which there is a very significant change to a facility at a site.

Greater than 20 per cent capacity expansions

Applicants have discretion about when they wish to apply for the additional allocation based upon expected production. For example, if the installation and commissioning of new productive capacity will take a number of years, applicants could wait until the end of that period to apply for additional units, as those years are likely to be the ones with the greatest difference between the previous year’s production and the expected production for the coming year.

The maximum time from when the first piece of the new equipment was fully installed at the site to when a significant expansion can be claimed is four and a half years from the start of the year to which the application relates. This accommodates large complex projects which may take many years to install and fully commission all of the equipment necessary to achieve more than 20 per cent maximum capacity expansion. Applicants should note that this time period starts from when the first substantive component of the equipment is fully installed on the site of the activity. Therefore, it does not include the planning and approvals process that may have been undertaken before construction or the period when the equipment was in the process of being installed (e.g. when foundations were being laid or the onsite fabrication was occurring). It is understood that after a piece of equipment is fully installed the period for commissioning that equipment, and for successively installing and commissioning (individually and jointly) the remaining pieces of equipment required to complete expansion, may take a number of years.

Paragraph 22ZD(4)(c) makes clear that the new equipment considered in the analysis must not have been previously considered as a significant expansion under the regulations. This stops a project getting an expected production allocation a number of times for the same increase in productive capacity.

Paragraph 22ZD(4)(f) provides in effect that the 20 per cent change in maximum productive capacity is to be net of any productive capacity impacts from equipment removed or decommissioned as a part or a consequence of implementing the expansion. In determining the net change in productive capacity, it is envisaged that a baseline of the site’s maximum productive capacity before the new equipment was installed is established. This should be the nameplate capacity of the equipment which existed at that time other than equipment which was decommissioned equipment (such as mothballed equipment) and which has not been used since the installation of the new equipment commenced and is not expected to be used for at least 12 months after the application year. Second, the maximum productive capacity of the equipment after the installation of equipment needs to be determined. This should be the combined nameplate capacity of the pre-existing equipment and the new equipment less any existing equipment which has been decommissioned or is being decommissioned because of the expansion. It is important to note that equipment which has not been decommissioned but is not being used (such as equipment which on standby) is included in both baselines.

For expansions of 20 per cent or less or for the re-commissioning of existing equipment, the Commonwealth considers that the implementation of a universal true-up mechanism is a fair and more effective way of accommodating these variations in production across time.

‘Equipment’

Under subregulation 22ZD(5), for the purposes of significant expansions, the term ‘equipment’ is used to refer to the types of physical infrastructure which are used to conduct EITE activities. The list provided in subregulation 22ZD(5) is illustrative and drawn from definitions of the term in similar contexts. Accordingly, other equipment similar to the equipment listed is not intended to be excluded. In particular, the concept is used to refer to the types of things which may be installed in an expansion of an activity. The intention is for the definition in these regulations and the EITE assistance program to be consistently applied.

Example of significant expansions

Elsie Rylee produces glass containers at a site in Bungendore and at a site in Cairns. Each site has three furnaces that are each capable of producing 1.1 tonnes of bottles per day (which is their nameplate capacity). At the Bungendore facility, one of the furnaces has been available (i.e. not decommissioned or mothballed) but not used for three years. At the Cairns facility one of the furnaces is decommissioned and is not expected to be used again. Generally, the four other furnaces are operating at about 0.8 tonnes of bottles per day or around 290 tonnes per year.

If Elsie installed a new furnace with the same capacity at the Bungendore site, that will increase the maximum productive capacity by 33 per cent (from 3.3 tonnes per day to 4.4 tonnes per day). This will mean that Elsie could claim a significant expansion for that site in any of the four calendar years which begin after the start of the financial year in which the furnace was first fully installed. She may choose the second financial year as that year may have the biggest difference in production from the production in the previous year.

If Elsie installed a new furnace with the same capacity at the Cairns site, that will increase the maximum productive capacity by 50 per cent (from 2.2 tonnes per day to 3.3 tonnes per day). This is because the capacity of the furnace which is decommissioned is not included in the baselines for the calculation.

If Elsie installed a second new furnace at the Cairns facility the year after the first new furnace, the maximum productive capacity will have increased by 33 per cent (from 3.3 tonnes per day to 4.4 tonnes per day). Even though the first new furnace was installed within the four and a half years, it is included as part of the existing capacity for the purposes of calculating the significant expansion because it was already used to claim a significant expansion in the previous year.

Subdivision D Matters relating to factor G

Regulation 22ZE – Factor - G

This regulation sets out the formula for the factor used in apportioning a partial exemption where not all electricity consumed at the site is liable electricity. Where all electricity is purchased from a grid of 100 MW or higher capacity, the factor G will be 100 per cent and no reduction of the partial exemption will occur. However, where this is not the case the liable and non-liable electricity at the site in the previous financial year is examined to determine a percentage by which the amount of the partial exemption is reduced for the application year. For this purpose, generation from generators supplying the site which have a nameplate rating of less than 1MW capacity do not need to be considered (subregulation 22ZE(2)).

The calculation of ‘non-liable’ electricity (EG) is the sum of self-owned, on-site (non-liable) generation which is consumed at the site and electricity delivered to the site which does not give rise to a relevant acquisition (e.g. delivered on a dedicated line). Accordingly, generated electricity which is exported from the site is not included in this calculation.

This means in effect that the proportion of liable to total electricity consumed in an EITE activity at a site is taken to be the same as the proportion of liable to total electricity consumed in the EITE activity itself. This effectively avoids complexity and compliance costs associated with measuring, analysing and reporting all electricity sourced and consumed in the EITE activity.

Subdivision E Method for calculation if liable entity changes and new certificate is issued

Regulation 22ZF – Prescribed method if liable entity changes and new certificate is issued – paragraph 46B(1)(a) of the Act

This regulation prescribes the method for the calculation of a partial exemption in the circumstances where the liable entity listed on the PEC ceases to be the liable entity in relation to the site and the prescribed person applies again for a new PEC and is a prescribed person because of regulation 22L.

It is important to note that a prescribed person is not required to apply for a new certificate where the liable entity (e.g. retailer) has changed. It may be that the full value of the partial exemption has been delivered to the first retailer and that applying for a second certificate will then be unfair on the first retailer. It is assumed that the prescribed person and liable entity will deal in their contractual arrangements with their respective rights in relation to the situation where a liable entity changes.

Where an application is made under regulation 22L, the formula in regulation 22ZF apportions the PEC for the new liable entity relative to the number of days remaining in the calendar year. Regulations 22L and 22ZF accommodate two changes of liable entity during the year. The formula in subregulation 22ZF(1) deals with the first change of liable entity and the formula in subregulation 22ZF(2) deals with the second change in liable entity.

The first formula creates a partial exemption for the second liable entity by taking the amount of the original partial exemption (‘OL’), multiplying that by the number of days remaining in the year after the change (‘D’) and dividing the total by the number of days in the year (either 365 or 366 – ‘years days’).

The second formula creates a partial exemption for the third liable entity by taking the amount of the second liable entity (i.e. the outcome of subregulation 22ZF(1) – ‘OL’), multiplying that by the days remaining in the year after the change (‘D’) and dividing the total by the number of days used in the formula in subregulation 22ZF(1) (i.e. the days the second retailer was expected to be the liable entity – ‘OLD’).

This is demonstrated by the example below.

Example showing calculations for a change in liable entity

To illustrate, it is assumed that it is June 2010 and the firm Nathaniel’s Glassworks Inc (NGI) carries on an EITE activity at a particular site and has an electricity supply contract with retailer Christopher’s Energy Ltd (CEL) for provision of electricity for use at the site. CEL is the liable entity for this electricity.

It is also assumed that NGI has been granted a PEC for the EITE at the site for the current year. The PEC names CEL as the liable entity and the amount of the partial exemption as stated on the PEC is 730 MWh.

First change of liable entity in a year

It is next assumed that NGI has changed retailer effective 15 June 2010 and applies to the Regulator for a PEC in respect of RediPower P/L, the new retailer.

In this case, the Regulator will calculate the amount of the partial exemption (PE) for the new liable entity under regulation 22ZD as follows:

PE (RediPower)

= PE (CEL) x (days in 2010 from 15 June / total days in 2010)

= 730 x 200/365 = 400 MWh. The new PEC will include this amount and name RediPower as the liable entity.

Having issued the new PEC naming RediPower as the liable entity, the Regulator is required under regulation 22ZP to amend the amount of the partial exemption on the first PEC downwards as follows:

PE (CEL amended)

= PE(CEL) - [PE (CEL) x (days in 2010 from 15 June / total days in 2010)]

= 730 – ((200/365) x 730) = 330 MWh.

Second change of liable entity in a year

It is now assumed that NGI again changes retailers effective as of 20 October 2010, and applies prior to the end of 2010 for another PEC in respect of Energy Bargains Ltd (EBL), the newest liable entity. In this case, the Regulator will calculate the amount of the PE for the newest PEC as follows:

PE(EBL)

= PE (RediPower) x (days in 2010 from 20 October / days in 2010 from 15 June)

= 400 x 73/200 = 146 MWh. The newest PEC will include this amount and name EBL as the liable entity.

Having issued the third PEC, including EBL as the liable entity, the Regulator is required under regulation 22ZP to amend the amount of the partial exemption on the second PEC downwards as follows:

PE (RediPower amended)

= PE(RediPower) - [PE (RediPower) x (days in 2010 from 20 October / days in 2010 from 15 June)].

= 400 - (400 x 73/200) = 254 MWh.

As intended, the sum of PE(CEL amended) + PE(Redipower amended) + PE(EBL) is 730MWh.

Regulation 22ZG – Prescribed method if there is a second liable entity and new certificate is issued – paragraph 46B(1)(a) of the Act

This regulation prescribes the method for the creation of a PEC for a second liable entity for a site where the prescribed person applies for a new certificate and is a prescribed person because of regulation 22M.

The new partial exemption for the second liable entity at the site is calculated by taking the original PEC (‘OL’) and multiplying that by a reasonable estimate of the expected relevant acquisitions of the second liable entity for the application year (‘SL’) and dividing that by the sum of the reasonable estimates of the first and second liable entity’s expected relevant acquisitions for the application year (‘SL + FL’).

Example of multiple liable entities

Elsie Rylee operates a zinc smelter with two electricity retailers. In the application year she will take 80,000 MWh of load under a fixed base load contract with the first retailer and will buy the rest of her load from the second retailer. She expects to need an additional 40,000 MWh to meet her expected sales, but this will vary based upon actual use. She applies for a partial exemption for the first retailer and this is calculated to be 60,000 MWh. She then applies again under regulation 22M in respect of the second retailer. The second retailer’s partial exemption is calculated as:

60,000 x 40,000 / (40,000 + 80,000) = 20,000 MWh.

The 40,000MWh is used as the most accurate reasonable estimate of the expected acquisitions even though actual acquisitions may be different.

If Elsie also had relevant acquisitions from another generator because these were not excluded by the self-generation provisions of the Act (i.e. there was a third liable entity in relation to the site), these will not need to be considered in the apportionment of the certificate. It will only be the relevant acquisitions of the first retailer listed on the certificate and the second retailer for whom a partial exemption is sought.

Subdivision F Regulator to estimate and publish volume weighted average market price for REC

Regulation 22ZH – Regulator to estimate and publish weighted average market price for REC

This regulation ensures that the Regulator’s estimation of the REC price is published by 31 October each year (or 31 days after the assessment period has ended). The publication of the REC price on the website will ensure that the same REC price is used for all applications for a given year.

Subregulation 22ZH(3) also ensures that a brief description of the methods used by the Regulator to arrive at the estimate, including weighting of prices and volumes, is published along with general details of the sources of information available to the Regulator to arrive at the estimate. This is intended to provide guidance to the market as to how, in general terms, the calculation will be made and what inputs are likely to be used. For instance, it could be expected that the market surveys and reports on spot prices is listed as useful sources of information on which the Regulator will arrive at the estimate.

It is intended that this information is published initially and updated when circumstances had changed sufficiently that the description was an inaccurate reflection of the estimations the Regulator was making.

General example calculation of a partial exemption using the method in regulations 22ZA to 22ZH.

The formula is best understood by looking at an example of how it may work in practice.

General example of formula

"Energy Plus" is an electricity retailer. It has one large customer (Silcon World) who conducts the activity of the production of silicon, which is the main activity carried on at a single site.

Silcon World produces around 30,000 tonnes of silicon of at least 98 per cent purity each year, and uses around 350,000 MWh per year of grid electricity at the site.

Silcon World has a contract with Energy Plus for this grid supply to the site, but also generates some 10,000 MWh of electricity on site using a 5MW generator which combusts waste from Silcon’s processing plant. We assume this on-site generation does not attract a RET liability.

Silcon World produced the following amounts of silicon in the relevant financial years:

a. 30,000 tonnes in 2006-07.

b. 28,000 tonnes in 2007-08.

c. 29,000 tonnes in 2008-09.

In the financial year ending 30 June 2009, Silicon used 345,000 MWh of liable grid electricity and 10,000 MWh of non-liable, on-site generation.

First year exemption - 2010

Silcon World, as the prescribed person under regulation 22G, applies for a PEC for its site for the 2010 calendar year, nominating Energy Plus as the relevant liable entity.

Silcon World sets out how it is carrying out the silicon production activity as defined. It chooses 2006-07 as the year for production information and sets out the basis upon which it has produced its 30,000 tonnes of silicon with a silicon concentration of over 98 per cent.

Silicon production is set out in Division 2 of Part 7 of Schedule 6 to the Regulations as a 'highly emissions-intensive activity', so is assisted at the 90 per cent rate.

The Regulator will satisfy itself that the tonnes of product nominated in the application were in fact produced to the relevant standard and that the activity is being carried out. It will then calculate the amount of the partial exemption (PE) for the year, using the method in regulation 22ZA as follows:

PE = EP x ASP x k x G, where:

EP is the electricity baseline for the EITE activity entitled ‘Production of silicon’. Factor EP for Production of Silicon, from Division 3 of Part 7 of Schedule 6 is 11.7 MWh per tonne of silicon.

ASP is the amount of production applicable for the year. This is calculated according to regulation 22ZB which sets out that for 2010, the applicant may specify the total output of any of the three financial years immediately preceding the year for which the PEC is to apply. As indicated above, Silcon World has chosen FY 2006-7, for which production was 30,000 tonnes.

k is the partial exemption assistance rate, which has 2 components. The first is the so called ‘base k’ in respect of the expansion of the target for the year above 9,500 GWh and is found from column 2 of the table in subregulation 22ZA (2). The percentages in column 2 incorporate the percentage assistance (90 per cent) applying to a highly emissions-intensive activity for the year 2010. The figure in the table is calculated by multiplying the 90 per cent assistance rate for a highly by the percentage contribution to the 2010 target which is above 9,500 GWh. This contribution is (12,500 – 9,500) / 12,500 = 0.24 or 24 per cent. Thus ‘base k’ for 2010 for silicon production is 90 per cent x24 per cent = 21.60 per cent.

The second component, called ‘additional k’, which will apply after the CPRS legislation passes in Parliament, relates to the increase in REC price above $40 for a year. It represents the additional impact that REC prices above $40 have on the RET burden for the original 9,500GWh MRET target. This factor is to be derived from historical REC prices with effect from 2011, so is zero for 2010.

Thus k for 2010 = 21.60 per cent.

G is the adjustment for generation or acquisition of non-liable electricity that is consumed at the site in the EITE activity. It assumes for ease of measurement and reporting that the ratio of liable to non-liable electricity used in an EITE activity is the same as the ratio of liable to non-liable electricity for the whole site. Regulation 22ZE provides the method for calculating G.

Using the formula in subregulation 22ZE(1),

G = (345,000 / 355,000) = 0.972 or 97.2 per cent.

Thus, for 2010, PE = 11.7 x 30,000 x 21.60 per cent x 97.2 per cent = 73,693 MWh.

The Regulator will then issue a PEC which nominates Energy Plus as the liable entity and sets out the amount of the partial exemption for the site and year as 73,693 MWh.

Silcon World could then provide a copy of the PEC to Energy Plus to enable the exemption to be claimed in respect of the electricity supplied to the site during the year. The retailer could claim a reduction of 73,693 MWh in its liable electricity for the year by including the copy as part of its compliance assessment documentation by 14 February 2011.

Second year exemption - 2011

It is assumed that in 2009-10 Silcon World produces 31,000 tonnes of silicon, uses 360,000 MWh of grid electricity and generates 11,000 MWh on-site.

On 31 October 2010 the Regulator looks at the REC prices for the year ending 30 September and estimates that the REC price had a weighted average of $60. This is published on the website.

Before 1 January 2011, Silcon World applies for a PEC for the 2011 calendar year.

The formula PE = EP x ASP x k x G for 2011 is as follows:

EP = 11.7 MWh/tonne as before.

ASP is more complex than for 2010, as a so-called true-up factor (ST) is to be used in determining ASP for 2011 and subsequent years.

Subregulation 22ZB(3) will prescribe that for these later years:

ASP = SP + EASP + ST, where

SP is the actual production for the previous financial year (FY2009-10 in this case).

EASP is the estimated new or additional production for new entrants or where a significant expansion is undertaken. This factor is zero for Silcon World for 2011 as they have an existing operation and have not expanded their plant capacity.

ST is an adjustment for the previous year’s actual production. This adjustment represents the difference between the previous financial year’s actual production and the actual production the prior year, adjusted for any estimate of expected additional production for the previous financial year. Subregulation 22ZB(5) prescribes that for 2011, the production for the prior year is to be taken as the amount as set out in the application for the PEC for 2010 (that is, 30,000 tonnes). Thus ST = 31,000 – 30,000 – 0 = 1,000 tonnes.

This means that for 2011 using the formula above:

ASP = 31,000 + 0 + 1,000 = 32,000 tonnes;

k as before, comprises ‘base k’ and ‘additional k’.

Base k’ for 2011 is 32.33% from the table in subregulation 22ZA(2).

‘Additional k’, combines the emission intensity factor (90 per cent for silicon production) with the proportion of the weighted average REC price which exceeded $40 over the year to end September 2010, and the proportion of the annual target that 9500 GWh represented in 2010.

‘Additional k’ is calculated using the formula in subregulation 22ZA (3). The formula is:

‘additional k’ = [((estimated REC price) – 40) / (estimated REC price)] X [additional assistance %].

In this case ‘additional k’ = (60 – 40)/60 x additional assistance % for the year. The ‘additional assistance %’ for a year, which is set out in the table in subregulation 22ZA(5) combines the emission intensity factor of 90 per cent with the percentage contribution of the 9,500 GWh to the annual target for the prior year. For 2011 this is 90% x (9,500/12,500) = 68.40%.

From this, ‘additional k’ = (20/60) x 68.4% = 22.8%.

Thus k = 32.33% + 22.8% = 55.13%.

G for 2011, from the ratio of liable to total electricity to the site is

360,000 / 371,000 or 97.0% per cent

Therefore the amount of partial exemption (PE) for 2011 is

11.7 x 32,000 x 55.13% x 97.0% = 200,215 MWh.

Third year exemption - 2012

Silcon World then produces 30,000 tonnes of silicon in 2010-11, and uses 350,000 MWh of grid electricity and 6,000 MWh of on-site generation at the site.

On 31 October 2011 the Regulator looks at the REC prices for the year ending 30 September and determines that the REC price had a weighted average of $55. This is published on the website.

Before 1 January 2012 Silcon World applies for a PEC for the 2012 calendar year.

In 2012 then:

EP = 11.7 MWh/tonne as before.

ASP = SP + EASP + ST, where:

SP is the actual production for the previous financial year (FY2010-11 in this case);

EASP is zero again for 2012; and

ST = 30,000 – 31,000 – 0 = –1,000 tonnes.

This means that for 2012, ASP = 30,000 + 0 - 1,000 = 29,000 tonnes.

‘Base k’ for 2012 is 40.15 per cent from the table in subregulation 22ZA(2).

‘Additional k’= [(55 – 40) / 55] x [57.67% (from table in subregulation 22ZA(5)] = 15.73%.

Thus k = 40.15% + 15.73% = 55.88%.

G for 2011, from the ratio of liable to total site electricity is

350,000 / 356,000 or 98.3%.

Therefore the amount of partial exemption (PE) for 2012 is

11.7 x 29,000 x 55.88% x 98.3% = 186,378 MWh.

Fourth year exemption – 2013 (undergoes significant expansion)

Silcon World then produces 30,000 tonnes in 2011-12 and uses 350,000 MWh of grid electricity and 6,000 MWh of on-site generation at the site.

It also applies for a significant expansion in 2012-13 where it expects to produce 40,000 tonnes, or 10,000 tonnes more than in 2011-12. The Regulator accepts this.

On 31 October 2012 the Regulator looks at the REC prices for the year ending 30 September and determines that the REC price had a weighted average of $50. This is published on the website.

Before 1 January 2013 Silcon World applies for a PEC for 2013. In this case:

EP = 11.7 MWh/tonne as before.

ASP = SP + EASP + ST, where SP is the actual production for the previous financial year (FY2011-12 in this case); EASP is now 10,000 tonnes for 2013; and ST = 30,000 – 30,000 – 0 = 0.

This means that for 2013, ASP = 30,000 + 10,000 + 0 = 40,000 tonnes.

‘Base k’ for 2013 is 45.12% from the table in subregulation 22ZA(2).

‘Additional k’= [(50 – 40) / 50] x [49.85% (from table in subregulation 22ZA(3)] = 9.97%.

Thus k = 45.12% + 9.97% = 55.09%.

G for 2011, from the ratio of liable to total electricity to the site is 350,000/356,000 or 98.3%.

Therefore the amount of partial exemption (PE) for 2013 is

11.7 x 40,000 x 55.09% x 98.3% = 253,438 MWh.

Fifth year – 2014 (shows ASP amount only)

If 38,000 tonnes were produced in 2012-13, then the ASP amount for 2014 is:

ASP = SP + EASP + ST, where SP is the actual production for the previous financial year (FY2012/13 in this case); EASP is now 0 for 2014;

and ST = SP_2012/13 – SP_2011/12 –EASP_2012/13 = 38,000 – 30,000 – 10,000 = –2,000 tonnes.

This means that for 2014, ASP = 38,000 + 0 - 2,000 = 36,000 tonnes.

Division 6 Form of partial exemption certificate

Regulation 22ZI – Prescribed information – paragraph 46B(1)(b) of the Act

This regulation provides that the legislative basis of Division 6 is paragraph 46B(1)(b) of the Act. This specifies that a PEC issued by the Regulator to an applicant must include any other information prescribed by the regulations.

Regulation 22ZJ – Partial exemption certificate information

This regulation specifies the information to be included in a PEC.

The PEC needs to include a range of information to facilitate the proper and efficient operation of the exemption mechanism. Most importantly, the certificate only relates to one liable entity which is named in the PEC and the number of MWh specified as the amount of the partial exemption. The Regulator also needs mechanisms to verify the validity of each PEC provided with the liable entity’s annual energy acquisition statement. This is assisted by the detailed information provided on the PEC, as specified in paragraphs 22ZJ(a) to 22ZJ(h) inclusive.

The PEC is also a summary of the key inputs which make up the amount of the partial exemption. This information makes the manner in which the Regulator has applied the regulations transparent to the prescribed person. It also facilitates the consideration of any applications to amend the certificate under section 46C of the Act.

Paragraph 22ZJ(i) specifies that the PEC must also record and monitor any amendments to the PEC which may have been made after it was issued, including the date of those amendments.

Division 7 Prescribed period for issuing partial exemption certificates

Regulation 22ZK – Prescribed period

This regulation provides that the legislative basis of Division 7 is subsection 46B(2) of the Act. This relates to the time period in which the Regulator must issue a PEC after receipt of an application.

Regulation 22ZL – Prescribed period for issuing partial exemption certificates for 2010 and 2011

This regulation requires that if a prescribed person makes an application under for a PEC under subsection 46A(1) of the Act in relation to 2010 or 2011, the Regulator must issue a PEC:

•                within 60 days of receiving an application if the Regulator does not need to seek additional information; or

•                within 45 days of receiving additional information requested by the Regulator.

These time limits will encourage applicants to provide all of the necessary information with an application. This is similar to the structure of decision-making under the CPRS.

Regulation 22ZM – Prescribed period for issuing partial exemption certificates for 2012 and later years

For 2012 and later years, applications are intended to be decided alongside applications under the EITE assistance program, as defined in the Carbon Pollution Reduction Scheme Bill 2010. It is intended that the EITE assistance program will be the primary decision making forum on production amounts and volumes, significant expansions, new entrants and other criteria which will then drive the decision making under the Regulations.

For these reasons, subregulation 22ZM(1) requires in relation to 2012 and later years that in response to a valid application for a PEC, the Regulator must issue the PEC within 30 days after the decision to approve the equivalent application under the EITE assistance program is made, or in the event that the application is made after such a decision, 30 days from when the application was received. This ensures the maximum level of consistency with the two schemes.

However, as specified in subregulations 22ZM(2) and 22ZM(3), in the event that applications for PECs are made without corresponding applications for assistance under the EITE assistance program, the timelines provided for in the 2010 and 2011 years will apply. These are 60 days in the case of an application where the Regulator does not seek additional information, or 45 days following the receipt of additional information requested by the Regulator.

Division 8 Amending partial exemption certificates

Subdivision A Amendment of partial exemption certificates on application – paragraph 46C(2)(a) of the Act

Regulation 22ZN – Amendment on request

Section 46C of the Act provides for the Regulator to amend PECs either on request by the person to whom the PEC has been issued or on the Regulator’s own initiative.

Paragraph 46C(2)(a) of the Act requires the Regulator to have regard to matters prescribed in the regulations in making a decision to amend a PEC on request. This regulation prescribes those matters.

It is not intended to compel the Regulator to reopen consideration of issues around the information the Regulator used in calculating the partial exemption. As such, the matters which must be considered are:

•                inaccuracies in the information on the PEC (for example the name of the liable entity or the amount or volume of relevant product);

•                miscalculations by the Regulator in applying the prescribed method to calculate the amount of the partial exemption, (which will include calculation of intermediate factors (such as G or k)); and

•                whether the request for an amendment is based on issues that were considered before granting the PEC.

As a reduction in the partial exemption will reduce the value of the PEC, the Regulator must also consider:

•                whether the liable entity has consented to the change; and

•                whether the request for amendment was made before the end of the relevant compliance year.

Subdivision B Amendment of partial exemption certificate on Regulator’s own initiative – subsection 46C(3) of the Act

Regulation 22ZO – Amendment of partial exemption certificate – subsection 46A (3) of the Act

This regulation outlines that regulations 22ZO to 22ZR are made under subsection 46C(3) of the Act. These regulations each prescribe a different circumstance where the Regulator might amend a PEC on its own initiative.

Regulation 22ZP – Circumstance – if change of liable entity

This regulation allows amendment of the original PEC to offset the amount of partial exemption calculated for a new PEC issued in relation to a change in liable entity.

The method involves reducing the amount on the original (first) PEC by an amount that reflects the proportion of the year for which the new entity is to be the relevant liable entity.

The regulation operates in combination with regulation 22L, which enables an additional PEC to be issued for each of up to two changes of liable entity in a compliance year, and regulation 22ZF, which prescribes a pro-rata calculation method for the partial exemption applicable to the additional PECs issued.

The regulation operates to reduce the older (first) certificate (the original PEC where the first change of liable entity occurs), and the second PEC where a second change of liable entity occurs to enable a third PEC to be issued. The amount of reduction under the method in regulation 22ZP mirrors the pro-rata approach in regulation 22ZF.

This ensures that the sum of the three amounts of partial exemption remains equal to that set out on the original PEC.

The calculations are further explained in the example to regulation 22ZF.

Regulation 22ZQ – Circumstances – if there is a second liable entity

This regulation allows amendment of the original PEC to recognise situations where there is more than one liable entity.

The regulation operates in combination with regulation 22M, which enables an additional PEC to be issued for an additional liable entity, and regulation 22ZG, which will prescribe a pro-rata calculation method for the partial exemption applicable to the additional PEC issued.

The regulation operates to reduce the first certificate (the original PEC) after a second PEC is issued. The amount of reduction under the method in 22ZQ mirrors the pro-rata approach in regulation 22ZG.

Example of multiple retailers

Elsie Rylee operates a zinc smelter with two electricity retailers. In the application year she will take 80,000 MWh of load under a fixed base load contract and will buy the rest of her load from the second retailer. She expects to need an additional 40,000 MWh to meet her expected sales, but this will vary based upon actual use. She applies for a partial exemption for the first retailer and this is calculated to be 60,000 MWh. She then applies again under regulation 22L in relation to the second retailer. The second retailer’s partial exemption is calculated under regulation 22ZG as 60,000 x 40,000 / (40,000 + 80,000) = 20,000 MWh. The 40,000 MWh is used as the most reasonable estimate of the expected acquisitions even though actual acquisitions may be different.

The same calculation is used to work out the reduction of the first retailer’s partial exemption. Accordingly, the PEC which originally provided a partial exemption of 60,000 MWh is reduced by 20,000 MWh to 40,000 MWh. The amendment is recorded on the first PEC when it is re-issued.

Regulation 22ZR – Circumstance – if activity ceases at site

Under the Carbon Pollution Reduction Scheme Bill 2010, the EITE assistance program will provide for the relinquishment of Australian emission units on the closure of equipment at a facility.

This regulation provides a similar mechanism to reduce an amount of a partial exemption in the circumstance where an activity:

•                ceases to be conducted at the site for a period of longer than three months; and

•                is unlikely to be conducted again at that site for a period of at least nine months.

Where this occurs, the amount of the partial exemption is reduced on a pro rata basis for the number of days during the year for which the activity is not conducted.

For example, if there were a partial exemption for 365 MWh and the activity closed with 100 days left in the year, the amount of the partial exemption is reduced to 265 MWh, i.e. 365 – ((365 x 100) ÷ 365) = 265 MWh.

Subregulation 22ZR (3) ensures that if a liable entity has changed before the activity ceased and a new PEC has been issued, the original PEC is not amended by this provision.

Regulation 22ZS – Circumstance – if partial exemption certificate is inaccurate

Subregulation 22ZS (1) provides a mechanism for the Regulator to amend the PEC to correct an inaccuracy. This only applies if the Regulator becomes aware of the inaccuracy during the year to which the PEC relates.

An inaccuracy in a PEC might be an error in the form of the information recorded on the certificate, but it could also be a more substantive error concerning the amount of the partial exemption. This includes circumstances where the Regulator took a view on the amount or volume of relevant product from an EITE activity and that same amount or volume was the subject of an appeal process under the CPRS legislation.

The finding of the appeals body under the CPRS legislation could well indicate to the Regulator that the PEC is inaccurate and should be amended to better reflect the more accurate or better estimate of the amount or volume of production for that activity.

Subregulation 22ZS(2) specifies that the Regulator must not amend a PEC in accordance with subregulation 22ZS(1) unless it has notified, in writing, both the prescribed person to whom the PEC has been issued and the liable entity in respect of which the PEC has been issued.

Division 9 Record Keeping

Regulation 22ZT – Records to be kept by persons issued with a partial exemption certificate

This regulation provides requirements for records which must be kept by persons who have been issued with a PEC. The legislative basis of this regulation is paragraph 160(3A(b) of the Act.

It is anticipated that most of the essential records for the operation of the PEC provisions is captured by the combined effect of section 160 of the Act, which provides general record‑keeping requirements, and the record-keeping requirements under the EITE assistance program.

However, the additional elements required by this regulation will concern:

•                electricity consumed at a site in the financial year beginning six months before the year to which the PEC relates;

•                the amount of electricity generated and consumed at the site for which no relevant acquisition of electricity occurs during that financial year; and

•                the amount of electricity delivered to the site for which no relevant acquisition occurs between the point of generation and point of use.

This is only relevant to applications where there is an adjustment for non-liable generation at the site, as calculated in accordance with subregulation 22ZE(1) (i.e. factor ‘G’ is calculated to be less than 100 per cent). The purpose of the provision is to ensure that there is accurate metering data on these amounts for the determination of the following year’s application.

Item [2] After Schedule 5

This item inserts, after Schedule 5, a new Schedule 6 entitled “Emissions-intensive trade-exposed activities”, into the Principal Regulations.

Schedule 6 Emissions-intensive trade-exposed activities

Part 1 Preliminary

Clause 601 - Preliminary

This clause describes how Schedule 6 operates to define, classify and provide an electricity baseline for EITE activities. Each Part of the Schedule deals with a separate EITE activity.

Division 1 of each Part defines the transformation of input(s) to output(s) which constitutes an EITE activity.

Division 2 of each Part classifies each activity as highly emissions-intensive or moderately emissions intensive. This is relevant to the level of the partial exemption set out in regulation 22ZA.

Division 3 of each Part sets out the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of that activity. In doing so, it defines one or more relevant products which each have a particular number of MWh of electricity associated with their production.

The transformations in the Schedule have been found to be EITE activities, classified and had a baseline determined in accordance with the Commonwealth’s EITE assistance program. This program was announced as Commonwealth policy in the White Paper.^[2] The Commonwealth has been progressing the formal assessment of potential EITE activities since the beginning of 2009. The core aspects of the program were set out in Chapter 12 of the Commonwealth’s White Paper. Subsequent policy announcements of relevance to the EITE assistance program were made on 4 May 2009 and 24 November 2009. The Commonwealth has consulted on draft regulations to establish the EITE assistance program and define EITE activities in June and December 2009.

The assessment of each EITE activity has been in accordance with a Guidance Paper issued by the then DCC in February 2009 and additional supplementary guidance posted on DCCEE’s website. The process for determining initial activity definitions and the selection of relevant products has involved extensive stakeholder consultation to give effect to the announced policy parameters and ensure the technical accuracy of those definitions. The determination of eligibility, classification and baselines for each activity in the Schedule has been described in the paper entitled Establishing the eligibility of activities under the emissions-intensive trade-exposed assistance program December 2009. This explanatory memorandum does not repeat the analysis and findings in that document which is available on DCCEE’s website. That paper also includes an extensive discussion of the principles underpinning the definition of activities.

The Commonwealth intends that the EITE assistance program for the CPRS is formally created by regulations under Part 8 of the Carbon Pollution Reduction Scheme Bill 2010. This is reflected in the definition of EITE activity in section 5 of the Act. When those regulations are made, Division 1 of each Part of the Schedule is supplanted by the definition of the relevant transformation in the regulations under the Carbon Pollution Reduction Scheme Act 2010. However, the classification of each activity and electricity baseline will legally remain a feature of the regulations under the Act as they relate to the method for calculating a partial exemption. Accordingly, Divisions 2 and 3 of each Part in Schedule 6 will remain relevant to the method for calculating partial exemptions after the EITE assistance program is formally made.

The requirements in the regulations are intended to be generic so that existing players and new entrants are able to satisfy the Regulator that activities are being conducted. The language of ‘physical’ and/or ‘chemical’ transformations is used to capture the range of ways that inputs may be processed into the appropriate outputs. Accordingly, the words ‘physical transformation’ and ‘chemical transformation’ should be interpreted broadly.

The correct amount or volume of an output or other product used as the basis for the calculation of the partial exemption is referred to throughout as the ‘product’ or ‘relevant product’. For each activity, the regulations make clear that each of the relevant products used as a basis for allocation must have been produced by, or otherwise associated with, the carrying out of the EITE activity. For example, if a partly processed product which is not defined as an input in the activity definition is placed in a furnace and an output is produced which meets the general specifications for a relevant product (e.g. the concentration requirement), that output should not be counted in the amount or volume of the relevant product upon which the partial exemptions are calculated. This is because it was not ‘produced by carrying on the EITE activity’ as defined. Where listed inputs and non-listed inputs are co-mingled, an appropriate apportionment of outputs will be necessary to determine the amount or volume of relevant products.

Activity definitions also refer to the manufacture of products with certain qualities. For example, to conduct the activity of silicon production, the silicon product must have a silicon concentration of equal to or greater than 98 per cent. It is recognised that production decisions or failures at a facility may mean that some of the output has a concentration of less than 98 per cent. This does not mean that the activity is not conducted at the facility. It simply means that the output which is below 98 per cent concentration should not be included in the amount or volume of the relevant product upon which the partial exemptions are calculated.

Some relevant products, such as in the methanol production activity, are calculated on a 100 per cent equivalent basis. In this case, the amount is the mass of the pure product contained within the product which is used as the basis for the calculation of the partial exemption. For methanol, it is the mass of the actual methanol compounds within the solutions of methanol which have a concentration of methanol equal to or greater than 98 per cent with respect to mass.

Additional activities will be added to Schedule 6 as the Commonwealth determines them to be eligible in accordance with the criteria in the White Paper and the process set out in the Guidance Paper. The Commonwealth has announced that it will endeavour to make decisions on eligibility and baselines for an activity within eight weeks of data being submitted by all participants in an industry.

The activity definitions and descriptions of products contain technical and specific requirements which have been developed in consultation with industry stakeholders. The Commonwealth recognises that technical aspects of activity definitions, or the definitions of the relevant products, could in the future be interpreted too either too narrowly or too broadly or that an industry could develop in such a way that the policy underlying the assistance becomes impeded by a particular term or phrase in the regulations. The Commonwealth could amend the regulations to clarify the original policy intention behind the delivery of assistance and remove any unnecessary compliance burdens.

Subclause 601(2) sets out two important definitions for the Schedule. Paragraph 601(2)(a) provides that, unless the contrary intention appears, a concentration of a substance is expressed as a concentration with respect to mass. This may be relevant to both inputs and outputs. An example of a contrary intention is the production of high purity ethanol which has a concentration with respect to volume. Similarly, paragraph (b) sets out a general rule that moisture content is also expressed as a percentage with respect to mass.

Part 2 Production of glass containers

Division 1 Production of glass containers

Clause 602 – Production of glass containers

This clause provides that production of glass containers is the physical and chemical transformation of silica (silicon dioxide (SiO₂)) and other raw and recycled materials (such as cullet) to produce blown or pressed glass containers, by controlled melting and forming in a contiguous process.

The activity as conducted during the period used to assess the eligibility of the activity involved sending silica obtained from sand and some cullet through a furnace to produce glass container products such as jars and bottles. Annealing ovens and forming machines were also used.

It is intended that the alternative processes of the production of borosilicate glass to produce borosilicate glass containers (such as pyrex) and the production of glass containers entirely from cullet fit within the activity description.

To produce glass containers, the controlled melting and forming may use both the ‘blow and blow’ method and/or the ‘press and blow’ method. Both production methods satisfy the description of the activity.

The activity description is not satisfied through the undertaking of washing and cleaning of a glass container for reuse in its same physical form.

The inputs of the activity have been defined to include any source of silica and recycled materials. There are no limits on the amount of raw compared to recycled materials that may be used.

Glass containers are jars, bottles or other containers used for the storing of products.

The activity does not include the quarrying of silica, sorting and processing of cullet or downstream processing of glass containers (such as labelling). As such, the relevant site for the PEC is that where the glass containers are actually produced and does not extend to separate sites which may conduct either mining of silica, sorting of cullet, washing of glass containers, labelling or distribution of glass containers but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 603 – Classification of activity

This clause provides that the production of glass containers is classified as a moderately emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 604 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of glass containers is 0.308 MWh per tonne of blown and pressed glass containers.

The tonnage of the relevant glass containers should be measured accordingly to ordinary measurement rules applicable in the industry.

To be eligible as a relevant product, these glass containers must be:

·        produced by carrying on the EITE activity; and

·        of saleable quality.

The glass containers must have been produced by carrying on the activity as defined by clause 602 to be eligible as a relevant product. For example, containers which are just washed for reuse will not have been transformed by the activity as defined and will not be relevant products even if they were sold in the same batch as product which did result from a transformation.

The glass containers must be of saleable quality. This is defined by regulation 22C. In particular, the tonnes of containers which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable glass bottles but those bottles are then remelted into the same or a different type of glass container, their tonnage should be counted only once for the definition of a relevant product.

Part 3 Production of bulk flat glass

Division 1 Production of bulk flat glass

Clause 605 – Production of bulk flat glass

This clause provides that the production of flat glass is the physical and chemical transformation of silica (silicon dioxide (SiO₂)) and other raw and recycled materials (such as cullet) to produce bulk flat glass products, through controlled melting and forming in a contiguous process.

The activity as conducted during the period used to assess the eligibility of the activity involved melting sand/quartz and some recycled glass in a furnace to produce bulk flat glass products. Annealing ovens and forming machines were also used. The float glass and rolled glass methods of production were both used to produce flat glass during the assessment period.

Other production methods to produce flat glass are likely to satisfy this activity definition. These include the sheet and plate glass methods of production.

The activity description is not satisfied through the undertaking of cutting, polishing, washing and cleaning of flat glass for reuse in its same physical form.

The inputs of the activity have been defined to include any source of silica and recycled materials. There are no limits on the amount of raw compared to recycled materials that may be used.

The output of this activity is bulk flat glass products, including wired glass and patterned glass.

The activity does not include the extraction of silica, sorting of cullet or secondary processing of flat glass products (such as secondary coating, laminating, toughening, mirroring, printing, cutting, edgeworking, insulating, glazing, encapsulating, extrusion assembling and moulding). As such, the relevant site for the PEC is that where the flat glass is actually produced and does not extend to separate sites which may conduct either extraction of silica, sorting of cullet, secondary processing or distribution of flat glass products but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 606 – Classification of activity

This clause provides that the production of flat glass is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 607 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of flat glass is 0.276 MWh per tonne of bulk flat glass.

The tonnage of the relevant bulk flat glass should be measured accordingly to ordinary measurement rules applicable in the industry.

To be eligible as a relevant product, flat glass must be:

·        produced by carrying on the EITE activity; and

·        of saleable quality.

The flat glass must have been produced by carrying on the activity as defined by clause 605 to be eligible as a relevant product. For example, entities that do not produce flat glass products but only cut flat glass into different sizes for use will not be considered to have produced flat glass by carrying on the activity as defined, and in this situation, the flat glass will not be relevant products.

The flat glass products must be of saleable quality. This is defined by regulation 22C. In particular, the tonnes of flat glass which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable flat glass which is then remelted into the same or different type of flat glass, their tonnage should be counted only once for the definition of a relevant product.

Part 4 Production of methanol

Division 1 Production of methanol

Clause 608 – Production of methanol

This clause provides that the production of methanol is the chemical transformation of one or more of the following:

(a) hydrocarbons;

(b) hydrogen feedstocks;

(c) carbon feedstocks;

(d) oxygen feedstocks;

to produce liquid methanol (CH₃OH) in which the concentration of methanol is equal to or greater than 98 per cent.

The activity as conducted during the period used to assess the eligibility of the activity involved the production of methanol from natural gas and oxygen.

It is intended that alternative processes involving the use of alternative feedstocks including ammonia and carbon dioxide or synthesis gas (a mixture of hydrogen, methane and carbon monoxide) to produce methanol, where the concentration of methanol is equal to or greater than 98 per cent with respect to mass, is considered to fit within the activity description.

The activity description is not satisfied through the undertaking of methanol production that does not have a concentration of methanol that is equal to or greater than 98 per cent with respect to mass.

The inputs of the activity have been defined to include any source of hydrogen, carbon and oxygen that may be available.

The activity does not include the upstream extraction or production of the input to the activity including the production of natural gas, synthesis gas or other hydrogen, carbon or oxygen feedstock. As such, the relevant site for the purposes of the PEC is that where the methanol is actually produced and does not extend to separate sites which may conduct upstream processing but not the activity as described. Generally, it is expected that where upstream extraction or production processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 609 – Classification of activity

This clause provides that the production of methanol is classified as a highly
emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 610 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of methanol is 0.49 MWh per tonne of 100 per cent equivalent methanol.

The tonnes of methanol should be reported on a 100 per cent equivalent basis, that is the tonnes of pure methanol contained within the methanol reported as the output of the activity.

The relevant standard for determining the concentration of methanol in the final saleable product was British Standard BS506, Part 1, Methanol Specification.

The methanol must have been produced by carrying on the activity as defined by clause 608 to be eligible as a relevant product. Accordingly, the methanol must have been produced to have a concentration of equal to or greater than 98 per cent from the relevant inputs to be included in the tonnes of relevant product.

Part 5 Production of carbon black

Division 1 Production of carbon black

Clause 611 – Production of carbon black

This clause provides that the production of carbon black is the chemical transformation of gaseous or liquid hydrocarbons to produce a colloidal carbon material (known as ‘carbon black’) in the form of spheres or of fused aggregates of the spheres. The particle size of the colloidal carbon must be below 1 000nm in at least 1 dimension.

The activity as conducted during the period used to assess the eligibility of the activity involved the partial combustion of heavy liquid hydrocarbon feedstocks through the furnace black process and subsequent wet pelletisation to produce a saleable carbon black product.

It is intended that alternative processes to produce carbon black such as the thermal black, acetylene black and chanel black processes will fit within the activity description.

The activity description is not satisfied through the production of the raw material inputs to the process, for example petroleum refining to produce cracker bottoms or coal tar pitch. Similarly coal extraction and processing, petroleum or refinery coke production and carbon anode production are also not considered to fall within this definition.

The inputs to the activity have been defined to include any gaseous or liquid hydrocarbons. This may include solid hydrocarbons which have been gassified.

The activity does not include the downstream processing of carbon black to reduce the water content of the finished product. As such, the relevant site for the purposes of the PEC is that where the carbon black is actually produced and does not extend to separate sites which may conduct a drying process but not the activity as described. Generally, it is expected that where drying processes are carried out on a standalone basis, those sites are not regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 612 – Classification of activity

This clause provides that the production of carbon black is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 613 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the carbon black is 0.514 MWh per tonne of pelletised carbon black.

The tonnes of carbon black reported should be those of saleable quality measured on a dry weight basis. For this purpose, carbon black which is produced but then reprocessed should be included only once as a relevant product.

Relevant standards for the measurement of the carbon black product include:
ASTM D1510 - 08c Standard Test Method for Carbon Black—Iodine Adsorption Number and ASTM D2414 - 08a Standard Test Method for Carbon Black—Oil Absorption Number (OAN).

To be eligible as a relevant product, the pelletised carbon black must be produced by carrying on the EITE activity and be of saleable quality.

The pelletised carbon black must have been produced by carrying on the activity as defined by clause 611 to be eligible as a relevant product.

Part 6 Production of white titanium dioxide (TiO₂) pigment

Division 1 Production of white titanium dioxide (TiO₂) pigment

Clause 614 – Production of white titanium dioxide (TiO₂) pigment

This clause provides that the production of white titanium dioxide (TiO₂) pigment is the chemical transformation of one or more of the following: rutile, synthetic rutile, ilmenite (FeTiO₃), leucoxene, or titanium slag that has an iron (Fe) concentration of greater than or equal to seven per cent to produce white titanium dioxide pigment. The white titanium dioxide pigment must: conform with ASTM classification D476-00, and have an iron concentration of less than or equal to 0.5 per cent.

The production of synthetic rutile (defined for the purposes of data collection) and the production of white titanium dioxide pigment occur within the same production chain. Because of the requirement for white titanium dioxide pigment to have an iron concentration of less than or equal to 0.5 per cent, the activities of the production of synthetic rutile and the production of white titanium dioxide pigment cannot both be conducted to produce the same tonne of output.

The activity as conducted during the period used to assess the eligibility of the activity involved reducing the inputs with carbon and oxidising with chlorine to produce titanium tetrachloride. The titanium tetrachloride was then distilled, and re-oxidised with oxygen to produce white titanium dioxide pigment while regenerating chlorine for re-use in the process. One producer conducted the activity over two sites.

It is intended that the alternative processes of producing white titanium dioxide pigment through the sulphate process will also fit within the activity description. This process involves digesting ilmenite or ilmenite and titanium slag in sulphuric acid, hydrolysing the titanyl sulphate to produce hydrated titanium dioxide, and heating the solid in a calciner to evaporate the water to produce white titanium dioxide pigment.

The inputs of the activity have been defined to include rutile, synthetic rutile, ilmenite, leucoxene, or titanium slag that has an iron concentration of greater than or equal to seven per cent. Titanium slag is a product that is typically produced from the electro-smelting of ilmenite and typically contains 70 - 85 per cent TiO₂ but may contain up to 93 per cent TiO₂. It does not display the descriptive characteristics that are set out in ASTM classification D476-00 such as, minimum titanium dioxide content, specific resistance, moisture content, specific gravity, and screen residue. There are no restrictions on the different combinations of these inputs that may be used; however, the inputs must actually be transformed into white titanium dioxide pigment.

The activity does not include the upstream production of rutile, synthetic rutile, ilmenite, titanium slag or leucoxene. As such, the relevant site for the purposes of the PEC is that where the white titanium dioxide pigment is actually produced and does not extend to separate sites which may conduct upstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 615 – Classification of activity

This clause provides that the production of white titanium dioxide pigment is classified as a moderately emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 616 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of white titanium dioxide pigment is 0.986 MWh per tonne of saleable white titanium dioxide pigment.

The tonnage of the relevant white titanium dioxide pigment should be measured according to the accepted industry practice for production that conforms to ASTM D476-00, 2005, “Standard Classification for Dry Pigmentary Titanium Dioxide Products”, ASTM International, West Conshohocken, PA, 2005, DOI: 10.1520/D0476-00R05 found at www.astm.org.

To be eligible as a relevant product, the white titanium dioxide pigment must:

(a) be produced by carrying on the EITE activity; and

(b) conform with ASTM classification D476-00; and

(c) have an iron (Fe) concentration of less than or equal to 0.5 per cent; and

(d) be of saleable quality.

The white titanium dioxide pigment must have been produced by carrying on the activity as defined by clause 614 to be eligible as a relevant product. For instance, imported white titanium dioxide pigment blended with the product produced from the activity will not be included in the tonnes of the relevant product.

The white titanium dioxide pigment must be of saleable quality. This is defined by
regulation 22C. In particular, the tonnes of white titanium dioxide pigment which are scrapped, lost or discarded are not to be included in the tonnes of relevant product.

Part 7 Production of silicon

Division 1 Production of silicon

Clause 617 – Production of silicon

This clause provides that the production of silicon (Si) is the chemical transformation of silica (silicon dioxide (SiO₂)) to produce silicon with a concentration of silicon equal to or greater than 98 per cent, conducted in accordance with the overall chemical equation:

The activity as conducted during the period involved the reaction of silica with a combination of carbonaceous reducing agents such as wood, charcoal, coke, and coal, in an submerged electric arc furnace at high temperatures by passing an electrical current through carbon electrodes.

It is intended that the production of very high purity silicon (>99.9 per cent pure) fits within the activity description if produced from silica.

The activity description is not satisfied through the undertaking of silicon production that does not have a purity that is equal to or greater than 98 per cent by mass. The activity description is also not satisfied if silicon is further refined, on a stand-alone basis, to produce high purity silicon without commencing the transformation from silica. However, the fact that a particular batch of silicon does not have a purity equal to or greater than 98 per cent, does not mean that the activity is not conducted at other times throughout the year, when the purity is equal to or greater than 98 per cent in other batches.

The inputs of the activity have been defined to include silica which could be presented as the mineral, quartz or the metamorphic rock, quartzite.

The activity does not include the mining, crushing, grinding and milling of silica prior to the smelting process, the production of charcoal, or wood processing. As such, the relevant site for the purpose of the PEC is that where the silicon is actually produced and does not extend to separate sites which may conduct either mining of silica, charcoal production, or wood processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 618 – Classification of activity

This clause provides that the production of silicon is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 619 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of silicon is 11.7 MWh per tonne of saleable silicon with a purity equal to or greater than 98 per cent by mass.

The tonnage of the relevant silicon should be measured according to acceptable industry practices.

To be eligible as a relevant product, the silicon must:

(a) have a concentration of silicon equal to or greater than 98 per cent by mass; and

(b) be produced by carrying on the EITE activity; and

(c) be of saleable quality.

The silicon must have been produced by carrying on the activity as defined by clause 617 to be eligible as a relevant product.

The silicon must be of saleable quality. This is defined by regulation 22C. In particular, the tonnes of silicon which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable silicon but then that silicon is remelted and recast, their tonnage should be counted only once for the definition of a relevant product.

Part 8 Smelting Zinc

Division 1 Smelting Zinc

Clause 620 Smelting Zinc

This clause provides that smelting zinc is the physical and chemical transformation of either, or both, concentrated mineralised zinc compounds; and zinc-bearing secondary materials; to produce zinc metal (Zn) with a concentration of zinc equal to or greater than 99.95 per cent.

The activity as conducted during the period utilised pyro-metallurgical and/or
hydro-metallurgical processes where concentrated mineralised zinc compounds and zinc bearing secondary materials were extracted and leached to produce a zinc sulphate solution. This solution was then subjected to an electrolytic refining process where the zinc from the electrolyte solution was plated onto a cathode. The zinc cathodes were then stripped and cast in a furnace to produce final saleable zinc metal or alloyed with other metals to produce zinc alloys.

It is intended that alternative processes that produce zinc from concentrated zinc compounds will fit within the activity description. This includes the pyro-metallurgical processes available for producing zinc from concentrate.

The activity description is not satisfied through the undertaking of zinc production where the final product is not zinc metal (Zn) with a concentration of zinc equal to or greater than 99.95 per cent with respect to mass or the undertaking of secondary zinc recovery from scrap.

The inputs of the activity have been defined to include concentrated mineralised zinc compounds and zinc-bearing secondary materials. Zinc bearing secondary materials may include zinc in fume (Zn) with a concentration of zinc equal to or greater than 60 per cent with respect to mass or other zinc bearing material such as zinc oxides.

The activity does not include the mining, concentrating and pre-processing of the concentrated mineralised zinc compounds, the production of zinc bearing secondary materials or the post-cast rolling, extruding, re-forming or alloying of zinc metal. As such, the relevant site for the purposes of the PEC is that where the zinc of the required concentration is actually produced and does not extend to separate sites which may conduct the mining, concentrating and pre-processing of the concentrated mineralised zinc compounds, the production of zinc bearing secondary materials or the post-cast rolling, extruding, re-forming or alloying of zinc metal but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 621– Classification of activity

This clause provides that smelting of zinc is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 622 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the smelting of zinc is 4.25 MWh per tonne of zinc metal with a concentration of zinc equal to or greater than 99.95 per cent.

The tonnage of the relevant zinc should be measured according to measurement techniques in practice in the industry.

To be eligible as a relevant product, the zinc must:

·        have a concentration of zinc equal to or greater than 99.95 per cent; and

·        be produced by carrying on the EITE activity; and

·        be of saleable quality.

Zinc metal must have a concentration of zinc equal to or greater than 99.95 per cent as defined by clause 620 to be eligible as a relevant product. In many circumstances zinc is alloyed with other products during the casting process. If this occurs, the zinc content of the final alloy should be measured on a 99.95 per cent equivalent basis for partial exemption purposes. Only alloys produced using zinc with a concentration of zinc equal to or greater than 99.95 per cent can be measured in this way.

The zinc must have been produced by carrying on the activity as defined by clause 620 to be eligible as a relevant product. Secondary zinc recovered from recycling materials does not qualify for undertaking this activity.

The zinc must be of saleable quality. This is defined by regulation 22C. Zinc which is discarded or reprocessed because it does not meet output specifications is not of saleable quality.

Part 9 Integrated production of lead and zinc

Division 1 Integrated production of lead and zinc

Clause 623 – Integrated production of lead and zinc

This clause provides that the integrated production of lead and zinc is the chemical transformation of either or both of: concentrated mineralised lead compounds, with or without additional lead-bearing secondary materials; and concentrated mineralised zinc compounds, with or without additional zinc-bearing secondary materials; to produce: lead metal (Pb) with a concentration of lead equal to or greater than 99.97 per cent; and zinc in fume (Zn) with a concentration of zinc equal to or greater than 60 per cent.

The activity as conducted during the period involved a pyro-metallurgical production process where lead and zinc bearing raw materials were extracted to produce refined lead, zinc in fume (Zn) with a concentration of zinc equal to or greater than 60 per cent with respect to mass and other by-products such as silver, copper and sulphuric acid. The processes used in integrated lead and zinc production were sinter plant, blast furnace and slag fumer.

It is intended that alternative processes to produce lead and zinc in fume will fit within the activity description. However, DCCEE is not aware of any alternative processes undertaken in the base period which produced the same outputs.

The activity description is not satisfied through the undertaking of lead smelting on a stand-alone basis such that the outputs from the activity do not include zinc in fume.

The activity does not include the mining and production of concentrated mineralised lead compounds, production of lead bearing secondary materials and concentration of mineralised zinc compounds, or the production of zinc bearing secondary materials. The activity also does not include the production of zinc metal from zinc in fume, whether this is conducted on the same or a different site to the activity. As such, the relevant site for the purposes of the PEC is that where the lead and zinc are actually produced and does not extend to separate sites which may conduct the mining and production of concentrated mineralised lead compounds, production of lead bearing secondary materials and concentration of mineralised zinc compounds or the production of zinc bearing secondary materials but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 624 – Classification of activity

This clause provides that the integrated production of lead and zinc is classified as a moderately emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 625 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the integrated production of lead and zinc is 0.355 MWh per tonne of lead metal has a concentration of lead equal to or greater than 99.97 per cent with respect to mass and 0.820 MWh per tonne of zinc in fume that has a concentration of zinc equal to or greater than 60 per cent with respect to mass.

The tonnage of the relevant zinc should be measured according to measurement techniques in practice in the industry.

To be eligible as a relevant product:

·        the lead metal and zinc in fume must be produced by carrying on the EITE activity; and

·        the lead metal must be of saleable quality.

The lead and zinc in fume must have been produced by carrying on the activity as defined by clause 623 to be eligible as relevant products. Further, the production of zinc metal from zinc in fume is part of the related, but distinct, zinc smelting activity and is not part of this activity. Additionally, the recovery of secondary lead or zinc from recycled material does not qualify for undertaking this activity.

The lead metal must be of saleable quality. This is defined by regulation 22C. Lead outputs which are discarded or reprocessed because they do not meet output specifications are not of saleable quality.

Part 10 Aluminium smelting

Division 1 Aluminium smelting

Clause 626 – Aluminium smelting

This clause provides that aluminium smelting is the physical and chemical transformation of alumina (aluminium oxide (Al₂O₃)) into saleable aluminium metal (Al).

The activity as conducted during the period used to assess the eligibility of the activity involved the Hall Héroult process, where alumina is dissolved in molten cryolite (Na₃AlF₆), and the solution electrolysed using both a carbon anode and cathode to obtain aluminium metal. In summary the overall chemical equation representing in this transformation is:

The production of carbon anodes is an ancillary component of this activity. The carbon anodes were manufactured from a mixture of petroleum coke, pitch and tar, and pre-baked in separate anode plants.

It is intended that alternative aluminium smelting processes including alternative electrolytic cell configurations such as an inert anode or drained cathode and alternative process pathways such as carbothermic production of aluminium, will fit within the activity description. It is also intended that the use of pre-baked anodes in the smelting process will fit within the activity description.

The activity description is not satisfied through the undertaking of the remelting and subsequent recasting or reforming of aluminium, recycling of aluminium, and/or rolling of aluminium.

The inputs of the activity have been defined to include any grade of alumina (aluminium oxide, Al₂O₃).

The output of this activity is saleable aluminium metal which may be in a range of forms including ingots, slab, T‑bars or extrusion billets and may contain alloys based on customer specifications.

The activity does not include the production of alumina, cathodes, alloying materials, or the smelting and associated casting of secondary aluminium metal. As such, the relevant site for the purposes of the PEC is that where the aluminium metal is actually produced and does not extend to separate sites which may conduct upstream or downstream processing, but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 627 – Classification of activity

This clause provides that aluminium smelting is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 628 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of aluminium smelting is 15.0 MWh per tonne of primary aluminium with a purity equal to or greater than 98 per cent.

Such measurement of primary aluminium is intended to be weighed after electrolysis but before casting. This is generally done in the potroom.

To be eligible as a relevant product, the primary aluminium must:

(a) have a concentration of aluminium equal to or greater than 98 per cent; and

(b) be produced as part of carrying on the EITE activity; and

(c) be weighed after electrolysis but before casting.

The aluminium must have been produced by carrying on the activity as defined by clause 626 to be eligible as a relevant product. Accordingly, the remelting of imported or recycled aluminium will not be included in the tonnes of relevant product.

Part 11 Production of high purity ethanol

Division 1 Production of high purity ethanol

Clause 629 – Production of high purity ethanol

This clause provides that the production of high purity ethanol is the chemical transformation of fermentable sugars (such as C₆H₁₂O₆, C₅H₁₀O₅, C₁₂H₂₂O₁₁ or C₁₈H₃₂O₁₆) to ethanol (C₂H₅OH) and subsequent purification process to obtain a solution of high purity ethanol where the concentration of ethanol is equal to or greater than 95 per cent with respect to volume.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of fermentable sugars (including fructose, glucose, sucrose, maltotriose, raffinose) derived from sugar cane and wheat feedstocks to high purity ethanol.

It is intended that production of high purity ethanol from fermentable sugars derived from alternative feedstocks such as corn, sugar beets, grapes or cellulosic biomass for the subsequent production of high purity ethanol will fit within the activity description. The inputs of the activity have been defined to include any source of fermentable sugar.

The activity description is not satisfied through the undertaking of the production of ethanol that does not reach a concentration of ethanol that is equal to or greater than 95 per cent with respect to volume.

The activity does not include the upstream processing of the raw material to produce fermentable sugars. As such, the relevant site for the purposes of the PEC is that where the high purity ethanol is actually produced and does not extend to separate sites which may conduct upstream processing but not the activity as described. The activity also does not include any downstream processing of the high purity ethanol to produce blended products including alcohol product, industrial solvent or fuel. Generally, it is expected that where upstream or downstream processes are carried out at separate sites, those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 630 – Classification of activity

This clause provides that the production of high purity ethanol is classified as a moderately emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 631 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of high purity ethanol is 0.168 MWh per kilolitre of 100 per cent equivalent ethanol.

The tonnes of ethanol should be reported on a 100 per cent equivalent basis, that is the kilolitres of pure ethanol contained within the saleable ethanol reported as the output of the activity. Where the conversion of tonnes of ethanol is required the density of ethanol (C₂H₅OH) of 789.24 kg/m³ at 20°C must be used.

Relevant measurement options for the measurement of the concentration of ethanol in the high purity ethanol product are outlined in the Commissioner of Taxation Legislative Determination EXC 2009/2 - Excise (Volume - excisable beverages) Determination 2009 (No. 1), sections 
10 to 12.

The high purity ethanol must have been produced by carrying on the activity as defined by clause 629 to be eligible as a relevant product. Accordingly, the ethanol must have been produced to have a concentration of equal to or greater than 95 per cent from the relevant inputs to be included in the tonnes of relevant product.

Part 12 Production of magnesia

Division 1 Production of magnesia

Clause 632 – Production of magnesia

This clause provides that the production of magnesia is the physical and chemical transformation of magnesite (magnesium carbonate (MgCO₃)) into one or more of the following magnesia products:

(a) caustic calcined magnesia (CCM) that has a concentration of magnesium oxide (MgO) equal to or greater than 75 per cent, and is burned between 650°C and 1200°C.

(b) deadburned magnesia (DBM) that has a concentration of magnesium oxide equal to or greater than 85 per cent, has grain density of 2.85 g/cm³ to 3.45 g/cm³, and is burned between 1300°C and 2200°C.

(c) electrofused magnesia (EFM) that has a concentration of magnesium oxide equal to or greater than 90 per cent, has grain density of greater than 3.45 g/cm³, and is fused at temperatures in excess of 2750°C.

The activity as conducted during the period used to assess the eligibility of the activity involved calcining magnesium carbonate in a furnace to produce caustic calcined magnesia. The subsequent production of deadburned magnesia and electrofused magnesia was achieved using kilns and electric arc furnaces respectively.

The inputs of the activity have been defined to include any source of magnesium carbonate.

The outputs of the activity are caustic calcined magnesia, deadburned magnesia and/or electrofused magnesia.

The activity does not include the extraction of raw materials or the crushing of raw materials where it is not contiguous with the equipment required to conduct the activity. As such, the relevant site for the purposes of the PEC is that where the magnesia is actually produced and does not extend to separate sites which may conduct either extraction of raw materials, pre-processing of raw materials or distribution of magnesia but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 633 – Classification of activity

This clause provides that the production of magnesia is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 634 – Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the production of:

·        caustic calcined magnesia is 0.0757 MWh per tonne of caustic calcined magnesia;

·        deadburned magnesia is 0.202 MWh per tonne of deadburned magnesia; and

·        electrofused magnesia is 2.45 MWh per tonne of electrofused magnesia.

The tonnage of the relevant magnesia should be measured accordingly to ordinary measurement rules applicable in the industry.

To be eligible as a relevant product, magnesia must be:

·        produced by carrying on the EITE activity; and

·        of saleable quality.

The magnesia must have been produced by carrying on the activity as defined by clause 632 to be eligible as a relevant product.

Caustic calcined magnesia may also be produced ‘as part of’ rather than just ‘by’ carrying on the EITE activity. For the purposes of determining the relevant product, caustic calcined magnesia produced for the purposes of being used as an input into the production of deadburned magnesia and electrofused magnesia is to be treated as a product separate to, and in addition to, the deadburned magnesia and electrofused magnesia produced.

The magnesia must be of saleable quality. This is defined by regulation 22C. In particular, the tonnes of magnesia which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable magnesia which is then re-calcined, re-deadburned, re-electrofused, their tonnage should be counted only once for the definition of a relevant product. Caustic calcined magnesia produced for the purposes of being used as an input into the production of deadburned magnesia and electrofused magnesia is considered to be of saleable quality where it is in a fit state to be used for that subsequent transformation.

Part 13 Manufacture of newsprint

Division 1 Manufacture of newsprint

Clause 635 – Manufacture of newsprint

This clause provides that the manufacture of newsprint is the physical or chemical transformation of any or all of woodchips, sawdust, wood pulp and recovered paper into rolls of uncoated newsprint that has a grammage range of 30 g/m² to 80 g/m², has a moisture content in the range of 6 per cent to 11 per cent and is generally usable for newspaper products through an integrated process.

The activity, as conducted during the period used to assess the eligibility of the activity, involved the conversion of woodchips into a pulp slurry using a thermo mechanical process and the conversion of recovered paper into a pulp slurry through a pulping and deinking process. During the assessment period, semi-dried pulp produced from recovered paper was transported between two sites undertaking the activity. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of newsprint-quality paper.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it was produced for the manufacture of newsprint paper. It is also intended that the production of newsprint from bought-in pulp is considered to fit within the activity description.

The activity description is not satisfied through the production of other paper types for which another activity is more appropriate.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper

The output of this activity is saleable bulk rolls of newsprint.

The activity does not include the upstream processing of wood chipping or the downstream processing of the bulk rolls of newsprint into other products (e.g. newspapers). As such, the relevant site is that where the bulk rolls of newsprint is actually produced and does not extend to separate sites which may conduct downstream or upstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 636 – Classification of activity

This clause provides that the manufacture of newsprint is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 637 – Electricity baseline for product

This clause provides that there are three electricity baselines relevant for the activity of manufacture of newsprint:

·        For the manufacture of uncoated newsprint, the electricity baseline for calculating the amount of a liable entity’s partial exemption is 0.697 MWh per air dried tonne of rolls of uncoated newsprint.

·        For the production of pulp from either or both woodchips and sawdust, the basis for calculating the amount of a liable entity’s partial exemption is 2.48 MWh per tonne of bone dried equivalent pulp that is used in the integrated process of manufacturing newsprint.

·        For the production of pulp from recovered paper, the basis for calculating the amount of a liable entity’s partial exemption is 0.431 MWh per tonne of bone dried equivalent pulp that is used in the integrated process of manufacturing newsprint.

The tonnage for both newsprint and pulp should be measured according to ordinary measurement rules applicable in the industry. The use of the equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form based on flow and concentration metering. It is reported on a ‘bone dry’ basis which is a term commonly used in the pulp and paper sector meaning pulp in a moisture-free state (zero per cent moisture).

To be eligible as a relevant product for the sub-activity of newsprint manufacturing, newsprint must:

·        have a grammage range of 30 g/m² to 80 g/m²

·        have a moisture content in the range of 6 per cent to 11 per cent

·        be generally usable for newspaper products

The newsprint must have been produced by carrying on the activity as defined by clause 635 to be eligible as a relevant product.

The newsprint must be of saleable quality. This is defined by regulation 22C. In particular, any tonnes of newsprint which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable newsprint which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity relating to the production of pulp from woodchips and/or sawdust, the pulp must:

·        be produced from woodchips and/or sawdust

·        be used in the integrated process of manufacturing newsprint and

·        be produced as part of carrying on the EITE activity as defined by regulation 635.

To be eligible as a relevant product for the sub-activity relating to the production of pulp from recovered paper, the pulp must:

·        be produced from recovered paper

·        be used in the integrated process of manufacturing newsprint and

·        be produced as part of carrying on the EITE activity as defined by clause 635.

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one partial exemption. For example, pulp produced from recovered paper cannot be counted towards a partial exemption under both the newsprint and printing and writing paper activities. It also cannot be counted towards a partial exemption under pulp produced from either or both of woodchips and sawdust for the newsprint activity.

Part 14 Dry pulp manufacturing

Division 1 Dry pulp manufacturing

Clause 638 – Dry pulp manufacturing

This clause provides that dry pulp manufacturing is the physical or chemical transformation of any or all of wood chips, sawdust, wood pulp and recovered paper into either or both rolls and bales of dry pulp that has a moisture content in the range of 4 per cent to 14 per cent and is generally useable in either or both of paper manufacturing and the production of sanitary products (such as a fluff pulp layer in sanitary products).

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of woodchips into a pulp slurry using the sulfite process and the subsequent drying to form rolls or bales of pulp of saleable quality.

It is intended that alternative processes to produce dry pulp are considered to fit within the activity description. These include Kraft (sulfate) pulp, thermo mechanical pulp (TMP), chemi-thermomechanical pulp (CTMP) and recovered paper pulp processes.

The activity has two sub-activity baselines defined: dry pulp manufacturing and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls and/or bales of dry pulp that have a moisture content in the range of 4 per cent to 14 per cent by weight and are generally useable in paper manufacturing and/or in the production of sanitary products. It is also possible that dry pulp products which meet this description may be sold and used for other purposes.

The activity does not include the upstream woodchip preparation or the downstream processing of the dry pulp into paper and other products. As such, the relevant site for the purpose of the PEC is that where the output is actually produced and does not extend to separate sites which may conduct upstream or downstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 639 – Classification of activity

This clause provides that dry pulp manufacturing is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 640 – Electricity baseline for product

This clause provides that the there are two electricity baselines relevant for the activity of dry pulp manufacturing:

·        The electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the dry pulp manufacturing is 0.404 MWh per tonne of either or both of rolls and bales of dry pulp.

·        For the production of wet pulp from either or both of woodchips and sawdust as part of dry pulp manufacturing, the basis for calculating the amount of a liable entity’s partial exemption is 0.448 MWh per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both dry pulp and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement for wet pulp recognises that this product is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity wet pulp production is measured in the wet form and reported on an ‘air dried’ basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of dry pulp manufacturing, the outputs are rolls and/or bales of dry pulp that have a moisture content in the range of 4 per cent to 14 per cent by weight and are generally useable in paper manufacturing and/or in the production of sanitary products.

The dry pulp must have been produced by carrying on the activity as defined by clause 638 to be eligible as a relevant product.

The dry pulp must be of saleable quality. This is defined by regulation 22C. In particular, any tonnes of dry pulp which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable dry pulp which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

·        be produced from woodchips and/or sawdust;

·        be used in the integrated process of dry pulp manufacturing; and

·        be produced as part of carrying on the EITE activity as defined by clause 638.

Dry pulp that is bought in or pulp produced from recovered paper is not considered to be a relevant product for the wet pulp sub-activity and therefore is not eligible under this subclause.

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one partial exemption. For example, pulp produced from recovered paper cannot be counted towards a partial exemption under both the dry pulp and printing and writing paper activities.

Part 15 Cartonboard manufacturing

Division 1 Cartonboard manufacturing

Clause 641 – Cartonboard manufacturing

This clause provides that cartonboard manufacturing is the physical or chemical transformation of any or all of wood chips, sawdust, wood pulp and recovered paper into rolls of cartonboard that have a grammage range of 150 g/m² to 500 g/m², a moisture content in the range of 4 per cent to 11 per cent, is coated and is generally useable as cartonboard product such as coated kraft liner, coated multiply and other coated paperboard.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of recovered paper into a pulp slurry through a pulping and deinking process. Some pulp was also produced from woodchips and/or sawdust through the use of a mechanical process. Pulp was also bought in and added to the pulp mixture. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of cartonboard.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it is subsequently used in the manufacture of cartonboard. It is also intended that the production of cartonboard from bought-in pulp is considered to fit within the activity description.

The activity has two sub-activity baselines defined: cartonboard manufacturing and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls of cartonboard that have a grammage range of 150 g/m² to 500 g/m², a moisture content in the range of 4 per cent to 11 per cent, is coated and generally useable as a cartonboard product such as coated kraft liner, coated multiply and other coated paperboard.

The activity does not include the upstream woodchip preparation or the downstream process of converting rolls of cartonboard into final products (e.g. box construction). As such, the relevant site for the purposes of the PEC is that where the output is actually produced and does not extend to separate sites which may conduct upstream or downstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 642 – Classification of activity

This clause provides that cartonboard manufacturing is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 643 – Electricity baseline for product

This clause provides that there are two electricity baselines relevant for the activity of cartonboard manufacturing:

·        The electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of cartonboard manufacturing is 0.775 MWh per tonne of rolls of cartonboard.

·        For the production of wet pulp from either or both of woodchips and sawdust as part of cartonboard manufacturing, the basis for calculating the amount of a liable entity’s partial exemption is 0.448 MWh per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both cartonboard and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an ‘air dried’ basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of cartonboard manufacturing, the outputs are rolls of cartonboard that has a grammage range of 150 g/m² to 500 g/m², a moisture content in the range of 4 per cent to 11 per cent, is coated and is generally useable as cartonboard product such as coated kraft liner, coated multiply and other coated paperboard.

The cartonboard must have been produced by carrying on the activity as defined by clause 641 to be eligible as a relevant product.

The cartonboard must be of saleable quality. This is defined by regulation 22C. In particular, any tonnes of cartonboard which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable cartonboard which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

·        be produced from woodchips and/or sawdust;

·        be used in the integrated process of cartonboard manufacturing; and

·        be produced as part of carrying on the EITE activity as defined by clause 641.

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one partial exemption. For example, pulp produced from woodchips and/or sawdust cannot be counted towards a partial exemption under both the cartonboard and printing and writing paper activities.

Part 16 Packaging and industrial paper manufacturing

Division 1 Packaging and industrial paper manufacturing

Clause 644 – Packaging and industrial paper manufacturing

This clause provides that packaging and industrial paper manufacturing is the physical or chemical transformation of any or all of wood chips, sawdust, wood pulp and recovered paper into rolls of packaging and industrial paper that is produced from wholly or partially unbleached input fibre, have a grammage range of 30 g/m² to 500 g/m², a moisture content in the range of 4 per cent to 11 per cent, is uncoated and is generally useable as a packaging or industrial paper, including products such as kraft liner, recycled or multiply liner, medium, sack and bag paper, wrapping paper, plasterboard liner, horticultural paper and building paper.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of recovered paper into a pulp slurry through a pulping and deinking process and/or the conversion of woodchips into a pulp slurry using the Kraft or sulfite processes. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of packaging and industrial paper.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it is subsequently used in the manufacture of packaging and industrial paper. It is also intended that the production of packaging and industrial paper from bought-in pulp is considered to fit within the activity description.

The activity has two sub-activity baselines defined: packaging and industrial paper manufacturing and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls of packaging and industrial paper that are produced from wholly or partially unbleached input fibre, have a grammage range of 30 g/m² to 500 g/m², a moisture content in the range of 4 per cent to 11 per cent, is uncoated and is generally useable as a packaging or industrial paper, including products such as kraft liner, recycled or multiply liner, medium, sack and bag paper, wrapping paper, plasterboard liner, horticultural paper and building paper.

The activity does not include the upstream woodchip preparation or the downstream process of converting rolls of packaging and industrial paper into final products (e.g. box construction). As such, the relevant site for the purposes of the PEC is that where the output is actually produced and does not extend to separate sites which may conduct upstream or downstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 645 – Classification of activity

This clause provides that packaging and industrial paper manufacturing is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 646 – Electricity baseline for product

This clause provides that there are two electricity baselines relevant for the activity of packaging and industrial paper manufacturing:

·        The electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the packaging and industrial paper manufacturing is 0.554 MWh per tonne of rolls of packaging and industrial paper.

·        For the production of wet pulp from either or both of woodchips and sawdust as part of packaging and industrial paper manufacturing, the basis for calculating the amount of a liable entity’s partial exemption is 0.448 MWh per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both packaging and industrial paper and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an ‘air dried’ basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of packaging and industrial paper, the outputs are rolls of packaging and industrial paper that are produced from wholly or partially unbleached input fibre, have a grammage range of 30 g/m² to 500 g/m², a moisture content in the range of 4 per cent to 11 per cent, are uncoated and generally useable as packaging or industrial paper, including products such as kraft liner, recycled or multiply liner, medium, sack and bag paper, wrapping paper, plasterboard liner, horticultural paper and building paper.

The packaging and industrial paper must have been produced by carrying on the activity as defined by clause 644 to be eligible as a relevant product.

The packaging and industrial paper must be of saleable quality. This is defined by regulation 22C. In particular, tonnes of packaging and industrial paper which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable packaging and industrial paper which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

·        be produced from woodchips and/or sawdust;

·        be used in the integrated process of packaging and industrial paper manufacturing; and

·        be produced as part of carrying on the EITE activity as defined by clause 644.

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one partial exemption. For example, pulp produced from woodchips and/or sawdust cannot be counted towards a partial exemption under both the packaging and industrial paper and printing and writing paper activities.

Part 17 Printing and writing paper manufacturing

Division 1 Printing and writing paper manufacturing

Clause 647 – Printing and writing paper manufacturing

This clause provides that printing and writing paper manufacturing is the physical or chemical transformation of any or all of woodchips, sawdust, wood pulp and recovered paper into rolls of coated or uncoated printing and writing paper that is produced from 100 per cent bleached or brightened input fibre, have a grammage range of 42 g/m² to 350 g/m², a moisture content in the range of 4 per cent to 11 per cent and is generally useable as a printing and writing paper product, including products such as offset paper, copy paper, laser printing paper, magazine paper, filing card paper, manilla, book printing paper, envelope paper, forms paper, scholastic paper, cheque paper and security paper.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of woodchips into a pulp slurry using a number of different processes (including Kraft, sulfite and mechanical pulp processes). Other sources of pulp were also bought in and added to the process. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of printing and writing paper.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it is subsequently used in for the manufacture of printing and writing paper. It is also intended that the production of printing and writing paper from bought-in pulp is considered to fit within the activity description.

The activity has two sub-activity baselines defined: printing and writing paper manufacturing and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls of coated or uncoated printing and writing paper that are produced from 100 per cent bleached or brightened input fibre, have a grammage range of 42 g/m² to 350 g/m², a moisture content in the range of 4 per cent to 11 per cent and are generally useable as printing and writing paper products, including products such as offset paper, copy paper, laser printing paper, magazine paper, filing card paper, manilla, book printing paper, envelope paper, forms paper, scholastic paper, cheque paper and security paper.

The activity does not include the upstream woodchip preparation or the downstream process of converting rolls of printing and writing paper into final products (e.g. office paper). As such, the relevant site for the purposes of the PEC is that where the output is actually produced and does not extend to separate sites which may conduct upstream or downstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites will not be regarded as carrying out the EITE activity for the purposes of subregulation 22A(9). However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for partial exemptions of the EITE activity itself.

Division 2 Classification of activity

Clause 648 – Classification of activity

This clause provides that printing and writing paper manufacturing is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 649 – Electricity baseline for product

This clause provides that there are two electricity baselines that are relevant for the activity of printing and writing paper manufacturing:

·        The electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the printing and writing paper manufacturing is 0.880 MWh per tonne of rolls of printing and writing paper.

·        For the production of wet pulp from either or both of woodchips and sawdust as part of printing and writing paper manufacturing, the basis for calculating the amount of a liable entity’s partial exemption is 0.448 MWh per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both printing and writing paper and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an ‘air dried’ basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of printing and writing paper, the outputs are rolls of coated or uncoated printing and writing paper that are produced from 100 per cent bleached or brightened input fibre, have a grammage range of 42 g/m² to 350 g/m², a moisture content in the range of 4 per cent to 11 per cent and generally useable as a printing and writing paper product, including products such as offset paper, copy paper, laser printing paper, magazine paper, filing card paper, manilla, book printing paper, envelope paper, forms paper, scholastic paper, cheque paper and security paper.

The printing and writing paper must have been produced by carrying on the activity as defined by clause 647 to be eligible as a relevant product.

The printing and writing paper must be of saleable quality. This is defined by regulation 22C. In particular, any tonnes of printing and writing paper which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable printing and writing paper which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

·        be produced from woodchips and/or sawdust;

·        be used in the integrated process of printing and writing paper manufacturing; and

·        be produced as part of carrying on the EITE activity as defined by clause 647.

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one partial exemption. For example, pulp produced from woodchips and/or sawdust cannot be counted towards a partial exemption under both the packaging and industrial paper and printing and writing paper activities.