The latest version of the Carbon Pricing Mechanism’s ‘Liable Entities Public Information Database’ (LEPID) dated 17 January 2014, shows that estimation errors have cost six liable entities over $872,000 in additional carbon costs.
Under the legislation organisations could choose to apply 75% of the previous year’s emissions from liable facilities, or use their own methodology to estimate. Where their methodologies have proven incorrect, an ‘estimation error unit shortfall charge’ must, and subsequently has, been applied by the Clean Energy Regulator (CER). The shortfall charge is 30% on top of every carbon unit due, bringing the cost to $29.90 per tonne of carbon from the $23 normally applicable for the 2012/13 year.
Another eight liable entities have had their shortfall charge waived by the CER. These entities were involved in joint ventures, where a legislative technicality meant that joint venture participants would not reasonably use the ‘safe’ method (i.e. using 75 per cent of the previous year’s data). This practically ‘forced’ them to estimate (and run the risk of an estimation error). They have been listed on the LEPID as being subject to an estimation error shortfall charge, however the 30% penalty has been waived.
Three other organisations have been hit with a ‘provisional unit shortfall charge’ for not acquitting the appropriate number of units, and one liable entity has been handed both a provisional and estimation error shortfall charge.
Errors a Small Fraction of Total Units Surrendered
The errors in carbon units estimated and subject to the shortfall penalty equate to only 0.06% of the total eligible emissions units surrendered (includes Australian Carbon Credit Units -from the Carbon Farming Initiative- and the free carbon units under the Jobs and Competitiveness program). The 0.06% error margin excludes the joint venture participants who had their estimation error waived.
Of the 348 liable entities currently listed on the LEPID, only 2.6% have been handed an estimation error, or provisional unit shortfall charge.
The CER can waive an Estimation Error and a Late Payment Penalty, but not a Provisional Unit Shortfall Charge.
It is important for liable entities to understand what the CER can and can’t do with regards to estimation error and provisional shortfall charges. As discussed earlier, estimation error shortfalls may be waived by the CER, however provisional unit shortfall charges cannot be waived as they are legislated. Liable entities may appeal to the Department of Finance to have any debt waived at the discretion of the Minister. Even if successful they will remain on the LEPID as having a provisional unit shortfall. Our information is that this only occurs in rare circumstances and the likelihood of success would need to be considered prior to making such an application.
Liable entities that are hit with a provisional unit shortfall charge may also be subject to a late payment penalty if payment was not made by 24 June 2013. This becomes particularly important as liable entities may not have recognised a provisional shortfall until the final emissions numbers were submitted in October 2013 or later. This penalty can be applied retrospectively and equates to 20% p.a. of the value of the shortfall charge, applied on a daily basis. Our information from the CER is that late payment penalties from a provisional unit shortfall will be dealt with on a case-by-case basis, although the CER does have the authority to waive these.
Click here to view the latest version of the LEPID.
In some circumstances emissions from petroleum based oils and greases (PBOGs) may be considered ‘covered emissions’ under the Carbon Pricing Mechanism (CPM) attracting the $23 per tonne of carbon dioxide equivalents (tCO2-e) liability.
An example of where PBOGs may be covered emissions is at a ‘directly liable large gas consuming facility’ (covered emissions greater than 25,000 tCO2-e) that also has a vehicle fleet carrying out ancillary activities and consuming PBOGs in the process.
It is assumed that in many circumstances oils and greases used for lubrication purposes (particularly in internal combustion engines) will partially oxidise, or combust, and release CO2-e into the atmosphere. Subdivision 2.40A of the NGER (Measurement) Determination 2008 contains the methodologies for estimating emissions from PBOGs, and there are a couple ways to approach the task. The default method assumes ~40 per cent of the PBOGs will be combusted.
There may be instances where PBOGs are being utilised and do not produce emissions, for example hydraulics etc. Our advice (based on discussions with the Clean Energy Regulator – CER) is if you believe no oxidisation occurs in some or all applications, you should have some supporting evidence or documentation.
We thought it would be pertinent to advise our clients and friends of this issue well before the section 22A reports for covered emissions are due (31 October), as PBOGs are typically small emission sources and usage data can be difficult to obtain.
Remember, this direct ($23/ tCO2-e) liability only applies at facilities captured under the CPM. NGER reporters have always been required to report PBOGs in similar circumstances as described above under the normal section 19 reports, also due 31 October.
We understand the CER is likely to release some explanatory material shortly, and if/when this is published we will notify our clients and friends and provide a link. In the meantime feel free to contact us directly if you would like any further information or clarification.
Disclaimer: this article should be considered general information only and not formal legal advice.
Another NGERs Season Over! Highlights, Lowlights and What's Next...
With the 31 October NGERs deadline been and gone we thought it would be timely to congratulate all our clients and friends the successful submission of the 2012/13 reports!
From our perspective some of the highlights and ‘not-so-high – lights’ were:
- The new Emissions and Energy Reporting System (EERS)
- We found the system quite intuitive and for the most part functionality from its predecessor OSCAR, has improved
- Expanded mandatory audit requirements for large liable emitters
- The mandatory audit regime has expanded significantly under the Clean Energy Act
- These audits are an important governance control and underpin the veracity of the reported liable emissions
- Audits also provide for liable entities to continually improve their response to this complex program under both NGERs and the Clean Energy Act
- Clean Energy Regulator (CER) Support
- We found the CER was well resourced and officers had a strong working knowledge of the legislation
- In the final weeks the CER was calling reporters yet to lodge to ensure they were on track to submit by 31 October. A great approach to engage the reporting community and encourage compliance
- ‘CER Best and Fairest’ – we’d like to nominate Thomas Hodgson as the 2013 ‘CER Best and Fairest’. Thomas provided some invaluable advice to us and our clients on some complex issues efficiently and professionally during the final stages of the reporting period.
- The NGER report submission process
- We found the actual report submission process with regard to CEO equivalent sign-off and the ability to nominate others to submit on the CEO’s behalf was an improvement on past requirements
- Also the flexibility and functionality with the EERS Client Portal was great
- The Carbon Farming Initiative (CFI)
- We have been quite busy on the CFI front, and the program is providing some fantastic Kyoto compliant offset opportunities – currently over 2.7M ACCU’s have been generated
- Contained quite a few bugs and inexplicable error messages. It’s no fun watching a CEO get error after error as they try to submit a final report!
- EERS was not ready until quite late in the reporting period, after an initial proposed launch date of April 2013 – adding pressure on reporters and advisors, especially those with large and complex inventories
- Training could/should have been advertised and implemented further and wider
- The imminent repeal of the Carbon Pricing Mechanism
- In our opinion the current mechanism represents our best opportunity to meet 5% carbon reductions by 2020 at the lowest cost for our clients – particularly under an internationally linked ETS from 2014/15
- The Direct Action Plan (DAP) is not looking quite so promising, and a lot of great work (from policy developers, Regulators and liable entities) will likely be lost post 2013/14.
- The loss of one of our best and brightest public servants
- Blair Comley former head of the former Department of Climate Change and Energy Efficiency, has been lost to the Australian Public Service (APS) under the change of government
- Having worked under Blair as a policy advisor and regulator, Matt Drum found him to be one of the most intelligent and hard-working professionals you could ever hope to meet. His knowledge of the carbon and energy policy arena will be sorely missed.
DAP consultation is now in full swing. The terms of reference for the ‘Emissions Reduction Fund (ERF)’ are out – with submissions due by 18 November. The Green Paper is due in December 2013 with the White Paper following in early 2014.
We are heavily involved in the consultation process with the Department of Environment Taskforce (charged with the policy design) and the Carbon Market Institute. Some of the critical issues we want to see some clarity on include:
- How will the proposed ‘baseline, credit and penalty’ approach work?
- Who will be liable? i.e.
- Will it be 100% voluntary opt-in?
- Will all NGERs reporters be liable (approximately 750)?
- Will only those liable under the carbon price (approximately 370) of NGER reporters be liable
- How will baselines be set?
- At the corporate, facility, sectoral or activity level?
- How will penalties be applied where baselines are exceeded?
- Will international offset units be available to meet penalties?
- Will penalties be financial in nature?
- How will the audit and verification regime be implemented?
- Who will be liable? i.e.
- How will the CFI operate and how will demand for ACCUs be maintained?
- Will energy efficiency savings be incorporated and if so how will these be aligned to Kyoto requirements and how will ‘additionality’ be applied?
- How will the ERF and reverse auction process operate?
- Who will be eligible?
- How will payments be made? Type and timing?
If you have any other items of interest, or key questions, please let us know and we can feed these into the consultation process and report back.
Materiality for 2014 NGERs
Materiality thresholds for 2013/14 reporting year have been included. Reporters need to apply these to their data capture and management strategies going forward in order to reduce the reporting burden. Please see below an overview of the amendments taken from the CER website:
Reporting of immaterial amounts
The following amendments have been incorporated into the Measurement Determination and they apply from 1 July 2013.
Reporting fuel combustion and the associated energy consumption related to a separate instance of a source are optional if the amount combusted is less than the reporting thresholds set out in Table 1.
‘Separate instance of a source’ is defined in section 1.9A of the Measurement Determination as:
“If 2 or more different activities of a facility have the same source of emission, each activity is taken to be a separate instance of the source if the activity is performed by a class of equipment different from that used by another activity.”
The combustion of liquefied petroleum gas in the engines of distribution vehicles of the facility operator and the combustion of liquid petroleum fuel in lawn mowers at the facility, although the activities have the same source of emissions, are taken to be a separate instance of the source as the activities are different and the class of equipment used to the perform the activities are different.
Reporting of electricity consumption at a facility is optional if the amount consumed is less than 20,000 kilowatt hours. The amount of 20,000 kilowatt hours was chosen because it is more than the average amount of electricity consumed by a 6 person household in Australia.
|Fuel type||Threshold per instance of a source|
|Petroleum-based oils and greases||5,000 L|
|Other liquid fuels||1,000 L|
|Gaseous fuels||1,000 m3|
|Solid Fuels||1 tonne|
Australian Institute of Environmental Accountants (AIEA) 2013 Annual Conference – Registrations Closing Soon!
The AIEA conference will be held in Fremantle WA on 28 and 29 of November 2013. The Conference is a great event for those involved ‘on the ground’ in the carbon, energy, pollution and water reporting and management fields. Please click here for further information.