Director liability and duties to consider climate risks
Directors of Australian companies who fail to consider, plan for and disclose foreseeable climate change risks on their organisation could be held personally liable for breaching their duty of due care and diligence under the Corporations Act 2001. This is according to a recent opinion provided by Barrister Noel Hutley SC to around 30 Australian business leaders. The legal opinion found many climate change risks “would be regarded by a court as being foreseeable at the present time” and Australian company directors “who fail to consider ‘climate change risks’ now could be found liable for breaching their duty of care and diligence in the future”.
Several recent legal and political movements demonstrate a push towards liability for company directors who fail to identify, plan for, and disclose climate-related risks which may affect their company’s operations and value. These include the Paris Agreement, which has helped galvanise action on all aspects of climate change and carbon management, and brings the transition risks (and opportunities) forward, given the policy and business changes necessitated by the agreement’s commitment to a sustainable economy. Nationally, in February 2016 the Senate referred an inquiry into carbon risk disclosure to the Senate Economics References Committee which is due to report by 31 March 2017. While organisations have different views on how disclosure frameworks should be developed, submissions agreed that it is necessary to improve Australian disclosure frameworks.
The Courts’ history of finding fault for inadequate responses to foreseeable risks, even where there is supposed uncertainty, combined with the recent political shifts led Hutley SC to conclude that “it is likely to be only a matter of time before we see litigation against a director who has failed to perceive, disclose, or take steps in relation to a foreseeable climate-related risk that can be demonstrated to have caused harm to a company”.
Climate Risk Toolkit for Directors
Given the personal liability facing directors, and the push for greater transparency and disclosure of company actions to address climate change risks, The Future Business Council has released a timely Climate Risk Toolkit for Directors. http://www.futurebusinesscouncil.com/fiduciary-duties-and-climate-change/
The toolkit includes three key steps businesses should undertake to address the risks outlined in Hutley SC’s legal opinion.
The first step is to consider the adequacy of your company’s climate risk disclosure within the company’s reporting frameworks. Are you adequately disclosing risks to the market? Recent draft disclosure guidelines for financial disclosure recommend climate-related financial information should be included in "mainstream financial filings" and should generally be vetted by a company's chief financial officer and audit committee. Sustainable Business Australia recent CEO Guide to Climate Risk Disclosure provides valuable information on the status of climate risk disclosure in Australia, the benefits of developing and communicating sustainability plans, and the need for common metrics and standards. To disclose your company’s exposure to climate risk and minimise their legal exposure, companies should tell investors and potential investors how their profits may be hit by climate change related weather events and emission targets underpinned by the Paris Agreement.
Do you have the right skills and capabilities internally to assess, address and report on your exposure not only to climate change but to the low carbon transition? Do you have the means to embed sustainability principles within your company? Being informed will reduce exposure to sudden policy and technological changes and facilitate best practice principles in the company.
Is your reporting up to scratch? Companies with transparent, high quality reporting on climate risk considerations demonstrate leadership, showing they are proactively considering climate related and other risks to their business operations. Shareholders and investors are demanding greater transparency to analyse a company’s business risks and opportunities resulting from climate change. Without consistent, comparable and verifiable data it is difficult for investors to make comprehensive analyses they use to make investment decisions.
Currently the main Australian framework for reporting carbon emissions and exposure to risk include The ASX Corporate Governance Council’s Principles and Recommendations, The National Greenhouse and Energy Reporting Scheme (NGERS), and The Corporations Act 2001. ASX listed companies must disclose any information concerning them that a reasonable person would expect to have a material effect on the price or value of the entities’ securities. An appropriate approach to improving and streamlining the disclosure framework is a major focus of the current Senate Inquiry.
Popular international frameworks include the Global Reporting Initiative (GRI) and the Carbon Disclosure Project (CDP). Additional avenues such as We Mean Business and Science Based Targets provide a platform for companies to take the next step in demonstrating their commitment setting ambitious targets, reporting emissions and scaling up low carbon investment.
Combining the right skills to identify and analyse climate related risks and opportunities with transparent disclosure and reporting processes will place companies in a more competitive position to take advantage of a low carbon economy, and assist directors to fulfil their fiduciary duties.
How we can Help
Ndevr Environmental is a specialist carbon, energy and sustainability consultancy that partners with clients to achieve positive business and environmental outcomes. Our specialist consultants can help you implement your custom solutions, manage liabilities and realise opportunities for emissions reductions, energy efficiency, sustainability initiatives and access to government funds and other low-cost finance.
The Clean Energy Regulator (CER) has just announced the fourth ERF Auction will be held on 16 and 17 November 2016. The auction announcement often drives activity and this could potentially be the last one under the initial $2.55B promised under the Direct Action Plan. Key dates for the Auction including close of project registration applications is as follows:
Important dates for the fourth Emissions Reduction Fund auction:
Approximate time in business days
Fourth auction dates
Closing time for receipt of project registration applications
30 business days before the auction
04 October 2016 (midnight AEDT)
Closing time for receipt of auction qualification applications
20 business days before the auction
19 October 2016 (midnight AEDT)
Closing time for receipt of auction registration applications
Five business days before the auction
09 November 2016 (midnight AEDT)
9am 16 November 2016 to
5pm 17 November 2016 (AEDT)
Each participant and authorised bidder notified of their results
By the end of five business days after auction close
24 November 2016
Average price per tonne of abatement published
By the end of five business days after auction close
24 November 2016
If you are interested in participating in the Auction, please contact us directly [link to contact us].
National Greenhouse and Energy Reporting (NGERs) submissions for the 2015/16 year are due on 31 October 2016. There have been some legislative amendments to the NGER Determination in particular, and it’s always a good idea to have a refresher on the Emissions and Energy Reporting System (EERs) each year. The sessions are as follows:
Overview of NGER Reporting for all reporters
These two webinars will provide a legislative overview of reporting obligations for controlling corporations, reporting transfer certificate holders and 22X reporters for the 2015-16 financial year.
Date: Tuesday 20 September
Register now – registrations close 5pm on Tuesday 13 September 2016
* Session 1 was today, 9 August at 11am.
EERS data entry and user management
To assist clients in the lead up to the NGER reporting deadline of 31 October 2016, the Clean Energy Regulator will be running three webinars to help reporters with entering their data into EERS. These sessions will include:
- summary of changes to EERS for 2015-16
- how to log in to EERS
- navigating your EERS workspace
- creating group members and facilities
- basic data entry, and
- user management and the Client Portal.
Each of these sessions will be identical in content. There are limited numbers for each webinar and if you are unable to obtain a booking for your first preference, please select an alternative date. Additional sessions may be scheduled if required.
Date: Thursday 11 August
* registrations closed 4 August
Date: Monday 12 September
Register now – registrations close 5pm on Monday 5 September 2016
Date: Tuesday 4 October
Register now – registrations close 5pm on Tuesday 27 September 2016
By now, you are probably aware that the “Safeguard Mechanism” will commence on 1 July 2016. However, what probably remains less certain is whether your company is covered by the Safeguard Mechanism and, if it is, what you have to do over the coming months. This legal update aims to simplify the steps you need to undertake, and the timing of those steps, in order to ensure your company complies with the Safeguard Mechanism in 2016/17.
This legal update has been developed in conjunction with Norton Rose Fulbright’s experienced Sustainability and Climate Change team, who support their clients by providing solid advice on the choices and decisions necessary for responding to a risk, opportunity or both.
This update is not exhaustive regarding all Safeguard Mechanism requirements. Instead we have covered some of the time critical points and some key concessions businesses will need to consider to mitigate compliance costs from exceeding their baseline into the future.
What you Need to Know and do Now
Right now you need to consider whether your company is likely to be covered by the Safeguard Mechanism, which is the liable company (responsible emitter) and whether a baseline number defined by historic reported NGER data is appropriate for your facility.
Is Your Facility Covered?
The Safeguard Mechanism will apply to companies operating one or more facilities which emit more than 100,000 tonnes of carbon dioxide equivalent (CO2-e) “covered emissions” in a financial year. Covered emissions are all direct (scope 1) emissions covered by the National Greenhouse and Energy Reporting (Methodology Determination) 2008 (subject to exceptions for landfills and electricity generators).
For companies already covered by the National Greenhouse and Energy Reporting Scheme (NGERs), you should review your NGERs reports submitted since 2009/10 to determine whether any one facility has reported scope 1 emissions of 100,000 t CO2-e or more in any financial year. It is not necessary to count the scope 2 emissions (i.e. from grid electricity or steam consumption) included in your report. This review will be a good indicator of whether your facility is likely to exceed the threshold in 2016/17. Additionally, it will be necessary to consider whether your facility will be subject to any expansion or increase in production which may cause the facility to meet the threshold in the future.
If you are not already reporting under NGERs, you are unlikely to be covered by the Safeguard Mechanism, unless your facility has undergone a recent expansion, or you have a new investment or you are a non-constitutional corporation (such as a local council) which operates a large facility. In these scenarios, you should review your facility’s projected emissions to check if the threshold will be exceeded in the future.
Who is the Liable Company?
Once you have determined that your facility emits more than 100,000 t CO2-e, it is necessary to determine which company has “operational control” of the facility and will therefore be responsible for compliance under the Safeguard Mechanism. This will be the company with authority to introduce and implement any or all of the operating policies; health and safety policies and environmental policies. Where there are multiple companies operating at one facility, it is usually necessary to review the contractual arrangements in place at the facility to determine which company has operational control.
It is important to be aware that the company liable under the Safeguard Mechanism will not necessarily be the same company which is currently reporting under NGERs (as the reporting company under NGERs is usually the “highest controlling corporation”, whereas the liable company under the Safeguard Mechanism will be the one actually operating the facility).
Is a ‘Reported’ Baseline Appropriate?
The default position for companies reporting under NGERs is that your facility will be given a ‘reported’ baseline, based on NGERs data for the five year period between 2009/10 and 2013/14 (see below).
However, there are certain concessions included in the Safeguard Mechanism for facilities that expect to exceed their reported baseline, notably an ‘initial calculated baseline’ (covered further below in a practical case-study). The initial calculated baseline should be considered as your ‘cover-all free kick’ if you think you may exceed your reported baseline in 2016/17, being the ‘initial’ year of the Safeguard Mechanism.
To take advantage of a calculated baseline, right now, you need to understand what your baseline for 2016/17 will be. You can calculate this yourself based on the forecast production and emissions intensity for your facility. This will be your default emissions target. In order to manage your exposure, you should know this target well before 31 July 2016 (the first application deadline), because if you overshoot your baseline, you may need to purchase Australian Carbon Credit Units (ACCUs) for every tonne of emissions ‘overshot’.
Before 31 July 2016
Reported Baseline Calculation
The reported baseline for large facilities will be calculated by the Clean Energy Regulator (Regulator) and as mentioned will be based on your reported NGERs data for the five year period between 2009/10 and 2013/14. The Regulator will initiate the reported baseline setting process by advising responsible emitters of their proposed facility baseline number. The Regulator aims to contact all responsible emitters with their proposed reported baselines by May 2016.
If you satisfy the reported baseline criteria and believe that your projected emissions into the foreseeable future will remain below your highest reported scope 1 emissions value from 2009/10 to 2013/2014, then no further action regarding baselines is likely to be required. You should not trigger the historic baseline and will not be required to purchase ACCUs.
Optional Reported Baseline for Some Facilities
Facilities that only reported scope 1 emissions under NGERs in some of the 5 years from 2009/10-2013/14 may have a choice to opt-in to receive a reported baseline number. If you have reported scope 1 emissions under NGERs four or less times in the five years from 2009 and have only reached the threshold of more than 100,000 tonnes covered emissions in one to three of those years, you can either:
- Request a reported baseline determination, which requires you to notify the Regulator by 31 July 2016; or
- Use the calculated baseline approach under the new facility criteria, which requires you to submit an application by 31 October 2017 along with an independent audit report.
If you are in this position and don’t follow options 1 or 2 above, the Regulator will give you a default baseline number of 100,000.
For a reported baseline determination, the Regulator will provide you with feedback regarding the proposed baseline and provide opportunity for comment / consultation before the actual determination is made. Once a reported baseline determination is issued for your facility, it will no longer meet the new facility criteria for a calculated baseline.
If you expect your facility’s baseline emissions to exceed your reported baseline, then it is recommended that you consider applying for a ‘new’ baseline under the calculated baseline criteria. This is your ‘free-kick’!
For a calculated baseline that begins from 1 July 2016, applications can be submitted between 1 July 2016 and 31 October 2017. The baseline is determined by the highest expected production level of a primary production variable (and corresponding emissions) over the three-year period covered by the calculated baseline determination (2016/17 to 2018/19 for a baseline determination starting 1 July 2016). However, the years of production you can choose from to set your baseline are limited by the date from which you apply:
- to use the highest production level from all three years to determine your baseline, you need to submit your application by 30 July 2016; otherwise
- if you submit your application by 30 July 2017, you can use the highest of the last two years (2017/18; 2018/19) to determine your baseline number; alternately
- if you submit your application after 30 July 2017 and by 31 October 2017, your emissions baseline number will be established from your projected production level in 2018/19 only.
Because these application dates are not straight forward, we have provided a practical case study further below to illustrate when applications need to be submitted. You can also see Ndevr Environmental’s recent article on key dates for calculated baseline applications here. It is important to understand forecast emissions early to make an informed decision about when to submit your application, accompanied by an audit report.
The calculated baseline provides an opportunity for facilities to ‘adjust upwards’ their baseline, if it is reasonably expected that the facility’s emissions will increase. The specified criteria to be eligible for the calculated baseline include:
- increase or expected increase of baseline emissions within the first year 2016-17 of the Safeguard Mechanism (initial baseline criteria)
- new facilities that forecast expected emissions of 100 000 t CO2-e in the first year of the calculated baseline (new facility criteria)
- facilities in the natural resource sector that have variable emissions due to resource extraction or the quality of the grade ore (inherent emissions variability criteria)
- when facilities expect their baseline to be permanently increased if there is a production capacity growth greater than 20% (significant expansion criteria).
If you think your facility will satisfy one or more of the calculated baseline criteria, then you can apply to the Regulator for a calculated baseline. Generally, the calculated baseline is determined by the following calculation:
|Calculated baseline = forecast production x forecast emissions intensity|
Because the initial calculated baseline option is likely to be of interest to industry, and important dates are approaching, we have prepared an abridged case-study to demonstrate how a company might apply for an ‘initial calculated baseline’.
You have operational control of Facility ‘X’. Based on the past emissions for Facility ‘X’ in Figure 1 below, the reported baseline will be 300,000 t CO2-e.
Figure 1. Past emissions Profile
Based on your projected future emissions in Table 1 below, you think you will exceed this (reported) baseline as soon as the Safeguard Mechanism starts.
Table 1. Future Emissions and Production Profile
Forecast Units of Production (Million Units)
Forecast Emissions Intensity per Unit
1kg CO2-e per unit
1kg CO2-e per unit
1kg CO2-e per unit
What can you do?
In this scenario, if the facility was to rely on a historic ‘reported’ baseline (300,000 tCO2-e from the 2012/13 year) it would be subject to the costs demonstrated in Table 2.
Table 2. Outcome of Relying on a Reported Baseline
‘Excess Emissions’ (ACCUs for purchase)
150,000 tCO2-e (150,000 ACCUs)
Safeguard Mechanism cost to business (ACCUs @$12.25 * each)
*Weighted average price for ACCUs at ERF Auction 2, November 2015
For Facility ‘X’, assuming it can source ACCUs at $12.25 each over the next three years (equal to the weighted average price paid by the Government at ERF Auction 2), the direct cost to business over the three years is $2,450,000.
In this instance Facility ‘X’ should look to apply for an initial calculated baseline.
Under Figure 2, Facility ‘X’ should establish its baseline number using production levels in 2016/17, which will present the highest production level and therefore covered emissions during the three year calculated baseline determination period.
Figure 2. Past emissions, projected emissions and application dates for calculated baseline determination beginning 1 July 2016
Using the forecast production and emissions intensity from Table 1, the calculated baseline would be as follows:
Calculated baseline = forecast production x forecast emissions intensity
= 450M units x 1kg CO2-e per unit
= 450,000 tCO2-e
With an initial calculated baseline in place, Facility ‘X’ would have no cost to business, other than compliance costs associated with auditing and developing the initial calculated baseline demonstrated in Table 3.
Table 3. Outcome of Relying on an Initial Calculated Baseline
‘Excess Emissions’ (ACCUs for purchase)**
Safeguard Mechanism cost to business (ACCUs @$12.25 * each)
**Excess emissions compared to reported baseline. Note the facility cannot generate ACCUs by emitting less than its initial calculated baseline.
In this simplified case study, Facility ‘X’ is in a much better position by utilising an initial calculated baseline. Excluding the costs of auditing and developing the initial calculated baseline, the facility is $2,450,000 in front.
Importantly, as per Figure 2, because Facility ‘X’ wants to establish its baseline number on forecast emissions from the 2016/17 year, which will present the highest covered emissions during the three year calculated baseline determination period, it must submit its application and audit report by 30 July 2016.
If the application is submitted after 30 July 2016 and by 30 July 2017, then the baseline number for the three year period will be based on only the last two years of forecast emissions, which in this case is 350,000 tCO2-e (in 2018/19). For Facility ‘X’, because projected emissions in year 3 of the baseline determination period are higher than in year 2, the baseline number will be the same if the application is submitted after 30 July 2017 but before and by the final deadline of 31 October 2017 (and therefore based on the final year only).
Here, even after taking advantage of a three multi-year monitoring period which allows Facility ‘X’ to take the average emissions across the three years (366,666 tCO2-e), Facility ‘X’ will still need to offset 50,000 t CO2-e to avoid an excess emissions situation at the end of the monitoring period. As noted below, applications for multi-year monitoring period beginning 2016/17 are also due by 31 October 2017.
To avoid significant costs in this scenario, it is highly beneficial for Facility ‘X’s responsible emitter to submit its initial baseline application and accompanying audit by 30 July 2016.
After 1 July 2017
Following the end of the compliance year, you will be required to report as usual under NGERs, by 31 October 2017.
If it becomes apparent that your facility exceeded its baseline in 2016/17, there are various flexible mechanisms you can use to manage compliance as follows:
- apply to the Regulator for a variation of a baseline determination if your facility has had expanding production accompanied by an emissions intensity improvement, by 31 October 2017;
- apply to the Regulator for an exemption declaration because the excess emissions situation was caused by criminal activity or natural disturbance, by 31 October 2017; or
- apply to the Regulator to report as part of a multi-year period, by 31 October 2017.
Finally, if it becomes apparent that your facility has exceeded its baseline and you have not been able to take advantage of the above flexible mechanisms, you may surrender ACCUs to cover your emissions excess by 28 February 2018.
From 1 March 2018, if your facility exceeded its baseline in 2016/17 and you have not surrendered ACCUs to offset that exceedance, the Regulator may seek to impose a civil penalty on you. The maximum penalty is the lesser of 100 penalty points per day (currently $18,000 per day), with a maximum of 10,000 penalty points ($1.8 million).
While this update has focused on Safeguard Mechanism compliance in the immediate future, important differences will apply to new facilities post 2020, which will have their baseline set using emissions intensity industry benchmarks. The Department of Environment has recently issued draft guidelines on how these emissions intensity benchmarks will be established. The draft guidelines are open for public consultation with submissions due by 5.00 pm AEST on 6 May 2016.
This update sets some of the key upcoming dates and requirements to comply with the Safeguard Mechanism over the next couple of years. This update is not exhaustive; businesses have other options to manage liability under the Safeguard Mechanism and there are many complexities that we will cover in future updates.
For further queries call Ndevr Environmental Director Matt Drum:
The safeguard mechanism starts this year, and is designed to stop greenhouse gas emissions increasing above 'business as usual' for facilities with high direct emissions. If you’re wondering exactly what this means for your business, you’re not alone. That is why we’ve compiled the following safeguard mechanism “need-to-knows”. Whether you’re responsible for Greenhouse Gas and Energy Reporting, need to update your executive board on safeguard implications for your business, or just want to know more, you’ve come to the right place. This article addresses key questions businesses are asking about how the safeguard mechanism will apply to them, and provides a summary of “need-to- knows” to get you safeguard ready.
The safeguard mechanism, beginning 1 July 2016, will apply economy-wide to facilities with direct emissions over 100,000 t CO2-e a year. A facility with scope 1 emissions greater than 100,000 t CO2-e is termed a ‘designated large facility’ and is covered by the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 (“Safeguard Rule”).
The safeguard mechanism is the third part of the Australian Government’s Emissions Reduction Fund (ERF) Policy. The ERF includes: (1) a process to credit emissions reductions (2) a fund to purchase emissions reductions and (3) a safeguard mechanism to stop increases in emissions above business-as-usual levels elsewhere in the economy. The ERF is central to the Government’s Direct Action Plan to cut emissions to five per cent below 2000 levels by 2020.
If your company has operational control of a designated large facility they are a “responsible emitter” under the safeguard mechanism. Designated large facilities are those with scope 1 emission greater than 100,000 t CO2-e. As a responsible emitter under the safeguard mechanism, you will be required to keep your facility’s emissions equal to or below baseline levels. Your baseline provides the reference point against which your future performance will be monitored under the safeguard mechanism.
What do I have to do to comply with the safeguard mechanism?
The safeguard mechanism requires you to keep net emissions, which are actual emissions less offsets sold to Government or surrendered, below baseline levels. The safeguard mechanism includes a number of features to help you meet your baseline emissions obligations. These are briefly outlined below.
Identification of an appropriate baseline emission number - The baseline emission number for your facility is determined by taking into account your facility’s circumstances. Factors which are used to identify the baseline include: business as usual emissions prior to the commencement of the safeguard mechanism, improvements in your facility’s efficiency, increases in production and operations with inherently variable emissions (i.e. resource extraction).
Offsetting – If your Designated Large Facility’s actual emissions exceed the baseline, you can use Australian Carbon Credit Units (ACCUs) to offset emissions. (Note: the potential role of international carbon credits in the safeguard mechanism will be reviewed in 2017).
Multi‑year monitoring - Multiyear monitoring allows your Facility to exceed its baseline in one year, so long as average emissions over two or three years are below baseline. Responsible emitters can apply to the Regulator for a declared multi-year period where there is a reasonable expectation that a facility’s emissions will exceed its baseline.
Exceptional circumstances - an exemption would apply to your Facility if emissions were the result of exceptional circumstances, such as a natural disaster.
What happens if I fail to meet my safeguard mechanism obligations?
Taking into account the options for compliance listed above, If your company fails to keep its facility emissions below baseline levels, the Clean Energy Regulator may apply a range of discretionary, graduated enforcement options, including civil penalties.
There are several approaches to measuring baseline, depending on your business’s circumstance. The default approach is to measure the baseline emissions number from historical National Greenhouse and Energy Reporting scheme (NGERs) data. The various approaches to measuring baselines are outlined below.
The simplest approach to identifying the baseline emissions number for designated large facilities is to use historical data reported under NGERs. Specifically, under this approach your baseline number will be taken from your highest reported scope 1 emissions between 2009-10 and 2013-14. This approach avoids new reporting obligations.
Company Delta reported the following scope 1 emissions for its Alpha Facility between 2009-10 and 2013-14. The highest reported scope 1 emissions within the time period is 210,200 t CO2-e reported for 2011-12. Therefore, 210,200 will be the default baseline emissions number for Alpha Facility.
If you have historically reported under NGERs, you do not need to apply for a Historical Baseline Number. Rather, the Regulator will provide your company with an Emissions Number Determination for each of your designated large facilities based on your NGERs reported emissions. If you would like to use a different approach to measuring your Baseline, you will need to notify the Regulator. http://www.cleanenergyregulator.gov.au/About/Contact-us
Baseline from Historic NGER Data
Reported emissions baseline determination
Planned review in 2017.
Alternative approaches to measuring your baseline are outlined below, and may require an audit report.
What if historic data is not appropriate to measure my facility's baseline?
The safeguard mechanism caters for a variety of circumstances that could affect your greenhouse gas emission numbers, including substantial facility expansion, incremental growth, the establishment of new facilities, inherent variability, external events and other circumstances where historical emissions are not representative of future expected emissions. These approaches are considered below against a number of frequently asked questions.
Generally, you will not have to offset increasing emissions due to increasing production as long as your facility’s emissions intensity improves. Your emissions intensity is the volume of greenhouse gas emissions compared to the amount of finished product, and is a measure of your facility’s efficiency.
Options for measuring baselines for incremental and significant expansion are outlined below.
If your production is increasing gradually and you can demonstrate an emissions intensity improvement, you can apply to the Regulator for a temporary variation of your baseline.
Your current emissions intensity will be compared to the emissions intensity associated with most recent baseline. Your application needs to be accompanied by an audit report.
Baseline variation for incremental increase
Variation of baseline determination for reduction in emissions intensity
Planned review in 2017.
What if we have significantly expanded our facility or have a new facility?
If your facility undergoes a significant, permanent expansion, you can apply to have your facility baseline permanently increased following the rules for establishing baselines for new investments (calculated emissions baseline approach). The significant expansion criteria includes an increase in maximum production capacity of more than 20 percent, and that the facility has exceeded its baseline or is reasonably expected to exceed its baseline in at least one year of the three-year period covered by the calculated-emissions baseline determination (i.e. the three years following expansion of your facility).
The approach for measuring baselines for new investments and significant expansions of existing facilities differs depending on whether the facility comes online before or after 2020. The different approaches are outlined below.
Before 1 July 2020, the new facility baseline number will be calculated based on estimates of production and emissions intensity at the facility. You will be required to provide an audited emissions forecast to the Regulator, after which the Regulator will issue you with a baseline determination. This baseline determination is temporary, and will expire when actual production data becomes available. At this time, the facility may be eligible to apply for a production adjusted baseline determination if actual production differs from forecast production.
From 1 July 2020, Baselines for new investments whose direct (scope 1) emissions exceed 100,000 tCO2-e will be set using benchmark emissions intensities. Best practice will be determined by comparing the relative performance of industry peers. Where available, existing industry data will be used to developing benchmark emissions intensities that are representative of best practice. Where data is limited or not adequately representative, international data or independent technical advice will help to define best practice. For significant expansions of existing facilities, this approach will only apply to the emissions associated with the expanded capacity such that the facility’s baseline would be the sum of its existing baseline and the benchmark baseline for the increased production resulting from the significant expansion.
Baseline for significant expansion or new facility
Calculated-emissions Baseline Determination
Best practice benchmark baseline to apply for new facilities post 2020
If your facility has experienced exceptional circumstances, such as a natural disaster or criminal activity which has caused increased emissions, you may be eligible for an exemption. If approved, the facility will be exempt from its safeguard obligation for a defined period of time. In assessing your application for exemption, the Regulator will consider whether reasonable steps were taken to mitigate the risk of excess emissions occurring from the exceptional event.
However, exemptions do not apply to circumstances reflecting normal market dynamics which may affect emissions variations, such as price, production inputs and outputs or maintenance. In such circumstances, other options, such as adjusted baseline for incremental increase in production (less than 20 percent), may be available.
My company’s operations in natural resources and reserves have inherently variable emissions, how will this affect my baseline emissions number?
The safeguard mechanism allows baselines to be adjusted for emissions variability associated with extracting natural resources or reserves. Operations in mining and oil and gas sectors can have highly variable emissions intensity, particularly fugitive emissions associated with resource extraction. In some circumstances, emissions may rise while production remains constant, for example as a mine moves from high to low grade extraction over the mine life. For this reason, in the period until 2025, facility operators can apply to vary baselines where:
- The operation of a facility is associated with the extraction of a natural resource or reserve;
- The properties of the resource or reserve have a direct effect on the emissions performance of a facility;
- The facility has a limited ability to control for such emissions;
- The facility has a calculated-emissions baseline or a reported-emissions baseline; and
- Facility emissions have exceeded or are expected to exceed their baseline and the natural resource properties are the primary reason for this.
Baselines are adjusted using the calculated emissions baseline under the Safeguard Rule, where the Regulator may revise the facility baseline on an audited emission forecast provided by the facility operator.
It is worth noting that this approach to varying baselines will not be available after 2025, because new facilities covered by the safeguard mechanism after 1 July 2020 are expected to operate at best practice emissions intensity.
Varied baseline for natural resource operations
Calculated emissions baseline determination
Not available for new facilities post 2020
Baselines can be adjusted if facilities expect to exceed their baseline in the safeguard mechanism’s first year. The baseline will be increased to reflect forecast emissions, using the calculated emissions baseline approach, similarly to the approach for new investments or significant expansion of a facility covered by the safeguard mechanism before 2020.
A sectoral-baseline, equal to 198 million tonnes CO2-e, applies to all grid-connected electricity generators. This baseline is the total scope 1 emissions from grid-connected generators in 2009-10. Individual baselines will also apply if the sectoral baseline is exceeded.
If the sectoral baseline is exceeded in a given year, the Regulator will publish a statement on its website. Individual grid connected generators will not be covered up to and including the year that the Regulator states sectoral baseline emissions have been exceeded.
Individual baselines will be set at each facility’s highest annual covered emissions between 2009-10 and 2013-14. Generators will have access to the same emissions management options as facilities in other sectors, as well as similar baseline adjustments to accommodate economic growth.
The treatment of the electricity sector under the safeguard mechanism will be reviewed in 2017. While some have suggested an emissions intensity baseline should be set for the electricity sector, it is unclear whether this will be considered under the 2017 review.
If you are already reporting your annual emissions under the NGER Act you do not need to register again under the safeguard mechanism.
If you are a responsible emitter with operational control of a safeguard facility, and are not already registered under the NGER Act, you need to register in line with section 15B of the NGER Act.
Companies already submitting reports under sections 19, 22G and 22X of the NGER Act will generally have their reporting requirements covered by the NGER Regulations, and will not have additional reporting requirements (See Safeguard Rule, Part 5). Some responsible emitters who are not controlling corporations under NGERs, such as trusts or non-constitutional corporations, will have new reporting obligations under section 22XB of the NGER Act.
Responsible Emitters should also report a change in principle activity for a facility, because the emissions may need to be attributed to a different industry sector. (See section 7 Safeguard Rule, regulation 4.31 NGER Regs).
It is advisable to review your reporting requirements to ensure ongoing compliance under the safeguard mechanism. As always, it is important that records are kept to monitor compliance, and kept in a way that is easily and quickly accessible for inspection and audit.
If your company is satisfied that the historical baseline determined by NGER data is suitable, you will not be required to submit an application or an audit. However, to receive an alternatively measured baseline, you will need to submit an application and accompanying audit.
The summary table found at the end of this article draws on information from the Safeguard Rule Explanatory Statement to outline the different approaches to measuring baseline numbers, including whether an audit and application for a baseline determination is required.
Can I generate Australian Carbon Credit Units (ACCUs) at my facility if it is covered by the Safeguard Mechanism?
Yes, facilities covered by the safeguard mechanism can still participate in the ERF to generate ACCUs and enter a contract for purchase of ACCUs with the Government. However, to avoid double counting, ACCUs issued for abatement at the facility will be added on to the facility’s net emissions. For example if a facility emits 180,000 tCO2-e and creates 20,000 ACCUs that year, the net emissions number will be 200,000. For ACCUs generated at the Facility to be subtracted from the facility’s net emissions, they need to be returned directly to the Government, either by selling the ACCUs to the Government through the ERF auction and contract process, or by directly relinquished ACCUs to the Government. If the ACCUs generated from the facility are sold on the secondary market, the offsets transfers to a third party, and the emissions remain part of the facility net emissions number.
In some cases it will be beneficial for a company implementing an energy and emissions saving activity to generate ACCUs under the ERF, rather than immediately realising the resulting emissions reductions against their baseline. Generating ACCUs will give an organisation flexibility as ACCUs can be ‘banked’ and used when needed, or monetized to generate revenue for your organization. Importantly, you may be able to generate your own ACCUs at a lower cost than they could be purchased on the secondary market at a later point in time. The table below summarises options for facilities that generate ACCUs under the ERF, including how the approach affects the facility’s net emissions number.
Options for facilities that create ACCUs under the ERF
‘Annual Safeguard Emissions Number’ equals:
Scope 1 actual emissions from the facility less ACCUs generated and sold to Government (note ACCUs must leave ANREU Account to be subtracted from net emissions number)
Avoid penalties and/or cost of purchasing offsets for exceeding the baseline and receive payment for the ACCUs from CER. Provides some flexibility as the seller sets the delivery schedule – annual or spot.
One buyer only (Government), may not receive best price for ACCUs, lose some flexibility as locked into delivery volume and timing defined in ERF contract. Generating ACCUs includes a cost to business (administrative/in-kind/specialist advisory/audits).
Net scope 1 emissions from the facility excluding ACCUs generated and returned to government (net out ACCUs surrendered to Government)
Avoid penalties and/or cost of purchasing offsets for exceeding the baseline.
This option does not result in any payment for the ACCUs.
Generating ACCUs includes a cost to business.
Scope 1 actual emissions from the facility plus ACCUs generated and sold on secondary market (accrue ACCUs generated and ACCUs sold)
Receive revenue for ACCUs sold on secondary market. More buyers, potentially better price. More flexibility on timing and volume assuming liquidity.
Does not reduce operating emissions against baseline
Scope 1 actual emissions from the facility plus tonnes CO2-e represented by ACCUs held in account (accrue ACCUs held)
Increased flexibility. Use at a future date when the price for secondary market ACCUs is high and or annual safeguard emissions number is high and baseline cannot be adjusted.
Generating ACCUs includes a cost to business. No revenue flow from ACCUs.
Scope 1 actual emissions from the facility
No cost to business for generating ACCUs. Immediate improvement of performance against annual safeguard emissions number is realised.
No flexibility to bank offsets for future periods when secondary prices and/ or annual safeguard emissions numbers are high.
A range of methods for generating carbon credits under the ERF are now available for industry, and new methods are under development. A list of finalised methods by sector is available at the Department of Environment website.
Yes, currently most transport facilities reported under NGERs are defined on a state basis. Under the safeguard mechanism, you will have the choice to define your transport facility on a national basis or retain state-based reporting. Whether it makes sense for you to aggregate your facility emissions will depend on your individual circumstances. To ensure the national definition takes effect for your transport facility, when the safeguard mechanism commences on 1 July 2016, you will need to make a nomination prior to scheme commencement.
Yes, similarly to the Carbon Pricing Mechanism, there is a policy to limit coverage of the safeguard mechanism to waste that is deposited at a landfill after 1 July 2016. This policy will be integrated in the National Greenhouse and Energy Reporting (Measurement) Determination 2008 which will ensure methods are available to measure legacy and non-legacy waste separately.
The Safeguard Rule will be reviewed in 2017, and some changes may occur through this process. For example, Environment Minister Greg Hunt has recently stated that the 2017 review will include the establishment of processes to purchase international carbon credits, and that responsible emitters under the safeguard mechanism would have access to them.
The following elements are expected to be reviewed, with a report to be released in late 2017:
- the operation of the safeguard mechanism in concert with the crediting and purchasing elements of the Emission Reduction Fund
- the effectiveness of the baseline setting approach for new investments already underway
- the transition to the best practice framework for new investments
- any conditions and criteria for existing facilities to adjust baselines
- the role of the crediting, purchasing and safeguard mechanism elements of the Emission Reduction Fund in conjunction with the broader suite of emission reduction policies to meet the 2030 target
- An examination of how different sectors, including the electricity sector, are to be treated.
Summary of baseline measurement and requirements
The summary table below draws on information from the Safeguard Rule Explanatory Statement to summarise the different approaches to measuring baseline numbers, including key criteria, and whether an audit and application for a baseline determination is required.
This article provides general information only, and may exclude important information. Stakeholders should seek their own advice on how the rules apply to their individual circumstances. If you would like more information specific to your company’s circumstances, our dedicated and experienced team can assist you.
Our contact details are at:
If you would like further general information, or to review the Safeguard legislation and explanatory statement, you can visit the Australian Government Department of Environment website: https://www.environment.gov.au/climate-change/emissions-reduction-fund/about/safeguard-mechanism.
It's been widely reported over the last couple of days that the Abbott Government has attempted to cease investment in wind and small scale (roof-top) solar projects that are underpinned by the Clean Energy Finance Corporation (CEFC). Less widely reported however is the fact the Investment Mandate issued by the Government is in 'draft' only at this stage, and that the CEFC has a right of reply. Importantly the Government's Mandate, under the Clean Energy Finance Corporation Act 2012, does not allow them to propose requirements that are against the object of the Act, which reads: "The object of this Act is to establish the Clean Energy Finance Corporation to facilitate increased flows of finance into the clean energy sector".
So how can blocking investment into two of the biggest sources of clean energy 'facilitate increased flows of finance into the clean energy sector'??? Surely this is against the intent/object of the Act? The other to be asked is, 'why do you try and reduce investment in clean energy projects that are delivering a positive return on investment'??? I'm not sure there's a rational answer for that one...
It appears the CEFC are not going to take this one lying down, and have issued a statement, click here to view, proclaiming they will be responding to the draft Mandate in due course, as well as clearly outlining their stated objective under the Act. Stay tuned, this one could be going to the Senate yet!
The Department of Environment has just released a series of fact sheets for certain ERF methods. If you run an industrial facility and have some energy and carbon savings projects in mind, have a look at the following fact sheet as a first port of call. As of June 30 there are already two ERF projects registered under the recently released Industrial Fuel Energy Efficiency Method, and we're seeing more and more interest and opportunities on the ground as businesses look to monetise carbon and energy savings under the ERF.
The Climate Change Authority (CCA) today released its Final Report on Australia’s Future Emissions Reduction Targets. The report issued by A/G CEO Shayleen Thompson and underpinned by the CCA Chair Bernie Fraser's statement includes unambiguous recommendations for:
- a 2025 target of 30 per cent below 2000 levels
- further reductions by 2030 of 40 to 60 per cent below 2000 levels
The Government is required to decide Australia’s targets soon leading up to COP15 in Paris this December, and has been under plenty of pressure from other parties including China and the USA to provide credible action. The depth of the targets we propose will have immediate domestic policy impacts also, namely in the form of the Safeguard Mechanism which is designed to protect against emissions growth in the absence of a carbon price and in support of the Emissions Reduction Fund (ERF). It is envisaged that significant targets post 2020 must be underpinned by a strong and decreasing baseline under the Safeguard Mechanism under the current Direct Action Policy. Stay tuned!
Ndevr Environmental is proud to announce that we are Silver Sponsors of the Second Australian Emission Reduction Summit.
Key note speakers include:
- Christiana Figueres, Executive Secretary, UNFCCC;
- Hon Nick Xenophon MP, Independent Senator
- Hon Greg Hunt MP, Minister for the Environment; and,
- Hon Mark Butler MP, Shadow Minister for the Environment, Climate Change and Water
Amongst many others.
The Ndevr team will be presenting on Day 2 at the ‘Emissions Reduction Marketplace – Workshop at 12.15pm.
We will also be located at Stand 22 throughout. If you are attending come by to say hello to the Ndevr team!
Political Editor of The Guardian Australia, Lenore Taylor, reported on Friday 1 May that the Minister for the Environment, the Hon Greg Hunt MP, is on record stating that Direct Action will require electricity generators and heavy industry to gradually reduce greenhouse gas emissions after 2020.
The minister is quoted as offering the following definition of Direct Action: “It is a two-part system. An emissions reduction fund (ERF)… [and] secondly, we have the safeguards mechanism which allows us to work with individual firms on a budget which can be adjusted and progressively tightened throughout the 2020s through to 2030 and 2040 and 2050.”
This is the first time (to our knowledge) that Minister Hunt has made any mention of ‘decreasing’ emissions via the Safeguard Mechanism. Until now it has always been described as ‘safeguarding emissions that are purchased under the ERF’, not as a tool to actually drive down economy wide business as usual (BAU) emissions. The practical implications of this is that in order to actually drive down BAU emissions post 2020, the Safeguard Mechanism will need to employ decreasing emissions baselines over time at a facility level, rather than the ‘flat’ baseline proposed between now and 2020.
, industry has traditionally been unperturbed. The Australian Industry Group has stated that safeguards “[meet] the government’s objective that the mechanism will not be a driver of abatement towards the 2020 target” and the Business Council Of Australia is on record stating “[the] safeguard mechanism should not in effect impose an additional cost on new facilities that acts as a de facto carbon cost”.
Finally, Taylor reports that “In internal government discussions the prime minister, Tony Abbott, and his office have been very concerned the safeguards mechanism could never turn into a de facto carbon price or a burden on emitting industries.”
Read the full article here.