Safeguard update: Do you need to tighten your baseline?
The safeguard mechanism kicks-off in one month, and about 85 percent of designated large facilities (i.e. facilities covered by the safeguard mechanism) have received their draft reported emission baseline numbers from the Clean Energy Regulator.
Now, it’s time to consider if activity changes at your facility mean that your proposed baseline number should be decreased. If you fail to notify the Regulator of changes to facility activities, then you may be struck with a retrospective baseline reduction down the track. This is important because most facility operators have focused on whether they might exceed their reported baseline, but may have overlooked whether the reported baseline number should in fact be reduced.
This is relevant to any designated large facility that has changed its activities since its highest NGER-reported scope 1 (direct) emissions.
A spokesperson for the Regulator has confirmed that baselines should be reduced where:
- activities previously reported as occurring at the facility no longer occur, and
- activities of a similar kind are unlikely to occur for the next three years.
This includes where activities previously reported for one facility are now reported against another facility.
Baselines will be reduced where changes are considered “significant”, meaning changes to emissions that are greater than five percent of the reported baseline number that would otherwise apply.
When providing the Regulator with feedback on your reported baseline, you may also want to provide additional information that you think is relevant to determining your baseline accurately.
As you may already be aware, if, after considering your reported baseline number, you are concerned you will exceed it in the next few years, there are several flexible compliance mechanisms you can utilise. These include calculated emissions baselines and multi-year monitoring.
For further enquiries about the safeguard mechanism, contact Ndevr Environmental Director Matt Drum or Consultant Amy Quinton:
Considering adjusting your emissions baseline under the safeguard mechanism to cover increased emissions and avoid unnecessary offset costs? This article highlights key dates for applications and audit reports under the safeguard mechanism for facilities applying the calculated baseline approach to determine their baseline emissions number. For detailed information about the safeguard mechanism, including who is covered and how baseline emissions numbers are measured, see our recent blog: Safeguard Mechanism - What you need to know.
The safeguard mechanism begins 1 July 2016, and provides several approaches for measuring the emissions baseline number for large facilities (with emissions greater than 100,000 tonnes carbon dioxide equivalent), against which the facility's greenhouse gas emissions performance will be monitored.
Generally, if your facility has reported NGER scope 1 emissions greater than 100,000 tonnes carbon dioxide equivalent, the Clean Energy Regulator will issue a reported baseline emissions determination, based on historic NGER data, for that facility. If you are satisfied that this reported baseline determination is appropriate, you do not need to submit an application or audit report under the safeguard mechanism. However, there are a number of circumstances where historic emissions will be inappropriate, and you may prefer to apply a calculated emissions baseline approach to measure your facility’s baseline. Circumstances in which which calculated baselines are available include if your facility (i) is new, (ii) has undergone a significant expansion, (iii) has inherent emissions variability (applicable to natural resource sector), or (iv) is likely to exceed the reported (historic) baseline number in 2016/17 financial year (for further details, see Safeguard Mechanism - What you need to know).
If you require a calculated emissions baseline determination, you will need to submit an application and accompanying audit report to the Clean Energy Regulator.
Application and audit due dates for Calculated Emissions Baseline Determinations
The time at which you should submit your application and audit report for a calculated-emissions baseline determination depends on your circumstances. For calculated baselines that are to commence in the 2016-17 financial year, the ultimate deadline for applications, with accompanying audit reports, isn’t until 31 October 2017. (See Safeguard Rule subsection 22(3)). However, you may need to submit your application earlier, because the years that you can choose from to establish your baseline are limited by the timing of your application.
The general rule under the calculated baseline approach is that the year chosen to establish the baseline is in the future from when the application is made. This means that the quantity of emissions intensity must be estimated, rather than based on historic data. The rule aims to reduce the risk that emissions and emissions intensity are deliberately increased in a year in order to artificially increase the baseline.
The table below highlights which years can be considered in establishing the facility baseline emissions number for a determination beginning 1 July 2016, depending on the application timing.
Date Application Submitted
Application (and accompanying audit) received by the Regulator before 31 July 2016
Financial year with the highest expected production of the primary production variable over the three year period to be covered by the determination (2016/17-2018/19) (or five years if it is a large new facility). [subparagraph 27(1)(c)(i)]
Application (and accompanying audit) received by the Regulator between 31 July 3016 - 30 July 2017
Financial year with the highest expected production of the primary production variable of the last two years to be covered by the determination (2017/18 – 2018/19) (or last four years if it is a large new facility). [subparagraph 27(1)(c)(ii)]
Application (and accompanying audit) received after 31 July 2017 and by deadline 31 October 2017.
The last financial year of the three year period to be covered by the determination (2018/19) (or last three years if it is a large new facility). [subparagraph 27(1)(c)(iii)]
Application timing for Initial Baseline Determinations
While timing of applications is a relevant consideration for all calculated baseline determinations, it will be particularly relevant for initial baseline determinations, which must commence in the first year of the safeguard mechanism, i.e. 1 July 2016. The initial baseline criteria allows for baselines to 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.
Applying the rules regarding application timing set out above, if your company expects to exceed its historic baseline in 2016/17, and otherwise meets the initial baseline emissions criteria, you may consider applying for an initial baseline determination, which will normally apply for a three year period from 1 July 2016 – 30 June 2019.
The following requirements must be met for an initial calculated baseline (noting that Grid connected electricity generators are not eligible to utilise the initial calculated baseline criteria):
- The facility must either have a reported-emissions baseline determination or have submitted emissions reports under the NGER Act for the five years starting on 1 July 2009.
- The facility has exceeded or expects to exceed its baseline emissions number in 2016‑17. Note that facilities must not deliberately increase or intend to increase their covered emissions for the purpose of meeting this criterion, e.g. by changing how emissions are reported or calculated or causing scope 1 emissions.
(For further details on these criterion, see the Safeguard Rule, section 26.)
When making your application, you will need to choose the appropriate year in the period covered by the calculated emissions baseline determination from which to set you baseline. Normally, this is the year with the highest (forecast) production level. However, the years from which you can chose are limited by the timing of your application, as noted above. So, If you want forecast emissions for 2016-17 to be included in the financial years from which your baseline can be established, you need to make your application before 31 July 2016 (see subparagraph 27(1)(c)(i) of the Safeguard Rule).
Similarly, if your intention is to use forecast production variable quantities for 2017-18 to calculate the baseline, you will need to submit the application with accompanying audit report before 31 July 2017 (see subparagraph 27(1)(c)(ii) of the Rule). It is important to be aware that baselines may be adjusted at the end of the 3 year calculated baseline determination where actual emissions are significantly different from forecast emissions.
This article provides general information only and is not intended to replace official Government information. Stakeholders should seek their own advice on how the rules, including key dates, 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.
- The Clean Energy Regulator website: http://www.cleanenergyregulator.gov.au/ERF/About-the-Emissions-Reduction-Fund/the-safeguard-mechanism.
Clean Energy Regulator Chair, Chloe Munro, has announced that the third ERF Auction will be held on 27-28 April 2016. The announcement comes one month after the second ERF Auction, where 45.5 million tonnes of abatement was contracted at an average price of $12.25. Over the first two auctions, the Government has contracted to purchase nearly 93 million tonnes at a combined average price of $13.10.
With the third auction date now locked in, we expect existing and potential participants will be busy finalising project plans and getting organised to register and qualify for the auction in the new year. For existing projects, getting ready for auction three may include engaging a registered greenhouse gas and energy auditor.
The April 2016 auction will follow the same format as auction two, whereby the Clean Energy Regulator will purchase 50 to 100 percent of the abatement on offer below the benchmark price. Auction guidelines detailing the process will be released this month.
The Regulator has also confirmed its intention to hold the fourth auction in the final quarter of the 2016 calendar year.
In our experience project registration and auction qualification components are complex and participants should ensure they allow sufficient time to determine their abatement schedule with confidence prior to auction.
For new projects, note in your diary the cut-off date for project registrations is midnight AEDT Wednesday 9 March 2016.
Feel free to contact us directly if you would like to hear first hand our experience as successful advisers and project developers in the first two auctions to date.
The second Emissions Reduction Fund (ERF) auction is approaching - if you're preparing an ERF project, be sure to note the following dates in your diaries:
- The auction guidelines will be published this Friday 21 August 2015.
- Applications for new projects that wish to enter the auction need to be submitted in full by 18 September 2015 (note that there can be some back and forth with the Regulator, so try to get your application in as early as possible - incomplete submissions will not qualify).
- The second ERF auction for carbon abatement contracts will be on Wednesday 4 November and Thursday 5 November 2015.
The following table provides an overview of the three key steps for participating in the ERF auction. We are currently going through this process with a number of clients, so feel free to give us a call if you have any queries.
By submitting the auction qualification form (form), you will be making an offer to enter into a carbon abatement contract covering the project based on the Regulator's code of common terms and the commercial terms provided in the form.
The commercial terms will include:
must be received at least 20 business days before the auction date
Submit the auction registration form.
The delivery terms will comprise:
auction registration form must be received at least 5 business days before the date of the auction
To participate in the auction you must submit bids via Austender, the online bidding platform.
Within 5 business days of the closing time of the auction you will be notified of the auction results and, if you were successful, the contract will be established.
For more information see the Regulator Website http://www.cleanenergyregulator.gov.au/ERF/Want-to-participate-in-the-Emissions-Reduction-Fund/Step-2-Contracts-and-auctions/Auctions or contact us.
Also, keep an eye out for the auction guidelines to be published this Friday!