Commonwealth Numbered Regulations - Explanatory Statements

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CLEAN ENERGY REGULATIONS 2011 (SLI NO 221 OF 2011)

EXPLANATORY STATEMENT

Select Legislative Instrument 2011 No. 221

Subject -          Clean Energy Act 2011

Clean Energy Regulations 2011

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

The Clean Energy Act, together with the other Acts of the Clean Energy Legislative Package, sets up the carbon pricing mechanism (the mechanism) as part of the Government's climate change plan, as set out in Securing a clean energy future: the Australian Government's climate change plan.

The Clean Energy Regulations 2011 (the Regulations) provide necessary details that will allow compliance with, and administration of, the Clean Energy Act. In particular, the Regulations deal with:

•                coverage of landfill facilities with direct emissions of between 10,000 and 25,000 tonnes carbon dioxide equivalent (CO2-e) a year;

•                the range of information required to accurately determine the emissions intensity and historical energy of a generation complex for the purpose of issuing and determining assistance in relation to that complex; and

•                the eligibility criteria, the information required and the application form and process to apply for coal-fired generation assistance.

The sections of the Clean Energy Act which enable the Regulations are set out in Attachment A.

General policy guidance on the purpose of the Regulations is provided at Attachment B.

Details of the Regulations are set out in Attachment C.

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

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations commence immediately after the commencement of Sections 3 to 303 of the Clean Energy Act 2011.

Consultation

The Clean Energy Act and Regulations reflect the outcomes of comprehensive consultation with the public and stakeholders.

In September 2010 the Government announced the establishment of the Multi-Party Climate Change Committee (MPCCC) to consult, negotiate, and report to the Cabinet, through the Minister for Climate Change and Energy Efficiency, on agreed options for the implementation of a carbon price in Australia; and to provide advice on, and participate in, building community consensus for action on climate change.[1] 

On 24 February 2011, the Prime Minister announced the climate change framework outlining the broad architecture for a mechanism, which had been considered by the MPCCC.  The proposed mechanism focused on the high level architecture, start date, potential mechanisms to allow flexibility to move to emissions trading, sectoral coverage and international linking arrangements.

The Department of Climate Change and Energy Efficiency (DCCEE) conducted a public consultation process on the proposed mechanism in April and May 2011.

On 10 July 2011, the Government published Securing a clean energy future: The Australian Government's climate change plan.  This set out the details of the mechanism and related proposals for fostering renewable energy generation, energy efficiency and action on the land.  It also set out measures to assist Australian households and businesses to adapt to the mechanism and to support energy markets. 

On 28 July 2011, the Government released the draft legislation for public comment. Since then, DCCEE has:

*      met with government representatives from the States and Territories;

*      convened a forum for peak industry, environmental, community and other non-government organisations;

*      convened three legal experts workshops (in Sydney, Melbourne and Brisbane);

*      convened four technical working group meetings on the treatment of natural gas, the point of liability and landfill (in Canberra and Perth);

*      conducted many meetings and teleconferences with business representative groups, businesses and other stakeholders; and

*      received over 300 submissions on the draft legislation.

An exposure draft of the Regulations on Coal-Fired Electricity Generation (Part 8 of the Act) was released on 21 September 2011.

DCCEE received six submissions on the draft Regulations from coal-fired electricity generators. DCCEE continued to consult with these stakeholders during October and November 2011.

In submissions and subsequent discussions relating to coal-fired generation assistance, concerns were raised around the deadlines for applications for assistance, the volume of information being requested in the Regulations, and a technical issue around calculating assistance. In response, adjustments have been made to extend the deadline for applications, clarify the nature of the information required to accompany an application and alterations have been made to the assistance formula.

Additional consultations with landfill operators and independent experts were held concerning small landfill facilities, the potential for waste to be diverted from larger facilities, and what measures would be appropriate to deal with this issue. These consultations have informed the Government's decision on regulations under Part 3 of the Act.

Local government stakeholders advised that due to existing waste disposal contracts, land use planning and other restrictions, the risk of diversion of waste is low. Smaller councils also said that they were looking for certainty over whether smaller facilities would be covered by the carbon price mechanism. As a result of these concerns, the Government has announced that the prescribed distance would be zero.

Authority: Section 312 of the Clean Energy Act 2011

Attachment A

The Regulations are supported by the following provisions of the Clean Energy Act:

•                 subsections 23(10), 24(9), and 25(8), which allow regulations to prescribe a distance between landfill facilities, and to prescribe classes of waste which both facilities are open for accepting;

•                 paragraphs 163(1)(c), 163(1)(d) and 163(1)(e), which allows the regulations to make provision in relation to the information, documents and reports which must accompany an application for a certificate of eligibility for coal-fired generation assistance; and

•                 section 312, which allows the Governor-General to make regulations prescribing matters required or permitted by the Clean Energy Act and matters necessary or convenient to be prescribed for carrying out or giving effect to the Clean Energy Act.

 

Attachment B

General Policy Guidance on the Clean Energy Regulations 2011

On 10 July 2011, the Government announced its plan for a clean energy future, Securing a clean energy future: the Australian Government's climate change plan.

Under Part 3 of the Clean Energy Act, landfill facilities with direct emissions of between 10,000 and 25,000 tonnes carbon dioxide equivalent (CO2-e) a year can be liable where they operate within a set distance of a covered landfill. The intent of this provision is to address the potential for waste to be diverted from landfills covered by the carbon pricing mechanism to landfills that are not.

The risk of diversion is considered to be low, because of existing waste disposal contracts, land use planning and other restrictions. The Government has therefore decided to set the prescribed distance at zero.

The Government has identified that a carbon price is likely to have significant transformational implications for the electricity generation sector. The Government's clean energy plan includes a package of measures to address energy security under carbon pricing. The package comprises three key elements to address energy security: the Energy Security Fund, Government loans and an Energy Security Council.

Part 8 of the Clean Energy Act and the Regulations implement the Government's policy in relation to the provision of free carbon units under the Energy Security Fund to highly emissions-intensive coal-fired generators who are issued with certificates of eligibility for coal-fired generation assistance by the Clean Energy Regulator (the Regulator).

The Regulator needs to have access to all information relevant to decisions under sections 165, 166, 167 and 168 of the Act. The Regulator and the Department need a range of information to accurately determine the emissions intensity and historical energy of a generation complex for the purpose of issuing and determining assistance in relation to that generation complex.

Under the allocation formula set out in section 161 of the Act, the number of free carbon units that will be issued in respect of a generation complex is a function of both the annual assistance factor determined in respect of that generation complex, and all other annual assistance factors specified in respect of all other eligible generation complexes. The regulations address information, documents and reports which may be required for the Regulator to make its determination.

 

Attachment C

Details of the Clean Energy Regulations 2011

Part 1--Preliminary

Regulation 1.1 - Name of Regulations

This regulation provides that these Regulations are the Clean Energy Regulations 2011.

Regulation 1.2 - Commencement

This regulation provides that the Regulations commence on the commencement of sections 3 to 303 of the Clean Energy Act 2011.

Regulation 1.3 - Definitions

This regulation defines a number of general terms used in the Regulations. Other words and expressions are defined in the Clean Energy Act, and have the meaning given by that Act and in regulation 8.1 - Definitions.

 

Part 3--Liable entities

Division 2--Direct emitters of greenhouse gases

This division provides for landfill facilities with direct emissions of 25,000 tonnes carbon dioxide equivalent (CO2-e) a year and over to be liable under the carbon pricing mechanism where they operate within a set distance of a covered landfill.

Regulation 3.1 - Prescribed distance for landfill facilities

This regulation would provide that the distance prescribed in regulation 3.2 applies to any class of waste.

Subregulation 3.2(1) prescribes for this distance to be zero. This means that no landfill facilities with direct emissions of less than 25,000 tonnes CO2-e will be liable under the carbon pricing mechanism. However, it is important to note that section 29 of the Act may operate to bring such a landfill into the carbon pricing mechanism where a specific scheme has been carried out for the sole or dominant purpose of avoiding the thresholds in the Act.

Subregulation 3.2(2) states that where the site of one landfill facility shares a boundary with the site of another landfill facility, the distance between the landfill facilities is taken to be greater than zero. This is to confirm that landfill facilities with direct emissions of less than 25,000 tonnes CO2-e per year will not be liable.

 

Part 8--COAL-FIRED ELECTRICITY GENERATION

Division 1--Introduction

Regulation 8.1 - Definitions

Regulation 8.1 provides definitions for key concepts, including emissions intensity and historical energy.

Regulation 8.1 also defines the concept of a 'registered auditor', which is relevant to the audit report required by regulation 8.10. Authorised audit companies, registered auditors and greenhouse and energy auditors, registered in Category 2 and 3 under the National Greenhouse and Energy Reporting Regulations 2008, are able to audit applications.

This approach recognises that during the period, from 1 July 2008 to 30 June 2010, some generators may have used auditors other than those registered as a Category 2 or 3 greenhouse and energy auditor to audit greenhouse gas and energy information in relation to the generation complex. This allows applicants some flexibility in selecting an auditor when complying with regulation 8.10.

Division 2--Certificate of eligibility for coal-fired generation assistance

Subdivision 2.1-- Information that must accompany application for certificate of eligibility for coal-fired generation assistance

Regulation 8.2 - Information to accompany applications

This clause sets out that regulations under Subdivision 2.1 are related to paragraph 163(1)(c) of the Act.

Regulation 8.3 - Information for all applications

Regulation 8.3 sets out a range of information that applicants must provide. In particular, applicants should note that:

•                 the information required by paragraph 8.3(2)(f) is separate to the requirement to provide a map showing the location of the asset as required under paragraph 8.8(2)(a)(i), and may involve information such as the address and GPS co-ordinates of the asset; and

•                 applications should include the information required by paragraph 8.3(2)(g), which relates to the generation complex assistance eligibility test.

Paragraph 8.3(2)(i) requires applicants to provide information about the historical energy of a generation complex. For most generation complexes this is the same as the gigawatt hours of electricity generated as defined in subsection 168(1) of the Act. However for a generation complex that first entered service after 1 July 2008, information about the generation asset's 'nameplate rating' is required to determine its historical energy, as set out in the second limb of the definition of 'historical energy' as provided for in section 167 of the Act.

Paragraph 8.3(2)(i) also requires applicants to provide the basis by which the applicant has worked out the historical energy of the generation complex, including an explanation of the method of measurement that was applied for the purpose of determining the historical energy.

It is expected that, where a generation complex entered service before 1 July 2008, the historical energy number will be the same as the sum of energy production numbers in a report submitted under the National Greenhouse and Energy Reporting Act 2007 (NGER Act) in respect of a facility that corresponds to a generation complex, and which is substantiated by data reported with an appropriate energy market operator.

Paragraph 8.3(2)(j)  requires applicants to provide an explanation of the difference between the historic energy number under paragraph 8.3(2)(i) and the number provided for energy production in respect of the generation complex which corresponds to the definition of facility under the NGER Act.

Paragraph 8.3(2)(k) also requires applicants to provide information about the emissions intensity of a generation complex and the basis on which the applicant has worked out the emissions intensity of the generation complex including:

•                 an explanation of any calculations relevant to the number; and

•                 an explanation of the method of measurement that was applied for the purpose of working out the number; and

•                 the assumptions that were made for the purpose of working out the number; and

•                 the reasons for the choice of the methods and assumptions.

Generally, it is expected that the emissions intensity of a generation complex will be calculated using emissions and electricity production numbers reported under the NGER Act. As 'emissions intensity' is not a defined term under the NGER Act, and is not included in NGER reports, subregulations 8.3(4) and 8.3(5) require applicants to calculate an emissions intensity number based on underlying emissions and energy production data reported in an NGER report, in the same way as such a number is derived from NGER data.

Where the emissions intensity number provided in regulation 8.3(2)(k) does not correspond to the emissions intensity number worked out using data required under the NGER Act, paragraph 8.3(2)(l) requires an applicant to provide an explanation for the difference.

Electricity production and emissions numbers reported under the National Greenhouse and Energy Reporting (NGER) scheme are in different units of measurement to those required for applications for a certificate of eligibility for coal-fired generation assistance. Subregulation 8.3(3) provides that where the units of measurement are the only difference, an explanation is not required for the purpose of paragraphs 8.3(2)(j) and (l).

The statement required under paragraph 8.3(2)(m) includes identifying any significantly relevant information or a significantly relevant document that may no longer be in the possession or control of the applicant but was in the past - the Regulator may consider that it is appropriate to obtain such information using its general information gathering powers under the Act. Any such information and/or documents that could be of significant relevance in verifying or helping to verify the historical energy or emissions intensity of the generation complex that have not already been provided under regulations 8.3, 8.5, 8.9 or paragraph 8.8(2)(b), must be listed in this statement.

The information requirements in regulation 8.3 support the decisions of the Regulator when approving applications, and so support accurate and timely decisions on these matters, which is in the interest of all applicants. In particular, it is in the interest of all applicants to provide as much relevant information as possible to the Regulator and to explain the basis of their emissions intensity and historical energy numbers to allow the Regulator to be satisfied that applicants pass the relevant tests set out in the Act.

Regulation 8.4 - Additional information - registered generation complex

Regulation 8.4 requires an applicant to provide the name, and nameplate rating, of the generation complex as published by an appropriate energy market operator as at 1 July 2010.

This information will be used by the Regulator to correctly apply the Power System Reliability Test established under Division 4 of Part 8 of the Act.

Regulation 8.5 - Additional information - National Greenhouse and Energy Reporting Scheme

Regulation 8.5 requires applicants to provide information that may have been previously provided to the Government for the purposes of the NGER scheme. However, if information is already being provided under regulation 8.9, then such information need not be provided under regulation 8.5 as well.

Such information is likely to assist the Regulator to determine the 'carbon dioxide equivalence of emissions' and 'gigawatt hours of electricity generated' for a generation complex under section 168 of the Act, which is necessary to determine the emissions intensity of that generation asset and, in turn, an appropriate annual assistance factor.

The Regulator will use the annual assistance factor determined in respect of a generation complex to calculate the correct amount of free carbon units and cash assistance respectively, to be issued to that generation complex. It is important that the Regulator has access to relevant information and documents previously provided under the programs to help substantiate the amount of emissions released by the generation complex over the period 1 July 2008 to 30 June 2010.

It is expected that, in an instance where the definition of a facility in the NGER Act aligns with the definition of generation complex in the Act, the emissions intensity of the generation complex and facility should be the same.

Regulation 8.6 - Additional information - result of audit report

Regulation 8.6 requires that, where the auditor within the audit report includes a qualified reasonable assurance conclusion, an adverse conclusion or a conclusion that the registered auditor is unable to form an opinion about the matter being audited (under the terms of section 3.17 of the National Greenhouse and Energy Reporting (Audit) Determination 2009 (the Audit Determination), the applicant is required to provide comment on the auditor's opinion or advice. This is necessary to provide as much information as possible to inform determinations by the Regulator in relation to that generation asset.

Subdivision 2.2-- Documents that must accompany application for certificate of eligibility for coal-fired generation assistance

Regulation 8.7 - Documents that must accompany applications

This clause sets out that regulations under Subdivision 2.2 are related to paragraph 163(1)(a) of the Act.

Regulation 8.8 - Documents for all applications

Paragraph 8.8(2)(a) requires all applicants to provide a map showing the location of the generation complex (including the location or position of each generation unit that makes up the generation complex) and a map showing the connection of the generation complex to the grid. This is necessary to determine that the generation complex is, or was proposed to be, connected to a grid with a grid capacity of at least 100 megawatts, as required by section 166(2) of the Act. In this context, grid capacity is to be calculated in the same manner as under the Renewable Energy (Electricity) Act 2000 and regulations made under that Act, in that it excludes standby and privately-owned domestic generation sources.  The grids supplying the National Electricity Market and the South West Interconnected System (the grid supplying the Western Australian Wholesale Electricity Market) are examples of grids which clearly meet the criteria.

Paragraph 8.8(2)(b) reflects the fact that a range of documents other than those specifically listed in regulation 8.9 may be relevant to the Regulator's determination of the historical energy or emissions intensity of a generation complex within the meaning of section 166 of the Act.

In complying with paragraph 8.8(2)(b) applicants must provide all source documents used to calculate the historical energy and the emissions intensity of the relevant generation complex but not already provided as part of compliance with regulations 8.5 and 8.9. Documents of significant relevance but not used by the applicant in compiling their application should be listed but not provided under paragraph 8.3(2)(m).

 

Regulation 8.9 - Additional documents - National Greenhouse and Energy Reporting Scheme

Regulation 8.9 requires applicants to provide some documents that may have been previously provided to the Commonwealth Government for the purposes of the NGER scheme.

Such information and documents are likely to assist the Regulator to determine the 'carbon dioxide equivalence of emissions' and 'gigawatt hours of electricity generated' for a generation complex under section 168 of the Act, which is necessary to determine the emissions intensity of that generation asset and, in turn, an appropriate annual assistance factor.

The Regulator will use the annual assistance factor determined in respect of a generation complex to calculate the correct amount of free carbon units and cash assistance respectively, to be issued to that generation complex. It is important that the Regulator has access to relevant information and documents previously provided under the programs to help substantiate the amount of emissions released by the generation complex above mentioned over the period 1 July 2008 to 30 June 2010.

Where estimates of emissions reported under different programs differ, the applicant should provide an explanation in the application. It is expected that, in an instance where the definition of a facility in the NGER Act aligns with the definition of generation complex in the Act, the emissions intensity of the generation complex and facility should be the same.

It is important to note that the intention of separating regulations relating to information and documents (regulations 8.5 and 8.9) is to ensure the Regulator has access to all relevant information to make a decision. However, subregulation 8.5(3) sets out that if documents containing identical information have been provided in respect of 8.9, there is no need to provide this information in respect of regulation 8.5.

In complying with regulations 8.5 and 8.9, applicants must provide all information and documents previously provided for the purposes of reporting under the NGER scheme and which could or have been used to calculate the historical energy and the emissions intensity of the relevant generation complex.

Subdivision 2.3-- Reports that must accompany application for certificate of eligibility for coal-fired generation assistance

Regulation 8.10 - Audit requirement

Regulation 8.10 sets out the audit requirements that must accompany an application. In summary:

o   the application properly presents, in all material respects, the historical energy of the generation complex for the purpose of section 167 of the Act; and

o   the application properly presents, in all material respects, the emissions intensity of the generation complex for the purpose of section 168 of the Act; and

o   the application discloses, in all material respects, the basis on which the historical energy and emissions intensity have been estimated; and

o   the generation complex passes the generation complex assistance eligibility test set out in section 166 (2) of the Act.

The audit report is a prescribed report for the purposes of paragraph 163(1)(e) of the Act.

In developing regulation 8.10 the intent is to maintain consistency with the audit framework provided for under the NGER Act and the Audit Determination.

 


[1] For further information on the policy, see http://www.cleanenergyfuture.gov.au

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