On 1 July 2014 the Clean Energy Regulator will allow project proponents to register a ‘Notice of Intention’ to participate in the $2.55B ERF. Despite the lack of legislation at this stage, and the events of the past week, projects that will achieve carbon reductions and meet the eligibility criteria can initiate the process to achieve ERF funding.
This process is particularly important for ‘new’ projects that are not transitioning from the Carbon Farming Initiative (CFI), which will be expanded under the ERF. Carbon saving projects and methodologies are already well underway for new activities such as:
- Industrial Energy Efficiency (i.e. fuel switching, boiler upgrades etc.)
- Transport efficiency improvements
- Commercial building upgrades
What’s the Rush?
The additionality tests for the ERF (which governs if a project is eligible or not) have softened significantly via proposed amendments to the CFI, opening the door for many new activities. One of the key eligibility criteria is that the project cannot have already ‘begun’ if it is to be considered eligible. If a project has been identified to the Regulator (via Notice of Intention) before it begins and meets the other criteria, it will be eligible for support under the ERF.
So, if you have any carbon saving projects under consideration, they should be included in the Notice of Intention as soon as possible. This will keep the door open for ERF funding if and when the legislation passes. If the project begins before the Regulator is notified, it will immediately be ruled out!
The ‘notice of intention’ is not a binding agreement, and we have been told the form will be (likely) available on 1 July or very soon thereafter. It will be a straightforward process with only preliminary company and project details required. If you are interested in pursuing ERF funding, contact us directly and we will forward the link to the form as soon as it’s available. Further if would like some more information on the types of projects likely to be eligible and feasible we're happy to discuss.
Taken from CARBON FARMING INITIATIVE AMENDMENT BILL 2014 EXPLANATORY MEMORANDUM:
“The Bill expands the current land-based scope of the CFI Act to enable any type of emissions reduction project to be an eligible offsets project. This is to enable the Emissions Reduction Fund to unlock emissions reduction opportunities across the economy.
A key requirement under both the Emissions Reduction Fund and the Carbon Farming Initiative is that credits are issued for emissions reductions that are ‘additional’ – that is, they are not likely to have occurred under normal business conditions, in the absence of the Emissions Reduction Fund.”
As mentioned, one of the key requirements to prove additionality is that the project has not begun, this is called the ‘newness’ test. An extract from Section 388B(2) describes the concept:
In determining whether the project has begun to be implemented, disregard any of the following activities that have been, or are being, undertaken in relation to the project:
- planning or designing the project;
- obtaining regulatory approvals for the project;
- obtaining consents relating to the project;
- obtaining advice relating to the project;
- conducting negotiations relating to the project;
- sampling to establish a baseline for the project;
- an activity specified in the legislative rules;
- an activity that is ancillary or incidental to any of the above activities.
The following are examples of when a project has begun to be implemented:
- making a final investment decision in relation to the project;
- acquiring or leasing a tangible asset (other than land) that is for use wholly or mainly for the purposes of the project (disregard an asset that is a minor asset);
- commencing construction work for the purposes of the project;
- in the case of a sequestration offsets project—preparing soil for seeding or planting that is for the purposes of the project;
- in the case of a sequestration offsets project—seeding, planting or fertilising plants that are for the purposes of the project;
- in the case of a sequestration offsets project—installing an irrigation or drainage system for the purposes of the project.
‘Final investment decision’ has the meaning generally accepted within the corporate finance community.
As you can see the criteria is quite broad, with some ambiguity, however the basic principle is that the Government is genuinely trying to remove as many barriers to entry as possible and encourage participation.
Projects will also need to be undertaken in accordance with a methodology to obtain registration from the Regulator. Once registered, a project will generate Australian Carbon Credit Units (ACCUs) and it is these units that the Regulator will contract to buy at a price the successful bidder (proponent) nominates, generally via a reverse auction process. The contract period will likely be 5 years or less depending on the nature of the project.
The exposure draft of the contract is currently open for consultation and can be found here.
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.
Highlights of November 2013 Newsletter
The latest Energy Efficiency Opportunities (EEO) newsletter can now be accessed from the EEO website. Some key information includes the achievements that Linfox, the largest trucking and logistics corporation in the Asia Pacific, has obtained by participating in the EEO Program. The corporation’s commitment to cut 50 of its 2006/07 emissions by 2015 is certainly admirable.
EEO participants are also encouraged to visit the findings of ClimateWorks Australia’s research project, Tracking Progress Towards a Low Carbon Economy, to gain a snapshot of most promising opportunities across different sectors and industries.
The Department of Industry is also seeking feedback with regards to the new reporting template (Excel Spreadsheet) and requesting participants to accompany a draft version of the spreadsheet along with other documentation before final submission. See our earlier post for further information.
The new online portal, EEO Net, is scheduled to be fully operational by the end of November. Participants will be notified of the date and activation instructions will be emailed to the EEO contact person.
The 2013 National Conference organised by the Energy Efficiency Council will be held on the 3rd and 4th of December in Melbourne. For further information and special offers for EEO participants, please visit the EEC website here.
The Commonwealth Government is also seeking input from the EEO participants with regards to design of the Emissions Reduction Fund (ERF) for inclusion of potential options of low-cost abatement.
The Clean Energy Regulator is planning to hold a series of workshops in the first half of 2014 on the sequestration group of methodologies. For more information and registration, please visit the Regulator’s CFI events webpage.
The Regulator is also urging project proponents who are currently operating under the following schemes to request for transition into the Carbon Farming Initiative if they believe their project may be eligible:
- Commonwealth Government’s Greenhouse Friendly TM initiative;
- NSW Government’s Greenhouse Gas Reduction Scheme;
- ACT Government’s Greenhouse Gas Abatement Scheme;
- Verified Carbon Standard administered by the VCS Association
The Regulator published emissions numbers reported by liable entities last week. Liable entities are required to purchase and surrender enough eligible emissions units to match the emissions number by 3 February 2014.
In addition, according to the Regulator, 10% of the reporters failed to fulfill their reporting obligation by 31st of October versus the 12% non-compliance rate in the last reporting year.