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CLEAN ENERGY AMENDMENT REGULATION 2012 (NO. 1) (SLI NO 12 OF 2012)

EXPLANATORY STATEMENT

Select Legislative Instrument 2012 No. 12

Issued by the Authority of the Minister for Climate Change and Energy Efficiency

Clean Energy Act 2011

Clean Energy Amendment Regulation 2012 (No. 1)

Section 312 of the Clean Energy Act 2011 (the Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by the Act, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Act, together with the other Acts of the Clean Energy Legislative Package, establishes the carbon pricing mechanism as part of the Government's climate change plan, as set out in the document Securing a Clean Energy Future: the Australian Government's climate change plan.

One of the objects of the Act is to put a price on greenhouse gas emissions in a way that supports jobs and competitiveness in the economy. Part 7 of the Act provides for the establishment of the Jobs and Competitiveness Program (the Program) to support jobs and protect the competitiveness of EITE industries from risks that those industries will be located in, or relocated to, foreign countries as a result of different climate change policies applying in Australia compared to foreign countries. The Program also provides support for industry, local communities and workers to have a smooth transition to a clean energy future.

Section 145 of the Act provides that the Regulations may formulate the details of the Jobs and Competitiveness Program for the annual issue of free carbon units in relation to emissions-intensive, trade-exposed (EITE) activities as defined by the Program. The Act requires the Minister to take all reasonable steps to ensure that these Regulations are made before 1 March 2012.

The Clean Energy Amendment Regulation 2012 (No. 1) amends the Clean Energy Regulations 2011 to establish the framework and implement the details of the Jobs and Competitiveness Program. A summary of the key aspects of the Program that are implemented by the Regulation is provided at Attachment A.

A Human Rights Statement in respect of the Regulation is included at Attachment B.

Details of the Regulation are set out in Attachment C.

The Clean Energy Act 2011 does not specify conditions that need to be satisfied before the power to make the Regulation may be exercised.

The Regulation is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulation commences immediately after the commencements of sections 3 to 303 of the Clean Energy Act 2011.

Consultation

The Department of Climate Change and Energy Efficiency has undertaken an extensive consultation process to establish the eligibility of EITE activities and develop Regulations to implement the Program.

The policy framework for determining the eligibility of EITE activities for assistance under the Program was originally developed in 2009 and has been used to establish the eligibility of activities with respect to assistance provided under the Renewable Energy Target (RET) scheme - Renewable Energy (Electricity) Act 2000. The process for assessing activities and defining the technical aspects of the activities, including setting assistance rates and allocative baselines, is outlined in the paper titled Establishing the eligibility of activities under the Jobs and Competitiveness Program. The paper has been updated over time and should be read in conjunction with this statement and the regulations.

The formal process for defining and determining the eligibility of an EITE activity involves a stakeholder workshop to formulate an appropriate activity definitions and boundary, and approval of the activity definition by the Minister for Climate Change and Energy Efficiency for the purposes of data collection. Audited data based on the approved definition is then submitted to the Government. If determined to be eligible, stakeholders in the relevant industry are consulted in regard to the wording of the definitions to be included in the Regulations to ensure that the structure of the definitions generally reflects the conduct of the activities.

The Government has undertaken extensive consultation on the detail of the Program through the release of exposure draft regulations to implement EITE assistance under the previous Carbon Pollution Reduction Scheme. More recently, consultation was undertaken during September and October 2011 on exposure draft regulations to implement the Jobs and Competitiveness Program. Over 20 submissions were received in response to that consultation and the Department of Climate Change and Energy Efficiency also held a consultation session and several meetings and teleconferences with industry stakeholders to discuss the detail of the Regulations.

 

Authority: Section 312 of the Clean Energy Act 2011


Attachment A

Summary and Policy Guidance on the Clean Energy Amendment Regulation 2012 (No. 1)

The Regulation amends the Clean Energy Regulations 2011 to establish the framework and implement the details of the Jobs and Competitiveness Program. A summary of the key aspects of the Program that will be implemented by the Regulation, and the respective parts of Schedule 1 of the Regulations, is outlined below:

-              Part 3 provides the details and specifications of each eligible EITE activity, including the rate of assistance that applies to each activity and the relevant product produced in undertaking the activity which forms the basis of the issue of free carbon units;

-              Part 4 outlines the baselines to be used in determining the amount of assistance for each applicant in relation to the emissions, electricity use and natural gas used as a feedstock for each EITE activity;

-              Part 5 establishes who is an eligible person able to apply for free carbon units in respect of undertaking an EITE activity;

-              Part 6 outlines the key requirements to be included in an application for free carbon units in respect of an EITE activity, including the information that is to be accompanied by an independent audit report;

-              Part 7 provides the application timeframes for EITE assistance and the details to be outlined in an application, including in circumstances where an entity is a new entrant, or where a facility does not have a direct carbon price liability (sub-threshold facility) or where a facility is undergoing a significant expansion of its production capacity;

-              Part 8 outlines the role of the Regulator in considering an application, including the ability to ask for further information and the timeframes within which a decision on an application must be made;

-              Part 9 contains the specific method for calculating assistance, based on the applicant's production and the baselines and assistance rate for the EITE activity, including adjustments to be made where the facility is sub-threshold or where the maximum allocation policy applies to a new facility, and arrangements for large electricity users;

-              Part 10 outlines the specific vintage of the carbon units that are to be issued in the fixed and flexible price periods;

-              Parts 11 and 12 outline record keeping and reporting requirements of applicants; and

-              Parts 13 and 14 deal with events such as the requirement for applicants to relinquish free carbon units back to the Regulator where the facility closes during a year and other events, and outlines the ability of the Regulator to issue guidance where applicable.


 

Attachment B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Clean Energy Amendment Regulation 2012 (No. 1)

 

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the Clean Energy Amendment Regulation 2012 (No. 1)

The Regulation is designed to establish the Jobs and Competitiveness Program (the Program) for the annual delivery of free carbon units in relation to emissions-intensive, trade-exposed (EITE) activities as defined by the Program. The Program is a key component of the carbon pricing mechanism targeted at supporting industries that produce a lot of carbon pollution but are constrained in their capacity to pass through costs in global markets.

 

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

 

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

 

 

Greg Combet

Minister for Climate Change and Energy Efficiency

 

 


 

Attachment C

Details of the Clean Energy Amendment Regulation 2012 (No. 1)

PART 1 - PRELIMINARY

Regulation 1 - Name of Regulation

Regulation 1 provides that the title of the Regulation is the Clean Energy Amendment Regulation 2012 (No. 1).

Regulation 2 - Commencement

Regulation 2 provides for the Regulation to commence on the date that Sections 3 to 303 of the Clean Energy Act 2011 commence, which has been proclaimed as 2 April 2012, after they have been registered on the Federal Register of Legislative Instruments.

Regulation 3 - Amendment of Clean Energy Regulations 2011

Regulation 3 provides for the Clean Energy Regulations 2011 (the Principal Regulations) to be amended by the inclusion of a new Schedule 1.

SCHEDULE 1 - Amendments

Item [1] - Regulation 1.3

This item inserts a note to Regulation 1.3 of the Clean Energy Regulations 2011 to refer to definitions as prescribed in the Clean Energy Act 2011 and outline that those definitions also apply for the purpose of the Clean Energy Regulations 2011. In particular, the regulation inserts a note to refer applicants under the Jobs and Competitiveness Program to the following defined terms in the Act:

a.    benchmark average auction charge

b.    carbon unit

c.    controlling corporation

d.   covered emission

e.    designated joint venture

f.     eligible financial year

g.    executive officer

h.    facility

i.      free carbon unit

j.      Jobs and Competitiveness Program

k.    liability transfer certificate

l.      non-group entity

m.  operational control.

Item [2] - Part 4 Carbon units, after Part 3

This item inserts Part 4 Division 5 in the Clean Energy Regulations 2011 that specifies the factor for the formula in subsection 116(2) of the Clean Energy Act 2011 for the purpose of determining the rate applying to the buy-back of free carbon units issued during the fixed price period.

Item [3] - Part 7 Jobs and Competitiveness Program, before Part 8

Part 7 - Jobs and Competitiveness Program

Division 2 - Formulation of the Jobs and Competitiveness Program

Regulation 7.1 - Jobs and Competitiveness Program

Regulation 7.1 outlines that Schedule 1 of the Clean Energy Regulations 2011 formulates the Jobs and Competitiveness Program in accordance with subsection 145(1) of the Act.

Item [4] - Part 21 Review of decisions, after Part 8

Part 21 - Review of decisions

Regulation 21.1 - Reviewable Decisions - Jobs and Competitiveness Program

Regulation 21.1 outlines the decisions of the Regulator under the Jobs and Competitiveness Program that are reviewable in accordance with section 281 of the Act.

 

 

 

 


SCHEDULE 1 - Jobs and Competitiveness Program

PART 1 - PRELIMINARY

Clause 101

Clause 101 provides that this schedule is the Jobs and Competitiveness Program (also referred to as the Program).

Clause 102

Clause 102 provides that the Program allows for the issue of free carbon units for activities that are defined under the Program as emissions-intensive and trade-exposed (also referred to as EITE activities). The method for determining the eligibility of EITE activities is provided for in the paper published on the Department of Climate Change and Energy Efficiency website titled Establishing the eligibility of activities under the Jobs and Competitiveness Program.

Subclause 102(2) provides that the free carbon units in respect of EITE activities are only to be issued to an eligible person that has met the requirements of the Program as specified and has established an account in the Australian National Registry of Emissions Units.

Clause 103

Clause 103 specifies that the Program relates to EITE activities which are undertaken in Australia during an eligible financial year starting on 1 July 2012 or later.

Clause 104

Clause 104 specifies that coal mining is not taken to be an EITE activity under the Program. Separate targeted assistance measures under the carbon pricing mechanism apply to the coal mining sector, including the Coal Sector Jobs Package and the Coal Mining Abatement Technology Support Package, announced by the Government on 10 July 2011.


 

PART 2 - DEFINITIONS AND RELATED CONCEPTS

Division 1 - Definitions

Key concepts used in the Program should be understood in the interpretation of the Program. Some of these concepts are defined in the Clean Energy Act 2011, while others are specifically defined in the regulations.

As outlined above, regulation 1.3 inserts a new note to outline the terminology defined in the Clean Energy Act 2011 that is relevant to the Program.

Clause 201

Clause 201 provides definitions for the key concepts used in the Program, including an applicant, expected production, relevant product, and the concepts of highly and moderately emissions-intensive activities for which specific assistance rates and allocative baselines for determining assistance apply.

The Program uses the term 'applicant' to refer to the legal person who makes an application as an eligible person for the issue of free carbon units in respect of the undertaking of an eligible EITE activity. An application in respect of undertaking one EITE activity may have more than one applicant.

The term 'equipment' is used to refer to the types of physical infrastructure which are used to conduct EITE activities. The list in the definition is illustrative and drawn from definitions of the term in similar contexts. Accordingly, other equipment similar to the equipment listed is not intended to be excluded. In particular, the concept is used to refer to the types of equipment which may be installed in an expansion of an activity and also to provide greater clarity to the closure rule.

Under the Program, there are two categories of EITE activities that are eligible for assistance:

a.    highly emissions-intensive activities

b.    moderately emissions-intensive activities.

Highly emissions-intensive activities are activities which have been assessed as eligible for assistance at a rate that commences at 94.5 per cent in the 2012-13 financial year.

Moderately emissions-intensive activities are activities which have been assessed as eligible for assistance at a rate that commences at 66 per cent in the 2012-13 financial year.

Subclause 201(2) includes a general rule that, unless the contrary intention appears, concentration requirements and references to moisture content are with respect to mass. An example of a contrary intention will be the production of high purity ethanol which has a concentration with respect to volume.

The Program uses the phrase 'EITE activity carried on at a facility' in a number of provisions. Subclause 201(3) clarifies that an EITE activity could be undertaken at one facility or series of facilities where the components of the EITE activity, including the transformation as outlined in the definition of the EITE activity in Part 3 are carried out.

Division 2 - Meaning of saleable quality

Clause 202

Clause 202 defines the concept of products of 'saleable quality', which will be relevant to many of the EITE activities for the issue of free carbon units. The definition makes clear that saleable quality is intended to have the meaning as understood by the relevant industry, where a product is an output of a relevant process (that incorporates an EITE activity) and is of commercial value. For instance, mis-shapen glass containers may have value such as for an input into production of flat glass but not value as a glass container.

However, if there are grades of high quality and lower quality product, the term 'saleable quality' is not intended to mean that only the highest quality product is relevant. The output may meet particular industry standards or specifications (set by the industry or by customers). It may also meet internal standards by which it can be used by the firm as part of another process conducted by the firm.

For example, while sub-quality newsprint could usefully be sold and used to pack delicate items in boxes, it would not be saleable in the newsprint industry as newsprint. However, if there are grades of high quality and lower quality newsprint, the term 'saleable' is not intended to mean that only the highest quality product is relevant.

Additionally, a company may be required to produce a product with particular contractually described qualities while still satisfying the described EITE activity. If the product produced does not exhibit those particular contractual qualities, the product may be rejected by that customer. Where the product may still be sold to an alternative buyer, or attracts a lower price to the existing company, it will still be considered to be of saleable quality if it meets the definition's requirements. However, where the product would require reprocessing in order to be sold to any customer as the defined output, the product will not be of saleable quality for that activity.

Also, outputs that are of saleable quality will not need to have been sold in a particular year they are produced but could be added to an inventory and may be sold at a later date.

The recycling of sub-standard products back into a process will be common in many activities, but applicants may not claim assistance twice for the same material as a relevant product. Products which are lost or scrapped before being packaged as a final product should also not be included. This may include products which are damaged in transport between the site where the activity is conducted and the inventory or final packaging site.

 

Division 3 - Meaning of significant expansion

Clause 203

Clause 203 provides that for the purpose of an application for the issue of free carbon units, a 'significant expansion' is defined as the installation of equipment at a facility that will undertake an EITE activity, which will increase the maximum productive capacity of the facility undertaking the activity by more than 20 per cent after it is commissioned. This will generally be determined by comparing the nameplate capacity of the equipment before and after the new equipment is installed.

The increase in the maximum productive capacity does not include the equipment that existed at the facility before the new equipment was installed or equipment that will no longer be used in the activity in the future year. Therefore, assessing the change in maximum productive capacity of more than 20 per cent would be net of any productive capacity changes that result from equipment being removed or decommissioned as a part or consequence of the expansion, or independent of the expansion. In determining the net change in productive capacity, it will be envisaged that a baseline of the facility's maximum productive capacity before the new equipment is installed is established.

The provisions relating to significant expansions allows an applicant to receive an allocation of free carbon units for expected production above the production of the previous financial year upfront rather than waiting for an allocation through the adjustment for previous year's production the following year. The provisions are intended to deal with situations in which there is a very significant change to a facility.

These provisions will be considered in conjunction with the application process which applies to any facility that has not conducted the relevant EITE activity in the previous year (clause 705).

Greater than 20 per cent capacity expansions

Applicants will have discretion about when they wish to apply for the additional allocation based upon expected production. For example, if the installation of new productive capacity will take a number of years to complete, applicants could wait until the end of that period to apply for additional units, as those years are likely to be the ones with the greatest difference between the previous year's production and the expected production for the coming year.

The maximum time from when the first piece of the new equipment was fully installed at the facility to when a significant expansion can be claimed will be four years before the start of the year to which the application relates. This accommodates large complex projects which may take many years to install and fully commission all of the equipment necessary to achieve more than 20 per cent maximum capacity expansion. Applicants should note that this time period will start from when the first substantive component of the equipment is fully installed at the facility and does not include the planning and approvals process that may have been undertaken before construction or the period when the equipment was in the process of being installed (such as when foundations were being laid). After a piece of equipment is fully installed, the period for commissioning that equipment, and successively installing and commissioning the remaining pieces of equipment required to complete the expansion, may take a number of years.

Where expansions result in an increase of 20 per cent or less of the existing production capacity, the Government considers that the implementation of a universal adjustment for the previous year's production (through the annual true-up mechanism) is a fair and effective way of accommodating these smaller variations in production across time.

Example

Elsie Rylee produces glass containers at a facility in Bungendore and at a facility in Cairns. Each facility has two furnaces that are each capable of producing 1.1 tonnes of bottles per day. At the Bungendore facility, one of the furnaces has been closed for three years. Generally, the three other furnaces are operating at about 0.8 tonnes of bottles per day or around 290 tonnes per year.

If Elsie began to install a new furnace with the same capacity at either of the facilities, that would increase the maximum productive capacity of either facility by 50 per cent (from 2.2 tonnes per day to 3.3 tonnes per day). This would mean that Elsie could claim a significant expansion for that facility in either that financial year or the next three financial years.  She may choose the second financial year as that year may have the biggest difference in production from the production in the previous year.

Division 4 - Meaning of closed

Clause 204

This clause defines when equipment is determined to be closed for the purpose of the Program, which will be relevant to the requirements for relinquishing carbon units and to the reporting requirements of the Program. This clause provides for various situations which involve an activity ceasing or partly ceasing. Closure will include situations in which:

a.    the production of all relevant products has ceased and it is, or becomes, unlikely that they will be produced again within twelve months of the date production ceased (i.e. the facility no longer carries on the EITE activity - subclause 204(2)) or

b.    where there are multiple relevant products, the production of one product ceases and it is, or becomes, unlikely that it will be produced again within twelve months of the date production ceases (i.e. the activity is still conducted at a facility, but one of the products upon which free carbon units are issued is no longer produced - subclause 204(3)).

In these situations, the use of the previous year's production information would be expected to over-allocate, or to have already over-allocated, for the emissions and electricity costs which are likely to be incurred because of the carbon pricing mechanism. The mechanism in Part 13 will then ensure that any over-allocated carbon units are relinquished based on actual production in the year of closure.

 

Examples

Case 1

In the example above, Elsie Rylee produces glass containers at a facility in Bungendore and a facility in Cairns, each with two furnaces that are each capable of producing 1.1 tonnes of bottles per day. At the Bungendore facility, one of the furnaces has been closed for three years. Generally, the three other furnaces are operating at about 0.8 tonnes of bottles per day (around 290 tonnes per year).

Elsie shuts the Bungendore facility during a year without any plan to reopen it within twelve months. Closure will have occurred at the time the production ceased, as no production of bottles is expected to take place for over twelve months. Accordingly, subclause 204(2) has been triggered.

Case 2

In the example above, Elsie shuts the Cairns facility temporarily, but plans to reopen it within 4-6 months. Four months after the shutdown, Elsie reassesses the situation and decides to remain closed for at least another nine months. Closure will have occurred at the time when Elsie decided not to reopen. Accordingly, subclause 204(2) has been triggered.

Case 3

Sophia Leonce operates a production facility for an EITE activity which has two relevant products, each with its own basis for the issue of free carbon units. The two products are different grades of product from a single ore. Due to changes in market conditions, Sophia decides to leave the business of producing the second product and focus on the first product. A closure will have occurred in relation to the second product. Accordingly, subclause 204(3) has been triggered. However, the equipment for the production of the first product would not be regarded as closed, and allocations for the first product would be unaffected.

Division 5 - Meaning of new facility and series of new facilities

Clause 205

This clause defines a new facility (or a series of new facilities) for the purpose of the Program, which will be relevant for the purposes of applying the maximum allocation test to new facilities that undertake EITE activities. Clause 911 details how the maximum cap policy will operate. The Government announced that new facilities that undertake EITE activities would be eligible for assistance in respect of production but that the allocation of assistance would be provided in a manner which avoids windfall gains. However, allocations for existing facilities would not be capped.

 

The term 'new facility' is intended to describe both brand new equipment established on a greenfield site or the complete replacement of equipment on a brownfield site to produce a product in relation to an EITE activity. It will not refer to equipment being added to an existing facility to expand production as in clause 203.

A facility will be considered new if the following apply:

-     either:

o  no relevant production in relation to an EITE activity took place at that facility in the year prior to 1 July 2011; or

o  a relevant product was produced as part of an EITE activity being undertaken in the year prior to 1 July 2011, but the equipment used to carry on the EITE activity then has been fully replaced; and

-     either:

o  a final investment decision to proceed with building on the site of a facility equipment to undertake an EITE activity was not confirmed and published prior to 10 July 2011; or

o  in the absence of a published financial investment decision, construction on a project at the site of the facility in relation to equipment that is to be used to carry on the EITE activity had not commenced prior to 10 July 2011.

The application of these criteria to the 10 July 2011 date reflects the date that the Government's Clean Energy Future plan was released, which included the details of the policy to apply a maximum allocation to new facilities that are eligible for EITE assistance under the Jobs and Competitiveness Program.

If conditions in clause 205 are satisfied, then the facility would be considered to be new and subject to the maximum allocation test. If the applicant could demonstrate that a final investment decision had been published, or the construction of equipment that is to be used to carry on the activity at the new project had commenced before 10 July 2011, it would be considered an existing facility. It is intended that construction of equipment that is to be used to carry on the activity does not include facility fences, access roads, or building foundations (and is also not limited to these exclusions). It is also not intended to capture construction of relevant equipment at an offsite location. It is intended that the installation of the relevant equipment to the carrying on of the EITE activity at the location of the new facility needs to have commenced prior to 10 July 2011.

If an EITE activity was conducted at the site prior to 10 July 2011 but all the principal equipment required to carry on that EITE activity has been replaced after 10 July 2011, then this facility would also be considered a new facility. The purpose of this provision will be to treat facilities that are effectively replaced by total rebuilds of brownfield sites in the same manner as greenfield facilities. The emphasis on principal equipment rather than ancillary equipment will ensure that the determination of whether a facility is new or existing relates to an EITE activity rather than non-EITE activities at the same site.

The new facility concept for the purpose of applying the maximum allocation test will also apply to a series of new facilities which undertake an EITE activity only when considered together. However, if one or more facilities in a series of facilities 'existed' (in accordance with the test in paragraph 205(2)(b)) before 10 July 2011, the series of facilities would not be considered to be a series of new facilities and would not be subject to clause 911.

Subclause 205(3) lists a range of matters that the Regulator must have regard to in determining whether a decision published was a final investment decision in relation to a project on or after 10 July 2011. This list is designed to capture a range of circumstances which surround a publication of a decision so as to test the level of commitment of the proponent to proceed with a project.

In summary, the maximum cap would apply to:

-     a new facility that will undertake an EITE activity from 10 July 2011; and

-     a series of facilities that will collectively undertake an EITE activity from 10 July 2011 where all facilities meet the criteria in subclause 205(2)(b).

Existing facilities not subject to the maximum allocation would be:

-     a facility undertaking an EITE activity before 10 July 2011, where there is not a total rebuild of a brownfield site, that is, not a total replacement of principal equipment used to carry out the EITE activity on an existing facility; or

-     a facility not undertaking an EITE activity before 10 July 2011, but where a relevant final investment decision was published in relation to the project and its relevant equipment prior to 10 July 2011; or

-     a new facility is part of a series of facilities collectively undertakes an EITE activity where at least one facility in the series does not meet the criteria for a new facility.


 

PART 3 - EMISSIONS-INTENSIVE TRADE-EXPOSED ACTIVITIES

Division 1 - General

Part 3 provides the basis for the eligibility of assistance under the Program by defining the activities that are taken to be emissions-intensive and trade-exposed, where undertaking an activity would constitute eligibility for the issue of free carbon units.

The Government has been progressing the formal assessment of activities for eligibility as EITE activities since 2009, with the assessment of each activity being conducted in accordance with the principles in the Guidance Paper and supplementary guidance issued by the Department of Climate Change and Energy Efficiency.

The determination of eligibility, classification and baselines for each EITE activity in the Schedule are described in the paper titled Establishing the eligibility of activities under the Jobs and Competitiveness Program.

Each clause in Part 3 sets out a description of the EITE activity, the classification of the activity for the purpose of providing assistance at the highly or moderately emissions-intensive rate and the relevant product or products produced by undertaking the EITE activity which will form the basis of the issue of free carbon units.

For all EITE activities, the assessment of eligibility was based on the operations of the activity in the baseline period July 2004 to December 2008. This is referred to as the period used to assess the eligibility of the activity in the descriptions of the activity outlined below.

Clause 301

Clause 301 provides that for each EITE activity as defined, information will be prescribed to reflect the Government's decisions in respect of the following:

a.    the title of the activity as it is commonly understood for the purpose of the Program;

b.    a description of the activity, in particular, the transformation of input(s) to output(s), including any particular qualities the outputs must have to constitute an EITE activity being conducted;

c.    whether the activity is classified as a highly or moderately emissions-intensive activity; and

d.   the basis or bases for the issue of free carbon units is set out, including the relevant units (e.g. tonnes) for that basis;

e.    the allocative baselines for each activity, in terms of the emissions intensity, electricity intensity and natural gas used as a feedstock in the activity (if applicable), which will be used to determine the number of free carbon units to be issued to an applicant for undertaking each activity.

The requirements in the regulations are intended to be non prescriptive with respect to the inputs to an activity and the processes undertaken in the physical and chemical transformations so that existing players and eligible new entrants are able to demonstrate to the Regulator that activities are being conducted. The paper Establishing the eligibility of activities under the Jobs and Competitiveness Program sets out in more detail the principles for the formulation of activity definitions and for determining the basis or bases for the issue of free carbon units.

The correct amount or volume of an output or other product used as the basis for the issue of free carbon units under the Program will be referred to throughout as the 'product' or 'relevant product'.

The regulations clarify that each of the relevant products used as a basis for allocation must have been produced by, or otherwise associated with, the carrying out of the EITE activity. For example, if a partly processed product which is not defined as an input in the activity definition is placed in a furnace and an output is produced which meets the general specifications for a relevant product (e.g. the concentration requirement), that output should not be counted in the amount or volume of the relevant product upon which free carbon units are allocated. This is because it was not 'produced by carrying on the EITE activity' as defined. Where listed inputs and non-listed inputs are used in the process, an appropriate apportionment of outputs will be necessary to determine the amount of volume of relevant products.

Activity definitions will also refer to the production of products with certain qualities. For example, to conduct the activity of silicon production, the silicon product must have a silicon concentration of equal to or greater than 98 per cent with respect to mass. It is recognised that production decisions or failures at a facility may mean that some of the output has a concentration of less than 98 per cent. This does not mean that the activity is not conducted at the facility. It simply means that the output which is below 98 per cent concentration should not be included in the amount or volume of the relevant product upon which the free carbon units are allocated under the program.

Some bases for the issue of free carbon units, such as in the methanol production activity, will be on a 100 per cent equivalent basis. In this case, the amount will be the weight of the pure product contained within the product which is used as the basis for the issue of free carbon units. For methanol, it will be the weight of the actual methanol compound within the solutions of methanol which are over 98 per cent pure methanol (or, to put it another way, the weight of the 98 per cent solution less the weight of the non-methanol components).

For most EITE activities defined in the regulations, the 'relevant products' will either be intermediate products or an output of a process. However, inputs into a process can be defined as a 'relevant product'. It will be made clear within the definition of the activity how the provisions of the Program which refer to a relevant product being produced by an EITE activity would apply in this situation. The activity of Petroleum Refining will be one such activity.

Additional activities will be added to Part 3 and the table in Part 4 as the Government determines them to be eligible in accordance with the criteria in the Program and the process set out in the Guidance Paper.

The activity definitions and descriptions of products will contain technical and specific requirements which have been developed in consultation with industry stakeholders. The Government recognises that technical aspects of activity definitions, or the definitions of the relevant products, could in the future be interpreted too narrowly or that an industry could develop in such a way that the policy underlying the assistance becomes impeded by a particular term or phrase in the regulations. The Government could amend the regulations to clarify the original policy intention behind the delivery of assistance and remove any unnecessary compliance burdens. The use of regulations for the assistance program will ensure that this can be done in a timely manner. Amendments to the regulations would then be proposed in accordance with the normal regulation making process.

Generally, it will be expected that where upstream extraction or production processes are carried out and do not result in the production of the relevant product, these will not be regarded as carrying out the EITE activity. However, it is understood that some upstream or downstream processing or ancillary processes may be conducted at the same site as an EITE activity and these processes do not impact the eligibility for assistance for the EITE activity itself.

Each individual activity which has been formally assessed as an eligible EITE activity and is defined in regulations is outlined below.

Division 2 - Production of glass containers

Clause 302

Clause 302 provides that production of glass containers is the physical and chemical transformation of silica (silicon dioxide (SiO2)) and other raw and recycled materials (such as cullet) to produce blown or pressed glass containers, by controlled melting and forming in a contiguous process.

Production of glass containers is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved sending silica obtained from sand and some cullet through a furnace to produce glass container products such as jars and bottles. Annealing ovens and forming machines are also used.

It is intended that the alternative processes of the production of borosilicate glass to produce borosilicate glass containers (such as pyrex) and the production of glass containers entirely from cullet fit within the activity description.

To produce glass containers, the controlled melting and forming may use both the 'blow and blow' method and/or the 'press and blow' method. Both production methods satisfy the description of the activity.

The activity is not satisfied through the undertaking of washing and cleaning of a glass container for reuse in its same physical form.

The inputs of the activity have been defined to include any source of silica and recycled materials. There are no limits on the amount of raw compared to recycled materials that may be used. The output of the activity is a tonne of glass containers which are jars, bottles or other containers generally used for storage of products such as liquids.

The activity does not include the upstream extraction or production of the inputs to the activity including the quarrying of silica, sorting and processing of cullet. The activity also does not include the downstream processing of glass containers (such as labelling) or the production of any by-products from the production of glass containers. As such, the relevant facility is that where the glass containers are actually produced and does not extend to separate facilities which may conduct either mining of silica, sorting of cullet, washing of glass containers, labelling or distribution of glass containers but not the activity as described.

Subclause 302(4) outlines that the basis of issue is a tonne of blown and pressed glass containers. The tonnage of the relevant glass containers should be measured accordingly to ordinary measurement rules applicable in the industry.

The glass containers must have been produced by carrying on the activity as defined to be eligible as a relevant product. For example, containers which are just washed for reuse will not have been transformed by the activity as defined and will not be relevant products even if they were sold in the same batch as product which did result from a transformation.

The glass containers must be of saleable quality. In particular, the tonnes of containers which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable glass bottles but those bottles are then remelted into the same or a different type of glass container, their tonnage should be counted only once for the definition of a relevant product.

Division 3 - Production of bulk flat glass

Clause 303

Clause 303 provides that the production of flat glass is the physical and chemical transformation of silica (silicon dioxide (SiO2)) and other raw and recycled materials (such as cullet) to produce bulk flat glass products, through controlled melting and forming in a contiguous process.

Production of bulk flat glass is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved melting sand/quartz and some recycled glass in a furnace to produce bulk flat glass products. Annealing ovens and forming machines were also used. The float glass and rolled glass methods of production were both used to produce flat glass during the assessment period.

It is intended that other production processes to produce flat glass, including the sheet and plate glass methods of production would be considered to fit within the activity definition.

The activity description is not satisfied through the undertaking of cutting, polishing, washing and cleaning of flat glass for reuse in its same physical form.

The inputs of the activity have been defined to include any source of silica and recycled materials. There are no limits on the amount of raw compared to recycled materials that may be used.

The output of this activity is bulk flat glass products, including wired glass and patterned glass.

The activity does not include the upstream extraction or production of the input to the activity including the production of silica or sorting of cullet. The activity also does not include the downstream processing of flat glass products (such as secondary coating, laminating, toughening, mirroring, printing, cutting, edgeworking, insulating, glazing, encapsulating, extrusion assembling and moulding) or the processing of any by-products. As such, the relevant facility is that where the flat glass is actually produced and does not extend to separate facilities which may conduct either extraction of silica, sorting of cullet, secondary processing or distribution of flat glass products but not the activity as described.

Subclause 303(4) outlines that the basis of issue is per tonne of bulk flat glass. The tonnage of the relevant bulk flat glass should be measured accordingly to ordinary measurement rules applicable in the industry.

The flat glass must have been produced by carrying on the activity as defined to be eligible as a relevant product. For example, entities that do not produce flat glass products but only cut flat glass into different sizes for use will not be considered to have produced flat glass by carrying on the activity as defined, and in this situation, the flat glass will not be relevant products.

The flat glass products must be of saleable quality. In particular, the tonnes of flat glass which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable flat glass which is then remelted into the same or different type of flat glass, their tonnage should be counted only once for the definition of a relevant product.

Division 4 - Production of methanol

Clause 304

Clause 304 provides that the production of methanol is the chemical transformation of one or more of the following:

a)                  hydrocarbons;

b)                  hydrogen feedstocks;

c)                   carbon feedstocks;

d)                  oxygen feedstocks;

to produce liquid methanol (CH3OH) with a concentration of methanol equal to or greater than 98 per cent.

Production of methanol is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the production of methanol from natural gas and oxygen.

It is intended that alternative processes involving the use of alternative feedstocks including ammonia and carbon dioxide or synthesis gas (a mixture of hydrogen, methane and carbon monoxide) to produce methanol, where the concentration of methanol is equal to or greater than 98 per cent with respect to mass, is considered to fit within the activity description.

The activity description is not satisfied through the undertaking of methanol production that does not have a concentration of methanol that is equal to or greater than 98 per cent with respect to mass.

The inputs of the activity have been defined to include any source of hydrogen, carbon and oxygen that may be available.

The output of the activity is liquid methanol (CH3OH) with a concentration of methanol equal to or greater than 98 per cent.

The activity does not include the upstream extraction or production of the input to the activity including the production of natural gas, synthesis gas or other hydrogen, carbon or oxygen feedstock. As such, the relevant facility is that where the methanol is actually produced and does not extend to separate facilities which may conduct upstream processing but not the activity as described.

Further, the activity does not include the downstream processing of the methanol with a concentration of greater than 98 per cent with respect to mass, or the processing of any by-products from the production of methanol.

Subclause 304(4) outlines that the basis of issue is per tonne of 100 per cent equivalent methanol. The tonnes of methanol should be reported on a 100 per cent equivalent basis, that is the tonnes of pure methanol contained within the methanol reported as the output of the activity.

The relevant standard for determining the concentration of methanol in the final saleable product was British Standard BS506, Part 1, Methanol Specification.

The methanol must have been produced by carrying on the activity to be eligible as a relevant product. Accordingly, the methanol must have been produced to have a concentration of equal to or greater than 98 per cent from the relevant inputs to be included in the tonnes of relevant product.

 

 

Division 5 - Production of carbon black

Clause 305

Clause 305 provides that the production of carbon black is the chemical transformation of gaseous or liquid hydrocarbons to produce a colloidal carbon material (known as 'carbon black') in the form of spheres or of fused aggregates of the spheres. The particle size of the colloidal carbon must be below 1000nm in at least one dimension.

Production of carbon black is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the partial combustion of heavy liquid hydrocarbon feedstocks through the furnace black process and subsequent wet pelletisation to produce a saleable carbon black product. In this period, by-products of the activity including steam were also produced.

It is intended that alternative production processes to produce carbon black such as the thermal black, acetylene black and channel black processes would be considered to fit within the activity description.

The activity description is not satisfied through the production of the raw material inputs to the process, for example petroleum refining to produce cracker bottoms or coal tar pitch. Similarly coal extraction and processing, petroleum or refinery coke production and carbon anode production are also not considered to fall within this definition.

The inputs to the activity have been defined to include any gaseous or liquid hydrocarbons. This may include solid hydrocarbons which have been gasified.

The output of the activity is colloidal carbon material (known as 'carbon black') in the form of spheres or of fused aggregates of the spheres which the particle size must be below 1000nm in at least one dimension.

The activity does not include the upstream extraction or production of the inputs to the activity including the production of the carbon black feedstock. Further, the activity does not include the downstream processing of carbon black to reduce the water content of the finished product. As such, the relevant facility is that where the carbon black is actually produced and does not extend to separate facilities which may conduct a drying process but not the activity as described.

Subclause 305(5) outlines that the basis of issue is per tonne of pelletised carbon black on a dry weight basis.

Relevant standards for the measurement of the carbon black product include:
ASTM D1510 - 08c Standard Test Method for Carbon Black--Iodine Adsorption Number and ASTM D2414 - 08a Standard Test Method for Carbon Black--Oil Absorption Number (OAN).

The pelletised carbon black must have been produced by carrying on the activity as defined by clause to be eligible as a relevant product. To be eligible as a relevant product, the pelletised carbon black must be of saleable quality. For this purpose, carbon black which is produced but then reprocessed should be included only once as a relevant product.

Division 6 - Production of white titanium dioxide pigment

Clause 306

Clause 306 provides that the production of white titanium dioxide (TiO2) pigment is the chemical transformation of one or more of the following: rutile, synthetic rutile, ilmenite (FeTiO3), leucoxene, or titanium slag that has an iron (Fe) concentration of greater than or equal to seven per cent to produce white titanium dioxide pigment. The white titanium dioxide pigment must conform with ASTM classification D476-00 and have an iron concentration of less than or equal to 0.5 per cent.

Production of white titanium dioxide is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The production of synthetic rutile (defined for the purposes of data collection) and the production of white titanium dioxide pigment occur within the same production chain. Because of the requirement for white titanium dioxide pigment to have an iron concentration of less than or equal to 0.5 per cent, the activities of the production of synthetic rutile and the production of white titanium dioxide pigment cannot both be conducted to produce the same tonne of output.

The activity as conducted during the period used to assess the eligibility of the activity involved reducing the inputs with carbon and oxidising with chlorine to produce titanium tetrachloride. The titanium tetrachloride was then distilled, and re-oxidised with oxygen to produce white titanium dioxide pigment while regenerating chlorine for re-use in the process.

It is intended that the alternative processes of producing white titanium dioxide pigment through the sulphate process will also fit within the activity description. This process involves digesting ilmenite or ilmenite and titanium slag in sulphuric acid, hydrolysing the titanyl sulphate to produce hydrated titanium dioxide, and heating the solid in a calciner to evaporate the water to produce white titanium dioxide pigment.

The inputs of the activity have been defined to include rutile, synthetic rutile, ilmenite, leucoxene, or titanium slag that has an iron concentration of greater than or equal to seven per cent. Titanium slag is a product that is typically produced from the electro-smelting of ilmenite and typically contains 70 - 85 per cent TiO2 but may contain up to 93 per cent TiO2. It does not display the descriptive characteristics that are set out in ASTM classification D476-00 such as, minimum titanium dioxide content, specific resistance, moisture content, specific gravity, and screen residue. There are no restrictions on the different combinations of these inputs that may be used; however, the inputs must actually be transformed into white titanium dioxide pigment.

The output of the activity is .white titanium dioxide pigment that conforms with ASTM classification D476-00 and has an iron concentration of less than or equal to 0.5 per cent.

The activity does not include the upstream extraction or production of the inputs to the activity including the production of rutile, synthetic rutile, ilmenite, titanium slag or leucoxene. Further, the activity does not include the downstream processing, or the processing of any by-products form the production of white titanium dioxide pigment. As such, the relevant facility is that where the white titanium dioxide pigment is actually produced and does not extend to separate facility which may conduct upstream processing but not the activity as described.

Subclause 306(5) outlines that the basis of issue is per tonne of saleable white titanium dioxide pigment.

The tonnage of the relevant white titanium dioxide pigment should be measured according to the accepted industry practice for production that conforms to ASTM D476-00, 2005, "Standard Classification for Dry Pigmentary Titanium Dioxide Products", ASTM International, West Conshohocken, PA, 2005, DOI: 10.1520/D0476-00R05 found at www.astm.org.

The white titanium dioxide pigment must have been produced by carrying on the activity as defined to be eligible as a relevant product. For instance, imported white titanium dioxide pigment blended with the product produced from the activity will not be included in the tonnes of the relevant product.

The white titanium dioxide pigment must be of saleable quality. In particular, the tonnes of white titanium dioxide pigment which are scrapped, lost or discarded are not to be included in the tonnes of relevant product.

The production of synthetic rutile and the production of white titanium dioxide pigment occur within the same production chain. Because of the requirement for white titanium dioxide pigment to have an iron concentration of less than or equal to 0.5 per cent, the activities of the production of synthetic rutile and the production of white titanium dioxide pigment cannot both be conducted to produce the same tonne of output. Paragraph 324(5)(d) provides for this condition.

Division 7 - Production of silicon

Clause 307

Clause 307 provides that the production of silicon (Si) is the chemical transformation of silica (silicon dioxide (SiO2)) to produce silicon with a concentration of silicon equal to or greater than 98 per cent, conducted in accordance with the overall chemical equation:

SiO2(s) + 2C(s) ® Si(s) + 2CO(g)

Production of silicon is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the reaction of silica with a combination of carbonaceous reducing agents such as wood, charcoal, coke, and coal, in an submerged electric arc furnace at high temperatures by passing an electrical current through carbon electrodes. 

It is intended that the production of very high purity silicon (more than 99.9 per cent pure) fits within the activity description if produced from silica.

The activity description is not satisfied through the undertaking of silicon production that does not have a purity that is equal to or greater than 98 per cent by mass. The activity description is also not satisfied if silicon is further refined, on a stand-alone basis, to produce high purity silicon without commencing the transformation from silica. However, the fact that a particular batch of silicon does not have a purity equal to or greater than 98 per cent, does not mean that the activity is not conducted at other times throughout the year, when the purity is equal to or greater than 98 per cent in other batches.

The inputs of the activity have been defined to include silica which could be presented as the mineral, quartz or the metamorphic rock, quartzite.

The output of the activity is silicon with a concentration of silicon of at least 98 per cent with respect to mass.

The activity does not include the mining, crushing, grinding and milling of silica prior to the smelting process, the production of charcoal, or wood processing. Further, the activity does not include the downstream processing of the relevant product, or the processing of any by-products from the Production of Silicon. As such, the relevant facility is that where the silicon is actually produced and does not extend to separate facility which may conduct either mining of silica, charcoal production, or wood processing but not the activity as described.

Subclause 307(4) outlines that the basis of issue is per tonne of saleable silicon with a purity equal to or greater than 98 per cent by mass. The tonnage of the relevant silicon should be measured according to acceptable industry practices.

The silicon must have been produced by carrying on the activity as defined to be eligible as a relevant product.

The silicon must be of saleable quality. In particular, the tonnes of silicon which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable silicon but then that silicon is remelted and recast, their tonnage should be counted only once for the definition of a relevant product.

Division 8 - Smelting zinc

Clause 308

Clause 308 provides that smelting zinc is the physical and chemical transformation of either, or both, concentrated mineralised zinc compounds; and zinc-bearing secondary materials; to produce zinc metal (Zn) with a concentration of zinc equal to or greater than 99.95 per cent.

Smelting zinc is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the baseline period for assessing the eligibility of the activity utilised pyro-metallurgical and/or hydro-metallurgical processes where concentrated mineralised zinc compounds and zinc bearing secondary materials were extracted and leached to produce a zinc sulphate solution. This solution was then subjected to an electrolytic refining process where the zinc from the electrolyte solution was plated onto a cathode. The zinc cathodes were then stripped and cast in a furnace to produce final saleable zinc metal or alloyed with other metals to produce zinc alloys.

It is intended that alternative processes that produce zinc from concentrated zinc compounds will fit within the activity description. This includes the pyro-metallurgical processes available for producing zinc from concentrate.

The activity description is not satisfied through the undertaking of zinc production where the final product is not zinc metal (Zn) with a concentration of zinc equal to or greater than 99.95 per cent with respect to mass or the undertaking of secondary zinc recovery from scrap.

The inputs of the activity have been defined to include concentrated mineralised zinc compounds and zinc-bearing secondary materials. Zinc bearing secondary materials may include zinc in fume (Zn) with a concentration of zinc equal to or greater than 60 per cent with respect to mass or other zinc bearing material such as zinc oxides.

The output of the activity is zinc metal (Zn) with a concentration of zinc equal to or greater than 99.95 per cent.

The activity does not include the upstream mining, concentrating and pre-processing of the concentrated mineralised zinc compounds or zinc bearing secondary materials. Further, the activity does not include the downstream processing of post-cast rolling, extruding, re-forming or alloying of zinc metal, or the processing of any by-products from the production of zinc. As such, the relevant facility is that where the zinc of the required concentration is actually produced and does not extend to separate facilities which may conduct the mining, concentrating and pre-processing of the concentrated mineralised zinc compounds, the production of zinc bearing secondary materials or the post-cast rolling, extruding, re-forming or alloying of zinc metal but not the activity as described.

Subclause 308(4) outlines that the basis of issue is per tonne of zinc metal with a concentration of zinc equal to or greater than 99.95 per cent. The tonnage of the relevant zinc should be measured according to measurement techniques in practice in the industry.

Zinc metal must have a concentration of zinc equal to or greater than 99.95 per cent as defined to be eligible as a relevant product. In many circumstances zinc is alloyed with other products during the casting process. If this occurs, the zinc content of the final alloy should be measured on a 99.95 per cent equivalent basis for partial exemption purposes. Only alloys produced using zinc with a concentration of zinc equal to or greater than 99.95 per cent can be measured in this way.

The zinc must have been produced by carrying on the activity as defined to be eligible as a relevant product. Secondary zinc recovered from recycling materials does not qualify for undertaking this activity.

The zinc must be of saleable quality. Zinc which is discarded or reprocessed because it does not meet output specifications is not of saleable quality.

Division 9 - Integrated production of lead and zinc

Clause 309

Clause 309 provides that the integrated production of lead and zinc is the chemical transformation of either or both of: concentrated mineralised lead compounds, with or without additional lead-bearing secondary materials; and concentrated mineralised zinc compounds, with or without additional zinc-bearing secondary materials; to produce: lead metal (Pb) with a concentration of lead equal to or greater than 99.97 per cent; and zinc in fume (Zn) with a concentration of zinc equal to or greater than 60 per cent.

Integrated production of lead and zinc is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved a pyro-metallurgical production process where lead and zinc bearing raw materials were extracted to produce refined lead, zinc in fume (Zn) with a concentration of zinc equal to or greater than 60 per cent with respect to mass and other by-products such as silver, copper and sulphuric acid. The processes used in integrated lead and zinc production were sinter plant, blast furnace and slag fumer.

It is intended that alternative processes to produce lead and zinc in fume will fit within the activity description. The activity is not satisfied through the undertaking of lead smelting on a stand-alone basis, or through producing zinc metal rather than zinc in fume as defined.

The inputs for the activity are either or both of concentrated mineralised lead compounds, concentrated mineralised zinc compounds with or without secondary lead or zinc materials.

The outputs of the activity are either or both of lead metal with a concentration of lead of at least 99.97 per cent and zinc in fume with a concentration of zinc of at least 60 per cent.

The activity description is not satisfied through the undertaking of lead smelting on a stand-alone basis such that the outputs from the activity do not include zinc in fume.

The activity does not include the upstream mining and production of concentrated mineralised lead compounds, the production of lead bearing secondary materials and the concentration of mineralised zinc compounds, or the production of zinc bearing secondary materials. The activity also does not include the production of zinc metal from zinc in fume, whether this is conducted on the same or a different facility to the activity. . Further, the activity does not include the downstream processing of the relevant products, or the processing of any by-products form the production of integrated lead and zinc. As such, the relevant facility is that where the lead and zinc are actually produced and does not extend to separate facilities which may conduct the mining and production of concentrated mineralised lead compounds, production of lead bearing secondary materials and concentration of mineralised zinc compounds or the production of zinc bearing secondary materials but not the activity as described.

Subclauses 309(5) and (6) provide that there are two baselines relevant for the activity of the integrated production of lead and zinc.

*         Subclause 309(5) outlines that the basis of issue is per tonne of saleable lead metal that has a concentration of lead of equal to or greater than 99.97 per cent with respect to mass; and

*         Subclause 309(6) outlines that the basis of issue is per the 100 per cent equivalent zinc contained within the tonnes of zinc in fume that has a concentration of zinc equal to or greater than 60 per cent with respect to mass.

The tonnage of the relevant zinc and lead should be measured according to measurement techniques in practice in the industry.

The lead and zinc in fume must have been produced by carrying on the activity as defined to be eligible as relevant products. Additionally, the recovery of secondary lead or zinc from recycled material does not qualify for undertaking this activity.

The lead metal must be of saleable quality. Lead outputs which are discarded or reprocessed because they do not meet output specifications are not of saleable quality.

Division 10 - Aluminium smelting

Clause 310

Clause 310 provides that aluminium smelting is the physical and chemical transformation of alumina (aluminium oxide (Al2O3)) into aluminium metal (Al) of saleable quality.

Aluminium smelting is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the Hall Héroult process, where alumina is dissolved in molten cryolite (Na3AlF6), and the solution electrolysed using both a carbon anode and cathode to obtain aluminium metal. In summary the overall chemical equation representing in this transformation is:

2Al2O3(s) + 3C(s) ® 4Al(s) + 3CO2(g)

The production of carbon anodes is an ancillary component of this activity. The carbon anodes were manufactured from a mixture of petroleum coke, pitch and tar, and pre-baked in separate anode plants. 

It is intended that alternative aluminium smelting processes including alternative electrolytic cell configurations such as an inert anode or drained cathode and alternative process pathways such as carbothermic production of aluminium, will fit within the activity description. It is also intended that the use of pre-baked anodes in the smelting process will fit within the activity description.

The activity description is not satisfied through the undertaking of the remelting and subsequent recasting or reforming of aluminium, recycling of aluminium, and/or rolling of aluminium.

The inputs of the activity have been defined to include any grade of alumina (aluminium oxide, Al2O3). 

The output of this activity is saleable aluminium metal which may be in a range of forms including ingots, slab, T-bars or extrusion billets and may contain alloys based on customer specifications.

The activity does not include the upstream production of alumina, cathodes, alloying materials, or the smelting and associated casting of secondary aluminium metal. Further, the activity does not include the downstream processing or the smelting and associated casting of secondary aluminium metal, or the processing of any by-products from the production of aluminium. As such, the relevant facility is that where the aluminium metal is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing, but not the activity as described.

Subclause 310(4) outlines that the basis of issue is per tonne of primary aluminium with a purity equal to or greater than 98 per cent. Such measurement of primary aluminium is intended to be weighed after electrolysis but before casting. This is generally done in the potroom.

The aluminium must have been produced by carrying on the activity as defined to be eligible as a relevant product. Accordingly, the remelting of imported or recycled aluminium will not be included in the tonnes of relevant product.

Division 11 - Alumina Refining

Clause 311

Clause 311 provides that the alumina refining is the physical and chemical transformation of bauxite (which is an ore containing mineralised aluminium compounds) into alumina (aluminium oxide (Al2O3)) with a concentration of aluminium oxide equal to or greater than 95 per cent.

Alumina refining is an EITE activity eligible for assistance at the highly emissions-intensive rate.

Alumina refining is the physical and chemical transformation of bauxite (which is an ore containing mineralised aluminium compounds) into alumina (aluminium oxide (Al2O3)) with a concentration of aluminium oxide equal to or greater than 95 per cent.

The activity, as conducted during the period used to assess the eligibility of the activity, involved the Bayer process where bauxite is digested with a hot solution of caustic soda (NaOH) to dissolve the alumina content of the bauxite. The solution is further clarified by filtration where the insoluble particles are removed. The alumina is precipitated out from the caustic soda solution and is calcined to produce dry alumina. Emissions associated with the production of specialty aluminas and hydrate (alumina trihydrate, Al(OH)3) were also considered part of this activity.

It is intended that both high temperature and low temperature alumina refining processes fit within the activity description.

The activity description is not satisfied through the calcination of uncalcined alumina, specialty aluminas, or hydrate to produce alumina with purity equal to or greater than 95 per cent without commencing the transformation from bauxite. However, the fact that a batch of alumina does not have purity equal to or greater than 95 per cent does not mean that the activity is not conducted at times when the purity is equal to or greater than 95 per cent in other batches. The activity may also be conducted across multiple facilities; such as, where bauxite is transformed to uncalcined alumina at one facility and transported to another facility for calcining to produce saleable alumina a purity equal to or greater than 95 per cent.

The inputs of the activity have been defined to include any grade of bauxite. The output of the activity is saleable alumina (aluminium oxide, Al2O3) with purity equal to or greater than 95 per cent.

The activity does not include the upstream extraction and pre-processing of bauxite ore and the production of feedstocks such as lime and caustic soda. The activity also does not include the downstream production of aluminium metal. As such, the relevant facility for the application is that where the alumina is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described.

Subclause 311(4) outlines that the basis of issue is per tonne of saleable alumina (aluminium oxide, Al203) with purity equal to or greater than 95 per cent by mass. The tonnage of the relevant alumina should be measured accordingly to ordinary measurement rules applicable in the industry.

The alumina must have been produced by carrying on the activity as defined to be eligible as a relevant product. For instance, imported alumina blended with the product produced from the activity would not be included in the tonnes of the relevant product.

The alumina must be of saleable quality. In particular, the tonnes of alumina which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable alumina with purity equal to or greater than 95 per cent, but that alumina is further calcined, the tonnage should be counted only once for the definition of relevant product.

Division 12 - Production of high purity ethanol

Clause 312

Clause 312 provides that the production of high purity ethanol is the chemical transformation of fermentable sugars (such as C6H12O6, C5H10O5, C12H22O11 or C18H32O16) to ethanol (C2H5OH) and subsequent purification process to obtain a solution of high purity ethanol where the concentration of ethanol is equal to or greater than 95 per cent with respect to volume.

Production of high purity ethanol is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of fermentable sugars (including fructose, glucose, sucrose, maltotriose, raffinose) derived from sugar cane and wheat feedstocks to high purity ethanol.

It is intended that production of high purity ethanol from fermentable sugars derived from alternative feedstocks such as corn, sugar beets, grapes or cellulosic biomass for the subsequent production of high purity ethanol will fit within the activity description. The inputs of the activity have been defined to include any source of fermentable sugar.

The activity description is not satisfied through the undertaking of the production of ethanol that does not reach a concentration of ethanol that is equal to or greater than 95 per cent with respect to volume.

The inputs of the activity have been defined to include any source of fermentable sugar. The output of the activity is ethanol (C2H5OH) where the concentration of ethanol (C2H5OH) in solution is equal to or greater than 95 per cent with respect to volume

The activity does not include the upstream processing of the raw material to produce fermentable sugars. Further, the activity does not include the downstream processing of the high purity ethanol to produce blended products including alcohol product, industrial solvent or fuel, or the processing of any by-products from the production of high purity ethanol. As such, the relevant facility is that where the high purity ethanol is actually produced and does not extend to separate facilities which may conduct upstream processing but not the activity as described.

Subclause 312(4) outlines that the basis of issue is per kilolitre of 100 per cent equivalent ethanol. The tonnes of ethanol should be reported on a 100 per cent equivalent basis, that is, the kilolitres of pure ethanol contained within the saleable ethanol reported as the output of the activity. Where the conversion of tonnes of ethanol is required the density of ethanol (C2H5OH) of 789.24 kg/m3 at 20°C must be used.

Relevant measurement options for the measurement of the concentration of ethanol in the high purity ethanol product are outlined in the Commissioner of Taxation Legislative Determination EXC 2009/2 - Excise (Volume - excisable beverages) Determination 2009 (No. 1), sections 10 to 12.

The high purity ethanol must have been produced by carrying on the activity as defined by subclause 312(1) to be eligible as a relevant product. Accordingly, the ethanol must have been produced to have a concentration of equal to or greater than 95 per cent from the relevant inputs to be included in the tonnes of relevant product.

 

Division 13 - Production of magnesia

Clause 313

Clause 313 provides that the production of magnesia is the physical and chemical transformation of magnesite (magnesium carbonate (MgCO3)) into one or more of the following magnesia products:

a)        caustic calcined magnesia (CCM) that has a concentration of magnesium oxide (MgO) equal to or greater than 75 per cent, and is burned between 650°C and 1200°C.

b)        deadburned magnesia (DBM) that has a concentration of magnesium oxide equal to or greater than 85 per cent, has grain density of 2.85 g/cm3 to 3.45 g/cm3, and is burned between 1300°C and 2200°C.

c)        electrofused magnesia (EFM) that has a concentration of magnesium oxide equal to or greater than 90 per cent, has grain density of greater than 3.45 g/cm3, and is fused at temperatures in excess of 2750°C.

Production of magnesia is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved calcining magnesium carbonate in a furnace to produce caustic calcined magnesia. The subsequent production of deadburned magnesia and electrofused magnesia was achieved using kilns and electric arc furnaces respectively.

The inputs of the activity have been defined to include any source of magnesium carbonate. The outputs of the activity are caustic calcined magnesia, deadburned magnesia and/or electrofused magnesia.

The activity does not include the upstream extraction of raw materials or the crushing of raw materials where it is not contiguous with the equipment required to conduct the activity. Further, the activity does not include the distribution of the magnesia, or the processing of any by-products from the production of magnesia. As such, the relevant facility is that where the magnesia is actually produced and does not extend to separate facilities which may conduct either extraction of raw materials, pre-processing of raw materials or distribution of magnesia but not the activity as described.

Subclauses 313(4) to (6) provides that there are three bases for issuance relevant for the activity of the Production of Magnesia:

*         Subclause 313(4) outlines that a basis of issue for the production of caustic calcined magnesia is per tonne of caustic calcined magnesia.

*         Subclause 313(5) outlines that a basis of issue for the production of deadburned magnesia is per tonne of deadburned magnesia.

*         Subclause 313(6) outlines that a basis of issue for the production of electrofused magnesia is per tonne electrofused magnesia.

The tonnage of the relevant magnesia should be measured accordingly to ordinary measurement rules applicable in the industry.

The magnesia must have been produced by carrying on the activity as defined to be eligible as a relevant product. Caustic calcined magnesia may also be produced 'as part of' rather than just 'by' carrying on the EITE activity. For the purposes of determining the relevant product, caustic calcined magnesia produced for the purposes of being used as an input into the production of deadburned magnesia and electrofused magnesia is to be treated as a product separate to, and in addition to, the deadburned magnesia and electrofused magnesia produced.

The magnesia must be of saleable quality. In particular, the tonnes of magnesia which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable magnesia which is then re-calcined, re-deadburned, re-electrofused, their tonnage should be counted only once for the definition of a relevant product. Caustic calcined magnesia produced for the purposes of being used as an input into the production of deadburned magnesia and electrofused magnesia is considered to be of saleable quality where it is in a fit state to be used for that subsequent transformation.

Division 14 - Manufacture of newsprint

Clause 314

Clause 314 provides that the manufacture of newsprint is the physical or chemical transformation of any or all of woodchips, sawdust, wood pulp and recovered paper into rolls of uncoated newsprint that has a grammage range of 30 g/m2 to 80 g/m2, has a moisture content in the range of 6 per cent to 11 per cent and is generally usable for newspaper products through an integrated process.

Manufacture of newsprint is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity, as conducted during the period used to assess the eligibility of the activity, involved the conversion of woodchips into a pulp slurry using a thermo mechanical process and the conversion of recovered paper into a pulp slurry through a pulping and deinking process. During the assessment period, semi-dried pulp produced from recovered paper was transported between two facilities undertaking the activity. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of newsprint-quality paper.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it was produced for the manufacture of newsprint paper. It is also intended that the production of newsprint from bought-in pulp is considered to fit within the activity description.

The activity description is not satisfied through the production of other paper types for which another activity is more appropriate.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper. The output of this activity is saleable bulk rolls of newsprint.

The activity does not include the upstream processing of wood chipping or the downstream processing of the bulk rolls of newsprint into other products (e.g. newspapers). Further, the activity does not include the downstream processing of newsprint, or the processing of any by-products form the manufacture of newsprint. As such, the relevant facility is that where the bulk rolls of newsprint is actually produced and does not extend to separate facilities which may conduct downstream or upstream processing but not the activity as described.

Subclauses 314(4) to (6) provides that there are three bases for issuance relevant for the activity of manufacture of newsprint:

*         Subclause 314(4) outlines that a basis of issue for the manufacture of uncoated newsprint is air dried tonne of rolls of uncoated newsprint.

*         Subclause 314(5) outlines that a basis of issue for the production of pulp from either or both of woodchips and sawdust is per tonne of bone dried equivalent pulp that is used in the integrated process of manufacturing newsprint.

*         Subclause 314(6) outlines that a basis of issue for the production of pulp from recovered paper is per tonne of bone dried equivalent pulp that is used in the integrated process of manufacturing newsprint.

The tonnage for both newsprint and pulp should be measured according to ordinary measurement rules applicable in the industry. The use of the equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form based on flow and concentration metering. It is reported on a 'bone dry' basis which is a term commonly used in the pulp and paper sector meaning pulp in a moisture-free state (zero per cent moisture).

To be eligible as a relevant product for the sub-activity of newsprint manufacturing, newsprint must:

*         have a grammage range of 30 g/m2 to 80 g/m2

*         have a moisture content in the range of 6 per cent to 11 per cent

*         be generally usable for newspaper products

The newsprint must have been produced by carrying on the activity as defined to be eligible as a relevant product.

The newsprint must be of saleable quality. In particular, any tonnes of newsprint which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable newsprint which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity relating to the production of pulp from woodchips and/or sawdust, the pulp must:

*         be produced from woodchips and/or sawdust

*         be used in the integrated process of manufacturing newsprint and

*         be produced as part of carrying on the EITE activity as defined in subclause 314(1).

To be eligible as a relevant product for the sub-activity relating to the production of pulp from recovered paper, the pulp must:

*         be produced from recovered paper

*         be used in the integrated process of manufacturing newsprint and

*         be produced as part of carrying on the EITE activity as defined by subclause 314(1).

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate the free carbon units allocated under an EITE activity once. For example, pulp produced from recovered paper cannot be reported as a relevant product under both the newsprint and printing and writing paper activities. It also cannot be used in an application for free carbon units under pulp produced from either or both of woodchips and sawdust for the newsprint activity.

Division 15 - Dry pulp manufacturing

Clause 315

Clause 315 provides that dry pulp manufacturing is the physical or chemical transformation of any or all of wood chips, sawdust, wood pulp and recovered paper into either or both rolls and bales of dry pulp that has a moisture content in the range of 4 per cent to 14 per cent and is generally useable in either or both of paper manufacturing and the production of sanitary products (such as a fluff pulp layer in sanitary products).

Dry pulp manufacturing is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of woodchips into a pulp slurry using the sulfite process and the subsequent drying to form rolls or bales of pulp of saleable quality.

It is intended that alternative processes to produce dry pulp are considered to fit within the activity description. These include Kraft (sulfate) pulp, thermo mechanical pulp (TMP), chemi-thermomechanical pulp (CTMP) and recovered paper pulp processes.

The activity has two sub-activity baselines defined: dry pulp manufacturing and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper. The outputs of this activity are saleable rolls and/or bales of dry pulp that have a moisture content in the range of 4 per cent to 14 per cent by weight and are generally useable in paper manufacturing and/or in the production of sanitary products. It is also possible that dry pulp products which meet this description may be sold and used for other purposes.

The activity does not include the upstream woodchip preparation. Further, the activity does not include the downstream processing of the dry pulp into paper and other products, or the processing of any by-products from the dry pulp manufacturing. As such, the relevant facility is that where the output is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described.

Subclauses 315(4) to (5) provides that there are two bases for issuance relevant for the activity of manufacture of dry pulp.

*         Subclause 315(4) outlines that the basis of issue is per tonne of either or both of rolls and bales of dry pulp.

*         Subclause 315(5) outlines that the basis of issue is per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.  The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both dry pulp and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement for wet pulp recognises that this product is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity wet pulp production is measured in the wet form and reported on an 'air dried' basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of dry pulp manufacturing, the outputs are rolls and/or bales of dry pulp that have a moisture content in the range of 4 per cent to 14 per cent by weight and are generally useable in paper manufacturing and/or in the production of sanitary products.

The dry pulp must have been produced by carrying on the activity as defined to be eligible as a relevant product.

The dry pulp must be of saleable quality. In particular, any tonnes of dry pulp which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable dry pulp which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

*         be produced from woodchips and/or sawdust;

*         be used in the integrated process of dry pulp manufacturing; and

*         be produced as part of carrying on the EITE activity as defined by subclause 315(1).

Dry pulp that is bought in or pulp produced from recovered paper is not considered to be a relevant product for the wet pulp sub-activity and therefore is not eligible under this subclause.

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one allocation of free carbon units. For example, pulp produced from recovered paper cannot be included in an application for free carbon units under both the dry pulp and printing and writing paper activities.

Division 16 - Cartonboard manufacturing

Clause 316

Clause 316 provides that cartonboard manufacturing is the physical or chemical transformation of any or all of wood chips, sawdust, wood pulp and recovered paper into rolls of cartonboard that have a grammage range of 150 g/m2 to 500 g/m2, a moisture content in the range of 4 per cent to 11 per cent, is coated and is generally useable as cartonboard product such as coated kraft liner, coated multiply and other coated paperboard.

Cartonboard manufacturing is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of recovered paper into a pulp slurry through a pulping and deinking process. Some pulp was also produced from woodchips and/or sawdust through the use of a mechanical process. Pulp was also bought in and added to the pulp mixture. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of cartonboard.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it is subsequently used in the manufacture of cartonboard. It is also intended that the production of cartonboard from bought-in pulp is considered to fit within the activity description.

The activity has two sub-activity baselines defined: cartonboard manufacturing and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The activity description is not satisfied through the production of newsprint, printing, writing, packaging, industrial and/or tissue paper. Nor is it satisfied by the production of cartonboard.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls of cartonboard that have a grammage range of 150 g/m2 to 500 g/m2, a moisture content in the range of 4 per cent to 11 per cent, is coated and generally useable as a cartonboard product such as coated kraft liner, coated multiply and other coated paperboard.

The activity does not include the upstream woodchip preparation. Further, the activity does not include the downstream process of converting rolls of cartonboard into final products (e.g. box construction), nor the processing of any by-products form the cartonboard manufacturing. As such, the relevant facility is that where the output is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).

Subclauses 316(4) and (5) provide that there are two bases for issuance relevant for the activity of cartonboard manufacturing.

*         Subclause 316(4) outlines that the basis of issue is per tonne of rolls of cartonboard.

*         Subclause 316(5) outlines that the basis of issue is per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity. The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both cartonboard and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an 'air dried' basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of cartonboard manufacturing, the outputs are rolls of cartonboard that has a grammage range of 150 g/m2 to 500 g/m2, a moisture content in the range of 4 per cent to 11 per cent, is coated and is generally useable as cartonboard product such as coated kraft liner, coated multiply and other coated paperboard.

The cartonboard must have been produced by carrying on the activity as defined by subclause 316(1) to be eligible as a relevant product.

The cartonboard must be of saleable quality. This is defined by clause 202. In particular, any tonnes of cartonboard which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable cartonboard which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

*         be produced from woodchips and/or sawdust;

*         be used in the integrated process of cartonboard manufacturing; and

*         be produced as part of carrying on the EITE activity as defined by subclause 316(1).

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one allocation of free carbon units. For example, pulp produced from woodchips and/or sawdust cannot be allocated free carbon units under both the cartonboard and printing and writing paper activities.

Division 17 - Packaging and industrial paper manufacturing

Clause 317

Clause 317 provides that packaging and industrial paper manufacturing is the physical or chemical transformation of any or all of wood chips, sawdust, wood pulp and recovered paper into rolls of packaging and industrial paper that is produced from wholly or partially unbleached input fibre, have a grammage range of 30 g/m2 to 500 g/m2, a moisture content in the range of 4 per cent to 11 per cent, is uncoated and is generally useable as a packaging or industrial paper, including products such as kraft liner, recycled or multiply liner, medium, sack and bag paper, wrapping paper, plasterboard liner, horticultural paper and building paper.

Packaging and industrial paper manufacturing is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of recovered paper into a pulp slurry through a pulping and deinking process and/or the conversion of woodchips into a pulp slurry using the kraft or sulfite processes. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of packaging and industrial paper.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it is subsequently used in the manufacture of packaging and industrial paper. It is also intended that the production of packaging and industrial paper from bought-in pulp is considered to fit within the activity description.

The activity description is not satisfied through the production of other paper types for which another activity is more appropriate.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls of packaging and industrial paper that are produced from wholly or partially unbleached input fibre, have a grammage range of 30 g/m2 to 500 g/m2, a moisture content in the range of 4 per cent to 11 per cent, is uncoated and is generally useable as a packaging or industrial paper, including products such as kraft liner, recycled or multiply liner, medium, sack and bag paper, wrapping paper, plasterboard liner, horticultural paper and building paper.

The activity does not include the upstream woodchip preparation. Further, the activity does not include the downstream process of converting rolls of packaging and industrial paper into final products (e.g. box construction), nor the processing of any cy-products from packaging and industrial paper manufacturing. As such, the relevant facility is that where the output is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).

Subclauses 317(4) and (5) provide that there are two bases for issuance relevant for the activity of packaging and industrial paper manufacturing.

*         Subclause 317(4) outlines that the basis of issue is per tonne of rolls of packaging and industrial paper.

*         Subclause 317(5) outlines that the basis of issue is per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity. The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both packaging and industrial paper and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an 'air dried' basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of packaging and industrial paper, the outputs are rolls of packaging and industrial paper that are produced from wholly or partially unbleached input fibre, have a grammage range of 30 g/m2 to 500 g/m2, a moisture content in the range of 4 per cent to 11 per cent, are uncoated and generally useable as packaging or industrial paper, including products such as kraft liner, recycled or multiply liner, medium, sack and bag paper, wrapping paper, plasterboard liner, horticultural paper and building paper.

The packaging and industrial paper must have been produced by carrying on the activity as defined by subclause 317(1) to be eligible as a relevant product.

The packaging and industrial paper must be of saleable quality. This is defined by clause 202. In particular, tonnes of packaging and industrial paper which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable packaging and industrial paper which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

*         be produced from woodchips and/or sawdust;

*         be used in the integrated process of packaging and industrial paper manufacturing; and

*         be produced as part of carrying on the EITE activity as defined by subclause 317(1).

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one allocation of free carbon units. For example, pulp produced from woodchips and/or sawdust cannot be counted towards an allocation of free carbon units under both the packaging and industrial paper and printing and writing paper activities.

Division 18 - Printing and writing paper manufacturing

Clause 318

Clause 318 provides that printing and writing paper manufacturing is the physical or chemical transformation of any or all of woodchips, sawdust, wood pulp and recovered paper into rolls of coated or uncoated printing and writing paper that is produced from 100 per cent bleached or brightened input fibre, have a grammage range of 42 g/m2 to 350 g/m2, a moisture content in the range of 4 per cent to 11 per cent and is generally useable as a printing and writing paper product, including products such as offset paper, copy paper, laser printing paper, magazine paper, filing card paper, manilla, book printing paper, envelope paper, forms paper, scholastic paper, cheque paper and security paper.

Printing and writing paper manufacturing is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of woodchips into a pulp slurry using a number of different processes (including Kraft, sulfite and mechanical pulp processes). Other sources of pulp were also bought in and added to the process. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of printing and writing paper.

It is intended that alternative processes of producing pulp from both wood sources (such as woodchips) or recovered paper is considered to fit within the activity description as long as it is subsequently used in for the manufacture of printing and writing paper. It is also intended that the production of printing and writing paper from bought-in pulp is considered to fit within the activity description.

The activity description is not satisfied through the production of other paper types for which another activity is more appropriate.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The outputs of this activity are saleable rolls of coated or uncoated printing and writing paper that are produced from 100 per cent bleached or brightened input fibre, have a grammage range of 42 g/m2 to 350 g/m2, a moisture content in the range of 4 per cent to 11 per cent and are generally useable as printing and writing paper products, including products such as offset paper, copy paper, laser printing paper, magazine paper, filing card paper, manilla, book printing paper, envelope paper, forms paper, scholastic paper, cheque paper and security paper.

The activity does not include the upstream woodchip preparation. Further, the activity does not include the downstream process of converting rolls of printing and writing paper into final products (e.g. office paper), nor the processing of any by-products from the printing and writing paper manufacturing. As such, the relevant facility is that where the output is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).

Subclauses 318(4) to (5) provides that there are two bases for issuance relevant for the activity of printing and writing paper manufacturing.

*         Subclause 318(4) outlines that the basis of issue is per tonne of rolls of printing and writing paper.

*         Subclause 318(5) outlines that the basis of issue is per total air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity. The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, tissue paper manufacturing and cartonboard manufacturing.

The tonnage for both printing and writing paper and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement of pulp recognises that pulp is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an 'air dried' basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of printing and writing paper, the outputs are rolls of coated or uncoated printing and writing paper that are produced from 100 per cent bleached or brightened input fibre, have a grammage range of 42 g/m2 to 350 g/m2, a moisture content in the range of 4 per cent to 11 per cent and generally useable as a printing and writing paper product, including products such as offset paper, copy paper, laser printing paper, magazine paper, filing card paper, manilla, book printing paper, envelope paper, forms paper, scholastic paper, cheque paper and security paper.

The printing and writing paper must have been produced by carrying on the activity as defined by subclause 318(1) to be eligible as a relevant product.

The printing and writing paper must be of saleable quality. This is defined by clause 202. In particular, any tonnes of printing and writing paper which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable printing and writing paper which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

*         be produced from woodchips and/or sawdust;

*         be used in the integrated process of printing and writing paper manufacturing; and

*         be produced as part of carrying on the EITE activity as defined by subclause 318(1).

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one allocation of free carbon units. For example, pulp produced from woodchips and/or sawdust cannot be counted towards an allocation of free carbon units under both the packaging and industrial paper and printing and writing paper activities.

Division 19 - Tissue paper manufacturing

Clause 319

Clause 319 provides that tissue paper manufacturing is the physical or chemical transformation of wood chips, sawdust, wood pulp and/or recovered paper into rolls of uncoated tissue paper where the product has a grammage range of 13 g/m2 - 75 g/m2, a moisture content in the range of 4 per cent to 11 per cent by mass and which is generally useable in sanitary products such as facial tissue, paper towel, bathroom tissue and napkins.

Tissue paper manufacturing is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the conversion of woodchips into a pulp slurry using the sulfite process, the conversion of recovered paper into a pulp slurry through a pulping and deinking process and the rehydrating of pulp into a pulp slurry. The pulp slurry was then drained, pressed and dried in a paper machine to form rolls of tissue paper.

It is intended that alternative processes of producing pulp from wood sources (such as woodchips) or recovered paper would be considered to fit within the activity description provided it is subsequently used in the manufacture of tissue paper. It is also intended that the production of tissue paper from bought-in pulp is considered to fit within the activity description.

The activity has two sub-activity baselines defined: tissue paper production and wet pulp production from woodchips and/or sawdust. The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity.

The inputs of the activity have been defined to include woodchips, sawdust, wood pulp and recovered paper.

The output of this activity is saleable rolls of uncoated tissue paper where the product has a grammage range of 13 g/m2 - 75 g/m2, a moisture content in the range of 4 per cent to 11 per cent by mass and which is generally useable as a tissue paper product such as facial tissue, paper towel, bathroom tissue and napkins.

The activity does not include upstream woodchip preparation. Further, the activity does not include the downstream process of converting rolls of tissue paper into final products (e.g. boxes of tissue). As such, the relevant facility for the purpose of the application is that where the output is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).

Subclauses 319(4) to (5) provides that there are two allocative baselines relevant for the activity of tissue paper manufacturing.

*         Subclause 319(4) outlines that the basis of issue is per tonne of rolls of tissue paper.

*         Subclause 319(5) outlines that the basis of issue is per air dried tonne (applying a 10 per cent moisture content) of equivalent pulp.

The sub-activity baseline of wet pulp production is only applicable where pulp is produced from woodchips and/or sawdust as part of the activity. The same wet pulp baseline is applied to the activities of dry pulp manufacturing, printing and writing paper manufacturing, packaging and industrial paper manufacturing, and cartonboard manufacturing.

The tonnage for both tissue paper and wet pulp should be measured according to ordinary measurement rules applicable in the industry. The use of an equivalent measurement for wet pulp recognises that this product is likely to be in a wet form when measurement takes place (i.e. there is no requirement to produce dry pulp). For this activity pulp production is measured in the wet form and reported on an 'air dried' basis which is a term commonly used in the pulp and paper sector meaning when the moisture content of the pulp is 10 per cent.

To be eligible as a relevant product, for the sub-activity of tissue paper manufacturing, the outputs are saleable rolls of uncoated tissue paper where the product has a grammage range of 13 g/m2 - 75 g/m2, a moisture content in the range of 4 per cent to 11 per cent by mass and which is generally useable as a tissue paper product such as facial tissue, paper towel, bathroom tissue and napkins.

The tissue paper must have been produced by carrying on the activity as defined by subclause 319(1) to be eligible as a relevant product.

The tissue paper must be of saleable quality. This is defined by clause 202. In particular, any tonnes of tissue paper which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable tissue paper which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

To be eligible as a relevant product for the sub-activity of wet pulp manufacturing, the pulp must:

*         be produced from woodchips and/or sawdust;

*         be used in the integrated process of tissue paper manufacturing; and

*         be produced as part of carrying on the EITE activity as defined by subclause 319(1).

For all pulp and paper activities, an amount of paper or pulp can only be used to calculate one allocation of free carbon units. For example, pulp produced from woodchips and/or sawdust cannot be counted towards an allocation of free carbon units under both the tissue paper and printing and writing paper activities.

Division 20 - Integrated iron and steel manufacturing

Clause 320

Clause 320 provides that integrated iron and steel manufacturing is the chemical and physical transformation of iron ore into crude carbon steel products and hot-rolled carbon steel products involving all of the following processes:

a.       the chemical and physical transformation of iron ore into agglomerated iron ore, such as iron ore sinter or iron ore pellets;

b.      the carbonisation of coal (principally coking coal) into coke oven coke;

c.       the chemical and physical transformation of either or both of limestone or dolomite, into lime (including burnt lime and burnt dolomite);

d.      the chemical and physical transformation of iron ore feed, including agglomerated iron ore, into molten iron which includes the reduction of oxides of iron using carbon as the predominant reducing agent;

e.       the chemical and physical transformation of molten iron and cold ferrous feed, such as pig iron, flat iron and ferrous scrap, into one or more of the following:

                                i.            continuously cast carbon steel products;

                           ii.     ingots of carbon steel;

                         iii.     hot-rolled carbon steel products, which commenced hot-rolling at a temperature above 800°C.

This clause provides that integrated iron and steel manufacturing is the chemical and physical transformation of iron ore into crude carbon steel products and hot-rolled carbon steel products involving all of the following processes:

Note carbon steel is defined in subclause 201(1). Coke oven coke, within the integrated iron and steel manufacturing activity, means the solid product obtained from the carbonisation of coal (principally coking coal) at a high temperature and includes coke breeze and foundry coke. The meaning of coke oven coke within this activity has a separate meaning from the NGER determination.

Integrated iron and steel manufacturing is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the production of coke oven coke, lime (including burnt lime and dolomite), iron ore sinter or iron ore pellets all at a single facility, which were used as feedstocks to produce molten iron in a blast furnace. Molten iron was subsequently used to produce liquid steel in a basic oxygen steelmaking (BOS) plant and the steel was then cast, with the majority of cast steel hot rolled into long or flat products. The majority of waste gases from the coke ovens and the blast furnace were reticulated and combusted for the purposes of providing energy across the facility.

It is intended that all of the processes in the activity description are carried out in an integrated manner in accordance with how the activity was conducted during the period used to assess the eligibility. However, it is not necessary that all processes must be carried out at the same facility or company to satisfy the activity description. For example multiple facilities/companies carrying on an activity may submit a joint application. This provision also needs to be read in the context of subclause 320(2), which sets out that hot-rolled carbon steel products produced at a facility may also be considered within the activity where these same products were first produced into continuously cast carbon steel at a different facility conducting either the integrated iron and steel manufacturing activity or from the manufacture of carbon steel from cold ferrous feed activity.

It is not intended that it is necessary to produce both iron ore sinter and iron ore pellets to be considered carrying on the activity (i.e. only one form of agglomerated iron ore is required).

It is also not intended that it is necessary to produce either or both long and flat hot-rolled carbon steel to be considered carrying on the activity provided that continuously cast carbon steel products or ingots of carbon steel are produced. Subparagraph 320(1)(e)(iii) sets out that hot-rolled carbon steel products may be produced from molten iron and cold ferrous feed in the integrated iron and steel manufacturing activity. For the avoidance of doubt, this chemical and physical transformation typically proceeds via the intermediate production of continuously cast carbon steel products as the first step, and the second step then proceeds with the physical transformation of continuously cast carbon steel products into hot-rolled carbon steel products. These two intermediate production steps may proceed either at the same facility or at different facilities.

The activity description is only satisfied where the cold ferrous feed used in the integrated iron and steel manufacturing activity comprises no more than 30 per cent of the total combined mass of molten iron and cold ferrous feed used in the integrated iron and steel manufacturing activity at a facility (paragraph 320(3)(a)) to produce products of carbon steel over the relevant financial year (the '30 per cent test'). For a standard application (including significant expansions) the tests outlined in paragraphs 320(3)(a) are in relation to the financial year before the application year. Thus, for a 2012-13 application, the 30 per cent test would need to be satisfied with respect to the period from 1 July 2011 to 30 June 2012.

Paragraph 320(3)(b) provides for circumstances where it is not possible for a newly operating facility to prove that the activity has been conducted over the full relevant financial year given that the year is in the future. Accordingly, for a newly operating integrated iron and steel manufacturer, the test as outlined is that it is likely that cold ferrous feed comprises no more than 30 per cent of the total combined mass of molten iron and cold ferrous feed likely to be used at a facility to produce products of carbon steel over the relevant financial year.

If these tests in subclause 320(3) are not met, the activity is not carried out and no units may be issued in respect of the relevant application year. The following year the applicant would be eligible to come back as a newly operating facility and would be allocated on the basis of new and expected additional production.

The inputs of the activity have been defined to include iron ore, coal (principally coking coal), either or both limestone or dolomite and cold ferrous feed, such as pig iron, flat iron and ferrous scrap.

The outputs of this activity are agglomerated iron ore, such as iron ore sinter or iron ore pellets, coke oven coke, lime, continuously cast carbon steel products, ingots of carbon steel and hot-rolled carbon steel products which commenced hot rolling at temperatures in excess of 800°C. Products such as, but not limited to, iron ore pellets, coke oven coke, lime, pig iron or flat iron produced via the carrying on of the activity are not to be considered relevant products for any other EITE activity. Carbon steel and coke oven coke are defined in clause 201.

The activity does not include the upstream processes such as extraction, concentrating, crushing or screening of iron ore, or the mining of coal, limestone or dolomite. The activity does not include cold ferrous feed that is not mixed with molten iron before being subsequently transformed into carbon steel products as in the EITE activity of manufacture of carbon steel from cold ferrous feed nor does it include the manufacture of pig iron which is subsequently sold from the activity boundary without undergoing the transformation into continuously cast steel or steel ingots. Further, the activity does not include downstream processes such as finishing processes, including, but not limited to, cold-rolling, annealing, pickling or coating of carbon steel products, nor the processing of any by-products from the integrated iron and steel manufacturing activity not described. As such, the relevant facility for the application is that where the outputs are actually produced and does not extend to separate facilities which may conduct extraction, concentrating, crushing or screening of iron ore, the mining of coal, limestone or dolomite, cold-rolling, annealing, pickling or coating of carbon steel products but not the activity as described (as outlined by clause 502).

Subclauses 320(6) to (12) provide that there are seven sets if allocative baselines for the relevant products produced under the integrated iron and steel manufacturing activity. All baselines are applicable where the product described is produced as part of carrying on the EITE activity as outlined in subclauses 320(1) to (3).

*         Subclause 320(6) outlines that the basis of issue is per tonne of iron ore sinter on a dry weight basis that meets the necessary requirements for use in the integrated iron and steel manufacturing process;

*         Subclause 320(7) outlines that the basis of issue is per tonne of iron ore pellets on a dry weight basis that meet the necessary requirements for use in the integrated iron and steel manufacturing process;

*         Subclause 320(8) outlines that the basis of issue is per tonne of coke oven coke on a dry weight basis;

*         Subclause 320(9) outlines that the basis of issue is per tonne of lime on a dry weight basis that meets the necessary requirements for use in the integrated iron and steel manufacturing process;

*         Subclause 320(10) outlines that the basis of issue is per tonne of either or both of saleable continuously cast carbon steel products and saleable ingots of carbon steel and is not a relevant product for the activity of the manufacture of carbon steel from cold ferrous feed;

*         Subclause 320(11) outlines that the basis of issue is per tonne of saleable long products of hot-rolled carbon steel that is in coils or straight lengths, is generally produced in rod, bar and structural (section) mills and has a cross sectional shape such as I, T, Y, U, V, H, C, L, square, rectangular, round, flat, hexagonal, angle, channel, structural beam profile or rail profile; and

*         Subclause 320(12) outlines that the basis of issue is per tonne of saleable flat products of hot-rolled carbon steel that is flat in profile, such as plate and hot rolled coil, is generally produced in hot strip and plate mills, is generally greater than 600 mm in width and is generally less than 150 mm in thickness.

The relevant tonnes of iron ore sinter, iron ore pellets, coke oven coke and lime must be expressed on a dry weight basis. A dry weight estimate for the tonnes of these products is assumed to be represented by a measurement of the product 'as produced' (i.e. the tonnes produced immediately leaving the plant, kiln or oven, such that all moisture is assumed to have been driven off). The tonnes of relevant product on a dry weight basis may also be demonstrated in accordance with other ordinary measurement rules applicable in the industry. The iron ore sinter, iron ore pellets and lime may be relevant products even if they are not directly used in the iron and steel making process as long as it can be demonstrated they meet the necessary requirements for use in the integrated iron and steel manufacturing process.

To be eligible as a relevant product, carbon steel products listed at subclauses 320(5) to (7) must accord with the definition of carbon steel, as containing, by mass, more iron (Fe) than any other single element and have a carbon (C) concentration of less than 2 per cent. Relevant standards for measuring the carbon (C) concentration in carbon steel include AS3641.1-1999 Recommended Practice for Atomic emission Spectrometric Analysis, Part 1: Principles and Techniques and AS/NZS 1050.1:1996 Methods for the Analysis of Iron and Steel, Part 1: Sampling Iron and Steel for Chemical Analysis.

To be eligible as a relevant product, such as iron ore sinter or iron ore pellets, coke oven coke, lime, continuously cast carbon steel products and ingots of carbon steel must have been produced by carrying on the activity as defined by the relevant paragraphs of 320(1)(a) to (e) and subject to the conditions outlined in subclause 320(3). While it is typical for the majority of the relevant product of continuously cast carbon steel products to be used as a feedstock to produce another relevant product (i.e. products of hot-rolled carbon steel), it is not necessary for the total output of continuously cast carbon steel product to be hot rolled within the activity boundary. In particular, continuously cast carbon steel which is then transformed into hot-rolled product may be both a relevant product as continuously cast carbon steel and as hot-rolled carbon steel.

As per paragraphs 320(11)(d) to (g), 320(12)(e) to(h) and subclause 320(13), to be eligible as relevant products, hot-rolled carbon steel which are flat or long products, produced from continuously cast carbon steel products must either:

*         be produced through the carrying on of the activity as defined by relevant paragraphs 320(1)(a) to(e) to be eligible as a relevant product (whether at a single site or multiple sites through an activity group); and/or

*         be produced through the carrying on of the activity as set out in subclause 320(2) from continuously cast carbon steel products produced through carrying on the activity as defined by relevant paragraphs 320(1)(a) to (e) at another site carrying on the integrated iron and steel activity which is outside of the activity group of the activity the subject of the application; and/or

*         be produced from the carrying on of the activity as set out in subclause 320(2) from continuously cast carbon steel products produced through the activity of the manufacture of carbon steel from cold ferrous feed.

The tonnes of all relevant products reported as produced by this activity must not be used to claim allocations for any other EITE activity including the manufacture of carbon steel from cold ferrous feed.

It should also be noted that the definitions of long and flat products use the word 'generally' in a number of places to accommodate the possibility of limited exceptions to these requirements being met for every tonne of hot-rolled product where the majority of the hot-rolled product does meet the requirement. However, a tonne of hot-rolled product cannot be both a flat and a long product.

The tonnes of continuously cast carbon steel products, long product hot-rolled carbon steel and flat product hot-rolled carbon steel must be of saleable quality. Therefore, tonnes that are scrapped, recycled, remelted, lost or discarded are not to be included in the tonnes of relevant product.

Division 21 - Manufacture of carbon steel from cold ferrous feed

Clause 321

Clause 321 provides that manufacture of carbon steel from cold ferrous feed is the physical and chemical transformation of cold ferrous feed (such as ferrous scrap, pig iron and flat iron) by heating and melting into liquid steel and the subsequent casting of the liquid steel to produce one or more of the following:

a.                  continuously cast carbon steel products;

b.                  ingots of carbon steel;

c.                  hot-rolled carbon steel products, which commenced hot-rolling over 800°C.

Manufacture of carbon steel from cold ferrous feed is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the heating and melting of cold ferrous feed such as recycled scrap steel and iron into liquid steel in an electric arc furnace. The steel was then continuously cast or cast into ingot, with the majority of the continuously cast steel hot rolled into long or flat products of hot-rolled carbon steel.

It is intended that any alternative processes of melting cold ferrous feed, such as the use of electric induction furnaces or any other process which does not use electricity as the primary source of energy to produce carbon steel products described in paragraphs 321(1)(a) to(c) are considered to fit within the activity description.

It is not necessary that all processes must be carried out at the same facility to satisfy the activity description. For example multiple facilities carrying on an activity may submit a joint application. This provision also needs to be read in the context of subclause 321(2), which sets out that hot-rolled carbon steel products produced at a facility may also be considered within the activity where these same products were first produced into continuously cast carbon steel at a different facility conducting either the manufacture of carbon steel from cold ferrous feed activity or from the integrated iron and steel manufacturing activity.

It is not intended that it is necessary to produce either or both long and flat hot-rolled carbon steel to be considered carrying on the activity provided that continuously cast carbon steel products or ingots of carbon steel are produced. Paragraph 321(1)(c) sets out that hot-rolled carbon steel products may be produced from cold ferrous feed in the manufacture of carbon steel from cold ferrous feed activity. For the avoidance of doubt, this chemical and physical transformation typically proceeds via the intermediate production of continuously cast carbon steel products as the first step, and the second step then proceeds with the physical transformation of continuously cast carbon steel products into hot-rolled carbon steel products. These two intermediate production steps may proceed either at the same facility or at different facilities.

The input of the activity has been defined to be cold ferrous feed, such as ferrous scrap, pig iron and flat iron. This extends to any iron bearing material and there are no limits on the different classes or categories of iron bearing material which may be used nor a maximum amount of a particular type of iron bearing material that might be used.

The outputs of this activity are continuously cast carbon steel products, ingots of carbon steel and hot-rolled carbon steel products which commenced hot rolling at temperatures in excess of 800°C. Carbon steel is defined in clause 201.

The activity does not include the upstream processes which may include the production of cold ferrous feed such as the production of pig iron from iron ore or from other ferrous-bearing products. Cold ferrous feed used to supplement molten iron that is subsequently transformed into carbon steel products in the EITE activity of integrated iron and steel manufacturing is not to be considered an input to this activity. Further, the activity does not include downstream processes such as finishing processes, including, but not limited to, cold-rolling, annealing, pickling or coating of carbon steel products, nor the processing of any by-products form the production of carbon steel from cold ferrous feed. As such, the relevant facility for the application is that where the outputs are actually produced and does not extend to separate facilities which may conduct cold ferrous feed production from iron ore, cold-rolling, annealing, pickling or coating of carbon steel products but not the activity as described.

Subclause 321(5) to (7) provides that there are three allocative baselines relevant for the activity of manufacture of carbon steel from cold ferrous feed. All baselines are applicable where the product described is produced as part of carrying on the EITE activity as outlined in subclauses 321(1) to (2).

*         Subclause 321(5) outlines that the basis of issue is per tonne of either or both of saleable continuously cast carbon steel products and saleable ingots of carbon steel and is not a relevant product for the activity of integrated iron and steel manufacturing;

*         Subclause 321(6) outlines that the basis of issue is per tonne of saleable long products of hot-rolled carbon steel that is in coils or straight lengths, is generally produced in rod, bar and structural (section) mills and has a cross sectional shape such as I, T, Y, U, V, H, C, L, square, rectangular, round, flat, hexagonal, angle, channel, structural beam profile or rail profile; and

*         Subclause 321(7) outlines that the basis of issues is per tonne of saleable flat products of hot-rolled carbon steel that is flat in profile, such as plate and hot rolled coil, is generally produced in hot strip and plate mills, is generally greater than 600 mm in width and is generally less than 150 mm in thickness.

To be eligible as a relevant product, carbon steel products listed must accord with the definition of carbon steel in clause 201, as containing, by mass, more iron (Fe) than any other single element and have a carbon (C) concentration of less than 2 per cent. Relevant standards for measuring the carbon (C) concentration in carbon steel include AS3641.1-1999 Recommended Practice for Atomic emission Spectrometric Analysis, Part 1: Principles and Techniques and AS/NZS 1050.1:1996 Methods for the Analysis of Iron and Steel, Part 1: Sampling Iron and Steel for Chemical Analysis.

To be eligible as a relevant product, continuously cast carbon steel products and/or ingots of carbon steel must have been produced by carrying on the activity as defined by the relevant paragraphs 321(1)(a) to (c). While it is typical for the majority of the relevant product of continuously cast carbon steel products to be used as a feedstock to produce another relevant product (i.e. products of hot-rolled carbon steel), it is not necessary for the total output of continuously cast carbon steel product to be hot rolled within the activity boundary. In particular, continuously cast carbon steel which is then transformed into hot-rolled product may be both a relevant product as continuously cast carbon steel and as hot-rolled carbon steel.

As per paragraphs 321(6)(d) to (g), 321(7)(f) to (h) and subclause 321(8), to be eligible as relevant products, hot-rolled carbon steel which are flat or long products, produced from continuously cast carbon steel products must either:

*         be produced through the carrying on of the activity as defined by relevant paragraphs 321(1)(a) to (c) to be eligible as a relevant product (whether at a single site or multiple sites through an activity group); and/or

*         be produced through the carrying on of the activity as set out in subclause 321(2) from continuously cast carbon steel products produced through carrying on the activity as defined by relevant paragraphs 321(1)(a) to (c) at another site carrying on the manufacture of carbon steel from cold ferrous feed activity which is outside of the activity group of the activity the subject of the application; and/or

*         be produced from the carrying on of the activity as set out in subclause 321(5) from continuously cast carbon steel products produced through the activity of the integrated iron and steel manufacturing.

It is also important to note where multiple facilities form an activity group, all relevant products produced as part of that activity across those facilities must be referred to each site in the activity group. This is the case even where some products (such as continuously cast carbon steel products) are only produced at one of the sites.

It should also be noted that the definitions of long and flat products use the word 'generally' in a number of places to accommodate the possibility of limited exceptions to these requirements being met for every tonne of hot-rolled product where the majority of the hot-rolled product does meet the requirement. However, a tonne of hot-rolled product cannot be both a flat and a long product.

The tonnes of continuously cast carbon steel products, long product hot-rolled carbon steel and flat product hot-rolled carbon steel must be of saleable quality. Therefore, tonnes that are scrapped, recycled, remelted, lost or discarded are not to be included in the tonnes of relevant product.

The tonnes of continuously cast carbon steel products, ingots of carbon steel and hot-rolled long or flat products reported as produced by this activity must not be used to claim allocations for any other EITE activity including integrated iron and steel manufacturing.

Division 22 - Petroleum refining

Clause 322

Clause 322 provides that the activity of petroleum refining is the chemical and physical transformation of stabilised crude petroleum oil, which may be supplemented with one or more of condensate, tallow, vegetable oil, eligible petroleum feedstocks and other petroleum feedstocks, to produce a range of refined petroleum products through the following processes:

a)        the distillation of stabilised crude petroleum oil, condensate, tallow, vegetable oil or other petroleum feedstocks;

b)        the adjustment of the molecular weight and structure of hydrocarbons (such as that which occurs through catalytic or hydro-cracking, steam or catalytic reforming, polymerisation, isomerisation or alkylation);

c)        the blending of products from distillation and adjustment of molecular weight and structure to produce Australian and international standard diesel, jet fuel and unleaded petrol;

d)       the production of two or more of the following refinery products saleable in Australian or international markets: hydrogen, ethane, propane, refinery grade propylene, polymer grade propylene, liquefied petroleum gas, butane, naphtha, aviation gasoline, before oxygenate blend, kerosene, heating oil, solvents, lubricant base stocks, leaded petrol, waxes and bitumen.

The activity is subject to the conditions outlined in subclauses 322(2) and (3). While each of the processes in (a) to (d) above must be conducted within the relevant financial year to be considered conducting the EITE activity, it is not necessary that all four processes need be conducted in relation to every output listed in items (c) and (d) above.

The activity is not satisfied where the total kilolitres of Australian and international standard diesel, jet fuel, unleaded petroleum, bitumen or lubricant base stocks are not equal to or greater than 75 per cent of the total eligible inputs to the activity (the '75 per cent test'). For a standard application (including significant expansions) the test outlined in subparagraph 322(2)(b)(i) is in relation to the financial year before the application year. Thus, for a 2012-13 application, the 75 per cent test would need to be satisfied with respect to the period from 1 July 2011 to 30 June 2012. If these tests in subclause 322(2) are not met, the activity is not carried out and no free carbon units may be issued in respect of the relevant application year. The following year the applicant would be eligible to come back as a newly operating facility and would be allocated on the basis of 'new and expected additional production'.

The terms condensate, eligible petroleum feedstocks, stabilised crude petroleum oil and unleaded petrol are defined in clause 201.

Petroleum refining is an EITE activity eligible for assistance at the highly emissions-intensive rate.

It is not intended that any alternative processes to produce any of the products listed in (c) and (d) above fit within the activity description.

The activity description is not satisfied through the processing of other feedstocks not listed as inputs to the petroleum refining activity. The activity is also not satisfied in the undertaking of the production of carbon black or ethene (ethylene) as defined under the clauses 305 and 323 respectively. Petroleum refining as defined in the clauses is not satisfied by crude oil or natural gas exploration, production, transmission or distribution, waste oil reprocessing or by only blending oil or other feedstocks to produce any of the final products.

The activity would not be satisfied where the total kilolitres of Australian and international standard diesel, jet fuel, unleaded petroleum, bitumen or lubricant base stocks are not equal to or greater than 75 per cent of the total eligible inputs to the activity (the '75 per cent test'). For a standard application (including significant expansions) the test outlined in subparagraph 322(2)(b)(i) is in relation to the financial year before the application year. Thus, for a 2012-13 application, the 75 per cent test would need to be satisfied with respect to the period from 1 July 2011 to 30 June 2012. If these tests in subclause 322(2) are not met, the activity is not carried out and no free carbon units may be issued in respect of the relevant application year. The following year the applicant would be eligible to come back as a newly operating facility and would be allocated on the basis of 'new and expected additional production'.

The inputs of the activity have been defined to include stabilised crude petroleum oil, condensate, tallow, vegetable oil, eligible petroleum feedstocks (as defined in clause 201) and other petroleum feedstocks (such as feedstocks which would not meet all of the criteria to qualify as eligible petroleum feedstocks but are nonetheless used in the process). However, only certain inputs are the basis of issue for free carbon units as outlined in subclause 322(6).

The outputs of the activity, namely diesel, unleaded petrol, jet fuel, hydrogen, ethane, propane, refinery grade propylene, polymer grade propylene, liquefied petroleum gas, butane, naphtha, aviation gasoline, before oxygenate blend, kerosene, heating oil, solvents, lubricant base stocks, leaded petrol, waxes and bitumen are all to be of standard acceptable either for sale in Australia or internationally. Other by-products may also be produced (such as fuel oil and intermediate products).

The activity does not include the upstream exploration, extraction, and any production or processing of stabilised crude petroleum oil, condensate, tallow, vegetable oil or other petroleum feedstocks prior to its introduction to the activity. Any eligible petroleum feedstocks reported as relevant products are not to have been produced by undertaking any EITE activity as defined in these clauses, such as another instance of petroleum refining or high purity ethanol production. As such, the relevant facility for the application is that where the stabilised crude petroleum oil, condensate, tallow, vegetable oil and eligible petroleum feedstocks are actually processed in the conduct of petroleum refining and does not extend to separate facilities which may conduct the production of these inputs or the further refining of any petroleum products at a separate facility but not the activity as described (as outlined by clause 502). Further, the activity does not include the storage of either the inputs or final products at any remote facilities. I t is expected that where these processes are carried out this would not be regarded as carrying out the EITE activity for the purposes of clause 322.

Subparagraph 322(2)(b)(ii) outlines the 75 per cent test appropriate for the carrying out of the activity in the event of a newly operating facility. This clause provides for circumstances where, because an application may be made prior to the year for which production will take place, it is not possible for a newly operating facility to prove that the activity has been conducted over the full relevant financial year.  Accordingly, for a newly operating petroleum refinery, the test as outlined is that it is likely that the combined volume of diesel, jet fuel, unleaded petrol, lubricant base stocks and bitumen, at 15°C and 1 atmosphere, will be equal to or greater than 75 per cent of the total kilolitres of the inputs of stabilised crude petroleum oil, condensate, tallow, vegetable oil and eligible petroleum feedstocks. An applicant would be expected to present probative evidence to establish this.

Subclause 322(3) is a clarification to the clause which provides that not every process needs to be conducted in relation to each output. For instance, some products are only distilled without the adjustment of the molecular weight and structure.

Subclause 322(6) (subject to subclause 322(7)) outlines that the basis of issue is per kilolitre of stabilised crude petroleum oil, condensate, tallow, vegetable oil and eligible petroleum feedstocks.

To be eligible as a relevant product the combined volume of diesel, jet fuel, unleaded petrol, lubricant base stocks and bitumen, at 15°C and 1 atmosphere, that is produced from the basis of issue products is equal to or greater than 75 per cent of the total kilolitres of those inputs used in the financial year relevant to the calculation of the allocation of free carbon units.

Where 'new or expected additional production' is involved, a financial year may be used which will not have ended at the time of the application. In this situation the test is whether the amounts are likely to be equal to or greater than 75 per cent. Where the test is not met for a financial year, no relevant product is used to calculate free carbon units. This is a necessary condition as petroleum refining is different to other activities in that the calculation is on the basis of inputs to the processes rather than outputs.

The stabilised crude petroleum oil, condensate, tallow, vegetable oil and eligible petroleum feedstocks must have been processed by carrying on the activity as defined by subclause 322(1) to (3) to be eligible as a relevant product. That is, to be reported as the relevant products the input must be distilled and/or have had their molecular weight and structure adjusted. Subsequently the products of these two processes must be either blended into Australian or International standard diesel, unleaded petrol and jet fuel, produced into the products listed in paragraph 322(1)(d) or transformed into another petroleum by-product (such as fuel oil). Accordingly, an input which is just used in blending without distillation or the adjustment of molecular weight and structure (e.g. a blendstock) would not be included as a relevant product for the basis of issuance of free carbon units.

Division 23 - Production of ethene (ethylene)

Clause 323

Clause 323 provides that the production of ethene is the chemical transformation of hydrocarbons to produce ethene (C2H4, ethylene), where the concentration of ethene (C2H4, ethylene) is equal to or greater than 99 per cent with respect to mass.

Production of ethylene is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved steam cracking ethane to produce ethene (ethylene) with supplemental feedstocks used at times, including naphtha, liquefied petroleum gas or its components propane and butane. In this period by-products of the activity including refinery grade propene (propylene) and pyrolysis gasoline were also produced.

It is intended that the alternative production process of catalytic cracking to produce ethene (ethylene) where the concentration of ethene (ethylene) is equal to or greater than 99 per cent with respect to mass would be considered to fit within the activity definition. It is also considered that ethene produced at a petroleum refinery through downstream processing of hydrocarbons, where the concentration of ethene is equal to or greater than 99 per cent with respect to mass fits within the activity description and is a separate activity to petroleum refining.

This activity is not satisfied through the undertaking of ethene production that does not produce ethene that is equal to or greater than 99 per cent with respect to mass.  The production of and further refining of refinery grade propene (propylene) into polymer grade propene (propylene) is not considered part of this activity.

The inputs of the activity have been defined to include any hydrocarbon which is used to produce the final ethane product as described.

The output of the activity is ethene (C2H4, ethylene), where the concentration of ethene (C2H4, ethylene) is equal to or greater than 99 per cent with respect to mass.

The activity does not include the upstream extraction or production of the inputs to the activity including the production of ethane, propane, butane, LPG, naphtha or other hydrocarbon feedstock.  Further, the activity does not include the downstream processing of ethene (ethylene) to polyethylene, or the processing of any by-products from the production of ethene (ethylene) such as pyrolysis gasoline or refinery grade propylene. As such, the relevant facility for the purpose of the application is that where the ethene (ethylene) is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing of either the ethene (ethylene) or any relevant by-products but not the activity as described (as outlined by clause 502).

Subclause 323(4) outlines that the basis of issue is per tonne of 100 per cent equivalent ethene (ethylene).

The 100 per cent equivalent ethene (ethylene) is that contained within the ethene (ethylene) where the concentration of ethylene is equal to or greater than 99 per cent with respect to mass.

To be eligible as a relevant product the ethene (ethylene) the ethene (ethylene) must be:

*         produced by carrying on the EITE activity; and

*         of saleable quality.

The relevant standards for determining the concentration of ethene in the final saleable product include:

*         ASTM D86-09e1 Standard Test Method for Distillation of Petroleum Products at Atmospheric Pressure;

*         ASTM D2504 - 88(2004)e1 Standard Test Method for Noncondensable Gases in C2 and Lighter Hydrocarbon Products by Gas Chromatography;

*         ASTM D2505 - 88(2004)e1 Standard Test Method for Ethylene, Other Hydrocarbons, and Carbon Dioxide in High-Purity Ethylene by Gas Chromatography;

*         ASTM D4052 - 09 Standard Test Method for Density, Relative Density, and API Gravity of Liquids by Digital Density Meter; and

*         ASTM D6159 - 97(2007) Standard Test Method for Determination of Hydrocarbon Impurities in Ethylene by Gas Chromatography.

The ethene (ethylene) must have been produced by carrying on the activity as defined by subclause 323(1) to be eligible as a relevant product.  Accordingly, the ethene (ethylene) must have been produced to have a concentration of equal to or greater than 99 per cent from the relevant inputs to be included in the tonnes of relevant product.

The ethene (ethylene) must be of saleable quality, as defined by clause 202. In particular, the tonnes of ethene (ethylene) which are recycled, vented or flared are not to be included in the tonnes of relevant product.

Division 24 - Production of polyethylene

Clause 324

Clause 324 provides that the production of polyethylene is the chemical transformation of ethene (C2H4, ethylene) to produce polyethylene with a standard density of equal to or greater than 0.910 g/cm3 where the standard density refers to the density of the material moulded to a thickness of 1.9 mm using Procedure C of Annex A1 of ASTM D4703.

Production of polyethylene is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved polymerisation of ethene (ethylene) with additives, including comonomers, resins and other additives to produce linear low density polyethylene, low density polyethylene and high density polyethylene.

It is intended that alternative polymerisation processes, the use of different comonomers, resins and other additives to those used during the baseline period or the production of other forms of polyethylene such as medium density polyethylene where the polyethylene's standard density is equal to or greater than 0.910 g/cm3 would be considered to fit within the activity description.

This activity is not satisfied through the undertaking of polyethylene production that does not produce polyethylene that is equal to or greater than 0.910 g/cm3. It does not extend to the production of ethene (ethylene) co-polymers and is not intended to include other polymerisation processes which use any monomer that is not ethene (ethylene) such polypropylene manufacture.

The inputs to the activity have been defined as ethene. To conduct this activity there may also be additives and additional chemicals reacted with the ethene to produce polyethylene with specific qualities.

The output of the activity is saleable polyethylene as defined. This may include pelletised grades of low density, linear-low density, medium and high density polyethylene as long as they conform to the conditions as outlined in subclause 324(1).

The activity does not include the upstream production of ethene (ethylene). Further, the activity does not include the downstream processing of polyethylene following the pelletisation process including any moulding, blowing or shaping of plastic products, or the processing of any by-products from the production of polyethylene. As such, the relevant facility for the purpose of the application is that where the polyethylene is actually produced in its pelletised form and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).

Subclause 324(4) outlines that the basis of issue is per combined tonne of saleable pelletised polyethylene with a standard density of equal to or greater than 0.910 g/cm3.

The standard density of the polyethylene product should be measured using material moulded to a thickness of 1.9 mm using Procedure C of Annex A1 of ASTM D4703. As ASTM D4703 is updated, it is intended that the updated procedures will apply to the density measurement.

To be eligible as a relevant product, the tonnes of polyethylene should be reported on a combined tonnes of saleable pelletised polyethylene basis, that is the tonnes of polyethylene reported as the output of the activity.

The polyethylene must have been produced by carrying on the activity as defined by subclause 324(1) to be eligible as a relevant product. Accordingly, the polyethylene must have been produced to have a standard density of equal to or greater than 0.910 g/cm3 measured in accordance with the procedures specified for the relevant product, that is Procedure C of Annex A1 of ASTM D4703.

The polyethylene must be of saleable quality, as defined by clause 202. In particular, the tonnes of pelletised polyethylene which are recycled, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable polyethylene but then that polyethylene is remelted and reshaped, their tonnage should be counted only once for the definition of a relevant product.

Division 25 - Production of synthetic rutile

Clause 325

Clause 325 provides that the production of synthetic rutile is the chemical transformation of ilmenite ore (ore containing FeTiO3) through the reduction of iron oxides in order to increase the titanium dioxide (TiO2) concentration to produce synthetic rutile that has a titanium dioxide (TiO2) concentration of equal to or greater than 88 per cent and less than 95.5 per cent, and has an iron (Fe) concentration of greater than 0.5 per cent.

Production of synthetic rutile is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved removing the contained iron in ilmenite to produce synthetic rutile using the Becher process. In the Becher process ilmenite (containing 55 per cent to 65 per cent TiO2) was fed to a rotary kiln to reduce the iron oxide to metallic iron. Ilmenite grains were then converted to porous synthetic rutile grains with metallic iron and other impurity inclusions. The iron was precipitated as hydrated iron oxide from the synthetic rutile grains and a mild acid treatment was used to dissolve the impurities and any residual iron.

The production of synthetic rutile and the production of white titanium dioxide pigment occur within the same production chain. Because of the requirement for synthetic rutile to have an iron concentration of greater than 0.5 per cent, the activities of the production of synthetic rutile and the production of white titanium dioxide pigment cannot both be conducted to produce the same tonne of output.

It is intended that alternative processes of the Benelite process to produce synthetic rutile would be considered to fit within the activity description. In the Benilite process ilmenite is partially reduced in a rotary kiln, followed by a multi-stage hydrochloric acid leach under pressure to remove impurities. The leached product is calcined to produce a synthetic rutile.

The activity description is not satisfied through the undertaking of mining and concentrating (including wet and dry concentrating and electrostatic separation) of natural rutile.

The inputs of the activity have been defined to include any grade of ilmenite ore (ore containing FeTiO3).

The output of this activity is saleable synthetic rutile directly produced from ilmenite ore (ore containing FeTiO3), where synthetic rutile has a content of equal to or greater than 88 per cent and less than 95.5 per cent titanium dioxide, and an iron concentration of greater than 0.5 per cent.

The activity does not include the upstream extraction (mining) and separation of ilmenite from other minerals. Further, the activity does not include the downstream production of white titanium dioxide pigment, or the processing of any by-products from the production. As such, the relevant facility for the application is that where the synthetic rutile is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).

Subclause 325(4) outlines that the basis of issue is per tonne of saleable synthetic rutile directly produced from ilmenite ore (ore containing FeTiO3) which results from carrying out the activity as described, where synthetic rutile has a content of equal to or greater than 88 per cent and less than 95.5 per cent titanium dioxide (TiO2), and an iron (Fe) concentration of greater than 0.5 per cent, with respect to mass.

The tonnage of the relevant synthetic rutile should be measured accordingly to ordinary measurement rules applicable in the industry.

The synthetic rutile must have been produced by carrying on the activity as defined by subclause 325(1) to be eligible as a relevant product. For instance, where imported synthetic rutile is blended with product produced from the activity, only the domestically produced synthetic rutile would be included in the tonnes of the relevant product.

The synthetic rutile must be of saleable quality, as defined by clause 202. In particular, the tonnes of synthetic rutile which are scrapped, lost or discarded are not to be included in the tonnes of relevant product.

Division 26 - Production of manganese

Clause 326

Clause 326 provides that the production of manganese activity is the physical and chemical transformation of manganese (Mn) ore into manganese sinter (Mn3O4); and/or manganese ore and/or manganese sinter into ferromanganese alloy and/or silicomanganese alloy.

Production of manganese is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved an electric arc furnace process where manganese ore was smelted to create manganese ferroalloys (ferromanganese and silicomanganese). Before smelting, smaller sized particles of manganese ore were sintered in a sintering downdraft strand to produce manganese sinter, either for use in the electric arc furnace or for external sale. The use of sinter in the process reduced the overall energy intensity of the electric arc furnaces.

It is intended that alternative processes such as the use of a blast furnace to produce manganese ferroalloys from manganese ore would be considered to fit within the activity description. It is also intended that the production of any combination of the manganese products, including producing each product on a stand-alone basis, would qualify as undertaking this activity. For example, a stand-alone sinter producer which did not produce either ferromanganese or silicomanganese would be considered to be undertaking the activity, as would a stand-alone ferromanganese producer or silicomanganese producer that did not produce sinter.

The activity description is not satisfied through the undertaking of the production of manganese where the final product is not:

*         manganese sinter with a concentration of manganese equal to or greater than 40 per cent with respect to mass;

*         ferromanganese alloy with a concentration of manganese equal to or greater than 67 per cent manganese with respect to mass; and/or

*         silicomanganese with a concentration of manganese equal to or greater than 60 per cent with respect to mass and a concentration of silicon (Si) equal to or greater than 12 per cent with respect to mass.

The inputs of the activity have been defined to be manganese ore and/or manganese sinter. However, it is intended that slag from a ferromanganese furnace can be used as an input into silicomanganese smelting if the ferromanganese smelting occurs on the same facility as the silicomanganese smelting. However, silicomanganese produced from bought-in ferromanganese slag is not considered to be an output of the activity or a relevant product.

The outputs of the activity are manganese sinter, which is commonly further refined to produce manganese or manganese ferroalloy, and ferromanganese and silicomanganese alloys commonly used in the production of steel.

The activity does not include the upstream mining and pre-processing of manganese ore. Further, the activity does not include the production of any other manganese products apart from manganese sinter, ferromanganese alloy or silicomanganese alloy, the post-cast rolling, extruding, re-forming or alloying of ferromanganese or silicomanganese, or the production of any by-products from the activity. As such, the relevant facility for the application is that where the manganese sinter, ferromanganese alloy or silicomanganese alloy are actually produced and does not extend to separate facility which may conduct mining and pre-processing of manganese ore, the production of any other manganese products, or the post-cast rolling, extruding, re-forming or alloying of ferromanganese or silicomanganese but not the activity as described (as outlined by clause 502). 

Subclauses 326(4) to (6) provide that there are three bases on which carbon units can be issued that are relevant for the activity of production of manganese:

*         Subclause 326(4) outlines that the basis of issue for manganese sinter is per tonne of manganese sinter with a concentration of manganese equal to or greater than 40 per cent with respect to mass;

*         Subclause 326(5) outlines that the basis of issue for the production of ferromanganese alloy is per tonne of ferromanganese alloy with a concentration of manganese equal to or greater than 67 per cent manganese with respect to mass; and

*         Subclause 326(6) outlines that the basis of issue for the production of silicomanganese, is per tonne of silicomanganese alloy with a concentration of manganese equal to or greater than 60 per cent with respect to mass and a concentration of silicon (Si) equal to or greater than 12 per cent with respect to mass.

The tonnage of the relevant outputs should be measured according to measurement techniques in practice in the industry.

To be eligible as relevant product:

*         the manganese sinter, ferromanganese alloy or silicomanganese alloy must be produced by carrying on the EITE activity; and

*         the manganese sinter, ferromanganese alloy or silicomanganese alloy must be of saleable quality; and

*         the manganese sinter, ferromanganese alloy or silicomanganese alloy must have been produced by carrying on the activity as defined by subclause 326(1) to be eligible as a relevant product.

The manganese sinter, ferromanganese alloy or ferromanganese alloy must be of saleable quality, as defined by clause 202. Manganese sinter, ferromanganese alloy or silicomanganese alloy which is discarded or reprocessed because it does not meet output specifications is not of saleable quality.

 

 

Division 27 - Production of clinker

Clause 327

Clause 327 provides that the production of clinker is the physical and chemical transformation of calcium carbonate compounds (CaCO3, limestone), other calcium carbonate (CaCO3) feedstocks; and either or both of clay, silicon dioxide (SiO2, silica), iron (Fe) and/or aluminium oxide (Al2O3, alumina) feedstocks. These feedstocks are fused together at a temperature greater than 1000ºC into Portland cement clinker that has a concentration of calcium silicates equal to or greater than 60 per cent by mass, has a concentration of magnesium oxide (MgO) less than or equal to 4.5 per cent and is useable in the making of Portland cement.

Production of clinker is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the fusing together of calcium carbonate compounds and either clay and/or silicon dioxide and/or iron and/or aluminium oxide in a kiln to create a concentration of calcium silicates that form clinker.

The activity description is not satisfied through the undertaking of clinker production where the final product is not Portland cement clinker.

The inputs to the activity have been defined to include calcium carbonate sources (including limestone and shell sand), clay, silicon dioxide, iron and aluminium oxide feedstocks.

The output of the activity is saleable Portland cement clinker. That is, the solid material produced by fusing calcium carbonate and other feedstocks in a kiln that has sintered into nodules. Clinker can later be ground with calcium sulfate dihydrate (gypsum) and other additives to become Portland cement clinker.

The activity does not include the upstream extraction of raw materials, crushing or grinding of raw material inputs that are not contiguous with the clinker production process. Further, the activity does not include the downstream processing of clinker including rolling, milling and blending processes into cement. However, it is understood that some processing or ancillary processes excluded from the definition may be conducted at the same facility as an EITE activity and these processes do not impact the eligibility for assistance under Jobs and Competitiveness Program.

Subclause 327(5) outlines that the basis of issue is per tonne of saleable Portland cement clinker that consists of at least 60 per cent by mass of calcium silicates, a maximum magnesium oxide (MgO) mass content of 4.5 per cent and is useable in the making of Portland cement.

The tonnage of the relevant of Portland cement clinker must be weighed on a dry weight basis in accordance with ordinary measurement rules applicable in the industry.

The production of clinker must have been produced by carrying on the activity as defined by subclause 327(1) and be consistent with the conditions outlined in subclause 327(2) to be eligible as a relevant product.

The clinker must be of saleable quality, as defined by clause 202. In particular, the tonnes of clinker, which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable clinker which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

Division 28 - Production of lime

Clause 328

Clause 328 provides that the production of lime is the physical and chemical transformation through the calcining process of calcium and magnesium sources (e.g. calcium carbonate (CaCO3) and magnesium carbonate (MgCO3)) into lime produced to saleable quality with a calcium oxide (CaO) and/or magnesium oxide (MgO) content equal to or greater than 60 per cent by mass.

Production of lime is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the burning of limestone or shell sand in a rotary kiln, shaft kiln or fluidised bed kiln to create lime.

The activity description is not satisfied through undertaking production of lime where the final product does not have a calcium oxide (CaO) and/or magnesium oxide (MgO) content equal to or greater than 60 per cent by mass. The activity is also not satisfied by the production of pulverised limestone, commonly called agricultural lime.

The inputs of the activity have been defined to include calcium carbonate and magnesium carbonate sources such as limestone, dolomite and shell sand.

The output of the activity is lime produced to saleable quality where the calcium oxide and/or the magnesium oxide concentration is more than 60 per cent with respect to mass.

The activity does not include the upstream extraction of raw materials, crushing or grinding of raw material inputs that are not contiguous with the production of lime process. Further, the activity does not include the downstream processing of lime including the production of hydrated lime. However, it is understood that some processing or ancillary processes excluded from the definition may be conducted at the same facility as an EITE activity and these processes do not impact the eligibility for assistance of the EITE activity itself.

Subclause 328(4) outlines that the basis of issue is per tonne of lime with a concentration of calcium oxide (CaO) and/or magnesium oxide (MgO) equal to or greater than 60 per cent by mass.

For example, the lime may have a calcium oxide content of 60 per cent by mass (and no magnesium oxide) or a 30 per cent concentration of calcium oxide by mass and a 30 per cent concentration of magnesium oxide by mass, both these commodities would be considered to be relevant products.

The tonnage of the relevant lime must be weighed on a dry weight basis in accordance with ordinary measurement rules applicable in the industry.

The production of lime must have been produced by carrying on the activity as defined by subclause 328(1) to be eligible as a relevant product.

Paragraph 328(4)(b) states that the lime must not be part of an integrated iron and steel manufacturing activity and thus be eligible as a basis of issue for lime production in that activity. However, where lime is produced independently of an integrated iron and steel manufacturing activity but later used in that activity, it may still be a relevant product for the activity of lime production. Most significantly, lime produced within the integrated iron and steel production process may only be allocated under that EITE activity and no tonne of lime can be a relevant product twice.

The lime must be of saleable quality, as defined by clause 202. In particular, the tonnes of lime, which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable lime which is then recycled prior to being sold, this tonnage should be counted only once for the definition of a relevant product.

Division 29 - Production of fused alumina

Clause 329

Clause 329 provides that the production of fused alumina is the physical transformation of alumina (aluminium oxide (Al2O3)) by heating it to its fusion point to produce fused alumina that has an alpha alumina crystalline structure and has a concentration of aluminium oxide equal to or greater than 99.0 per cent.

Production of fused alumina is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved heating alumina to its fusion point in an electric arc furnace. Emissions associated with the crushing and milling of cast fused alumina in order to produce saleable fused alumina were also considered part of this activity.

The activity description is not satisfied through the undertaking of alumina refining or through the production of brown fused alumina, where bauxite is transformed into brown fused alumina by heating it to its fusion point.

 

The inputs of the activity have been defined to include any grade of alumina.

The output of the activity is saleable fused alumina (aluminium oxide, Al2O3) with an alpha alumina crystalline structure and purity equal to or greater than 99.0 per cent.

The activity does not include the upstream mining and processing of bauxite to produce alumina. As such, the relevant facility for the application is that where the fused alumina is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502). Further, the activity does not include the processing of any by-products form the Production of Fused Alumina.

Subclause 329(4) outlines that the basis of issue is per tonne of saleable fused alumina (aluminium oxide, Al2O3) with an alpha alumina crystalline structure and a purity equal to or greater than 99.0 per cent.

The tonnage of the relevant fused alumina should be measured accordingly to ordinary measurement rules applicable in the industry. The fact that a batch of fused alumina does not have a purity equal to or greater than 99.0 per cent does not mean that the activity is not conducted at times when the purity is equal to or greater than 99.0 per cent in other batches.

To be eligible as a relevant product, the fused alumina must:

*         have an alpha alumina crystalline structure; and

*         have a concentration of aluminium oxide equal to or greater than 99.0 per cent; and

*         be produced by carrying on the EITE activity; and

*         be of saleable quality.

The fused alumina must have been produced by carrying on the activity as defined by subclause 329(1) to be eligible as a relevant product. For instance, where imported fused alumina is blended with the product produced from the activity, only the domestically produced fused alumina would be included in the tonnes of the relevant product.

The fused alumina must be of saleable quality, as defined by clause 202. In particular, the tonnes of fused alumina which are scrapped, lost or discarded are not to be included in the tonnes of relevant product.

Division 30 - Production of copper

Clause 330

Clause 330 provides that the production of copper is either or both of the following:

a)        the physical and chemical transformation of concentrated mineralised copper compounds into either or both of:

               i.     copper cathode that has a concentration of copper greater than 99.90 per cent;

             ii.     copper anode that has a concentration of copper:

A.           equal to or greater than 99.00 per cent; and

B.            equal to or less than 99.90 per cent;

b)        the physical and chemical transformation of copper anode into copper cathode that has a concentration of copper greater than 99.90 per cent where the copper anode:

               i.     has a concentration of copper of:

A.      equal to or greater than 99.00 per cent; and

B.       equal to or less than 99.90 per cent; and

             ii.     was not produced as part of the transformation in paragraph (a)(i).

Production of copper is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved two distinct processes for producing copper cathode from concentrated mineralised copper compounds, a pyrometallurgical process and a hydrometallurgical process. The pyrometallurgical process involved the smelting of copper sulphide concentrate to produce copper anode and the further electrolytic refining of the resultant copper anode to produce copper cathode. The electrolytic refining part of the activity included the refining of bought-in copper anode and equivalent products to produce copper cathode. Spent copper anode which was not transformed into copper cathode was also recycled back into copper anodes. The hydrometallurgical process involved the electrowinning of copper electrolyte solution to produce copper cathode.

It is intended that alternative processes to produce copper cathode and/or copper anode from concentrated mineralised copper compounds would be considered to fit within paragraph 330 (1) (a) of the activity description. It is also intended that alternative processes to produce copper cathode from copper anode would be considered to fit within paragraph 330 (1) (b) of the activity description. For the purposes of the activity, the definition of copper anode is also intended to include any equivalent copper product suitable for input into an electrolytic refining process, including copper scrap and copper cathode which does not meet industry measurement standards.

The activity description is not satisfied through the undertaking of copper production where the final product is not:

*           copper cathode that has a concentration of copper greater than 99.90 per cent; and/or

*           copper anode that has a concentration of copper between 99.00 per cent and 99.90 per cent (inclusive).

The inputs of the activity have been defined to be concentrated mineralised copper compounds and/or copper anode.

The outputs of the activity are copper anode that has a concentration of copper of 99.00 per cent or higher; and 99.90 per cent or lower, and/or copper cathode that has a concentration of copper of more than 99.90 per cent.

The activity does not include the upstream mining, ore preparation, treatment and/or concentrating of mineralised copper compounds to produce copper concentrate or electrolyte or the production of any other copper products apart from copper anode or copper cathode as defined. Further, the activity does not include the post-cast rolling, extruding, re-forming or alloying of copper cathode. As such, the relevant facility for the application is that where the copper anode or copper cathode are actually produced and does not extend to separate facilities which may conduct mining, ore preparation, treatment and/or concentrating of mineralised copper compounds to produce copper concentrate or electrolyte; the production of any other copper products apart from copper anode or copper cathode as defined; or the post-cast rolling, extruding, re-forming or alloying of copper cathode but not the activity as described (as outlined by clause 502).

Subclauses 330(5) to (7) provides that there are three bases of issuance relevant for the activity of production of copper:

*         Subclause 330(5) outlines that the basis of issue for copper cathode from concentrate mineralised copper compounds is per tonne of copper cathode that has a concentration of copper greater than 99.90 per cent;

*         Subclause 330(6) outlines that the basis of issues for copper anode form concentrated mineralised copper compounds is per tonne of copper anode that has a concentration of copper between 99.00 per cent and 99.90 per cent (inclusive); and

*         Subclause 330(7) outlines that the basis of issues for copper cathode produced from bought-in copper anode is per tonne of copper cathode that has a concentration of copper greater than 99.90 per cent.

The tonnage of the relevant outputs should be measured according to measurement techniques in practice in the industry. Where anodes are produced at one facility and transferred to another facility for processing into cathodes, it is intended that paragraph 330(1)(a) of the activity description could be satisfied by the activity being conducted across two facilities or that an activity may be conducted at one facility through paragraph 330(1)(a) and at the second facility through paragraph 330(1)(b). The important issue is that production is not doubly allocated through the differentiated basis of issue which is then applied.

The copper anode or copper cathode must have been produced by carrying on the activity as defined by subclauses 330(1) and (2) to be eligible as a relevant product.

The copper anode or copper cathode must be of saleable quality, as defined by clause 202.

Copper anode or copper cathode which is scrapped, recycled, remelted lost or discarded are not to be included in the tonnes of relevant product. It is intended that only copper cathode meeting industry standard BS:EN 1978:1998 Copper cathode  should be considered as a relevant copper cathode product.

It is intended that paragraphs 330(5)(c), 330(6)(c) and 330(7)(b) ensure that production of copper anodes and cathodes is not doubly allocated and each of the subclauses is mutually exclusive. In particular:

*         Paragraph 330(5)(c) ensures that subclause 330(5) relates to copper cathode which is produced from concentrated mineralised copper compounds but does not relate to copper cathode attributable to 'bought-in' anodes (such as imported anodes or anodes produced at a site which is not part of the activity the subject of the application);

*         Paragraph 330(6)(c) ensures that subclause 330(6) relates to copper anode that is not then transformed into copper cathode which is allocated under subclause 330(5) in relation to the application; and

*         Paragraph 330(7)(b) ensures that subclause 330(7) relates to copper cathode which comes from copper anode that is not produced from carrying out the activity the subject of the application.

Division 31 - Production of carbamide (urea)

Clause 331

Clause 331 provides that the production of carbamide (urea (CO(NH2)2)) is the chemical transformation of carbon dioxide (CO2) and anhydrous ammonia (NH3) to produce carbamide solution (urea (CO(NH2)2(aq))) that:

a.         has a concentration of carbamide (urea (CO(NH2)2)) equal to or greater than 80 per cent; and

b.        is subsequently used to produce either or both of:

               i.     carbamide solutions (urea (CO(NH2)2(aq))); and

             ii.     saleable granulated, prilled or other solid forms of carbamide (urea (CO(NH2)2(s))).

The chemical transformation generally follows in accordance with the following chemical equations:

2NH3(l)+CO2(g) ® H2NCOONH4(aq)

H2NCOONH4(aq) ® H2NCONH2(aq) + H2O(l)

Production of carbamide is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity, as conducted during the period used to assess the eligibility of the activity, involved the reaction of carbon dioxide with anhydrous ammonia to create a carbamide (urea) solution, some of which was on-sold in varying concentrations. The majority of the carbamide (urea) solution was further evaporated and a solid granulated product produced.

It is intended that alternative processes of synthetic carbamide (urea) manufacture which use anhydrous ammonia as a feedstock are considered to satisfy the activity description.

The activity description is not satisfied through the undertaking of the production of carbamide (urea) from a feedstock other than anhydrous ammonia and carbon dioxide.

The inputs of the activity have been defined to include anhydrous ammonia and carbon dioxide.

The output of the activity may be in solid or solution form. Carbamide (urea) in solution is produced at various concentrations based on the final end product use. Carbamide (urea) in its solid form is sold in a variety of shapes the most common of which are granules and prills.

The activity does not include the upstream production of anhydrous ammonia. Further the activity does not include the downstream blending or converting of the urea into any products other than a carbamide (urea) solution or solid carbamide (urea) product, nor the processing of any by-products from the production of carbamide. As such, the relevant facility for the application is that where the carbamide (urea) solution, solid product, or both is actually produced and does not extend to separate facilities which may conduct upstream production of anhydrous ammonia or the downstream production of products other than solid carbamide (urea) or carbamide (urea) solutions but not the activity as described (as outlined by clause 502).

Subclause 331(4) outlines that the basis of issue is per tonne of 100 per cent equivalent carbamide (urea (CO(NH2)2)) on a dry weight basis.

The concentration of carbamide (urea) is measured using AOAC 978.02 Nitrogen (Total) in Fertilizers; (or equivalent) and/or ISO 22241 Diesel engines - NOx reduction agent AUS 32 - Part 1: Quality requirements.

To be eligible as a relevant product, the 100 per cent equivalent carbamide (urea (CO(NH2)2)) must be:

*         contained within either of the following products:

(i) carbamide solutions (urea (CO(NH2)2(aq))); or

(ii) saleable, granulated, prilled or other solid forms of carbamide (urea (CO(NH2)2(s))); and

*         produced by carrying on the EITE activity; and

*         of saleable quality.

The carbamide (urea) must have been produced by carrying on the activity as defined by subclause 331(1) to be eligible as a relevant product. For instance, where imported carbamide (urea) is blended with the product produced from the activity, only the domestically produced carbamide (urea) would be included in the tonnes of the relevant product.

The carbamide (urea) must be of saleable quality, as defined by clause 202. In particular, the tonnes of carbamide (urea) which are recycled, lost or discarded are not to be included in the tonnes of dry weight relevant product.

Division 32 - Production of sodium carbonate (soda ash) and sodium bicarbonate

Clause 332

Clause 332 provides that the production of sodium carbonate (soda ash) and sodium bicarbonate is the chemical and physical transformation of calcium carbonate (CaCO3), sodium chloride (salt (NaCl)), ammonia (NH3) and carbon bearing materials (such as coke) into one or more of the following:

a.         light sodium carbonate (light soda ash (Na2CO3)) which has a concentration of sodium carbonate (soda ash (Na2CO3)) equal to or greater than 98.0 per cent;

b.        dense sodium carbonate (dense soda ash (Na2CO3)) which has a concentration of sodium carbonate (soda ash (Na2CO3)) equal to or greater than 97.5 per cent;

c.         refined sodium bicarbonate (NaHCO3) which has a concentration of sodium bicarbonate (NaHCO3) equal to or greater than 95.0 per cent.

Production of sodium carbonate and sodium bicarbonate is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the Solvay method.

The inputs of the activity include calcium carbonate, sodium chloride, ammonia and any carbon bearing materials.

The output of the activity is saleable light sodium carbonate (light soda ash (Na2CO3)) which has a concentration of light sodium carbonate greater than or equal to 98.0 per cent with respect to mass, dense sodium carbonate (dense soda ash (Na2CO3)) which has a concentration of dense sodium carbonate greater than or equal to 97.5 per cent with respect to mass; and/or refined sodium bicarbonate (NaHCO3) which has a concentration of refined sodium bicarbonate greater than or equal to 95.0 per cent with respect to mass.

The activity does not include the upstream mining and processing of limestone to produce sodium carbonate or sodium bicarbonate. As such, the relevant facility for the application is that where the soda ash is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing but not the activity as described (as outlined by clause 502).Further, the activity does not include the processing of any by-products form the production of sodium carbonate and bicarbonate.

Clause 332 outlines that the basis of issue is per the combined tonnes of saleable light sodium carbonate (light soda ash (Na2CO3)) which has a concentration of light sodium carbonate greater than or equal to 98.0 per cent  with respect to mass, dense sodium carbonate (dense soda ash (Na2CO3)) which has a concentration of dense sodium carbonate greater than or equal to 97.5 per cent with respect to mass and/or refined sodium bicarbonate (NaHCO3) which has a concentration of refined sodium bicarbonate greater than or equal to 95.0 per cent with respect to mass.

The tonnage of the relevant sodium carbonate or sodium bicarbonate should be measured accordingly to ordinary measurement rules applicable in the industry.

The soda ash must be produced by carrying on the activity as defined by subclause 332(1) to be eligible as a relevant product. An application may involve one, two or all three of the products in paragraphs 332(a) to (c). Where more than one of the products is involved, the annual tonnes of relevant product are the sum of the tonnes of all of the products which comply with paragraphs 332(a), (b) or (c) as appropriate. However, a particular tonne of product is not to be counted as a relevant product under more than one paragraph of subclause 332(4).

The products in paragraphs 332(4)(a) to (c) must be of saleable quality, as defined by clause 202. In particular, the tonnes of product which are recycled, lost or discarded are not to be included in the tonnes of relevant product.

Division 33 - Production of ammonium nitrate

Clause 333

Clause 333 provides that the production of ammonium nitrate is the chemical transformation of anhydrous ammonia (NH3) to ammonium nitrate solution (NH4NO3(aq)) which has a concentration of ammonium nitrate (NH4NO3) by mass of 60 per cent or more.

The production of ammonium nitrate is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the catalytic oxidisation of ammonia to create nitric acid in both medium and high pressure plants through the Ostwald process. The nitric acid was then reacted with ammonia to produce ammonium nitrate solution where the concentration of ammonium nitrate (NH4NO3) is equal to or greater than 60 per cent with respect to mass. In the eligibility period, these solutions were further processed to solutions with higher concentrations of ammonium nitrate, blended solution products or solid products (granulated, prilled or other). However, this further processing was assessed as outside the activity boundary.

It is intended that alternative processes of low pressure catalytic oxidation or the Odda process (where nitric acid is reacted with phosphate rock) to produce ammonium nitrate solutions were considered to fit within the activity description.

The inputs of the activity have been defined to include anhydrous ammonia. The activity description is not satisfied through the undertaking of the manufacture of nitric acid (whether low or high purity) alone. It is also not satisfied where the ammonium nitrate solution does not have a concentration of ammonium nitrate that is equal to or greater than 60 per cent with respect to mass.

The output of the activity is ammonium nitrate solution (NH4NO3(aq)) that has a concentration of ammonium nitrate (NH4NO3) of 60 per cent or more. Nitric acid is not an output of this activity.

The activity does not include either the upstream production of the anhydrous ammonia feedstock or the downstream processing of the ammonium nitrate solutions to solutions with higher concentrations of ammonium nitrate, blended solution products or solid products (granulated, prilled or other). As such, for the purpose of an application for assistance, the facility undertaking the activity is that where the ammonium nitrate solution with a concentration of ammonium nitrate (NH4NO3) equal to or greater than 60 per cent with respect to mass is actually produced and does not extend to separate facilities which may conduct anhydrous ammonia production or the production of downstream products from the ammonium nitrate solution but not the activity as described.

Subclause 333(4) outlines that the basis of the issue is per tonne of 100 per cent equivalent ammonium nitrate.

The ammonium nitrate must be of saleable quality, as defined by clause 202.

Division 34 - Production of ammonia

Clause 334

Clause 334 provides that the production of ammonia is the chemical transformation of hydrocarbons (or other hydrogen feedstock) to hydrogen (H2) that is subsequently reacted with nitrogen (N2), to produce anhydrous ammonia (NH3) which has a concentration of ammonia (NH3) by mass that is equal to or greater than 98 per cent.

Production of ammonia is an EITE activity eligible for assistance at the highly emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved catalytic steam reforming of natural gas to produce hydrogen. This was then reacted with nitrogen (the Haber process) and liquefied to produce anhydrous ammonia (NH3) where the concentration of ammonia (NH3) is equal to or greater than 98 per cent with respect to mass.

It is intended that the using an alternative hydrogen feedstock to produce ammonia would be considered to fit within the activity description.

The activity description is not satisfied through the undertaking of an activity which produces synthesis gas or hydrogen as the final product. The activity is also not considered to be conducted where the ammonia produced is not anhydrous and/or does not have a concentration of ammonia (NH3) that is equal to or greater than 98 per cent with respect to mass.

The inputs of the activity have been defined to include any hydrogen feedstock including hydrocarbons, water and any other source of hydrogen. Nitrogen is also defined as an input to the activity and this may be either as a refined product or as air.

The output of the activity is anhydrous ammonia (NH3) that has a concentration of ammonia (NH3) of at least 98 per cent.

The activity does not include either the upstream production of the hydrogen feedstock (such as natural gas extraction and distribution or synthesis gas production) or the downstream processing of the ammonia into ammonium nitrate, urea or any other product. As such, for the purpose of an application for assistance, the facility undertaking the activity is that where the ammonia as defined is actually produced and does not extend to separate sites which may conduct feedstock preparation and processing or the production of downstream products.

Subclause 334(4) outlines that the basis of the issue is per tonne of 100 per cent equivalent anhydrous ammonia.

The ammonia must be of saleable quality, as defined by clause 202.

Division 35 - Production of iron ore pellets

Clause 335

Clause 335 provides that the production of iron ore pellets is the physical and chemical transformation of iron ore to produce iron ore pellets for the production of steel, and where the iron ore pellets that have:

*         a concentration of iron (Fe) is equal to or greater than 63 per cent with respect to mass; and

*         a concentration of alumina (Al2O3, aluminium oxide) is equal to or less than 2 per cent with respect to mass;

*         a concentration of silicon dioxide (SiO2, silica) is equal to or less than 7 per cent with respect to mass; and

*         an average diameter of between 9 and 16 millimetres.

Production of iron ore pellets is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the pelletising and hardening of concentrated magnetite (Fe3O4) to produce iron ore pellets. In this period by-products of the activity including chips and chunks of iron ore were also produced.

It is intended that alternative production processes using any source of iron ore, subject to the condition in subclause 335(5), to produce iron ore pellets would be considered to fit within the activity definition.

This activity is not satisfied through the undertaking of the production of other forms of agglomerated iron ore including iron ore sinter or haematite benefaction.

The input of this activity is iron ore. For the purposes of this division, iron ore is given meaning by the conditions in subclause 335(5) and intended to include magnetite ore that has been concentrated and that may be in slurry form, or hematite ore that has been crushed to varying extents. Iron ore that has been semi-processed as per the requirements in paragraphs 335(5)(a) or (b) is not to be treated as being input of this activity, that is, iron ore does not include any form of iron ore product that has been semi-processed into iron ore balls or exposed to a hardening process by the application of heat and pressure.

The output of this activity is iron ore pellets that satisfy the conditions as outlined in subclause 335 (1).

The activity does not include the upstream extraction or production of the iron ore concentrate to the activity including the production of magnetite concentrate. Further, the activity does not include the downstream processing of iron ore pellets including pig iron production or the recycling or further processing of the by-product iron ore chips and chunks, from the production of iron ore pellets.  As such, the relevant facility for the purpose of the application is that where the iron ore pellets are actually produced and does not extend to separate facilities which may conduct upstream or downstream processing of either the iron ore product or any relevant by-products but not the activity as described (as outlined by clause 502).

Subclause 335(4) outlines that the basis of the issue is per tonne of iron ore pellets, on a dry weight basis that have a range of specifications consistent with the output of the activity.

The iron ore pellets must be of saleable quality, as defined by clause 202.

Division 36 - Production of liquefied natural gas

Clause 336

Clause 336 provides that the production of liquefied natural gas is the physical transformation of natural gas (in a gaseous state on entering the activity) to liquefied natural gas which has a methane content by mass of 70 per cent or more (in a liquid state on leaving the activity).

Production of liquefied natural gas is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the processing and subsequent liquefaction of natural gas that was taken from a petroleum reservoir. The gas underwent a feed treatment stage where hydrogen sulfide, carbon dioxide, mercaptans, mercury and water were removed from the raw gas product. Following such processing, the predominantly methane mixture was then liquefied through compression and temperature reduction in a liquefaction train to approximately -161°C. Hydrocarbons contained in the natural gas stream that was in part taken to be liquefied in liquefied natural gas were also produced into other products such as condensate, domestic gas and liquefied petroleum gas. However, the production processes associated with these other products were not assessed as part of the activity.

It is intended that alternative forms of production that do not require the feed treatment stage would be considered to fit within the activity definition, so long as at least liquefaction of natural gas takes place at the facility.

This activity is not satisfied through the undertaking of natural gas extraction and production, or through liquefied natural gas regasification. The activity is also not satisfied where the natural gas being processed remains in a gaseous state or has a concentration of methane (CH4) that is less than 70 per cent with respect to mass. 

The inputs of the activity have been defined to include natural gas in a gaseous state. This may be natural gas sourced from a petroleum reservoir as during the period used to assess eligibility or from an alternative source such as coal seam gas wells or from a domestic gas pipeline.

The outputs of the activity are defined as tonnes of liquefied natural gas where the concentration of methane is equal to or greater than 70 per cent with respect to mass.

Subclause 336(4) outlines that the basis of the issue is per tonne liquefied natural gas that has a concentration of methane (CH4) of at least 70 per cent. The measurement of this liquefied natural gas is expected to be conducted so that it does not include any tonnes of liquefied natural gas that boil off in conveying the LNG to a transportation vessel or storage facility. The measurement of the output for the issue of free carbon units is by a tonne of liquefied natural gas that is transported away from the facility, as a gas or a liquid, from the facility where the natural gas was liquefied. Audited delivery statements or contractual arrangements associated with the delivery or loading of liquefied natural gas into a pipeline, truck, ships or other transportation vessels are suitable documents for calculating the produced LNG in this activity.

The activity does not include the upstream extraction or production of the natural gas to the activity. Further, the activity does not include the downstream processing of the liquefied natural gas including transportation, distribution or regasification, or the processing of any by-products from the production of liquefied natural gas including condensate, domestic gas and liquefied petroleum gas.

Division 37 - Production of magnetite concentrate

Clause 337

Clause 337 provides that the production of magnetite concentrate is defined as the physical transformation of magnetite ore (ore containing Fe3O4) to produce saleable magnetite (Fe3O4) concentrate that:

*         has the concentration of iron (Fe) at least 60 per cent on a dry-weight basis with respect to mass; and

*         has particle size of less than 75 microns for at least 80 per cent of the concentrate.

Production of magnetite concentrate is an EITE activity eligible for assistance at the moderately emissions-intensive rate.

The activity as conducted during the period used to assess the eligibility of the activity involved the onsite crushing, grinding and screening of magnetite ore, the magnetic separation of the magnetite particles from the ore and concentrate thickening. In this period no saleable by-products of the activity were produced.

It is intended that the alternative production processes which produce magnetite concentrate as defined would be considered to fit within the activity definition.

This activity is not satisfied through the undertaking of magnetite mining and extraction, concentration of alternative iron ores and magnetite concentrate where the conditions outlined in Clause 337 are not satisfied. 

The inputs to this activity are any ore which contains magnetite (Fe3O4) and has the key property of ferrimagnetism as described in the note in subclause 337(1).

The output of this activity is magnetite concentrate that satisfies the conditions as outlined in clause 337.

Subclause 337(4) outlines that the basis of the issue is per tonne of 100 per cent equivalent iron (Fe) contained in saleable magnetite (Fe3O4) concentrate that has a concentration of iron (Fe) of at least 60 per cent on a dry weight basis and has a particle size of less than 75 microns for at least 80 per cent of the concentrate. Magnetite concentrate of saleable quality may be taken to include magnetite concentrate in a slurry form, whether or not this product is sold in this form to a third party or transferred internally. However, the basis of issue of free carbon units for the production of magnetite concentrate is by a tonne of 100 per cent equivalent iron (Fe) contained in the saleable magnetite concentrate and other requirements listed in subclause 337(4).

The activity does not include the upstream extraction or production of the input to the activity including the mining and extraction of ore and the crushing and grinding of the ore that is not contiguous with the magnetite concentrate production process. Further, the activity does not include the downstream processing of magnetite concentrate, included the dewatering of magnetite concentrate slurry or the production of iron ore pellets. As such, the relevant facility for the purpose of the application is that where the magnetite concentrate is actually produced and does not extend to separate facilities which may conduct upstream or downstream processing of either the magnetite concentrate or any relevant by-products but not the activity as described (as outlined by clause 502).

The magnetite concentrate must be of saleable quality, as defined by clause 202.

 


PART 4 - ALLOCATIVE BASELINES

Clause 401

This clause sets out the relevant baselines for assistance that are prescribed for each activity in respect of the direct emissions, electricity use and the use of natural gas as a feedstock (if applicable). The baselines are further explained in Establishing the eligibility of activities under the Jobs and Competitiveness Program. The formula used to determine the allocation of assistance for each applicant is set out in Part 9 and applies the baselines as outlined in the table in Part 4.

Baselines have been established with respect to the relevant product detailed for each activity in Part 3. The entries under the "Basis for issue of free carbon units" represent a shortened name for the relevant products outlined in Part 3. Where any discrepancies exist, the relevant product description in Part 3 will take precedence.

There are three components to the allocative baseline for eligible EITE activities outlined in Part 4 of the regulations. These baselines will assist in determining the allocation of free carbon units per unit of relevant product produced, based on the extent of direct emissions, electricity use and natural gas used as a feedstock in the production process.

As outlined in the table in clause 401, the unit of relevant product produced by undertaking the eligible EITE activity is in tonnes of product or kilolitres in the case of ethanol or petroleum, as specified in Part 3. This unit of measure is the basis for calculating free carbon units. There can be one or multiple relevant products for which assistance can be calculated depending on the EITE activity.

For each EITE activity:

a.    EIa or emissions intensity baseline will represent the industry average scope 1 emissions intensity or amount of direct emissions per unit of relevant product;

b.    EPa or electricity intensity baseline will represent the industry average electricity intensity or megawatt-hours of electricity used per unit of relevant product; and

c.    where applicable, NGPa or natural gas feedstock baseline will represent the industry average natural gas used as a feedstock per unit of relevant product.

The Government has taken the decision to provide assistance in relation to the consumption of natural gas (and its components) used as a feedstock in specific circumstances only. For an activity to be eligible for this form of assistance it must have a number in this column of the table. This assistance will relate only to that portion of natural gas used in conducting an activity which is transformed into a relevant product.

 

The baselines established for each eligible EITE activity represent a weighted average of the industry intensity per unit of product in respect of the emissions, electricity and natural gas used as a feedstock (where applicable). The weighted industry averages of these intensities relate to the base period of 2006-07 and 2007-08 and were determined using data provided by the entities that were undertaking the activity at that time.

The Government has committed to providing additional assistance through a 10 per cent increase in the direct emissions and electricity baselines relating to the production of saleable continuously cast carbon steel products and saleable ingots of carbon steel under both the Integrated Iron and Steel Manufacturing and Manufacturing of Carbon Steel from Cold Ferrous Feed activities under the Program. This increase commences in 2016-17 and is implemented via subclause 401(2).


 

PART 5 - ELIGIBILITY TO APPLY FOR FREE CARBON UNITS

Division 1 - General

It is essential that only one amount of assistance is provided under the Program for a given facility undertaking an activity in a relevant financial year, and that assistance is provided to the persons that incur costs as a result of the carbon pricing mechanism. Accordingly, a person that is eligible to apply for assistance can be an individual entity with operational control of a facility or facilities where an EITE activity is being undertaken, or a participant in a joint venture in relation to a facility where an EITE activity is being undertaken. Where more than one person may be eligible, a joint application including all eligible applicants will be required which sets out how the assistance will be apportioned among applicants.

Part 5 implements this policy by examining the operational control of the relevant facilities and taking into account whether there are any liability transfer arrangements in place. The general effect of Part 5 is that where an EITE activity was undertaken at a facility during a financial year before the financial year to which the application relates, the person who either had operational control or was a participant in a joint venture that operated a facility is the eligible person in relation to the activities carried on at that facility.

Clause 502 also makes clear that a facility which merely contributes to the carrying out of an EITE activity, such as by creating utility gases for that facility or by producing steam for use in the activity, is not, by that contribution, regarded as carrying out the EITE activity. The relevant facilities must carry on one or more of the physical or chemical transformations included in the description of the activity to be regarded as carrying on an EITE activity. It will be acknowledged that an activity may be conducted across two separate facilities.

Division 2 - Personal eligibility - existing activity in previous financial year

Clauses 503 to 506 outline who is the person eligible to apply for assistance in regard to the carrying out of an EITE activity at a facility. In particular, the clauses outline that as at 30 June of the previous financial year:

-     if there is a person with a liability transfer certificate in force for the facility conducting the activity, that person is the eligible person; or

-     if there is no liability transfer certificate, the person with operational control of the facility or a participant in a designated joint venture in relation to the facility conducting the EITE activity is the eligible person.

These tests will mean that facilities do not need to have a liable entity under the carbon pricing mechanism to receive assistance. Facilities with only electricity consumption or direct emissions covered upstream will still have a person eligible to apply for assistance.

 

The intention is to ensure that a change in ownership does not result in two persons being eligible for assistance or the Regulator attempting to resolve competing claims for assistance. Accordingly, where a change in ownership is in train, the parties will need to deal contractually with who will ultimately have the free carbon units or factor this into the purchase price for the particular business. The Government believes that these arrangements are best left to the parties to negotiate. A clear rule for eligibility in the Program provides certainty for those negotiations.

Division 3 - Personal eligibility - no existing activity in previous financial year

Clauses 507 to 511 provides that where an EITE activity was not carried out in the previous financial year, the above assessment about whether or not a liability transfer certificate is in place will be in relation to the person who will satisfy the relevant tests when the activity is first conducted at the facility. This includes the Regulator being satisfied that the person eligible for assistance will have operational control over, or be part of a joint venture in relation to, the facility that is to undertake the EITE activity in the financial year.

Clause 511 provides for situations where an EITE activity is being undertaken for the first time at a facility but the person is only undertaking the activity to test the equipment. The person is not eligible to apply for assistance where they are testing the facility and do not have operational control at the time the facility is being commissioned or recommissioned and the activity is being undertaken.


 

PART 6 - APPROVAL OF APPLICATION FORM FOR FREE CARBON UNITS

Clause 601

This Clause provides authority to the Regulator to establish a detailed application form or forms for eligible persons to apply for assistance. This power provides flexibility to cover all relevant issues and ensure that the Regulator has the relevant information to make timely decisions on assistance.

It is expected that the application forms will deal with a range of matters necessary for the Regulator to be able to approve an application for free carbon units. In particular, the form may require the applicant to:

a.    demonstrate that the applicant is an eligible person

b.    demonstrate that EITE activity was being carried on, is currently being carried on, or is to be carried on

c.    identify the location of the facility or facilities at which the EITE activity was being carried on, is carried on, or to be carried on

d.   explain the basis upon which the applicant believes that the facility or facilities:

-      did carry on, is carrying on, or will carry on, the EITE activity, and

-      did meet, does meet, or will meet, any conditions or requirements relevant to whether the EITE activity was, is or will be carried on,

e.    explain the way in which the relevant product was, is, or will be, measured

f.     explain whether or not the way of measuring the relevant product is consistent with any guidelines issued by the Regulator

g.    state whether or not it is likely that the requirements for the closure of equipment will be met in relation to the EITE activity

h.    state whether not the facility is undergoing a significant expansion (as defined)

i.      nominate a contact person with whom the Regulator will deal on all matters relating to the application

j.      explain whether:

-      any licences, permissions or approvals (of any description) are necessary to carry on the activity under a law of the Commonwealth, a state or a territory; and

-      any licences, permissions or approvals have been issued or given.

k.    Identify any facilities included in the application that are sub-threshold. For any facilities where there is no obligation to report under the National Greenhouse and Energy Reporting Act 2007 (NGER Act), provide a report to the Regulator on scope 1 emissions from the operation of any facilities that a sub-threshold.

However, the extent to which these issues are required by the form will be a matter for the Regulator to determine in consultation with stakeholders. It may be that some information listed above will not be required while other similar information is requested instead. The information requirements will depend upon the complexity of the issues which need to be determined and should balance the costs of providing the information with the usefulness of that information in assisting the Regulator make decisions under the Program.

The Regulator will endeavour to streamline this application form wherever possible with the requirements for the application form for Partial Exemption Certificates under the Renewable Energy (Electricity) Act 2000.

Given that any free carbon units for an approved application must be issued to an applicant's account in the Australian National Registry of Emissions Units (outlined further in clause 902), the Regulator may request that the details of the account are included in the application form.

Clause 602

Clause 602 sets out that where there are multiple parties to a joint application (in situations where multiple persons are eligible by virtue of the EITE activity being undertaken across multiple facilities with different persons that have operational control or by virtue of multiple persons being party to designated joint ventures with any facilities where EITE activity being undertaken) the application form will require that the applicants set out a formula or other arrangement to apportion free carbon units between the joint applicants.

Clause 603

This clause outlines the documents that are required to accompany an application for free carbon units in respect of undertaking an EITE activity. In particular, the application will require a statutory declaration from a senior position holder of each eligible applicant of the facility undertaking the EITE activity to verify that the application is accurate and complete. Where there is a joint application, a statutory declaration will be required of each of the applicants.

This clause also provides that the application will be required to be accompanied by an audit report (as outlined in clause 604) to provide an independent assurance opinion on certain information presented in the application outlined below.

Clause 604

This clause outlines the audit requirements that relate to applications and establishes the requirements that the applicant and the auditor must ensure are complied with when providing the audit report as part of the application for free carbon units.

The applicant or applicants must select an auditor who is:

-      an authorised company under section 1299C of the Corporations Act 2011;

-      a registered company auditor under section 1280 of the Corporations Act 2011; or

-      a Category 2 or 3 registered greenhouse and energy auditor under the National Greenhouse gas and Energy Reporting Act 2007.

The applicant or applicants must ensure that the auditor that is appointed is independent of all applicants, such that a 'conflict of interest' does not arise. The meaning of how a conflict of interest may arise is the same as in the National Greenhouse and Energy Reporting Regulations 2008. Although the National Greenhouse and Energy Reporting Regulations 2008 describes how a conflict of interest situation arises in relation to NGER and CFI reporting, the meaning of what constitutes a conflict of interest is intended to apply under these regulations.

The auditor must ensure:

-      independence from all applicants such that a conflict of interest does not arise;

-      that the audit is conducted in accordance with the National Greenhouse and Energy Reporting (Audit) Determination 2009, when the audit report covers emissions and energy consumption; and

-      that the audit is conducted in accordance with ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information and any other relevant standards issued by the Australian Auditing and Assurance Standards Board (AUASB), when the audit report covers production or expected production.

The aim of these requirements will be to provide applicants with the option of using the same auditor to complete their greenhouse emissions audits or their financial auditors for their audits under the Jobs and Competitiveness Program. Applicants may also use any other auditor which meets the criteria set out in the regulations.

The auditor must provide an audit report covering the specific matters mentioned in subclauses 604(7) and (8), as relevant to the application. The audit report needs to set out a reasonable assurance opinion regarding the relevant matters in subclause 604(7) and a limited assurance opinion regarding the relevant matters in subclause 604(8). Where a limited assurance opinion is provided, this needs to be set out under a separate heading from the reasonable assurance opinion.

Subclause 604(7) specifies that that a reasonable assurance opinion would need to be expressed over the amount or volume of production, and that the activity set out in the application meets the criteria of the relevant EITE activity set out in Part 3 of the regulations. Where reporting is triggered as a result of maximum cap, the number worked out to determine what the cap is for a facility, described in subclause 911(2) also requires a reasonable assurance opinion expressed over it.

Subclause 604(8) specifies that a limited assurance opinion would need to be expressed, when reporting is triggered as a result of an application including any facilities that meet the criteria of a new entrant or a significant expansion described in clauses 705 and 706 respectively. The limited assurance opinion would need to be expressed over both the calculation of the forecast and the assumptions used.

The term reasonable assurance conclusion has the meaning given by subsection 3.17 (2) of the National Greenhouse and Energy Reporting (Audit) Determination 2009. A reasonable assurance conclusion is an opinion, expressed in the positive, that there is no misstatement in the matter being audited that is material or pervasive enough to affect the matter being audited as a whole. Subclause 604(7) sets out the structure of how the reasonable assurance conclusion is to be expressed in the audit report.

 

The term limited assurance conclusion has the meaning given by subsection 3.18 (2) of the National Greenhouse and Energy Reporting (Audit) Determination 2009. A limited assurance conclusion is an opinion, expressed in the negative, that there is no misstatement in the matter being audited that is material or pervasive enough to affect the matter being audited as a whole. Subclause 604(8) sets out the structure of how the limited assurance conclusion is to be expressed in the audit report.

For applications in respect of new entrants and significant expansions, the auditor must also provide their opinion in a report to the Regulator as to whether:

-      the applicant's best-estimate assumptions are reasonable for the preparation of the expected production amounts or volumes of the relevant product

-      the expected production is, in all material respects, estimated on the basis of the best-estimate assumptions

-      the expected production is presented on a basis consistent, in all material respects, with the measurement policies adopted and disclosed by the applicant in the application.

By having applications reviewed by an independent third party auditor and a level of assurance determined, the Regulator will be able to have more confidence in the historical information provided and assumptions used. This should facilitate the timely delivery of free carbon units.


 

PART 7 - APPLICATION FOR FREE CARBON UNITS

Division 1 - General

Part 7 of the regulations outlines the manner in which an eligible person, as defined in Part 5, will be able to apply for free carbon units in respect of undertaking an EITE activity in a financial year for which the carbon pricing mechanism will operate.

Clause 702

Clause 702 provides that the application for free carbon units in respect of an EITE activity must be submitted in the application form approved by the Regulator and be accompanied by the statutory declaration (or declarations) and audit report as prescribed in Part 6. This clause also prescribes that applications must be lodged with the Regulator by 31 October of the financial year to which the application relates, except in circumstances where the Regulator has allowed for an extension of time for lodging an application up to 31 December of that year.

This clause also provides that if an application is provided after the closing date of 31 October and the applicant has not applied for an extension and been granted an extension by the Regulator, the application is not valid. The applicant would also not be eligible to apply for free carbon units at another time during that financial year.

Division 2 - Shared eligibility

Clause 703

This clause provides that where there are multiple eligible persons in relation to the facilities covered by an application, a combined application for assistance is required to be made. As outlined in clause 602, the application must include a formula to notify the Regulator how the applicants consider that the free carbon units in respect of the one application should be apportioned between the applicants.

Division 2 is intended to provide for situations where one EITE activity is undertaken across multiple facilities where the operational control of the individual facilities is separate. In these cases, the operators of the facilities are each an eligible person for the purpose of applying for free carbon units in respect of the one EITE activity and must make a combined application for assistance.

Where an EITE activity is conducted on a standalone basis at a facility and the applicant also conducts the same activity at another facility, the applicant may provide separate applications for each facility or may consolidate the applications into one. The key issue addressed by clause 703 is that wherever more than one eligible person is involved with a particular combination of facilities conducting an EITE activity, there must be a combined application rather than separate applications. The combined application must contain details of all the eligible persons in relation to the facilities undertaking the EITE activity.

It is not intended that one application will be able to be made in relation to different EITE activities (e.g. for both production of silicon and the production of methanol). A separate application for each EITE activity would be required in such cases.

Division 3 - Special arrangements for facility without continuous emissions-intensive trade-exposed activity

Clause 705

Clause 705 sets out additional application requirements for newly operating facilities to demonstrate expected production levels for the first year of assistance. Persons will qualify under this clause if in the previous financial year:

-     the relevant EITE activity was not carried out at a facility; or

-     the activity was either carried out for the first time in the previous financial year or had re-commenced after a period of down time where the activity had not been carried on for more than 12 months prior to it recommencing and no application for assistance was made in the previous financial year.

Such applicants are referred to as 'newly operating facilities', as distinct from the concept of a 'new facility' for the purpose of the maximum allocation, which is explained in clause 707.

For newly operating facilities, the allocation of free carbon units will be based on expected production levels rather than the previous financial year's production. Subclause 705(3) requires a newly operating facility to include in the application form the amount of expected production, which is an estimate of what is reasonably likely to be produced in the financial year to which the application relates. This is intended to substitute the previous financial year's production that most applications will be required to provide. The expected production is intended to reflect the amount of production that the facility or facilities expect to produce for the particular financial year which could reflect normal operating levels if the facility is likely to be operating at full capacity but may not necessarily be normal levels if the facility is still in the process of scaling up its operations.

Subclause 705(4) outlines the information that will be required to be submitted with the application for a newly operating facility, including opinions and statements about the expected production in terms of whether contracts are in place to purchase the relevant product in the coming year to which the application relates and the equipment that is to be installed, as well as a statement as any potential for the production to be delayed. The application will also require an audit opinion to a limited assurance level in respect of the expected production. This information will assist the Regulator to judge whether the applicant's or applicants' assessment of expected production is the best estimate. By having this information up front, the Regulator will be less likely need to commission further reports and seek a large amount of additional information before being able to make a decision on the application, which will facilitate timely decisions with regard to applications. The applicant must also be transparent about any risks or uncertainties surrounding their production projections.

Subclause 705(5) is intended to clarify that in submitting the information required to be disclosed to the Regulator in respect of expected production, it is not expected that the applicant would breach other legal obligations such as another law of the Commonwealth or a contractual obligation.

Example

Jessica Ann is about to start a newly operating facility in Perth to produce carbon black. She has been installing equipment over time and expects to run full commissioning and testing from September to November of the coming financial year. Over the year, she expects to produce 700 tonnes of pelletised carbon black on a dry weight basis. Jessica's application for assistance would:

-          set out why and how Jessica expects to produce 700 tonnes of carbon black during the year (which may include expected production for each month after November);

-          set out the arrangements and timetable for commissioning the equipment;

-          set out, in general terms, Jessica's actions to raise equity and loans to finance the equipment and operation of the facility;

-          set out how Jessica plans to sell her carbon black, including a description of what contracts or other arrangements have been entered into (but with no requirement to provide the price or other technical details of those contracts); and

-          include any factors of which Jessica is aware that could stop or delay the commissioning in September to November (such as equipment purchased from overseas not arriving or failing to function in accordance with its specifications).

Division 4 - Special arrangements for significant expansion

Clause 706

Clause 706 deals with applications which pertain to a significant expansion of an existing facility. This is intended to provide for situations where a facility is undergoing an expansion where it expects to produce significantly more in the coming financial year than it did in the previous financial year and it considers that its assistance should be based on the expected higher production. Under usual circumstances, an applicant's assistance would be based on the previous year's production and then the following year, assistance would be adjusted to account for any higher production that actually occurred in that year compared with the previous year. However, in circumstances where production is expected to be significantly greater than the previous year due to the expansion of a facility, this clause will allow an applicant to apply for assistance that more closely aligns with actual production in the year it is produced. For facilities which satisfy the relevant requirements, allocations of free carbon units will be adjusted to reflect the additional production that is expected to take place.

The concept of a significant expansion is explained in clause 203 and is intended to relate to situations where a facility installs additional equipment such that the production capacity is increased by more than 20 per cent.

Example

Angus Fred's silicon facility produced 1,000 tonnes of silicon in the previous financial year, but has undergone a significant expansion because he is completing a capacity expansion of greater than 20 per cent. Angus expects to produce 1,300 tonnes of silicon in the coming financial year. Rather than using 1,000 tonnes of silicon as the basis of issue for the current financial year, the Regulator would use 1,300 tonnes as the basis to allocate free carbon units (1000 of which would be the past year's production component and 300 of which would be the expected production component).

In a similar way to the clauses for newly operating facilities, clause 706 requires a range of information to be submitted with applications to allow the Regulator to judge whether the applicant's assessment of expected production is the best estimate of how much additional product is reasonably likely to be produced. The same requirements for limited assurance in respect of expected production amounts will also apply as with newly operating facility requirements.

Example

In applying for a significant expansion as described above, Angus may need to:

-          set out his new furnace commissioning process, timetable and results of early commissioning phases;

-          describe whether any of his existing furnaces or other relevant equipment will be retired once the new furnace is operating;

-          state that 1,000 tonnes were previously produced by this facility and explain the basis on which an additional 300 tonnes of production is expected in the coming year;

-          set out the maximum productive capacity of the silicon facility before he started to install his new furnace and the maximum productive capacity after all the equipment is installed (which may be expressed as the maximum daily tonnes of silicon that the facility can produce with the equipment on hand);

-          identify the contracts which have pre-ordered the silicon from the facility (to show the volumes of output ordered rather than the price being paid);

-          set out how other equipment at the facility will cope with the expanded production (e.g. storage capacity); and

-          set out, in general terms, what relevant financing arrangements have been finalised (for example, any loan arrangement to cover the costs of the expansion).

Division 5 - Special arrangements for new facilities

Clause 707

Clause 707 outlines arrangements for applications that relate to a facility that is undertaking an EITE activity for the first time. This relates to the implementation of the Government's policy to apply a maximum cap on allocations for new facilities (defined in subclause 205(2)). For facilities which will meet the criteria for a new facility that undertakes an EITE activity or series of facilities that together undertake an EITE activity, applications for free carbon units must be made for only the EITE activity undertaken at that particular facility or series of facilities.

Clause 707 will also require applicants to submit information required to operate the maximum cap test on allocations, including information relating to electricity consumed for the operation of the new facility in undertaking the relevant EITE activity, where that electricity generation is co-located or directly connected to the facility.

            Example

Ellie Jean decided on 1 January 2014 to commence construction of a facility for the production of polyethylene at a new site for the first time. The facility commenced operations and has been scaling up production since September 2015. By July 2017, the facility is fully constructed and is able to produce 1000 tonnes of dry pelletised polyethylene. Ellie is ready to make her second application for EITE assistance. In applying to the Regulator, Ellie will supply the following for the previous financial year:

-          the media statement noting the final investment decision to construct the polyethylene plant was taken on 1 January 2014;

-          photographs of the site from 1 January 2014 which provide evidence that the site was a greenfield site;

-          the audited number of tonnes of dry pelletised polyethylene produced in the previous financial year;

-          an audit statement that certifies the number of tonnes of dry pelletised polyethylene produced and that the EITE activity was carried out at the site.

-          the calculated covered emissions attributable to the operation of the new facility;

-          the calculated emissions associated liquid petroleum fuel, LPG, LNG and CNG that is subject to duty under the Customs Tariff Act 1995 or the Excise Tariff Act 1921;

-          the calculated emissions associated with "opt-in" fuels;

-          the amount of electricity supplied and emissions associate with generators that are co-located to the facility but not part of the facility;

-          the net amount of electricity attributable to the facility sourced from the grid and consumed in the production of polyethylene; and

-          any direct emissions associated with bought-in steam.

Division 6 - Special arrangements for sub-threshold facilities

Clause 708

Clause 708 outlines reporting arrangements for applications that relate to a facility that is undertaking an EITE activity but does not have a direct liability under the carbon price mechanism (also referred to as a sub-threshold facility). This relates to the implementation of the Government's policy to provide assistance for facilities that do not meet the thresholds for liability under the carbon price but would still face an indirect carbon price impact through the electricity and natural gas used in the EITE activity.

Sub-threshold facilities will have their assistance reduced by an estimate of the level of scope 1 emissions for which they will not face either a direct carbon unit liability or an equivalent carbon price under alternative coverage arrangements (e.g. in the case of upstream natural gas coverage). There are two methods available to applicants to determine the sub-threshold emissions adjustment outlined in clause 912. The reporting requirements established in clause 708 are necessary where the applicant chooses to use Method 1 in clause 912 to work out the sub-threshold emissions adjustment. These reporting requirements are not required where the applicant chooses Method 2 to work out the sub-threshold adjustment as this method does not require any additional information. The Regulator will specify the manner and form in which a report of such emissions may be provided.

Division 8 - Measuring emissions in applications

Clause 709

In some circumstances, a facility's emissions may not be reported under the NGER Act as a result of not falling above the coverage thresholds. Currently, this could occur in 2012-13 or later, where a facility's combined scope 1 and scope 2 emissions are less than 25,000 tonnes CO2-e and energy consumed by the facility was less than 100 terajoules, or the corporate group's total scope 1 and scope 2 emissions are less than 50,000 tonnes CO2-e and energy consumed by the corporate group is less than 200 terajoules. Similarly, the measurement requirements apply for estimating emissions under subclauses 911(2) or 909(9).

Where any facility included in an application for assistance does not have an obligation to report under the NGER Act, the applicant will be required to provide scope 1 emissions and electricity consumed in a manner and form which is to be specified by the Regulator. The scope of emissions sources reported should be consistent with the NGER Act and wherever possible should be reported using the methodologies set out in the NGER (Measurement) Determination as in force at the time of the application.


 

PART 8 - CONSIDERATION OF APPLICATION FOR FREE CARBON UNITS

Part 8 deals with the Regulator's role in the application and decision-making process for approving or refusing an application for free carbon units under the Program. A simplified outline of the application process is outlined in the diagram below. As the diagram indicates, it is expected that the majority of applications will be dealt with as soon as practicable (illustrated by the bold line in the diagram) and within the 60 day timeframe, unless further information or a notice of a proposal to refuse the application is triggered, as outlined in clause 804.

Division 1 - Further information about an application

Clause 801

Division 1 of Part 8 acknowledges that in assessing an application for assistance under the Program, the Regulator may need to seek further information from an applicant in regard to their application. It will be important for applicants who need to provide further information to the Regulator to comply promptly with such requests to ensure that the decision-making process can continue in a timely manner.

This Part mirrors similar provisions for the Regulator to request information for other applications under the carbon pricing mechanism (such as section 164 of the Clean Energy Act 2011). Consistent with section 297 of the Act, clause 801(2) states that the Regulator may only request relevant information and must exercise the power in a reasonable way.

Subclauses 801(3) and (4) provide that the Regulator may refuse an application if the applicant does not comply with the requirement to provide further information. However, the Regulator may to reopen its consideration of an application where the Regulator has either refused to consider or refused to progress the application where further information is provided by 30 June in the financial year to which the application relates. The Regulator must consider:

a.    whether the time period specified in the notice was reasonable (i.e. the time period may be based upon data collection assumptions which turned out to significantly underestimate the complexity of the task); and

b.    the reasons why the applicant breached the requirement (i.e. was there a genuine issue which resulted in the timeframe not being complied with or was the breach of the time limit deliberate); and

c.    any other relevant matter (such as whether the applicant constantly fails to meet such timeframes).

This provision balances the need for timely and efficient decision making with the significant financial risks to an entity of having their application refused.

Clause 802

This clause provides for situations where the Regulator considers it may need to reduce an applicant's allocation as the provisions relating to the closure of equipment have been triggered. If the Regulator plans to take action under subclause 902(7) (expected closure), it must notify the applicant of this and give them an opportunity of at least 30 days by which to respond.

This clause, along with clauses 803 and 805, provides the Regulator with discretion as to whether it would take into account information that is provided after the due date for the further information. However, the provisions clarify that the Regulator will not be required to consider such information and so it will be in the applicant's best interest to submit the information within the time allowed.

Division 2 - Revision of application - inadequate information about relevant product

Clause 803

This clause provides for situations where the Regulator may seek further information in regard to the reported amounts or volumes in an application to confirm if those amounts have been, or will be, produced in the relevant years. The ability for the Regulator to seek further information on these amounts is important as the production amounts or volumes will be the key determinant of the number of free carbon units to be issued in relation to the conduct of a given activity. If production amounts or volumes are not adequately scrutinised, the Regulator may be issuing more carbon units than were intended by the Program. Clause 803 is intended to draw an appropriate balance between managing risks of over-allocation and minimising the compliance and administration burdens for all parties.

Paragraph 803(1)(a) asks the Regulator to consider whether or not it is satisfied that the relevant amount or volume is accurate or is the best estimate possible in the circumstances. Therefore, applicants will need to use the available information to put forward their accurate and best estimate of the production amount or volume which meets the relevant requirements of the Program. Given that the vast majority of applications are likely to only be concerned with past production volumes, there is not expected to be ambiguity in the production amount for most applicants. However, it will be essential that the justification for production amounts or volumes and the audit report demonstrate why the Regulator should be satisfied that the amounts or volumes proposed are accurate and a best estimate. The words 'possible in the circumstances' recognise the constraints that may operate in determining a relevant amount or volume, particularly for estimates of future production levels.

Paragraphs 803(1)(b) and (c) cover circumstances which may also satisfy paragraph 803(1)(a) but which are also particular circumstances that the Regulator should consider, and are relevant to the Program. Paragraph 803(1)(b) focuses on whether the total amount or volume has been measured correctly. This will include whether the accuracy of the particular measurement techniques was appropriate and whether the range of uncertainty that has resulted is acceptable for the Program, given the value of the free carbon units which may be issued. A number of considerations will be particularly relevant, including requirements under the National Measurement Act 1960, any guidelines issued by the Regulator, the measurement methods usually adopted by the industry, accredited test methods and the administrative costs of more accurate testing.

Similarly, paragraph 803(1)(c) deals with a situation in which the particular quality of a product is not considered to have been measured in a reasonable way for the purpose of compliance with the Program. For example, a concentration requirement may have been estimated by a technique which is not accurate enough to demonstrate that the qualities required of the product are met. Where it can be demonstrated that there is little risk of products falling below the necessary specifications in the activity, relatively simple and risk-based approaches to testing and sampling are likely to be reasonable. However, where there are greater risks of particular products not satisfying the requirements of a definition, more detailed testing and sampling may be required. In such cases, should appropriate testing not be carried out, it would be appropriate to reduce the amount or volume of the relevant product in the light of the uncertainties and risks that all of the product claimed may have not met the necessary specifications.

The considerations in subclause 803(1) are more uncertain when expected production levels are to be examined for newly operating facilities and significant expansions. Accordingly, clauses 705 and 706 require additional information to be submitted with applications to assist in the assessment of the accuracy of the amount or volume which is expected to be produced. Clauses 903 and 904 add particular criteria for the Regulator to consider in coming to its view on the amount or volume which it considers is the best estimate of the amount or volume reasonably likely to be produced in the relevant financial year. Therefore, the considerations in clauses 903 and 904 operate to trigger the operation of clause 803 with respect to expected production levels.

Subclause 803(2) allows the Regulator to consider the application but apply a different amount of relevant product to calculate an applicant's allocation if it considers that the number provided in the application is not an accurate reflection of the production, or the best estimate of the expected production in a financial year. This clause is central to the Regulator's decision making process as it sets out the considerations upon which the Regulator may substitute a particular number as the correct production amount or volume to use as the basis for the issue of free carbon units in relation to an application for assistance. If the Regulator considers that a different amount or volume should be used, it is required to set out its reasons for this and consult the applicant on the alternative amount or volume that should be used. This is intended to facilitate more transparent decision making.

If the Regulator considers that there is not sufficient information to make a reasonable estimate of the amount of relevant product on which assistance should be based, the regulator may consider the application using a different amount or refuse the application where information is not sufficient to make a reasonable estimate of the amount or volume of the relevant product. If the Regulator proposes to refuse the application based on insufficient information, it will notify the applicant and provide an opportunity to respond (under clause 805). Through that process, information may be presented that could enable a reasonable estimate to be made, in which case, clause 803 may be triggered again.

The Regulator's decision to use a different amount or volume will then be subject to the review provisions in Part 21 of the Act.

Subclause 803(3) sets out requirements for the Regulator to consult applicants about the Regulator's substitution of a relevant amount or volume and to state its reasons for not being satisfied with the amounts or volumes claimed by the applicant. The Regulator may articulate specific concerns about the adequacy of information provided.

Clause 803 also outlines the timeframes within which the Regulator would be required to notify the applicant if it intends to use a different amount or volume on which to base assistance, and the timeframe that the Regulator provides for the applicant to respond. Consistent with the timing in Division 3 of this Part which outlines the maximum time for the Regulator to make a decision with respect to an application, subclause 803(4) provides that if the Regulator proposes to use a different amount or volume for calculating an applicant's allocation on the basis that it does not consider the amount specified in the application is an accurate or best estimate, it must notify the applicant in writing within 60 days of receiving the application. As the Regulator would be required to make reasonable inquiries as to the volume or amount in an application having regard to a range of issues listed in paragraph 803(1)(b) before notifying the applicant that it intends to substitute a different amount, it is intended that the Regulator would commence consideration of the application as soon as possible after it is received to provide time for an assessment of whether the amount of relevant product was appropriate within the 60 day timeframe.

The clause would also require the Regulator to set a reasonable notice period to allow the applicant to respond to the Regulator's invitation to provide further information. This will depend on the complexity and magnitude of the problem identified.

Division 3 - Decision on application for free carbon units

Clause 804

Subclause 804(1) specifies that the Regulator must make a decision on an application that is lodged, either by approving or refusing the application.

Subclause 804(2) outlines the timeframes within which the Regulator will be required to make a decision on an application in various circumstances. Generally, the Regulator would be required to make a decision on an application within a maximum of 60 days after receiving the application. It is intended that the Regulator would process an application as soon as practicable after receiving it. It is envisaged that applications that are complete, clearly present all the relevant information and involve a relatively straightforward assessment will be able to be processed quickly and well within the 60 day maximum timeframe. Where an application does not have the required information to facilitate a decision, further information will be required to assist the Regulator to assess the application and the application may not be processed within this 60 day timeframe. To the extent that the Regulator is proposing to refuse an application because the information does not meet the requirements, it must first issue a notice of its proposal to refuse the application under subclause 805.

Paragraph 804(2)(b) provides for a different timeframe for making a decision on an application where the Regulator has requested further information relevant to the application or where the Regulator notifies an applicant that it is proposing to refuse the application.  In these situations, the 60 day timeframe would be replaced with a requirement that the Regulator approve or refuse an application within 45 days after the end of the period within which the applicant is provided with an opportunity to respond to the request for further information or the invitation to submit a revised application if a notice of the Regulator's proposal to refuse has been issued. If the applicant provides further information in response to a request or invitation from the Regulator and that information is provided within the specified timeframe, the Regulator would be required to make a decision to approve or refuse the application within 45 days after receiving the further information.

Subclause 804(3) provides that the Regulator must approve an application if it is satisfied with all of the following:

a.    that all applicants are eligible persons for the facilities (and no-one else is an eligible person in respect of the facilities);

b.    the activities that are carried on are, or will be, an EITE activity as defined in Part 3;

c.    the EITE activity will be carried on at the relevant facilities in the year to which the application relates;

d.   the documents required by clause 603 have been provided (i.e. the audit report and statutory declaration);

e.    that there is sufficient evidence to make a reasonable estimate of the amount or volume; and

f.     the applicant is entitled to be issued with carbon units (i.e. there is not a negative allocation).

Applicants will need to hold an account with the Australian National Registry of Emissions Units to be issued with free carbon units that the Regulator has approved to be issued under the Program. It is intended that by the time the Regulator is in a position to make a decision on an application, the applicant will have already established an account and notified the Regulator of the account number in respect of the application for assistance under the Program. In any case, if an application is approved, the free carbon units will only be able to be issued to an applicant where a valid Registry account number has been provided to the Regulator. As the Regulator is required under clause 902 to issue free carbon units as soon as practicable after an application has been approved, it is intended that the applicant will have established an account as a matter of priority before applying for free carbon units.

Division 4 - Notification of proposed refusal

Clause 805

If the Regulator is not satisfied on all of these matters, it must refuse the application in accordance with the requirements in clause 805 to notify and consult with the applicant of its intention to refuse the application. The Regulator must give the applicant 30 days to revise the application or give the Regulator further information or advice about the application. It may, but need not, consider information submitted after the 30 days have expired.

Consistent with the timeframe for considering an application, if the Regulator intends to refuse an application, it must take all reasonable steps to notify the applicant under paragraph 805(3)(a) as soon as possible and within the 60 day timeframe for making a decision on an application. Before notifying of a proposal to refuse an application, the Regulator may trigger the request for further information in clauses 801, 802 or 803 including to verify whether the amounts and volumes are an accurate or best estimate. However, the Regulator may not notify of its proposal to refuse an application if it has previously issued a notification of its intention to refuse the same application in relation to the same matter, and if the applicant has not provided sufficient information in response to the Regulator's request about an alternative amount or volume to be used in calculating its allocations.

Division 5 - Notification of decision

Clause 806

This clause provides that the Regulator must notify an applicant of its decision as soon as practicable after an approval or refusal is made. This would generally occur immediately following a decision being taken.

The Regulator's decision to refuse an application will be reviewable under Part 21 of the Act.

If the Regulator has approved an application on the basis of substituting a lower amount or volume of relevant product than that proposed by an applicant, it will use the formula in Part 9 to calculate the number of free carbon units to be issued to the applicant's registry account. The decision to use a different amount or volume would be a reviewable decision under Part 21 in the event that a dispute in regard to the amount or volume of relevant product arises.

The refusal of an application because it would result in a negative allocation is an event where clause 1305 would apply.

Division 6 - Correcting an allocation of free carbon units

Clause 807

This clause provides for situations where the Regulator becomes aware of circumstances which have resulted in the incorrect amount of free carbon units being issued to an applicant. The clause provides that if the Regulator becomes aware during a financial year that the number of carbon units issued to an eligible person for that financial year is not correct, the allocation may be corrected. This may be due to, for example, a change in the applicant's circumstances which affects the basis upon which an applicant's allocation was calculated or the discovery of an error in the calculation since the allocation was made. In correcting the allocation, the Regulator would be required to advise the applicant.

If the Regulator is required to issue additional free carbon units as a result of a change in circumstances or an error in the allocation of units within the financial year to which the application relates, the units should be issued as soon as practicable after the Regulator has become aware of the discrepancy and has determined how many additional units should be issued. At that time, the applicant should be issued 100 per cent of the additional units that are owed which would have been allocated if the circumstance was known at the time of the original calculation.

If the applicant has been issued more carbon units than should have been issued, the Regulator must issue a notice to the applicant that it will need to relinquish the number of units that have been over-allocated as a result of the change which affected the original calculation.

It is intended that the clause also captures changes that result from additional information being provided which affect the calculation of free carbon unit allocations described in Part 9.

Example:

Alexcorp submitted an application for a large electricity user certificate in good faith that a pre-existing contract was in place in relation to the supply of electricity to their facility. The certificate allows Alexcorp to modify its electricity allocation factor (EAF) to 1.25. In September 2012, Alexcorp's application for free carbon units using the modified EAF was approved. In February 2013, through circumstances beyond the control of Alexcorp, the pre-existing contract in relation to the supply of electricity was terminated. The calculation of allocations made to Alexcorp, using a 1.25 EAF, was premised on the contract spanning the entire year. The change in circumstances means that the allocations made were no longer correct for the portion of the year, February to June 2013. As a result, a relinquishment requirement is triggered to correct for the over-allocation of units in respect of the portion of the year to which the pre-existing contract no longer applies.

Division 7 - Revision of application where outstanding debt

Clause 808

Clause 808 is intended to ensure that assistance is not provided, or is not provided in full, if an applicant has not met its obligation under the carbon pricing mechanism. As assistance under the Program is intended to help entities that undertake EITE activities in managing their carbon price liability, and given that assistance is provided early in a compliance year, it would not be reasonable for an applicant to receive assistance in respect of its future carbon price liability when it has unpaid carbon price debts from the previous financial year, particularly where it received free carbon units for undertaking an EITE activity in that previous year.

Division 7 provides that if an applicant that has applied for free carbon units in a financial year has an outstanding unit shortfall charge from a previous year or has incurred a late payment penalty under the Act, and that charge or penalty remains unpaid at the time the application is being considered by the Regulator, the Regulator must notify the applicant that it proposes to reduce the number of free carbon units that would have been issued by the equivalent amount of the obligations that are outstanding. In notifying the applicant, the Regulator must provide 30 days to rectify the non-compliance.

If the applicant pays the outstanding liability and/or penalty within the 30 day notice period, it must notify the Regulator. In these cases, the Regulator would be able to verify that the debt has been paid and the Regulator would be able to approve that the applicant is able to be issued its full allocation of free carbon units.

However, if the applicant does not pay the outstanding liability and/or penalty within the 30 days, the Regulator must reduce the allocation to that applicant by the equivalent amount of the outstanding debt. The reduction in the person's allocation by the amount of the outstanding debt would not act to extinguish any debt obligations under the Act. It would therefore act as a penalty and the applicant would still be required to meet its obligations to pay the carbon price liability or late payment penalty as this amount would have been in relation to a past debt. The reduction of free carbon units that are allocated in respect of the year looking forward is intended to encourage the retirement of debt and not allocate assistance for future liability where an eligible person has not met its previous carbon price obligation.

Given that any shortfall charge or late payment penalty would be specified in dollar terms, and as it would relate to an earlier year than the year to which the application relates, the person's total outstanding shortfall charge and/or late payment penalty would need to be divided by the price of the unit that relates to the year in which the allocations are to be made. This would result in converting the outstanding debt from a monetary value to the amount of units which are to be provided under the Program in the year to which the application relates.

Where there are multiple applicants under an application, the allocations would only be reduced for the person or persons that have an outstanding debt. Where a joint application is approved and an applicant has an outstanding debt, the amount of free carbon units to be issued to the applicant with the outstanding debt would be the proportion of the allocation that the eligible person has nominated to receive from the total allocations for that application, less the equivalent of the outstanding debt.

Assistance would still be provided to eligible persons under a joint application where they do not have an outstanding debt and the amount of that assistance would be in accordance with the proportions nominated in the application. This is intended to not disadvantage an applicant where they were not responsible for the outstanding debt, recognising that they may have no control over the outstanding debts of their partner applicant.

For example, three eligible persons are collectively parties to an application in respect of undertaking one EITE activity for the 2014-15 year. The parties to the application had nominated on the application that the allocations are to be apportioned in equal parts among all three eligible persons (33.3 per cent each). The Regulator intends to approve the application on the basis that it meets the requirements in subclause 804(3) and the amount of allocations that would ordinarily be provided in respect of the EITE activity for this application totals 1,200 units. However, the Regulator had noted that:

-     the first nominated applicant had paid its direct carbon price liability in full for the 2013-14 year and had no outstanding debt;

-     the second applicant had an outstanding shortfall charge of $3,140 for the 2013-14 year at the time the application was approved; and

-     the third applicant had an outstanding shortfall charge of $1,250 and a late payment penalty of $250 at the time the application was approved.

The Regulator would need to inform all the applicants that it proposes to reduce the allocation of units to applicants that have an outstanding debt and invite those applicants with the outstanding debt to repay the debts within 30 days and advise the Regulator if it pays the debt in full. The Regulator would also be able to issue the first applicant with its allocation of 400 units.

If within the 30 days of the notification the second applicant had paid all of its outstanding liability and had notified the Regulator, and the third applicant had not paid the shortfall and late payment penalty, the allocations for these applicants would be as follows:

-     the second applicant would be provided with its full allocation of 400 units, which represents its share of the total 1,200 unit allocation for the application; and

-     the third applicant would receive a reduced allocation of 341 carbon units, which represents the proportional allocation of 400 units less the 59 units, which is the 2014-15 equivalent of the $1,500 outstanding debt ($1,500 divided by the fixed price of the units in 2014-15 of $25.40)

For applications which relate to any other financial year, that is, in the flexible price period, the units would be adjusted to the benchmark average auction charge that relates to the application.

The clauses also include an anti-avoidance provision to prevent joint applicants from modifying the formula in which allocations are to be made, such that any person with an outstanding debt would receive a lower share, and instead have those allocations made to other persons in the application with no outstanding debts. The clauses provide the power for the Regulator to reject an application where persons have an outstanding debt and where the share of allocations to the non-compliant person is reduced compared with the previous year.

 

 

 


PART 9 - METHOD OF CALCULATING THE NUMBER OF FREE CARBON UNITS TO BE ISSUED TO A PERSON

Part 9 sets out how the Regulator will calculate the number of carbon units to be issued to an applicant whose application is approved. As outlined above, the process in Part 8 provides for situations where the Regulator will be able to consult with applicants on the key inputs into the formula, while the clauses in Part 9 relate to how those inputs are used to determine the number of free carbon units to be issued to eligible applicants.

Most significantly, clauses 906 and 907 set out the central formula which determines the number of free carbon units to be issued to each applicant.

The formula for calculating assistance - both in the fixed charge years and the flexible charge years of the carbon pricing mechanism - will be accompanied by any adjustments to an allocation in a particular year for a facility which meets the maximum cap threshold outlined in clause 911 and/or the sub-threshold test outlined in clause 912, where applicable.

In most cases, the number of free carbon units to be provided to an eligible applicant in a financial year in relation to an EITE activity will be determined using the baseline allocation formula outlined in Division 4 (and Division 5 for large electricity users). However, in some cases where a facility is determined to be a new facility in accordance with clause 205, the allocation will be adjusted after working out whether the allocation would have breached the maximum allocation for new facilities (under clause 911). In addition, where a facility is not a liable entity under sections 20 to 25 of the Act, thereby triggering clause 708, the allocation will be adjusted to account for non-liable emissions as set out in clause 912.

Division 1 - General

Clause 901

This clause provides that Part 9 outlines how the free carbon units to eligible persons that have had an application approved by the Regulator (in accordance with Part 8) will be calculated.

Clause 902

Subclause 902(1) requires the Regulator to issue the free carbon units that are approved for an application to the applicant's account in the Australian National Registry of Emissions Units. In cases where there is a joint application, the units are to be issued to each applicant's Registry account in accordance with the proportions nominated on the combined application form. It will be each eligible person's responsibility to ensure that it has established a Registry account to allow the free carbon units to be issued.

Given that subclauses 902(2) and (3) require the free carbon units to be issued to approved applicants as soon as practicable after the application has been approved, to facilitate the timely delivery of free carbon units, it is intended that the applicant would have established a Registry account and notified the Regulator of the account number well in advance of the application being processed.

Subclause 902(2) requires that where free carbon units are to be allocated to an eligible applicant during the fixed price period, the units must be issued in a staged process which corresponds with the requirement to pay liability in two stages during the fixed price period through the provisional surrender obligation (Part 6 of the Act). As soon as practicable after an application for assistance is approved (generally early in a compliance year), the Regulator will be required to provide:

-     all of the applicant's allocation of free carbon units in respect of the indirect emissions associated with the EITE activity (that is, the electricity and natural gas feedstock baseline allocations); and

-     75 per cent of an applicant's allocation of free carbon units in respect of the direct emissions associated with the EITE activity (as calculated using the direct emissions baseline allocation) for the year to which the application relates.

-     Any adjustment of the free carbon unit allocations in respect of the previous year's allocation, such as a true-up for actual production, as well as adjustments for allocations relating to facilities which are sub-threshold or subject to a maximum cap, should also be made as part of this initial allocation early in the compliance year.

The remaining 25 per cent of an applicant's allocation of free carbon units in respect of the direct emissions associated with the EITE activity (as calculated using the direct emissions baseline allocation) for the year to which the application relates will be provided to an eligible applicant as soon as practicable in the following financial year and generally well before but no later than the 1 February final compliance date for that financial year.

Subclause 902(3) requires that all free carbon units in respect of an application will be provided early in the compliance year following the approval of an application in the flexible charge period. The Regulator will be required to provide all of the free carbon units in respect of the direct, electricity and natural gas feedstock baselines, as well as any adjustments such as the true-up for actual production, sub-threshold the maximum cap.

Subclause 902(4) specifies that, as soon as the Regulator becomes aware of any circumstances which resulted in incorrect and insufficient allocations being made, the additional free carbon units must be issued as soon as practicable.

Subclause 902(5) gives effect to the apportionment formula or other arrangement provided by applicants in joint applications.

Any reduction in allocations as a result of an outstanding debt for unpaid carbon price liability would also be made as part of the initial allocation in the fixed price period and the total allocation during the flexible price period. Subclause 902(6) provides that where an eligible person under an application has an outstanding debt that is greater than the total amount of free carbon units that would have been issued, the applicant would not be eligible to receive any allocation for that year.

 

Example

Indigo Grace and Sophia Leonce jointly conduct a newsprint manufacturing business across two facilities in Victoria. They make a combined application for assistance and request that the carbon units be apportioned in a ratio of 30:70. If the application resulted in them being eligible to receive 10,000 carbon units, the Regulator would be required to give effect to that formula and issue Indigo 3000 units and Sophia 7000 units.

If in assessing the application it becomes apparent to the Regulator that the facility would trigger the closure of equipment provisions during the year to which the application relates, the Regulator would reduce the amount of free carbon units that would have been issued by the amount that would likely to exceed the allocation if the closed equipment was taken into account.

Subclause 902(7) sets out that if the Regulator considers that the requirements for closure will be satisfied during a financial year for which an applicant has applied for free carbon units, the Regulator must reduce their application by the number of units which would be likely to be required to be relinquished if the facility received a full allocation. This clause is intended to ensure that facilities with clear closure plans are not allocated free carbon units and then have to go through a closure assessment and relinquishment process which may be delayed or not result in units being relinquished (for example, in the case of liquidation). It will also be a practical way of accommodating closures that occur at the very beginning of a financial year.

The Regulator's decisions under this subclause are subject to the review provisions in Part 21 of the Act.

Ordinarily, the amount or volume of the relevant product produced in the previous financial year (plus or minus a true-up amount) will be multiplied by the assistance rate for that year (e.g. 94.5 per cent) and each baseline in Part 4 to determine the number of carbon units to be issued. All adjustments relating to facilities that are sub-threshold and/or subject to a maximum cap, will be calculated separately.

Division 2 - Special arrangements for facility without continuous emissions-intensive trade-exposed activity

Clause 903

Generally, the method for calculating the allocation of assistance to an eligible person will be based on the amount of relevant product produced by undertaking an EITE activity in the previous financial year. However, for a facility that is a newly operating facility where the EITE activity was not undertaken in the previous year or where the activity was undertaken in the previous year for the first time or after a break of at least 12 months, clause 903 outlines how the Regulator is to come to a view on expected production levels where a facility does not have an appropriate amount of production in the previous year on which to base assistance.

For an applicant that is operating a facility which is conducting an EITE activity for the first time, or did not undertake an EITE activity in the previous financial year and has not applied for assistance in respect of that activity, the allocation of free carbon units will be based upon how much of the relevant product is reasonably likely to be produced in the financial year to which the application relates. Clause 903 outlines the central considerations for the Regulator to consider in determining an appropriate level of relevant production.

Division 3 - Special arrangements for significant expansion

Clause 904

For facilities where a significant expansion in production capacity is deemed to have taken place, clause 904 sets out how the Regulator decides on the amount or volume of production above the previous year's production which is the best estimate of reasonably likely production and which will be used to determine allocations under the Program.

For example, if a facility produced 1,000 tonnes of a relevant product in the previous financial year and expects to produce 1,300 tonnes in a year of a significant expansion, the 300 tonnes of additional production will be the relevant number to be determined under clause 904 and will then used in the formula in clause 907 as the expected additional production or EAPiat.

Clauses 903 and 904 both refer to the contracts or other arrangements in place to sell the output of the facilities. These will be looked at to assess how realistic the production amounts or volumes are and the extent to which the orders for the relevant product are confirmed. However, if particular markets generally do not forward contract and no particular arrangements are in place, this will not mean that an allocation for expected production should not be allowed. The purpose of examining the contracts is to gain a better understanding of the reasonably expected output volumes and not to consider the prices paid for those outputs.

Clauses 903 and 904 will also require the Regulator to consider the likelihood of the relevant equipment not being commissioned or re-commissioned as proposed or not producing the product as proposed. Applicants should present evidence on these issues to satisfy the Regulator that the applicants' various assumptions about the timing and levels of production are reasonable and result in a best estimate of the amount or volume of expected production.

Clause 905

Clause 905 outlines the issues that the Regulator would need to have regard to in its assessment of whether the expected production amount or volume is the best estimate of the relevant product that the facility is likely to produce, including information on contracts in place to purchase the output and the likelihood that the equipment will be able to produce that amount.

Divison 4 - Formula

Clauses 906 and 907

Clauses 906 and 907 outline the formula for calculating the number of free carbon units to be allocated to eligible applicants for each activity undertaken each year under the Program. The calculation of assistance is subject to whether the maximum cap on allocations for new facilities should apply, as outlined in clause 911 and adjustments to allocations made to sub-threshold facilities, as outlined in clause 912. These adjustments will be made to the overall number of permits allocated under clause 902 after the calculations are made according to the formula outlined in clauses 906 and 907.

The calculation of assistance for each entity undertaking an eligible activity will broadly be based on the assistance rate for a given year, the production level for that year and three baselines for the activity - in terms of its direct emissions intensity, electricity used and natural gas feedstock used in production. There will also be a previous year adjustment for any under or over allocation from the previous year (which incorporates adjustments for true-up of actual production.

The calculation involves an allocation (per activity per application per year) for:

-     direct emissions (EI allocationst);

-     electricity use (EP allocationst);

-     natural gas feedstock (NGP allocationst); and

-     adjustment for the previous year's allocation (previous year adjustmentst).

The formula is:

Baseline allocationst = EI allocationst + EP allocationst + NGP allocationst + previous year adjustmentst

where:

 

EI allocationst = kat (EIat x APiat)

 

EP allocationst = kat (EPat x EAFit x APiat)

 

NGP allocationst = kat (NGPat x NGAFit x APiat)

 

Previous year adjustmentst = Tiat

The formula can be expanded as:

kat(EIat x APiat) + kat(EPat x EAFit x APiat) + kat(NGPat x NGAFit x APiat) + (Tiat)

where:

--  kat = relevant rate of assistance for the EITE activity for the year in which it is carried out (e.g. 94.5 per cent for highly emissions-intensive activities in 2012-13) (outlined in subclauses 907(3) and (4))

--  EIa = direct emissions intensity baseline for the activity (outlined in subclause 907(5) and prescribed in Part 4 for each activity)

--  APiat = adjusted production amount or volume of relevant product produced by undertaking the EITE activity (including the past year's production, expected additional production outlined in subclauses 907(6) and (7)) - for the first year's allocation 2012-13, this will just be the previous year's production, or an estimate if there is no appropriate number to use for previous year's production (as outlined in clauses 903 and 904)

--  EPa = electricity use baseline for the activity (outlined in subclause 907(8))

--  EAFit = electricity allocation factor (which is 1 unless the large user electricity contract clauses apply) (outlined in subclauses 907(9) and (10))

--  NGPa = natural gas use as a feedstock baseline for the activity (outlined in subclause 907(11))

--  NGAFit = natural gas feedstock allocation factor (which is a state-based factor outlined in subclauses 907(12), (13) and (14)).

--  Tiat = previous year adjustment = true-up adjustment for the previous financial year's actual production (outlined in subclauses 907(15) to (18)).

The formula and differential baselines will clearly indicate how the amount of assistance is related to the direct emissions covered by the Act and by other measures equivalent to imposing a carbon price (e.g. fuel excise), the increases in the electricity prices which are likely to result from the carbon price, and increases in costs for the supply of natural gas to use as a feedstock because of the carbon price. In practice, for most activities which do not have a natural gas feedstock baseline and which are not subject to the large user electricity clause, the direct emissions baseline and electricity use baseline can be added together and multiplied by the assistance rate and the production level to determine the number of carbon units to be issued.

Example

Allocations for 100 tonnes of bulk flat glass in the first year of the carbon pricing mechanism (assuming the facility is above threshold) would be as follows:

Free carbon units           = kat (EIat x APiat) + kat (EPat x EAFit x APiat)

                                       = 94.5 per cent (0.841 x 100) + 94.5 per cent (0.276 x 1 x 100)

                                       = 106 carbon units

or

Free carbon units           = 94.5 per cent x 100 x (0.841 + 0.276) or (1.117)

                                       = 106 carbon units

The baselines for calculating assistance are based on the industry weighted average emissions, electricity and natural gas feedstock assessed during the baseline period of 2006-07 and 2007-08 and apply to all entities that undertake a particular EITE activity in future. Assistance is based on the production of a relevant product (or products) that result from undertaking the activity.

The fact that the formula contains a specific baseline for direct emissions, electricity use and the use of natural gas as a feedstock for each activity does not mean that an activity needs to emit any particular level of emissions, use a particular amount of electricity or use natural gas as its feedstock. Should more economically efficient and lower emissions ways to produce a particular product be developed while the relevant activity is conducted, the allocations of free carbon units would not be affected (provided that the activity was still being conducted as described).

In this way, decisions about the substitution of energy sources and the relative economic cost of electricity use will not be affected by the allocation of free carbon units under the Program. Companies making these efficiencies changes thus benefit from the full value of the carbon price for every tonne of emissions saved.

For example, a decision about whether to install a co-generation facility may be made taking into account the future carbon price but would not affect the level or manner in which free carbon units are issued for an EITE activity under the Program. Similarly, a firm will not have assistance reduced because they source their electricity from renewable or low emissions generation rather than traditional coal fired generation. The only point where allocations will be reduced is when they exceed the maximum cap for new facilities as set out in clause 911.

The use of historical industry average baselines in the formula is also important in rewarding existing efficiency investments, particularly those since the base period for assessment began in July 2006, and providing the strongest incentive for new investments and operational improvements into the future. Improving the emissions intensity of products from EITE activities is good for the environment, good for Australian jobs and is essential to supporting the long term competitiveness of our industries as they compete in a global clean energy economy. These products will remain an important part in the global economy as the world moves to cleaner and more efficient energy sources. The assistance framework is thus central to the environmental effectiveness of the carbon price and driving productivity improvements in our most carbon intensive manufacturing industries.

Subclause 907(4)

The method for determining the assistance rate which would apply each year for the highly emissions-intensive and moderately emissions-intensive activities is set out in subclause 907(4). The assistance rates begin at 94.5 per cent and 66 per cent in 2012-13 and are then adjusted for the carbon productivity contribution of 1.3 per cent per annum. For illustrative purposes, indicative rates of assistance each year up to 2019-20 for each category are outlined in the table below (rounding is to three significant figures).

 

 

 

Indicative assistance rates

Year

for a moderately
emissions-intensive activity

for a highly
emissions-intensive activity

2012-13

66.0%

94.5%

2013-14

65.1%

93.3%

2014-15

64.3%

92.1%

2015-16

63.5%

90.9%

2016-17

62.6%

89.7%

2017-18

61.8%

88.5%

2018-19

61.02%

87.4%

2019-20

60.2%

86.2%

Subsequent years (t)

kat = 66% x (1-0.013)t-1

kat = 94.5% x (1-0.013)t-1

The formula for calculating the assistance rate that applies to a highly emissions-intensive and a moderately emissions-intensive activity is established by subclause 907(4). The formula is designed such that the assistance rate for each category of activity will continue into perpetuity, declining by the carbon productivity contribution each year. Therefore, the assistance rates will continue to apply unless and until the clauses are amended or withdrawn.

The application of a carbon productivity contribution for a particular activity was part of the Government's announcement on the Clean Energy Future package on 10 July 2011 and is intended to compound over time providing the incentive for entities undertaking EITE activities to reduce emissions. It takes into account the combined impact of the historical improvements in efficiency, the potential for these to increase after the introduction of the carbon price, the sector's contribution to national emissions reduction objectives and recognises that countries around the world are already taking action to reduce their emissions.

To provide business certainty to invest in clean energy, the Government has committed to provide three years' notice of modifications to the Jobs and Competitiveness Program with any changes that would have a negative effect on business. The Government has also committed that any such changes to the Program are not made before 1 July 2017. Section 145 of the Clean Energy Act 2011 gives effect to this commitment.

Under section 155 of the Act, the Program is to be reviewed by the Productivity Commission under specific terms of reference to determine whether or not it is achieving those aims and objects outlined in section 143 of the Act in the third year of the carbon pricing mechanism and as part of the general reviews. These reviews will play a key role in ensuring the assistance arrangements are effective, efficient and in step with the pace of global action on climate change mitigation.

The Government, after considering the outcomes of a Productivity Commission review, may adjust the assistance rates in light of the assessment of the economic and environmental efficiency of the Program in the context of Australia's climate change policies and those in other countries.

In particular, under section 156 of the Act, the Productivity Commission will be asked to examine whether assistance rates should be paused at 90 per cent for a highly emissions intensive activity and 60 per cent for a moderately emissions intensive activity if less than 70 per cent of international competitors have introduced comparable carbon constraints. This will consider the cumulative net impact, both in Australia and in competitor economies, of relevant mitigation policies including explicit carbon prices, renewable energy schemes, other relevant government polices and associated assistance and exemptions. The Government considers that the evidence-based quantitative sectoral analysis involved in this assessment will be crucial to ensuring the application of our carbon price and other mitigation policies supports the competitiveness of our industries in the global markets in which they compete.

Subclause 907(6)

Subclause 907(6) provides for the amount of relevant product that will form the basis for the calculation of an applicant's allocation in respect of undertaking an EITE activity. The concept of 'adjusted production' is designed to sum the amount of relevant product produced at a facility by undertaking an EITE activity in the previous financial year if applicable and, where applicable, the expected production in the financial year to which the application relates for a newly operating facility or expected additional production for a significantly expanded facility.

For significant expansions, the expected additional production will be added to the previous year's production to allocate for a particular year. The expected production number is relevant only to facilities which are significantly expanded or are newly operating facilities. Other facilities which are part of the same application will receive an allocation only on the basis of the previous year's production.

Subclause 907 (12), (13) and (14)

Assistance will be provided for the use of natural gas as a feedstock in eligible EITE activities which meet the specific criteria for this particular form of assistance. The baseline level of natural gas used as a feedstock will be multiplied by the assistance rate for the year and relevant state/territory natural gas allocation factor, determined with reference to factors from the National Greenhouse Accounts.

The system of gas supply for many regions is complex and in many cases the emission intensity of up-stream supply results from the supply of gas from a mixture of a number of fields with different emission intensities. Information relating to the emissions intensity of natural gas extraction and transportation for each field supplying users in each metro and non-metro region of Australia has been compiled by an expert consultant using data supplied under the NGER legislation.

The factors specified are outlined in the table at 907(13) (replicated below) and split between regions to reflect the emissions intensity of supply to different regions based on the share of supply from different gas fields during the baseline NGER year. For ease of reference, these regions will be presented as metro and non-metro factors for operators located in each state.

The state/territory gas allocation factors (tonnes of carbon dioxide equivalent per terajoule) that will be listed in subclause 907(13) are as follows:

State/Territory

NGAFit Factor is

Metro*

Non-metro

t CO2-e per TJ

t CO2-e per TJ

New South Wales

14.2

15.0

Victoria

4.0

4.0

Queensland

8.6

7.8

South Australia

10.4

10.2

Western Australia

4.0

3.9

Tasmania

n/a

See Note

the Australian Capital Territory

14.2

15.0

the Northern Territory

n/a

See Note

the offshore area

n/a

See Note

an external territory

n/a

See Note

the Joint Petroleum Development Area

n/a

See Note

*Metro will be defined as located on or east of the dividing range in NSW. It will include Canberra and Queanbeyan, Melbourne, Brisbane, Adelaide or Perth. Otherwise, the non-metro factor should be used.

Note: Natural Gas Allocation Factors will be determined for these states and territories as needed.

The factors to apply for production which occurs in Tasmania, the Northern Territory and outside of Australia's land area (such as in the offshore area, external territories or the Joint Petroleum Development Area) have not yet been defined due to confidentiality and other constraints on data. At this stage there are no entities conducting defined EITE activities for which these factors would be relevant. Where an entity indicates a strong intention to conduct an activity eligible for these allocations in these regions the factors will be determined as required.

Example

For 1000 tonnes of methanol produced in Victoria relevant to assistance in 2014-15, the allocation would be:

Free Carbon units          =  kat (EIat x APiat) + kat (EPat x EAFit x APiat) + kat (NGPat x                                                         NGAFit x APiat)

                                       = 92.1 per cent (0.389 x 1000) + 92.1 per cent (0.490 x 1 x 1000) + 92.1 per cent                                             (0.0268 x 4.0 x 1000)

                                       = 908 carbon units

Subclause 907(15)

Subclause 907(15) provides for a true-up mechanism or 'T adjustment' to apply in the formula for calculating assistance to account for the difference between the previous financial year's production upon which allocations were based and the actual production that occurred in that year. This true-up will be applied to all applications except for the first year of the Program where the applicant had received free carbon units.

In the fixed charge period, any adjustment for allocations to reflect actual production in a year will also need to take account of the price of the carbon units in the year in which the units are issued, relative to the price for units in the following year when the adjustment takes place.

The rationale for adjusting for the carbon price is to ensure that the adjustment for the previous year's production reflects the same financial value in nominal terms as allocations which would have been made if they were provided the previous year. For example, if the actual production in a year is higher than the expected production on which the assistance was calculated in the previous financial year, then the adjustment in the total number of units issued as part of the adjustment would be reduced in proportion to the extent to which the price for the units was higher than the previous year's units, such that the same quantum of assistance is provided.

The price of the carbon units in the fixed charge years is $23 in 2012-13, $24.15 in 2013-14 and $25.40 in 2014-15. If a T adjustment is needed in 2015-16 to account for production in the last fixed charge period, 2014-15, the carbon price for 2015-16 that will be used for calculating the T adjustment is the benchmark average auction charge.

Adjustments for allocations made in the flexible charge period will not need to take account of changes in the price of carbon units as this will be determined in the market.

In the fixed charge period, the general formula to calculate the T adjustment is:

Tiat           =        (adjustment for change in fixed charge applying for the current year and the previous year) × (adjustment for interest) × [(Allocations based on actual production in the previous year) - (baseline allocations provided in the previous year based on expected production less last year's T adjustment)] 

This formula is expanded as:

Tiat          =         CPt-1/CPt × (1+r) × [kat-1 x (Piat-1 × (EIat-1 + EPat-1 × EAFit-1 + NGPat-1 × NGAFit-1)) - (baseline allocationt-1 - Tiat-1)]

where:

kat-1 = the previous year's assistance rate

Piat-1 = the previous year's actual production

baseline allocationst-1 = the previous year's allocation based on expected production

Tiat-1 = the previous year's T adjustment

CPt-1 = the previous year's carbon price

CPt = the carbon price in the year the adjustment is made (which in determining the T adjustment for applications in 2015-16, will be the benchmark average auction charge BAACt for the financial year 2014-15)

r = the per annum yield (expressed as a percentage) for BBB rated corporate bonds with 1 to 5 years maturity, as published by the Reserve Bank of Australia, that is the latest daily rate published prior to the day the request to the Regulator was received. The (1+r) factor, in the above formula, only applies for the financial years 2013-14 and 2014-15.

In the flexible charge period, the method for calculating the T adjustment for an application made in 2016-17 and beyond is the same as above, without the adjustment for the change in the carbon price.

The operation of all of these adjustments can be demonstrated by the following example.

Example - part 1

Kahanda Limited produces the following tonnes of saleable, dry, pelletised carbon black. For the purposes of simplicity, adjustments for the differences in carbon price will be left to part 2, and  adjustments for interest will be left to part 3 of this example.

t (year)

Piat

EAPiat

APiat

combined baselines

kiat

initial allocation amount

Tiat

baseline allocations t

"correct" allocations

t = 0

2011-12

 10,000

 N/A

 N/A

3.174

 N/A

 N/A

-

 N/A

 N/A

t = 1

2012-13

 15,000

 3,000

 13,000

 3.174

0.945

 38,993

 -  

 38,993

 44,991

t = 2

2013-14

 20,000

 4,000

 19,000

 3.174

0.933

 56,265

 5,998

 62,264

 59,227

t = 3

2014-15

 20,000

 -  

 20,000

 3.174

0.921

 58,465

 2,961

 61,426

 58,465

Total:

162,683

162,683

Note: rounding in this table only takes places as the final step (i.e. for baseline allocations)

 

In the year 2012-13
t=1,

baseline allocations1                =  ka1 (EIa1 × APia1) + ka1 (EPa1 × EAFi1 × APia1) + ka1 (NGPa1 ×                                                              NGAFi1 × APia1) +(Tia1)
                                                = APia1 × (allocative baselines × assistance rate) +(Tia1)
                                                = (Pia0 + EAPia1 ) × (allocative baselines × assistance rate) +(Tia1)
                                                = (10,000 +3,000) × (3.174 × 94.5 per cent) +(0)
                                                = 38,993

In the year 2013-14
t=2,

baseline allocations2                =  APia2 × (3.174  × 93.3 per cent) +(Tia2)
                                                = (Pia1 + EAPia2 ) × (3.174 × 93.3 per cent) + (Tia2)
                                                = (15,000+ 4,000) × (3.174  × 93.3 per cent) + (Tia2)
                                                = 56,265 + (Tia2)

Tia2       =  ka1 × (Pia1 × (EIa1 + EPa1 × EAFi1 + NGPa1 × NGAFi1) - (baseline allocations1 -                  Tia1)
            = (Pia1
× (allocative baselines × assistance rate) - (baseline allocations1 - Tia1)
            = Pia1 × (3.174 × 94.5 per cent) - (baseline allocations1 - Tia1)
            = 15,000 × (3.174 × 94.5 per cent) - (38,993 - 0)
            = 5,998

Therefore:
baseline allocations2                = 56,265 + 5,998 = 62,264 (note rounding has taken place)

In the year 2014-15
t=3,

provisional allocations3           = APia3 × (3.174 × 92.1 per cent) +(Tia3)
                                                = (Pia2 + EAPia3 ) × (3.174 × 92.1 per cent) + (Tia3)
                                                = (20,000+ 0) × (3.174 × 92.1 per cent) + (Tia3)
                                                = 58,465 + (Tia3)


Tia3       =
ka2 × (Pia2 × (EIa2 + EPa2 × EAFi2 + NGPa2 × NGAFi2) - (provisional allocations2 - Tia2)
            = Pia2 × (3.174 × 93.3 per cent) - (provisional allocations2 - Tia2)
            = 20,000 × (3.174 × 93.3 per cent) - (62,263 - 5,998)
            = 2,961

Therefore:
provisional allocations3           = 58,465 + 2,961 = 61,426

The sum of allocations based on previous year production levels and the T adjustment are equivalent to allocations made if they were based on current year production levels.

Example - part 2

Part 1 shows that the previous year adjustment allocates the equivalent permits, which the applicant missed out on as a result of their expanding production, in the current year vintage. However, as the carbon price during the fixed charge period is changing, the allocations are not financially equivalent.

t (year)

CPt

baseline allocations t

"correct" allocations

Value of baseline allocations t

Value of "correct" allocations

t = 0

2011-12

N/A

 N/A

 N/A

 N/A

 N/A

t = 1

2012-13

 $ 23.00

 38,993

 44,991

 $896,839

 $1,034,793

t = 2

2013-14

 $ 24.15

 62,264

 59,227

 $1,503,676

 $1,430,332

t = 3

2014-15

 $ 25.40

 61,426

 58,465

 $1,560,220

 $1,485,011

Total

 $3,960,735

 $3,950,136


In the table above, the value of allocations based on previous year production levels and the
T adjustment is higher than the value of allocations if they were based on current year production levels. In the opposite case, where production is decreasing, the previous year adjustment reduces current year permits by the amount which was over-allocated in the previous year, in the current year vintage. In this situation, the value of allocations based on previous year production levels and the T adjustment would be lower than the value of allocations if they were based on current year production levels.

To adjust for this difference, allocations based on previous year production levels and the T adjustment need to be adjusted by the change in carbon price in order to be financially equivalent to the value of allocations made if they were based on current year production levels.

To do this the T
adjustment is multiplied by the ratio of the carbon price in the previous year/ carbon price in the current year:
Therefore:
Tia2 in Part 1 is adjusted to = CP2/CP× 5,998 = $23.00 / $24.15 × 5,998 = 5,713
Tia3 in Part 1 is adjusted to = CP3/CP× 2,961 = $24.15 / $25.40 × 2,961 = 2,816

 

 

 

 


 

This results in allocations being nominally financially equivalent to the value of allocations made if they were based on current year production as shown in the table below:

t (year)

CPt

Tiat

baseline allocations t

"correct" allocations

Value of baseline allocations t

Value of "correct" allocations

t = 0

2011-12

N/A

 N/A

 N/A

 N/A

 N/A

 N/A

t = 1

2012-13

 $ 23.00

 -  

 38,993

 44,991

 $896,830

 $1,034,793

t = 2

2013-14

 $ 24.15

 5,713

 61,978

 59,227

 $1,496,776

 $1,430,332

t = 3

2014-15

 $ 25.40

 2,816

 61,281

 58,465

 $1,556,528

 $1,485,011

Total

 $3,950,134

 $3,950,136

 

Example - Part 3

The final step in the previous year adjustment is to modify the amount for interest. To do this the T adjustment is multiplied by (1 + r), where r is the per annum yield for BBB rated corporate bonds with 1 to 5 years maturity, as published by the Reserve Bank of Australia, that is the latest daily rate published prior to the day an application is approved by the Regulator.
Therefore, if r is 7 per cent:
Tia2 in Part 2 is adjusted to = (1 + r) × 5,713 = (1 + 7%) × 5,713 = 6,113
Tia3 in Part 2 is adjusted to = (1 + r) × 2,816 = (1 + 7%) × 2,816 = 3,013

The previous year adjustment ensures that the allocations take into account incremental expansions or contractions to production over time. The previous year adjustment will also ensure that discrepancies between predicted and actual production levels are adjusted for in the next year to ensure that over- or under- allocations do not occur. The previous year adjustments will not be modified by the difference in the carbon price during the floating price period because carbon units may be banked for use in future vintages.

Division 5 - Modification of formula in Division 4 - large electricity user contracts

Clause 908

Subclause 907(10) provides that in most cases, an electricity allocation factor (EAF) of one will apply to calculations of assistance in respect of the electricity baseline. This is intended to represent that generally, in using one megawatt-hour of electricity, a carbon cost pass-through of one unit per megawatt-hour is assumed, irrespective of where the electricity is generated and the emissions-intensity of the generation. However, under the Program this EAF is to be adjusted for large electricity users, that is, entities where more than 2,000 gigawatt-hours a year are used at a single facility where contractual arrangements were entered into before 3 June 2007 and remain in force on 1 May 2012. It is intended that any contract entered into from this date could reasonably be expected to have factored in the potential for a carbon price policy to be implemented in future and could provide for arrangements in respect of the costs associated with that policy, given the general commitment at that time from all major political parties to act on climate change.

Division 5 provides for situations where EITE entities that are large electricity users can renegotiate their contracts in relation to the supply of electricity in order for an EAF of 1 to apply, or where contracts that were entered into before 3 June 2007 and that are still in force (without having been renegotiated or renewed), the entity must apply to the Regulator to demonstrate an existing contract is in place in order for an EAF based on the generators' pass through of costs associated with the carbon price to apply.

If the Regulator is not notified of the arrangements and provided with the relevant documents, no assistance will be provided for electricity-related cost increases faced by the entity.

The Regulator, after receiving the relevant documentation, will determine an entity-specific EAF for that entity for the period up to the time the long-term contract ends or can be reviewed. This entity-specific EAF will reflect the average price increase in electricity faced by the entity as a result of the introduction of the carbon price. This will be determined by looking at the portion of electricity likely to be used in the activity supplied by the long-term contract or contracts entered into before 3 July 2007 and the portion of electricity likely to be used in the activity supplied by any other arrangements (for which the national EAF will apply).

In relation to the long-term contract portion:

-                         the EAF will reflect, in the Regulator's opinion, the difference in value between what would have been paid under the contract had a carbon price not been introduced and what is likely to be the price paid for the electricity under the long-term contract (that is, with the carbon price in place)

-                         the EAF must be within the range of 0 permits per megawatt-hour and a number that is equivalent to the emissions intensity of the electricity generator or generators that supply electricity to the activity.

To provide certainty to business and ensure that permits can be allocated as soon as possible, the Regulator will endeavour to make decisions on entity-specific EAFs early in the first compliance year. These decisions will be subject to judicial review in the Federal Court under the Administrative Decisions (Judicial Review) Act 1977. The Government considers this will be an effective dispute resolution mechanism for issues that may arise in interpreting the contract and that additional review mechanisms (such as merits review in the Administrative Appeals Tribunal) would delay resolution of the matter.

To implement this policy, Division 5 sets out a process for modifying the EAF for the relevant facilities. An eligible large user of electricity in relation to a facility which consumed more than 2,000 gigawatt hours of electricity in the 2008-09 financial year may apply to the Regulator for a 'large user electricity certificate' before 1 August 2012. These are:

-                         the persons with operational control of the facility;

-                         a person who is a participant in a designated joint venture with in relation to a facility;

-                         the holder of a liability transfer certificate in relation to the facility that was in force on 1 July 2012;

-                          or the person who holds the contract in relation to the supply of electricity to a facility.

If no application is made by any of these persons, the facility is deemed to have an EAF of zero for the first 10 years of the carbon price (subclause 909(10)).

The large user electricity certificate will be a separate document issued by the Regulator which may operate to vary the EAF of one for an EITE activity at a particular facility which consumed more than 2,000 gigawatt hours of electricity in the 2008-09 financial year. The certificate for a facility will be determined upfront by the Regulator and will apply in respect of all future applications where the contract is still in force.

It is intended that the determination of a large user electricity certificate will be based upon the effect of 'relevant pre-existing contracts' for the supply of electricity which:

-     were entered into before 3 June 2007; and

-     remain in force on 1 May 2012.

Where there are no relevant pre-existing contracts, the requirements have been simplified such that a statement advising the Regulator of this situation will be sufficient. Where a potentially relevant pre-existing contract was terminated before 1 May 2012 the statement will need to describe the parties to the contract and the date on which the contract ceased to be in force.

To accommodate for the arrangements in place for large users of electricity, a contract, where it relates to the supply of electricity, is defined as either or both a contract for physical supply of electricity to the facility and a hedging contract which may be entered with a generator with reference to the electricity supplied to the facility.

In recognition of the importance of maintaining the contractual basis of some electricity supply arrangements, subclause 908(3) excludes from the definition of a pre-existing contract a contract that has been renegotiated to allow for the pass through of carbon costs. In such cases, it is intended that an EAF of 1 is applied.

This would apply to situations in which the contract has been re-negotiated such that it impacts a generator's pass through of costs associated with the carbon price and both parties assess that the effective average pass through of such costs under the contract and other agreements or arrangements is greater than the equivalent of 0.7 carbon units per megawatt-hour.

In such cases, it is intended that the Regulator be provided with a written statement from each party to the contract that states that the average pass through of costs associated with the carbon price under the contract and other agreements or arrangements is expected to be greater than the equivalent of 0.7 carbon units per megawatt-hour over the period from 1 July 2012 until the day upon which the contract ceases to be in force.

Subclause 908(3) also gives specific recognition to the fact that a wide variety of agreements, arrangements and understandings between parties involved in large electricity supply arrangements will be relevant to the carbon cost pass through associated with that supply.

The Government understands that it is the parties to the complete set of varied contracts, arrangements and understandings who will be best placed to make judgements about the expected level of pass through given the complexity of the agreements and commercial arrangements in place. The requirements of subclause 908(3) are intended to give effect to the intent of the policy which is to facilitate carbon cost pass through by providing opportunities for re-negotiation of contracts that are mutually beneficial in the context of the broader EITE assistance policy. While somewhat constraining the terms of agreement to reduce the likelihood of pass through outcomes that diverge significantly from expected outcomes in the broader electricity market, such outcomes would potentially provide excessive assistance.

Where the above does not apply and there is a relevant pre-existing contract, the EAF for the portion of the electricity supply at the facility covered by the relevant pre-existing contract will be adjusted to reflect the extent to which that contract provides pass through for the introduction of the carbon price. If the contract does not provide for pass through and covers all of the supply at the facility, an EAF of zero would result until the end date for that contract. However, if the supply is from an electricity generator with an emissions intensity of 1.2 tonnes of carbon units per megawatt-hour and the price increase relates to the number of carbon units that generator must acquire to supply electricity, the EAF would be 1.2 until the end date for the contract.

Because of the asymmetry of information which the Regulator may face in assessing these contracts and determining their impact, a significant amount of information is required with applications for a large user electricity certificate. It will also be important for the Regulator to check that the applicant's interpretation of the pass-through in the contract is the same as that of the electricity supplier who will be charging for the supply of electricity under the contract. By involving both the applicant and the electricity supplier in the decision-making process, the Regulator will be able to better assess assumptions and claims about the operation of the contractual provisions. The requirement will be clarified to ensure that it is only the electricity supplier's comments on the contract intended to be disclosed under the regulation that need to be part of an application.

The information requirements include the identification of cost effective measures to reduce the increase in the price of electricity which may be available.

The end date for the contract is an important factor for the Regulator to determine. This would ordinarily be the date at which the contract is stated to end, but could also be a clear point at which the electricity user could insist on termination after 1 May 2012. The reason for using a date earlier than the end date is that, from that time, the price could be adjusted to better reflect the increase in electricity prices if the current contractual arrangements pass-through more than a factor of one carbon unit per megawatt-hour. For instance, if after a certain date the electricity user could end the contract by written notice to the supplier, that date would be the end date for the contract. If the end user could terminate the contract by providing 5 years' notice, the contract would be deemed to have an end date on 1 May 2017 (as that would be the date the contract would end if the action were taken on 1 May 2012).

Subclause 909(4) is intended to ensure that the Regulator will make a decision on the large user electricity certificate and consults both the applicant and the applicant's electricity supplier on that decision. It is important that the Regulator tests the assumptions in its decision with both parties to the contract to ensure that it understands all of the issues which may impact the interpretation of the contract.

Subclause 909(8) is intended to ensure that the different cost pass-through under the contract applies only to the portion of electricity supplied pursuant to those contracts, as opposed to other electricity to which the factor of one applies. This will be based upon an upfront assessment of how much electricity is reasonably likely to be supplied under relevant pre-existing contracts and how much is reasonably likely to be supplied under other arrangements.

The determination of an 'X' factor will be the manner in which assistance in relation to carbon cost pass through is given effect to. The X factor will be the Regulator's reasonable estimate of the carbon cost pass through in the relevant contracts. The factor will be determined by looking at 31 October of each eligible financial year to which an adjusted EAF will apply and determining how much more the supply of one megawatt-hour of electricity will cost as a result of the carbon price. The X factor may be an actual number for each year, or a formula which will be updated each year to take relevant information into account. The method will depend upon the complexity of the relevant contracts.

Paragraph 909(8)(c) gives effect to the limitation that the adjusted EAF cannot be more than the emissions intensity of the generators supplying electricity to the applicant. It will do so by limiting the X factor to be less than or equal to the emissions intensity in 2008-09 of the coal-fired generation facilities whose costs are related to the price increase in relevant pre-existing contracts which have not reached their end date. Where coal-fired electricity generators are not involved, the cap will be set at one to reflect the general EAF.

Clause 910 provides for specific circumstances where the Regulator may amend a large user certificate. Amendments to a large user certificate will be allowed where:

g.        the relevant pre-existing contract on the basis of which the certificate was issued is terminated in circumstances beyond the control of the person to whom electricity is supplied under the relevant pre-existing contract;

h.        the Regulator's interpretation of a relevant pre-existing contract on the basis of which the      certificate was issued differs substantially from a court, arbitration or expert decision;

i.          the Regulator believes it is appropriate to amend the certificate to correct a minor error in the             certificate.

The court decisions will include those decisions that are directly about the contract and those on contractual formulations which are equivalent to the contract. For instance, there may be dispute about whether a new 'impost' provision is triggered by the carbon price. If the Regulator determined the certificate on the basis that the regulation was not triggered but a Court decision determined that the same wording was triggered in a similar contract, the Regulator could amend the certificate on the basis of the new understanding of how the provision will operate.

Where a contract is terminated, the end date for the contract will be considered to be three months from that point to allow a transition to the operation of the EAF of one.

Example

If, in the first year of the carbon price, Chloe Elizabeth operates an aluminium smelter which is likely to receive 60 per cent of its electricity under a relevant pre-existing contract and 40 per cent from the national electricity market, those would be the relevant portions of electricity used for the formula for the first year. The X factor would then need to be determined. If the cost increase were determined as at 31 October 2011, as the cost of the generator acquiring carbon units to supply electricity where its emissions intensity per megawatt hour was 1.2 tonnes of carbon dioxide equivalent, the cost per megawatt hour for the X factor would be 1.2. This would also be the maximum X factor allowable because of the limit to the emissions intensity of the coal-fired generator. The EAF for the first year would be:

                 (1 × 0.4) + (1.2 × 0.6) = 1.12

Division 6 - Maximum number of units to be allocated to new facilities

Clause 911

As announced on 10 July 2011, allocations to existing facilities under the Jobs and Competitiveness Program will not be capped, but a cap would apply to allocations for new facilities in a manner which avoids windfall gains being achieved from assistance arrangements.

Accordingly, clause 911 limits the allocation to new facilities or a series of facilities in each of the first five years for which an application is made to 120 per cent of a facility's, or series of new facilities', direct emissions, emissions from electricity use (with an EAF of one being applied to net imports of grid electricity), and emissions associated with imported steam in a given year. Where the maximum cap is binding, the following year's allocation would be reduced by the extent of the over-allocation. Therefore, the 120 per cent maximum cap test first applies for the second year in which application is made for a new facility and continues in this manner for the next four years.

After five years worth of possible adjustments at the 120 per cent cap, the level of the cap will be reduced to 100 per cent of the same sets of emissions. This approach provides incentives and some benefit to entities that have invested in best practice technologies.

The calculation of a facility's direct emissions and the emissions attributable to electricity consumption has been designed to utilise information which is already provided as part of the carbon price mechanism and reporting obligations under the NGER Act. To administer the maximum cap test, additional information may be required to account for emissions associated with:

-     electricity that is consumed by the new facility that has been purchased from another facility that is, for example, directly connected by a dedicated line (paragraph 911(2)(c));

-     electricity that is exported from the new facility where the amount of electricity consumed by the new facility (not including the amount of electricity determined at paragraph 911(2)(c)) is greater than the amount of electricity produced by electricity generators that are part of the new facility (i.e. net exports identified by paragraph 911(2)(d)); and

-     any emissions associated with the production of steam imported from another facility (paragraph 911(2)(e)).

In determining whether this clause will result in a maximum cap adjustment, the covered emissions for which a new facility will ordinarily be directly liable and emissions attributable to the combustion of fuels mentioned in subclause 30(2) of the Act will be counted. In some rare cases, allocations may be provided to new facilities that generate covered emissions, but where these emissions do not give rise to a liability under the carbon pricing mechanism (e.g. in the case of sub-threshold facilities adjusted by clause 912). In such situations, for the purposes of the maximum cap test, the total allocations (via the starting formula) and total emissions (as per 911(2)) are left unadjusted, and therefore the sub-threshold emissions and allocation amounts will tend to cancel each other out so the maximum cap test will maintain overall integrity

The emissions associated with steam that is imported from another facility will also be counted.

With respect to electricity consumed for the operation of the new facility, where that electricity is co-located or directly connected generation, but which is also not part of the facility, this will be  included at the actual emissions-intensity of that generation. In these situations, there may be additional information required by the Regulator so these emissions can be counted in the maximum cap formula.

Where a facility only purchases electricity from a grid, this electricity will be included at the EAF of one tonne CO2-e per megawatt-hour (MWh). A second situation could be where a facility imports some electricity and self-generates some of the electricity at that facility (e.g. via a co-generation unit) and consumes all of that co-generated electricity for the operation of the facility, the proportion imported is included at the EAF of one tonne CO2-e per megawatt-hour (MWh) and the proportion self-generated via the co-generation unit is included at the actual emissions-intensity of the co-generation via the covered emissions inclusion at paragraph 911(2)(b). A third situation could be where a facility self-generates more electricity than that the amount required for the operation of the facility in a year, but also imports some of its requirement and exports a larger proportion of its self-generated electricity, then the net exports (in terms of tCO2-e) will be counted as a negative electricity amount for the test. This situation would be calculated as net exports (i.e. Imports MWh minus exports MWh) and multiplying this by actual emissions-intensity of the self generation (tCO2-e/ MWh).

It is possible that a facility may conduct two or more EITE activities. In this circumstance the above formula could mean that when looked at individually there was no excess allocation but when looked at together there was an over-allocation. Since applications for two different activities in respect of the same facility may be assessed and approved at different times, whenever a second application is being considered, a maximum cap adjustment test must take into account any allocations that have already been approved with respect to the same facility in the same application year. For example, if a maximum cap had been binding in the approval of the first application and a second application relates only to the same facility, it then follows that the second application will require a maximum cap adjustment that is equal to the starting formula for the second activity application. If a maximum cap was not binding for the first application, then for the second application the Regulator would combine the first application and second application starting formulas in determining whether there is to be a maximum cap adjustment.

During the fixed charge period, the maximum cap adjustment will take into account the difference in the fixed charge amount and the interest rate (r).

Examples

Ellie and Mitchell expect to conduct the activity of the production of alumina at a new facility in 2013-14 and they make an application for freely allocated units at the beginning of that year for their first year of production. On the basis of this application, the Regulator approves an expected additional production of 100,000 tonnes of alumina in that year and allocates 80,051 units (i.e. 93.3 per cent x 0.858 x 100,000).

In 2014-15 they then apply for assistance in relation to the 2014-15 financial year. But before a decision is made on their application for units for the 2014-15 year, the Regulator considers the relevant emissions attributable to the facility to work out whether last year's starting formula allocation amount was equivalent to more than 120 per cent of these emissions.

First, the starting formula is worked out, and in this example the starting formula yields 80,501 units because it happened that the expected additional production equalled the actual production (i.e. no true up is necessary).

Second, their total relevant emissions (detailed in subclause 911(2)) for 2013-14 is the sum of the following:

Paragraph 911(2)(a) - 30,000 tonnes of direct emissions from the facility that are covered emissions attributable to the operation of the new facility.

Paragraph 911(2)(b) - There were no other direct emissions from fuels other than the combustion of fuels that are covered emissions (i.e. emissions in 911(2)(b) are zero).

Paragraph 911(2)(c) - 5,000 tonnes of emissions associated with electricity supplied to the new facility by an electricity generator that is not part of the facility but is connected to the facility by a dedicated line, which resulted in 8,000 MWh being supplied to, and consumed at the new facility.

Paragraph 911(2)(d) - 20,000 tonnes of emissions associated with electricity, which was determined by 30,000 MWh of electricity purchased (imported) from an electricity grid and consumed in the operation of the facility less 10,000 MWh of electricity produced by electricity generators that are part of the facilities (by an on-site gas-fired generator) which was not consumed by the new facility and was exported to an electricity grid. Since the amount of electricity consumed by the facility (exclusive of the 8,000 MWh imported in the above paragraph) was more than amount of electricity produced by the electricity generators that are part of the facility, the net imports of electricity (MWh) are counted at a rate of α being equal to the EAFit {i.e. 20,000 = (30,000 - 10,000) x 1.0}.

Paragraph 911(2) (e) - 200 tonnes of direct emissions associated with steam which they bought into the facility but was produced by another nearby facility.

No other EITE activities took place at the new facility in 2013-14 and therefore there are no other allocations of freely allocated carbon units that need to be taken into account in the formula.

This equals 55,200. Therefore 13,811 carbon units are regarded to have been freely allocated above their maximum allocation (i.e. 80,051 - 55,200 x 1.2). As this is a fixed charge year, this number is also multiplied by 24.15 and divided by 25.40 to take account of the different carbon price and is also multiplied by 1 + r, (where r is assumed to be 7 per cent for this example), which results in the maximum cap adjustment amount of 14,051 units (i.e. 13,811 x 24.15/25.40 x 1.07) (rounded to the nearest whole number for simplicity).

For the application in relation to the 2014-15 financial year, 14,051 carbon units would be deducted from Ellie and Mitchell's ordinary allocation relating to 2014-15. Assuming there is no new expected additional production in 2014-15, their final alumina allocation would therefore amount to 64,971 carbon units {i.e. (92.1 per cent x 0.858 x 100,000) - 14,051}.

Alternatively, if Ellie and Mitchell also produced a small amount of lime at the new facility in 2013-14, then this would need to be taken into account in the alumina application if the lime application had already been approved for that year. For example, say they were issued 2,000 freely allocated carbon units in 2013-14 for the expected additional production of lime in 2013-14 (where also, for simplicity, expected additional production was observed to equal actual production in 2013-14). Therefore, since 2,000 units had already been issued and where no maximum cap adjustment was made for the first application, this would mean the total amount from the starting formula for the two activities would equal 82,051 carbon units. This would then mean that the maximum cap adjustment for alumina would be inflated to 16,085 units (i.e. 15,811 x 24.15/25.40 x 1.07) and their final alumina allocation for 2014-15 would amount to 63,966 carbon units.

Division 7 - Sub-threshold emissions adjustments

Clause 912

The Program is intended to provide assistance to EITE entities irrespective of direct liability, recognising that entities may face either or both direct liability costs and indirect costs passed through by liable entities in respect of electricity and natural gas consumed in undertaking the EITE activities. As assistance will be based on industry average emissions or electricity baselines, it is not directly linked to an individual facility's mix of direct and indirect carbon costs.

Some eligible EITE applicants may conduct an EITE activity at a facility that does not pass the liability threshold test specified in Part 3 of the Clean Energy Act 2011 (sections 20 to 25), such that it produces less than 25,000 tonnes CO2-e in a financial year. For such facilities, the regulations will adjust the allocation of free carbon units to reduce the assistance by the allocations provided for direct emissions which do not attract a carbon liability.

Competitive distortions between entities conducting an EITE activity could arise if all facilities were to receive the same level of assistance but where one facility happens to avoid liability for its emissions because it does not pass the liability threshold test.

Therefore, clause 912 provides that where an EITE activity is undertaken at a facility that does not meet the liability threshold an adjustment is to be made to the allocation. An applicant may choose one of two methods to determine the adjustment to allocations.

Generally, determining whether a facility is sub-threshold will be made with reference to reports required under the NGER Act. In the circumstance where covered scope 1 emissions are not available as a result of a facility not meeting the reporting thresholds under the NGER Act, clause708 requires applicants to report scope 1 emissions to the Regulator when submitting an application for assistance. This reporting requirement is conditional upon the applicant choosing to use Method 1 in clause 912 to work out the sub-threshold emissions adjustment. This reporting requirement is not required where the applicant chooses Method 2 to work out the sub-threshold adjustment.

Method 1

If the applicant did not meet the liability threshold test in the financial year to which the application relates (the first year), Method 1 in clause 912 can be used to reduce to the overall number of carbon units to  be allocated under Part 9 for that application year (the second year). This method therefore creates an ex-post adjustment for any facility that was sub-threshold in the previous year. The reduction in the amount of units will be equal to total covered scope 1 emissions from the operation of the facility in the financial year to which the application relates less emissions from the combustion of natural gas in the same year, and adjusted for the carbon price differences and the interest rate (r). The general formula for the sub-threshold emissions adjustment is as follows:

Sub-threshold emissions adjustment =  CEat-1 - NGat-1 × carbon price differential × interest rate adjustments

where:

CEt is the total covered emissions from the operation of each sub-threshold facility in a financial year to which the application relates; and

NGt is the emissions from the combustion of natural gas from each sub-threshold facility in the financial year to which the application relates.

The amount of the emissions determined as CEt-1 less NGt-1 is then, for specific application years, multiplied by the differential in the carbon price and then multiplied by 1 + r to determine the sub-threshold emissions adjustment in accordance with subclause 912(6).

Method 2

If an applicant prefers not to gather and report emissions for the purposes of using Method 1, the applicant may choose Method 2 for determining the sub-threshold emissions adjustment. Method 2 would allow the applicant to waive the receipt of EIa allocationst for the current application year and where this method is chosen the sub-threshold adjustment would be taken to be zero (this is therefore an ex-ante adjustment unlike the ex-post adjustment of Method 1).

It is expected that the application form that the Regulator will publish will require applicants to nominate Method 2 if they wish to have this method applied for the current application.

It is intended that applicants are able to switch between Method 1 and Method 2 between successive applications. Within any single application, a Method 1 approach may be used with respect to allocations that were made with respect to the previous application year (t-1), and a Method 2 approach may be used with respect to the baseline allocation for the current application (t). Ultimately, it is a condition that allocations provided in relation to the carrying on an EITE activity in each year at sub-threshold facilities requires appropriate adjustments via either Method 1 (as an ex-post adjustment) or a Method 2 (as an ex-ante adjustment).

Examples

In 2013-14, Tish Publishing is putting in an application for free carbon units in relation to conducting the manufacturing of newsprint activity in 2012-13. In 2012-13 the activity was carried out across four facilities, two of which are sub-threshold. Its  application for 2013-14 aggregated the carrying on of the EITE activity across all four facilities each of which produce the three outputs to the EITE activity, which are totalled as below to work out the baseline allocation number for the 2013-14 application (for simplicity, assuming the true-up was also zero in relation to this application):

Baseline allocation in 2013-14 (t)

tonnes of productt-1

combined baselinest

assistance rate (kat)

baseline allocationt

Air dried uncoated newsprint of saleable quality

 125,000

1.193

93.3 per cent

 139,134

Bone dried pulp from either or both of woodchips and sawdust

 125,000

2.5395

93.3 per cent

 296,169

Bone dried pulp from recovered paper

 125,000

0.4714

93.3 per cent

54,977

Total allocations t

490,280

 

The four facilities have the following emissions profile in 2012-13 (i.e. t -1) where all units are in tCO2-e assuming the EAF of 1 is applied to the electricity consumed:

Related Profile 2012-13

CEt-1 - NGt-1

NGt-1

CEt-1

Liquid Fuels

Grid purchased electricity

Total

Facility 1

 30,000

 10,000

40,000

 10,000

 70,000

120,000

Facility 2

 5,000

1,000 

 6,000

 

250,000

256,000

Facility 3

 4,000

 

 4,000

 

 50,000

 54,000

Facility 4

 30,000

 5,000

35,000

 15,000

 70,000

120,000

 Total

550,000

Some of the facilities that are the subject of Tish Publishing's application are identified as sub-threshold facilities. In choosing not to use Method 2 to for the facility in its 2012-13 application to satisfy its requirements under clause 912, Tish Publishing must use Method 1 to determine the sub-threshold emissions adjustment for its 2013-14 application.

Covered emissions (CE-sub>t-1) for facilities 2 and 3 were less than 25,000 tCO2-e each and therefore, these facilities will not have a direct liability for these emissions. However, facility 2 emits 1,000 tonnes of covered emissions from the combustion of natural gas which will face a liability that is to be borne by an upstream supplier.

In order to prevent assistance being provided for emissions which are still emitted into the atmosphere but where no liability is faced under the carbon pricing mechanism,  allocations for this application need reduced by the amount, worked out as:

Total sub-threshold adjustments (prior to carbon price and interest rate adjustments) =
(CEt-1 - NGt-1)facility 2 + (CEt-1 - NGt-1)facility 3       = 5,000 + 4,000 = 9,000

Then, 9000 is multiplied by 23 divided by 24.15, and multiplied by (1 + r) (in this example r is assumed to be 7 per cent). This means the sub-threshold adjustment is equal to 9,171.

Therefore final allocations-sub>t                                           = 490,280 - 9,171

                                                                           =  481,109

This outcome is equivalent in net terms to a case where the applicant was liable for these 9,000 tonnes of emissions in the previous financial year and where assistance was not reduced.

As a result of reducing assistance by the formula above, the net assistance after direct carbon liabilities and indirect carbon costs is equivalent between sub-threshold and other facilities, preserving competitive neutrality.

Alternatively, if Tish Publishing decided to use Method 2 in 2012-13, then this would have satisfied its obligations under clause 912 for that application year and Method 1 would not need to be used in relation to its 2013-14 application. In the event of Method 2 being used in 2012-13, EIa allocationt for all of Tish Publishing's relevant products produced at the sub-threshold facility would be equal to zero.

Division 8 - Adjustments relating to Joint Petroleum Development Area and Greater Sunrise unit area

Clause 913

The Program is ordinarily intended to provide assistance to EITE entities based on the assumption that any given tonne of covered CO2-e which is emitted from carrying on the EITE activity will face the equivalent liability under the carbon pricing mechanism. However, in the future it is recognised that some EITE activities may be carried on in full or in part at facilities located in either the Joint Petroleum Development Area (JDPA) or in the Greater Sunrise unit area. In this circumstance clause 913 requires the Regulator to reduce the baseline allocation worked out under clause 906 by the amount of emissions from carrying out the EITE activity in those areas to the extent that those emissions avoid facing a liability under the carbon pricing mechanism.

Example

The EITE activity of liquefied natural gas production is one possible activity that may be carried on in some part in the JPDA in the future. Any emissions associated with the removal of acid gases entrained in the natural gas and those associated with natural gas compression and temperature reduction in a liquefaction train would be taken as those resulting from carrying on the EITE activity. Therefore, clause 913 may adjust allocations to the extent that any of these emissions do not result in a liability under the carbon pricing mechanism, if they are produced at facilities located in the JPDA or Greater Sunrise unit area. This adjustment is necessary because of the liability adjustments made for facilities in these areas by the prescribed percentages determined under section 26 to 28 of the Act.

1.                   The extraction of natural gas or the transporting the natural gas from the point of extraction to the place where it liquefied does not constitute carrying on any part of the liquefied natural gas production activity. Therefore, clause 913 would not adjust allocations for any of these emissions if they are produced at facilities located in the JPDA or Greater Sunrise unit area. If for example, an activity is wholly conducted in the JDPA and all emissions from the facility are reduced by a single prescribed percentage, the allocations under the Program would also be reduced by that percentage.

 


PART 10 - YEAR TO WHICH CARBON UNITS APPLY

Generally, applications for assistance will be dealt with in a timely manner and free carbon units will be issued within the current compliance period and therefore will be allocated in the vintage to which the application relates.

-                         Therefore, an eligible application received by 31 October 2012 for assistance relating to the 2012-13 financial year will be issued with 2012-13 vintage units up until 31 January 2014.

-                         This is intended to facilitate the provision of assistance which can still be surrendered for liability against the year for which it was applied, in this case 2012-13, given that the final date for surrender will be February 2014.

However, if the processing of an application is delayed due to further information being sought from the applicant, for instance, and the Regulator is not able to issue carbon units until after 31 January of the financial year following the year to which the application relates, the units must have the vintage of the year in which they are issued.

-                         This is intended to facilitate the provision of assistance for a compliance year where the date for surrendering units for that year has passed, in this case before 1 February 2014.

-                         This is because units in the fixed charge years 2012-13, 2013-14 and 2014-15 cannot be banked and are likely to be worth less than the later vintage unit. Under clause 115 of the Act 2011, any remaining free carbon units with a 2012-13 vintage must be cancelled on 1 February 2014.

-                         If a future vintage is issued by the Regulator, the number of units will be reduced on a pro-rata basis relative to the value of units which are not subject to regulation 103A and adjusted for the rate of interest. This is achieved by multiplying the number of units by the price in the year to which the assistance relates and dividing by the price in the following year and multiplying that number by (1 + r). Note that r is the is the per annum BBB rated corporate bonds yield, with 1 to 5 years maturity, that is the latest daily rate published prior to the day an application is approved by the Regulator.

Therefore, if in the above example there was a delay in processing the application due to further information being sought from the applicant and the Regulator was to issue carbon units on 2 February 2014 for the 2012-13 compliance year, it would need to issue 2013-14 vintage units. Given that the units for the following financial year would have a higher face value, the amount of units to be provided in total would need to be discounted by the difference in the value of the units so they reflect in monetary terms the units as if they were provided in the correct compliance year.

In the transition to the flexible price period, if the Regulator provides carbon units after 31 January 2016 for the 2014-15 year, the carbon units issued will need to be of 2015-16 vintage. As there will not be a fixed price for these units, the amount that will need to be adjusted to reflect the 2014-15 value will be discounted by the difference between the fixed price of $25.40 and the 'benchmark average auction charge' of 2014-15 units. This will be the most recent benchmark average auction charge available at that time. The amount will not be multiplied by (1 + r) as the interest rate is expected to be implicit in the benchmark average auction charge.

During the flexible price period, similar rules will be necessary to ensure compliance with the legislative requirements on issuing vintage units up to the cap, and allow for the final auction to proceed with all remaining units for that vintage. However, the ability to bank units will mean that these units will not need to be discounted if provided in a later year than the year to which the assistance relates.

Such provisions are also intended to cover situations in which the Regulator is required to issue units later than usual because of a decision of a court or the Administrative Appeals Tribunal.


PART 11 - KEEPING RECORDS AND MATERIALS

Clause 1101

Clause 1101 is designed to ensure that the allocation of units can be monitored effectively over time and a risk-based approach can be adopted for approving applications. The requirements are also necessary to facilitate the operation of the closure rule.

A person to that is issued free carbon units under the Jobs and Competitiveness Program must keep the following records for five years after they are made:

a.         the applications the person has made to the Regulator for free carbon units

b.        the materials and documents relied on by the person to prepare those applications

c.         the testing and measurement results relied on by the person to ensure that the requirements    for relevant products were satisfied

d.        records demonstrating the production of units of relevant products in years for which free     carbon units have been issued.

The requirements refer explicitly to the need for the relevant documents and materials to be relied on by the person rather than simply used.

Subclause 1101(2) makes clear that the hard copy originals and source materials of the relevant tests and documents must be kept. This is to avoid situations in which scanned versions are kept (which may obscure the relevant test results) and to ensure that the authenticity of the materials can be more readily checked. The requirement applies only to documents which were created in hard copy rather than electronic files (which are frequently copied and stored on different servers).

However, if the original records are lost or destroyed, the Regulator may treat a complete copy of the record as the original from the time of the loss or destruction. The Regulator would have regard to the steps taken by the person to prevent loss or destruction of records.

Failure to comply with a record-keeping requirement in the program may result in a civil penalty being imposed (clause 151 of the Act).


PART 12 - REPORTING REQUIREMENTS

The reporting requirements for the program are designed to advise the Regulator about issues which would mean that it needs to engage with an entity to take action under the Program, particularly where there is a change of circumstance that would affect the allocation of units that has been made to a recipient. The requirements will focus on whether executive officers of a recipient firm know or become aware of particular issues, such as likely or actual closures. In such circumstances, the person who received the free carbon units is required to provide a report to the Regulator.

Clause 1202

Clause 1202 provides for situations where an executive officer for a recipient of free carbon units becomes aware that there will be a change in ownership or other change that would result in the recipient no longer being an eligible person under the Program by the 30 June in the year to which the allocation relates. In these situations, the officer must report to the Regulator to advise of the person who will be the eligible person as at the 30 June date. The report must be provided within 30 days of the officer becoming aware of the change (subclause 1207(1)).

Clauses 1203 and 1204

Clauses 1203 and 1204 provide for situations where an executive officer for a facility that is a recipient of free carbon units becomes aware that either the production of a relevant product in relation to those units will stop indefinitely or for more than 12 months and the equipment is reasonably likely to close within 6 months. In these situations, the officer must report to the Regulator to advise of the likely closure. The report must be provided within 30 days of the officer becoming aware of the likely closure or 5 months before the closure is expected (subclause 1207(1)).

'Closure' for the purposes of the Jobs and Competitiveness Program will be different to other types of 'closure' which are relevant for financial reporting. In relation to closure, the reporting requirements require:

a.         reporting where a requirement relating to closure is reasonably likely to occur within 6 months. This report is due within 5 months of the likely closure or 30 days after the person becomes aware of the closure (whichever is the latter).

b.        reporting where closure has actually occurred. This report is due within 30 days of becoming aware that closure has occurred.

The reports do not need to be particularly detailed, but failure to explain a situation would mean that the Regulator would investigate in more detail to ensure that the closure and relinquishment requirements are properly complied with.

 

 

Clause 1205

Clause 1205 is relevant to the large user electricity contract provisions and deals with the termination of a contract or a court or arbitration decision concerning the contract. These reports must be made within 30 days.

Clause 1206

Clause 1206 creates reporting requirements to provide the Regulator with sufficient information to make adjustments relating to prior year relating to matters which include the true-up for actual production, sub-threshold and maximum cap adjustments.

Clause 1206 requires that when an applicant becomes aware that an application will not be made in the following financial year, or when an applicant becomes aware that if an application were made would result in a negative allocation. When an applicant becomes aware of such matters, a report must be given to the Regulator which contains:

-     the production of all relevant products for the facility during the first financial year; and

-     the audit report, statutory declarations and other relevant information which may ordinarily be identified in an application form for assistance as described in subclause 603(1); and

-     for a new facility or series of new facilities -- the calculations relating to electricity mentioned in paragraphs 911 (2) (c) (d) and (e) for the first financial year; and

-     for a sub-threshold facility to which clause 708 applies -- the scope 1 emissions, by source, from the operation of the facility for the first financial year.

Clause 1207

Clause 1207 specifies the timeframes that apply when a report needs to be given under clauses 1202, 1204 and 1205.

Failure to comply with a reporting requirement in the Program may result in a civil penalty being imposed (section 151 of the Act).

Examples

Louis is the chief executive officer of a controlling corporation which has operational control of a facility that conducts the EITE activity of silicon production. Louis is aware that the market for silicon is currently weak due to the high exchange rate for the Australian dollar and increased raw material costs. He is also aware that the plant is getting old and may need repairs at some stage. Nonetheless, he still believes that the company will trade its way out of the downturn. At this point in time, there is nothing which Louis is aware of, or believes, which would mean that the company needs to report under Part 12.

However, if the Board makes a decision to cease production at the silicon plant in 60 days' time for 6 months to watch the market, the company would only have to report if Louis was aware that it was reasonably likely that the plant would in fact remain closed for longer than 12 months. The company would need to report within 30 days of the decision if this was the case.

Should a decision be made at the end of the 6 months that the plant would shut indefinitely, the company would need to report as at that point closure would be deemed to have occurred. The report would be required within 30 days of the decision.

The Regulator would use these reports to monitor the situation and keep in touch with Louis about the issuing of a potential relinquishment notice.


PART 13 - RELINQUISHMENT OF CARBON UNITS

Relinquishment on closure (clauses 1302, 1303 and 1304)

If an entity ceases operating an EITE activity during a year for which it was provided assistance, it will be required to relinquish permits that had been allocated to it for production that did not occur. Closure of equipment will be defined in clause 204. Where a closure occurs, a relinquishment requirement will be triggered if units have been issued in that financial year.

In the event of closure, the production of relevant bases for allocation and allocations for the year and the previous year will need to be 'trued up' with excess units provided back to the Regulator. For a relevant facility, this will be calculated by:

-     adding up production volumes which were used to allocate carbon units that year (i.e. actual production in the year before closure + expected production allocated for in the year of closure); and

-     subtracting the actual production of the equipment in the year of closure,

which then equals an amount or volume of production referred to as the 'unused balance'. The unused balance will then be multiplied by the assistance rate for the year of closure to determine a number of carbon units which need to be relinquished.

Other relevant products and production from other facilities are unaffected by the closure at a particular facility and will not be included in the true-up.

Example

Karen and Wendy operate a facility that produces white titanium dioxide pigment. The combined direct and electricity baselines for that activity equate to 2.606 carbon units per tonne of white titanium dioxide pigment. The activity is a moderately emissions-intensive activity. Their production of white titanium dioxide pigment is as follows:

-               In 2011-12 they produced 1,000 tonnes.

-               In 2012-13, they used the 1,000 tonnes produced in 2011-12 to receive 1,720 carbon units (66 per cent x 2.606 baseline x 1,000 production). Their actual production in 2012-13 was 1,200 tonnes.

-               In 2013-14, they used the previous year's 1,200 tonnes and, because they were considered to be proposing a significant expansion, had an extra 300 tonnes approved so that their allocation was based upon 1,500 tonnes. This resulted in an allocation in 2013-14 of 2,896 carbon units ((65.1 per cent x 2.606 baseline x 1,500 adjusted production) + true up of 351 units).

On 1 January 2014, a fire at the facility resulted in the cessation of production of white titanium dioxide pigment, triggering a closure requirement. The facility had produced 800 tonnes of white titanium dioxide pigment by that stage in the 2013-14 financial year. The number of free carbon units that were provided and would need to be relinquished is worked out as follows:

2012-13 production of 1,200 tonnes + 300 tonnes of expected additional production due to expansion in 2013-14 = 1,500 tonnes

Subtract the total of 800 tonnes produced until production ceased in 2013-14

= 700 tonnes (the 'unused balance' referred to in subclause 1303(4)).

The number of carbon units to be relinquished is then 700 x the assistance rate for 2013-14 (65.1 per cent) x allocative baselines (2.606) = 1,188 carbon units.

If Karen and Wendy also had another white titanium dioxide pigment facility which continued operating, its allocations and production levels would not be assessed as part of the true-up process.

If the Regulator is satisfied that a relinquishment requirement has been triggered, it must issue a notice to the person setting out the basis on which it believes this is the case, the number of carbon units which it considers must be relinquished and the compliance deadline, which is to be 90 days after the date of the notice. The Regulator's decision to issue a notice will be a reviewable decision under Part 21 of the Act.

The relinquishment requirements will be imposed upon the person who has been issued free carbon units under the program for a particular year and in relation to a closure event which occurs during that year. Therefore, if the business is transferred, the risk of the original owner being subject to a relinquishment requirement should be dealt with by the parties to the transaction, just as the question of whether the free carbon units are to be transferred to the new owner should also be dealt with in the sale arrangements. For example, the seller may wish to hold their free carbon units until the risk of closure being triggered has been removed, or set out a contractual indemnity arrangement to cover the triggering of a relinquishment requirement. These issues are best negotiated between the parties rather than being arbitrated by the Regulator through the administration of the program.

Division 3 - negative allocation

Clauses 1305 and 1306

The application of the true-up mechanism, and adjustments for maximum cap and sub-threshold emissions will mean that it is possible that an entity may have a negative allocation for a particular year. For instance, if production was less than half of the previous year it is likely that a negative adjusted production number would result from the baseline allocations formula mentioned in subclause 906(1). In these circumstances, once the Regulator has refused this application, it is important that the over-allocated carbon units are also relinquished. Clauses 1305 and 1306 will link in with the reporting requirement in clause 1206 to give effect to this.

 

Example

Jessica Ann manufactures lead and zinc in an integrated process. Her first application under the program was based upon 10,000 tonnes of lead and 5,000 tonnes of 100 per cent equivalent zinc in fume (produced in 2011-12). During 2012-13, Jessica decides to scale back her operations and only produces 4,000 tonnes of lead and 2,000 tonnes of 100 per cent equivalent zinc contained within the zinc in fume. There is no closure of the equipment in relation to either basis of allocation.

If Jessica makes an application for assistance in 2013-14, it would take into account an adjusted production amount for lead of -2,000 (4,000 expected production in 2013-14 less the adjustment of 6,000 for the over-allocation in 2012-13) for which the formula in Part 9 would allocate -2,111 carbon units. Her adjusted production amount for zinc would then be -1,000 (2,000 expected production in 2013-14 less 3,000 for the adjustment to the 2012-13 over-allocation) for which -2,784 carbon units would be allocated. Her total allocation would be -4,895 carbon units.

If Jessica does not submit an application for assistance in 2013-14, a reporting requirement in Part 12 would be triggered. If production continued until 30 June for that financial year, by 28 September (90 days from 30 June) Jessica would have to report her production in 2012-13 under subclause 1206(2). This would trigger a relinquishment requirement under subclause 1305(2). The Regulator would then issue a notice under subclause 1306(4) seeking the relinquishment of 4,895 carbon units. Jessica would need to relinquish those carbon units within 90 days after the day the notice is given to her.

Division 4 - Incorrect allocation of free carbon units

Clause 1307

Clause 1307 provides for situations where a notice is issued by the Regulator to a recipient of free carbon units to require the recipient to repay some or all of the free carbon units that have been issued due to circumstances which have resulted in resulted in too many carbon units being incorrectly issued to the recipient (an over-allocation). In these situations, the notice will outline that the Regulator considers that the units are to be relinquished and the number of units to be repaid.

The recipient of the units must relinquish the units back to the Regulator within 90 days of the notice.

 

PART 14 - INCIDENTAL PROVISIONS

Regulator's guidelines (Clause 1401)

There is a risk that applications for assistance which contain non-compliant outputs (e.g. sub-standard outputs) or outputs which have not undergone an emissions-intensive process will be presented to the Regulator as eligible amounts or volumes of a relevant product and carbon units may be issued on the basis of that claim. Asymmetries in information between the Regulator and businesses will be significant. Therefore, to minimise risks, the Regulator will be empowered to issue general guidelines about:

a.         the way in which the production of relevant products may be measured

b.        an appropriate frequency of testing and sampling of a product

c.         the considerations it will take into account in determining whether or not a particular product has met the relevant requirements of the Program.

However, to avoid imposing unnecessary and costly burdens on industry, the intent is not to make the guidelines binding on applicants. The intention of the guidelines is to give general guidance to provide greater certainty about what is expected by the Regulator and how entities may usefully implement procedures to ensure the smooth processing of their applications.

In making the guidelines, the Regulator is required to consider:

a.         any relevant requirements imposed by or under the National Measurement Act 1960

b.        the manner in which the relevant products or units are currently measured in the industry

c.         the manner in which the relevant products were measured and reported to the Department of Climate Change and Energy Efficiency for the purposes of determining eligibility as an EITE activity

d.        any accredited industry test methods for those products

e.         the risks of outputs of the facility not satisfying the relevant qualities

f.         the administrative costs in implementing more accurate testing methods at a facility.

For example, it is not possible, practical or cost effective to test the physical qualities of every tonne of every product produced each year. A risk-based and pragmatic approach needs to be taken reflecting the circumstances of each industry to ensure that the broad boundaries set by the activity definitions are achieved with an acceptable level of uncertainty. The guidelines will assist both businesses and the Regulator to properly assess the relevant risks, costs and benefits of various approaches.

The Regulator will then consider the guidelines in making decisions about particular applications. The Regulator will be required to consult before making or amending any such guidelines. The clauses require the Regulator to publish proposed guidelines and proposed amendments to its guidelines on its website to assist the consultation process.

 

 

 


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