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CLEAN ENERGY AMENDMENT REGULATION 2013 (NO. 2) (SLI NO 45 OF 2013)

EXPLANATORY STATEMENT

Select Legislative Instrument 2013 No. 45

Issued by the Authority of the Minister for Climate Change, Industry and Innovation

Clean Energy Act 2011

Clean Energy Amendment Regulation 2013 (No. 2)

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 in 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.

The Clean Energy Amendment Regulation 2013 (No. 2) (the Regulation) amends the Clean Energy Regulations 2011 (the Principal Regulations) to:

-          include an additional activity, alter two existing activities and make changes to the natural gas feedstock allocation factors; and

-          ensure liability applies to specific supplies of natural gas that are currently not covered by the Act.

Amendments to the Jobs and Competitiveness Program

The Regulation amends the Principal Regulations to:

-         include the production of helium as an eligible emissions-intensive trade-exposed (EITE) activity under the Jobs and Competitiveness Program (the Program) and outline the baselines in Part 4 for this activity for determining the amount of assistance in the form of free carbon units that each applicant would be eligible for in relation to the activity;

-         make minor amendments to the descriptions of two existing eligible EITE activities, the production of coke oven coke and the production of nickel;

-         extend the application deadlines for free carbon units for the production of fused zirconia, the production of nickel and the production of helium activities to 31 May 2013; and

-          amend the natural gas feedstock allocation factors to take effect on 1 July 2017 to reflect the reallocation of emissions included in these factors to ethane-specific allocation factors incorporated within the Principle Regulations.

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 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 Program for the annual issue of free carbon units in relation to EITE activities as defined by the Program. EITE activities are industrial activities that produce a lot of carbon pollution but where the capacity of entities undertaking those activities to pass through costs is constrained where prices are set by global markets. The Program was first established in amendments to the principal Regulations on 24 February 2012.

Subsection 145(5) of the Act provides that in making a recommendation to the Governor-General about regulations that amend regulations made for the purposes of subsection 145(1) of the Act, the Minister must have regard to the following matters:

-          the aim and objects of Part 7 of the Act;

-          the most recent report given to the Productivity Minister by the Productivity Commission in relation to an inquiry mentioned in section 155 of the Act;

-          the principle that changes that will have a negative effect on recipients of assistance under the Program should not take effect before the later of the following

o   1 July 2017; and

o   the end of the three-year period that begins when the reduction is announced;

-          such other matters (if any) as the Minister considers relevant.

There are currently no relevant reports from the Productivity Commission. The Minister has had regard to the principles in Subsection 145(5), and decided to implement changes to the calculation of natural gas feedstock factors no sooner than July 2017, in accordance with these principles.

Amendments to natural gas coverage

A fundamental design principle for liability from natural gas use under the carbon pricing mechanism is that liability should apply to all emissions embodied in natural gas to ensure competitive neutrality. The Act achieves this broad coverage by applying liability to either a supplier or end-user of natural gas.

While coverage of emissions from natural gas use under the existing legislation is near complete, there are some commercial arrangements where the carbon pricing mechanism does not apply to the use of natural gas. As a result, the Government has made amendments through the Clean Energy Amendment (International Emissions Trading and Other Measures) Act 2012, to enable regulations to be made to ensure that emissions from these specific commercial arrangements are covered by the carbon pricing mechanism.

The Regulation amends the Principal Regulations to apply liability to end users who use natural gas and the use is not covered by the existing liability arrangements set out in the Act. However, to ensure that the costs of compliance are not disproportionally high relative to the emissions covered, a threshold applies such that only facilities with emissions greater than 10,000 tonnes of carbon dioxide equivalent per annum are affected by the Regulation.

Details of the Regulation are set out in Attachment A.

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

Sections 1 to 4, and Schedule 1 of the Regulation would commence on the day after it is registered on the Federal Register of Legislative Instruments. Schedule 2 to the Regulation would commence 1 July 2013. Schedule 3 to the Regulation would commence 1 July 2017.

Consultation

Amendments to the Jobs and Competitiveness Program

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 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 drafting of the definitions to be included in the Regulations to ensure that the structure of the definitions generally reflects the conduct of the activities. This process has been followed for the production of helium activity included in the Regulation.

The Department has also consulted with industry regarding the changes to the natural gas factors, the minor amendments to the coke oven coke and nickel activities, and the application deadline extension for the fused zirconia, coke oven coke and nickel activities. These changes are the result of specific requests from industry to clarify the regulations and ease implementation.

The Minister has taken into consideration the principles under subsection 145(5) of the Act regarding changes that will have a negative impact on recipients of assistance under the Program.

Amendments to natural gas coverage

The Department undertook extensive consultation to develop policy for the carbon pricing mechanism coverage of natural gas and the details for the legislative implementation of that policy in 2011 and 2012.

In September 2012 the Department consulted with industry regarding the regulation making powers to provide coverage to uncovered use of natural gas that were made by the Clean Energy Amendment (International Emissions Trading and Other Measures) Act 2012. A total of twenty submissions were received during the consultation period on the draft bills. In addition to the formal submission process, the Department held a number of public consultation sessions, Technical Working Groups, and formal and informal discussions with interested stakeholders.

The Department released a consultation paper Natural gas coverage and measurement consultation paper in October 2012 for a period of four weeks, and 12 submissions were received.

An exposure draft of the Regulations was released on 17 December 2012. During the eight week consultation period, the Department received three submissions regarding the coverage amendments, which were considered in the preparation of the Regulation. The Department has had numerous discussions with businesses and the Clean Energy Regulator in the development of these coverage arrangements.

Statement of Compatibility with Human Rights

A statement of compatibility with human rights for the purposes of Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is set out at Attachment B.

Authority: Section 312 of the Clean Energy Act 2011

ATTACHMENT A

Details of the Clean Energy Amendment Regulation 2013 (No. 2)

Section 1 - Name of Regulation

Section 1 provides that the name of the Regulation is the Clean Energy Amendment Regulation 2013 (No. 2).

Section 2 - Commencement

This section provides for sections 1 to 4, and Schedule 1 to the Regulation to commence on the day after registration on the Federal Register of Legislative Instruments, Schedule 2 to the Regulation to commence on 1 July 2013 and Schedule 3 to the Regulation to commence on 1 July 2017.

Section 3 - Authority

This section specifies that the Regulation is made under the Clean Energy Act 2011. 

Section 4 - Schedule(s)

This section provides that the Regulation amends or repeals each instrument that is specified in a Schedule to the Regulation.

Schedule 1 - Amendments commencing on day after registration

1 to 4 Paragraphs 345(1)(a) and (b), and Paragraphs 345(4)(a) and (b) of Schedule 1, 2 

These items amend paragraphs 345(1)(a) and 345(4)(a) to clarify that coke oven coke has a strength after reaction of at least 50%. They also amend paragraphs 345(1)(b) and 345(4)(b) to require that coke oven coke has a reactivity index of at most, 40%. These amendments relate to the production of coke oven coke and the issue of free carbon units.

5 Subclause 348(5) of Schedule 1 (paragraph (a) of definition of cobalt products)

This item includes cobalt oxyhydroxide (CoOOH) in the definition of cobalt products considered to be eligible production for the purpose of the issue of free carbon units.

6 Subclause 348(5) of Schedule 1 (paragraph (b) of definition of intermediate nickel products)

This item changes the minimum concentration of nickel in the intermediate nickel products definition of mixed nickel-cobalt hydroxide precipitate from 42% to 35%.

7 At the end of Part 3 of Schedule 1

This item prescribes an additional activity as an eligible emissions-intensive trade-exposed (EITE) activity for free carbon units under Jobs and Competitiveness Program (the Program).

Clause 349 provides that the production of helium is the physical and chemical transformation of a gas mixture that has a concentration of helium (He) less than or equal to 10 per cent with respect to moles (inclusive) to helium (He) where the concentration of helium (He) is greater than or equal to 99 per cent with respect to moles.

The production of helium 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 separation and liquefaction of gas mixtures to produce helium.

The inputs of the activity have been defined to include a gas mixture that has a concentration of helium less than or equal to 10 per cent. The output of this activity is saleable helium that has a concentration of helium greater than or equal to 99 per cent with respect to moles.

The activity does not include the upstream mining and extraction of gas inputs. The activity also does not include the production of liquefied natural gas.

Subclause 349(4) outlines that the basis of issue of free carbon units is by a tonne of 100% equivalent helium. The measurement of the relevant helium should be measured according to the accepted industry practice for helium production.

To be eligible for assistance, the helium must have been produced by carrying on the activity (as defined by clause 349) to be eligible as a relevant product. For example, if imported helium is included with the product produced from the activity, only the domestically produced helium would be included in the tonnes of the relevant product.

The helium must be of saleable quality (as defined by regulation 202). In particular, the tonnes of helium which are lost or discarded are not to be included in the tonnes of relevant product.

8 Subclause 401(1) of Schedule 1 (after table item 2.14)

This item inserts into the table in Part 4 of Schedule 1, allocative baselines for assistance that relate to the production of helium as prescribed by item 2.15, which is categorised as a moderately emissions-intensive activity.

The baselines are for the direct emissions and electricity use for the activity in clause 349.

The formula for calculating the number of free permits in Part 9 of Schedule 1 to Clean Energy Regulations 2011 (the Principal Regulations) applies the baselines as outlined in the table.

9 Subclause 702(1A) of Schedule 1

This item allows for applications for free carbon units for the production of fused zirconia, the production helium and the production of nickel to be given to the Clean Energy Regulator no later than 31 May 2013.

Schedule 2--Amendments commencing on 1 July 2013

1 At the end of Division 3 of Part 3

This item inserts regulation 3.5C, which sets out the details for coverage of amounts of natural that are not subject to the direct emitter or natural gas supplier provisions of the Act.

Regulation 3.5C applies liability where an end user uses natural gas, greenhouse gas emissions result from that use and no liability arises for a person under sections 33, 35 or 35A or sections 20-25 of the Act.

A threshold applies such that only facilities with emissions greater than 10,000 tonnes of carbon dioxide equivalent per annum are affected by the Regulation. This includes all emissions resulting from the use of natural gas by a person that is not subject to liability under the direct emitter or natural gas supplier provisions of the Act. The purpose is to ensure that the costs of compliance are not disproportionally high relative to the emissions covered.

Regulation 3.5C applies in the financial year commencing 1 July 2013 and later financial years.

Schedule 3--Amendments commencing on 1 July 2017

1 Paragraph 907(13)(b) of Schedule 1 (table items 1, 2 and 3)

This item amends the natural gas feedstock allocation factors used in the formula at subsection 906(1) of the Principal Regulations to determine the number of free carbon units to be issued to EITE applicants using natural gas as a feedstock to reflect the reallocation of emissions included in these factors to ethane-specific allocation factors incorporated within the Principal Regulations.

These factors come into effect on 1 July 2017 in accordance with the principles in subsection 145(5) of the Clean Energy Act 2011 that changes that will have a negative effect on recipients of assistance under the Program should not take effect before the later of 1 July 2017 or the end of the three-year period that begins when the reduction is announced.

The following natural gas allocation factors have been updated:

All values are in tonnes of carbon dioxide equivalent per terajoule.

The factors for the remaining states/territories/jurisdictions remain unchanged.

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 2013 (No. 2)

This Regulation 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 2013 (No. 2)

The Regulation:

*        includes the production of helium as an eligible EITE activity under the Program and outline the baselines in Part 4 for this activity for determining the amount of assistance in the form of free carbon units that each applicant would be eligible for in relation to the activity;

*        makes minor amendments to the descriptions of two existing eligible EITE activities, the production of coke oven coke and the production of nickel;

*        provides for an extension to the deadline for applications for assistance for the fused zirconia, nickel and helium activities to 31 May 2013; and

*         amends the natural gas feedstock allocation factors to take effect on 1 July 2017 to reflect the reallocation of emissions included in these factors to ethane-specific allocation factors incorporated within the Principle Regulations.

• provides coverage for specific supplies of natural gas that are currently not covered by the Clean Energy Act 2011(the Act).

Human rights implications

The Regulation engages the right to privacy and reputation, at least to the extent that it applies to the collection of personal information by the Clean Energy Regulator. The Regulation makes certain persons who receive natural gas liable under the Act and requires them to provide personal information for the purpose of identification of applicants under the various schemes established by the Act. The Regulation also requires certain persons to provide personal information when applying for free carbon units.

Although, in some circumstances some of the contact details may already be publicly available. The contact details of these individuals will not be publicly disclosed. The individual's information will be regulated and treated in accordance with the secrecy provisions set out in the Clean Energy Regulator Act 2011 and the Privacy Act 1988.

Conclusion

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

Greg Combet

Minister for Climate Change, Industry and Innovation

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