COMMENTS ON NATIONAL GREENHOUSE
AND ENERGY REPORTING (SAFEGUARD
MECHANISM) RULE 2015
Issued: September 2015
Australian Industry Greenhouse Network Ltd
Unit 3, 4 Kennedy Street, Kingston ACT 2604
PO Box 4622, Kingston ACT 2604
T +61 2 6295 2166 | F +61 2 6232 6075
E info@aign.net.au | W www.aign.net.au
AUSTRALIAN INDUSTRY GREENHOUSE NETWORK
CONTENTS
1.
BACKGROUND ............................................................................................................................. 2
2.
INTRODUCTION ......................................................................................................................... 2
3.
ESTABLISHING BASELINES ..................................................................................................... 3
4.
NEW INVESTMENTS .................................................................................................................. 4
5.
EMISSIONS MANAGEMENT ..................................................................................................... 6
6.
PUBLICATION OF INFORMATION ......................................................................................... 7
7.
ELECTRICITY SECTOR .............................................................................................................. 7
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1. BACKGROUND
The Australian Industry Greenhouse Network (AIGN) welcomes the opportunity to provide comment on
the proposed legislative framework for the safeguard mechanism as set out in the National Greenhouse and
Energy Reporting (Safeguard Mechanism) Rule 2015.
In reading this response, the Department should note AIGN’s broad range of members, and resultant wide
diversity of views on greenhouse and energy policy. This submission accords with the views of our members
in general. However, at times, there are variations in the positions of individual members on specific issues. It
is therefore important that the Department considers AIGN’s feedback alongside any responses made to the
Draft Rule and Explanatory Statement by our members.
2. INTRODUCTION
AIGN notes the extensive work undertaken by the Department in drafting the material to give effect to the
safeguard mechanism under the Emission Reduction Fund (ERF). We express our appreciation for the
ongoing willingness of staff of the Department of the Environment, and the Clean Energy Regulator, to
make themselves available for discussion.
AIGN also acknowledges the consistency of the Draft Rule with the Government’s policy intent that the
ERF will not be revenue raising and will “allow businesses to continue ordinary operations without penalty.”1
We consider coverage remains incomplete and cannot be considered the long term benchmark as it
encompasses only around 50% of Australia’s emissions. AIGN strongly endorses the consistency of the
suggested Draft Rule with the Government’s stated intent: “It is vital that any approach to climate change
does not hurt the competitiveness of Australian business and industry”2.
We note that there has been extensive consultation on the ERF and the design of the safeguard mechanism
for close to two years, and that AIGN has been an active contributor to the process. We welcome the policy
changes reflected in the Draft Rule addressing a number of the major issues of concern raised by AIGN on
the White Paper, particularly in respect of including additional flexibility around the setting of baselines and
demonstrating compliance.
AIGN considers that a number of the proposals would benefit from modification or further clarification.
Consistent with the Government’s deregulatory approach it is of crucial importance that the reporting
mechanism is kept as administratively simple as possible and not place burdens on reporting facilities
unrelated to the risk of the behaviours that the measures are designed to prevent..
In the following sections AIGN makes comments on the Draft Rule relating to:
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1
2
Establishing baselines
Emissions management
Access to international units
Administration
Electricity sector; and
Publication of information.
Emission Reduction Fund Green Paper, January 2014.
The Coalitions Direct Action Plan, 2010.
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AIGN members are deeply concerned about the intended change to the way data is published under
NGERS. The proposal to require the publication of facility level emissions data is a risk to reporting entities
because it ignores the commercially sensitive nature of this data. The Department has not presented a strong
argument of the policy or public good that would be achieved by making data available at this granularity –
the public disclosure of aggregated data, as is current practice under NGERS, amply serves the intended
purpose of informing the public how Australia is tracking against its emissions reduction target. AIGN
advocates that the CER only publishes aggregated baseline and emissions information for all facilities covered
by the safeguard mechanism.
AIGN is disappointed that access to international units will not be considered until the proposed 2017/18
review of the ERF. This will limit opportunities for Australian businesses to manage the costs of complying
with the safeguard mechanism. Access to international units should be provided as the Draft Rule is finalised
to assist in the management of costs associated with the implementation of the safeguard mechanism.
3. ESTABLISHING BASELINES
AIGN welcomes the provisions within the Draft Rule to provide increased flexibility around the
determination of baselines so that the scheme does not punish rational business decisions or economic
growth. However AIGN considers that a number of the provisions do require further modification to be
consistent with the policy intent. In particular, AIGN supports the followings changes:
Incremental Growth
AIGN and its members have previously raised with the Department the need to ensure that any rational
investments to improve productivity and competitiveness are not penalised. Investments are not
homogenous, and range from incremental improvements to significant capital upgrades/expansion. AIGN
supports the inclusion of an emissions intensity test that would allow facilities to exceed their absolute
baselines so long as the emissions intensity of production is not increasing. Providing a secondary threshold
of emissions intensity better reflects the realities of business operations over the business cycle, and allows for
changes in production, expansions and maintenance requirements.
AIGN welcomes the acknowledgement of the validity of this issue through the proposal of an increase in
baselines on a temporary basis in any year where baseline exceedance is accompanied by an emissions
intensity improvement. However the concern with this provision as it stands is that the intensity metric
requires ongoing improvement in intensity each time a facility uses the intensity test. To continue to benefit
from this provision a facility needs to achieve continued improvements in intensity. This presumes a linear
year on year improvement in emissions intensity which does not account for what may be fluctuations, albeit
minor, arising from changes in production processes.
The risk under this provision would be that facilities which have already made investments to improve
efficiency, and have limited scope to improve efficiencies as production and absolute baselines increase,
would be penalised compared to facilities that have not made investments to achieve comparable levels of
efficiency. This is risk creates a disincentive for facilities, in particular those that have realised efficiency gains,
to make investments that deliver improvements in emissions intensity given the penalties it may incur as a
result of the fluctuations generated when implementing them. It is also at odds with the objective of
supporting economic growth by avoiding policies that hinder it.
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This risk could be overcome by a provision that as long as a facility has stayed at or below its initial intensity
then the intensity baseline does not need to be reset every year. This proposal is similar in intent to the
absolute emissions metric.
Establishing Baselines
AIGN would also express concerns over the amount of discretion the Regulator is provided at Section 17 (3)
to disregard significant emissions attributable to activities no longer conducted at the facility during the initial
setting of a reported emissions baseline determination. The risk is that if the activity at the facility is restarted
the responsible emitter may incurr penalties if the absolute emissions increase because they were above the
revised baseline determination. This provision should only apply where the Regulator can be certain that the
past activities at the facility cannot be restarted in the future through for example partial or complete
decommissioning of the facility
Resource Variability
AIGN welcomes the retention of a provision that allows baselines to be adjusted to reflect inherent emissions
variability associated with natural resources and reserves. AIGN queries why this mechanism cuts off in
2025. Given the long term nature of resource projects, we strongly recommend that the ability to access the
baseline reset process should be related to events (such as a change in resource grade) rather than a time
period. AIGN supports the recommendation by APPEA to remove the restriction that limits applications to
two during the period to 2024/25, recognising the emissions variability associated with many natural resource
projects.
AIGN also supports the introduction of provisions to accommodate circumstances where “historical
emissions are clearly out of step with future performance,” including the provision to apply for a baseline
adjustment if emissions exceed or are expected to exceed baseline levels in the first year of the safeguard
mechanism’s operation.
Impact of Government regulatory changes at Federal, State and local level.
AIGN welcomes the inclusion of the provision to accommodate changes in emissions, and hence baselines,
as a result of other federal, state or local Government regulation, including climate related policies. However
there is no drafting in the regulations or rule obliging the Regulator to have regard to such circumstances or
Government processes. AIGN believes that the wording in the Explanatory Statement on any baseline
adjustment resulting from the “introduction of new regulation” could be strengthened.
4. NEW INVESTMENTS
Defining best practice
As previously noted, AIGN considers any significant new investment is almost certainly to be at best practice
given the open nature of the Australian economy and the competitive international investment and operating
environment. AIGN has also previously commented that as a result of the variety of industrial and resource
extraction activities undertaken in Australia, it is difficult (if not impossible) to determine one or two best
practice approaches to manage emissions from new facilities or from an expansion. In short, a plant will be
built fit for purpose and to maximise return on investment. In general the larger the capacity of a new facility
(be it designed for resource extraction or value adding) the more difficult it will be to make use of the best
practice tests.
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AIGN does not consider that the benchmark-emissions baseline approach addresses many of the above
shortcomings of the best practice approach outlined in the Draft Rule and accompanying Explanatory
Statement.
An alternate approach, as previously suggested, is to operate on the basis that a new investment will be at
industry best practice level subject to consideration by an independent agency against a criteria highlighting
that, in making an investment decision, the project proponents evaluated options to reduce emissions during
the facility design stage, and/or provides evidence of energy efficiency assessments undertaken at key
decision points, consistent with identifying opportunities for improved energy use.
Given the lack of detail and uncertainty around the capacity to assess best practice, AIGN suggests that
considerable elaboration, coupled with greater consultation, is required.
Auditing Requirements
It is of crucial importance that the reporting mechanism is kept as administratively simple as possible to
reduce the regulatory burden on industry, consistent with the Government’s commitment in this area. There
are a number of proposals in the Draft Rule that have the potential to significantly increase the reporting
requirement on industry for what appear to be limited benefits, and that give rise to significant costs.
For example, with respect to the re-setting of baselines for facilities that have multiple outputs, the provisions
include a large focus on identifying and auditing the emissions intensity for all of a facility’s ‘production
variables.’ As a result businesses will be required to apportion emissions across all production variables and
then have this audited. Members have commented that undertaking these apportionments will result in
significant costs in consultant and audit charges, as well as internal resourcing. The preferred outcome is that
the process is simplified to focus on facility emissions rather than emissions intensity. The costliness could
also be mitigated by the deletion of 5(8)(g) while introducing some flexibility under 5(8)(a) allowing for the
Regulator to exercise discretion, to enable the use of a single input rather than multiple outputs.
Similarly, baseline adjustment applications under the calculated emissions baseline determinations require
proponents to provide audited forecasts by product or production volume, greenhouse gas emissions, and
greenhouse gas emissions intensity (broken down by greenhouse gas species). This requirement appears
overly prescriptive and unnecessary as actual emissions are audited for this period and the facility baseline
reset at the highpoint as part of the production adjusted baseline determination process. Further, the
Regulator has provision to adjust facilities’ baselines if required and following consultation.
In addition, we are uncertain whether a limited assurance opinion or a qualified limited assurance conclusion
could be obtained over forecast information which by its nature is driven by internal business scenarios and is
quite different than auditing historical data. AIGN recommends a more pragmatic approach to audits,
particularly in relation to the audit of forecast information where auditors could be engaged by the
responsible emitter to perform agreed upon procedures that could include:
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verification that the emissions forecast for each financial year in the forecast period has been
calculated by the responsible emitter, is arithmetically correct and consistent with the methodology
documented by the responsible emitter, and
identify the specific requirements under the Draft Rule and confirm that these requirements have
been met by the methodology documented by the responsible emitter.
AIGN recommends that the Government remove the requirement for production and emissions intensity
data and require only emissions data in the three (or five) year forecasting period. The safeguard mechanism
is set up to manage emissions against an absolute baseline, not against emissions intensity.
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5. EMISSIONS MANAGEMENT
AIGN welcomes the flexible compliance arrangements outlined in the Explanatory Statement, which are
consistent with the positions previously advocated. We welcome the provision that civil penalties are to be
the final step after an extensive process of considering alternate options.
Multi-year compliance
AIGN supports multi-year compliance, acknowledging that there will be variations in annual facility
emissions. AIGN maintains that, to be consistent with the existing period for establishment of historical
emissions and to be reflective of the business cycle, the period of multi-year variability should be 5 years
rather than 3 years.
Net emissions and carbon offsets
AIGN agrees that the ERF’s “overriding objective…should be to purchase emissions reductions at the lowest
available cost”3.
Allowing facilities the opportunity to purchase Australian Carbon Credit Units (ACCUs) as offsets to reduce
their net emissions amount, is an important emissions management mechanism. However, for facilities to
plan investments and fully understand the net cost of abatement today and in the future, the price of ACCUs
needs to be relatively stable and predictable over the long term.
Exemptions for exceptional circumstances
AIGN has argued that there should be a provision to allow for the impact of exceptional circumstances,
namely events, beyond the control of a facility, on emissions and hence safeguard obligations. Whilst
welcoming the inclusion of a suggested approach, the proposed provision for exceptional circumstances in
the Draft Rule of a natural disaster or criminal activity is too narrow in scope.
As previously suggested, exceptional circumstances should include provisions covering force majeure, major
equipment failures, extreme weather and other incidents outside a facility’s ability to control. There still
remains the need for clarity around defining what constitutes a natural disaster and what are considered to be
reasonable steps to mitigate the risk of excess emissions. For example, would a prolonged heatwave be
considered a natural disaster (as it will impact the emissions of many facilities)? The assessment of impact
and period of impact will be crucial.
International Units
Consistent with the AIGN principle of least-cost abatement, the ERF should provide access to international
units, including the Clean Development Mechanism. This will promote genuine emissions reductions, assist
with maintaining Australia’s international competitiveness, and address the potential for leakage.
Furthermore, it will have the additional benefit of establishing a more liquid market, with long-term hedging
options.
AIGN is disappointed that access to international units will not be considered until the proposed 2017/18
review of the ERF as it will limit opportunities for Australian business to manage the costs of complying with
the safeguard mechanism. There is no logical rationale to refusing access to the international carbon market
that is consistent with promoting economic growth and least-cost (or even low-cost) abatement. Access to
international units should be provided as the Draft Rule is finalised, to assist in the management of costs
associated with the implementation of the safeguard mechanism.
3
ERF White Paper, April 2014.
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6. PUBLICATION OF INFORMATION
AIGN is deeply concerned that the proposal to publish facility-level emissions data remains unchanged
despite detailed feedback the Government has received from across industry about the risks of doing so.
As previously stated, the provision of facility- or company-specific information is likely to be commercially
sensitive. Confidentiality of company information was critical in gaining industry support for the provision of
commercially sensitive data in the establishment of NGERS, and remains valid to this day. The publically
available, liable entity data by facility reported under the carbon tax was only a subset of total Scope 1
emissions (covered emissions only) and cannot be equated with the facility-level information being proposed
to be publically available in respect of the ERF.
Therefore AIGN continues to advocate strongly that the CER only publishes aggregated baseline and
emissions information for all facilities covered by the safeguard mechanism, as the Department has not
presented a strong argument of the policy or public good that would be achieved by making facility-level data
available. The publication of aggregated data will provide sufficient information to assess progress under the
safeguard mechanism. The Department’s position is now at odds with previously stated positions on the
commercial-in-confidence nature of disclosure at the facility level.
7. ELECTRICITY SECTOR
AIGN notes the proposed sectoral approach applying to the electricity sector. As previously noted, whilst the
electricity industry is subject to a number of significant influences, it will be important that the scope for
potential increased costs to downstream users arising from the operation of the safeguard mechanism are
minimised.
AIGN strongly encourages the Government to include extensive consultation with our energy using
members in its development plan for an electricity sector approach.
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