Commonwealth Numbered Regulations - Explanatory Statements
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RENEWABLE ENERGY (ELECTRICITY) AMENDMENT (EXEMPTIONS FOR EITE ACTIVITIES) REGULATION 2015 (SLI NO 121 OF 2015)
EXPLANATORY STATEMENT
Select Legislative Instrument No. 121, 2015
Issued by authority of the Minister for the Environment
Renewable Energy (Electricity) Act 2000
Renewable Energy (Electricity) Amendment (Exemptions for EITE Activities) Regulation 2015
Section 161 of the Renewable Energy (Electricity) Act 2000 (the "REE Act") provides 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 Renewable Energy Target (RET) scheme is established by the REE Act and is supported by the Renewable Energy (Electricity) Regulations 2001 (the "REE Regulations").
The objectives of the RET are to:
• encourage the additional generation of electricity from renewable sources;
• reduce greenhouse gas emissions in the electricity sector; and
• ensure that renewable energy sources are ecologically sustainable.
The RET allows renewable energy power stations and owners of small-scale renewable energy systems to create certificates for each megawatt-hour of eligible renewable electricity they produce. Liable entities (mainly electricity retailers) are obligated to purchase certificates created by renewable electricity generators such as wind farms, solar farms, hydroelectric power stations, rooftop solar panels and solar water heaters. Certificates are surrendered annually to the Clean Energy Regulator (CER) to comply with the RET and avoid payment of a shortfall charge. This creates a market which provides financial incentives to increase the generation of renewable electricity.
The Parliament amended the REE Act in June 2015 to provide for 100 per cent exemption from RET liability for emissions-intensive trade-exposed (EITE) activities. Previously, only partial exemption from RET liability was provided for in the REE Act.
Providing full exemptions from RET liability eases cost pressures on businesses undertaking EITE activities and improves the competitiveness of Australian industry.
The Renewable Energy (Electricity) Amendment (Exemptions for EITE Activities) Regulation 2015 ("The Regulation") amends the REE Regulations to give effect to the new REE Act provisions for granting full exemption.
The REE Act provides the legislative framework for the provision of exemptions from RET liability, while the REE Regulations prescribe the eligible activities and processes for applying for, issuing and amending exemptions, including the methodology for calculating the amounts of these exemptions.
Under the REE Act, an exemption is provided in the form of an exemption certificate (prior to the June 2015 amendments to the REE Act, this was a 'Partial Exemption Certificate') issued by the CER to a business conducting a prescribed EITE activity. Each Exemption Certificate represents an amount of electricity, in Megawatt-hours, to which RET liability will not apply in a given year. An EITE business can exchange this Exemption Certificate with its RET-liable electricity retailer in return for relief from the pass-through of RET costs.
The RET-liable retailer reduces its liability by surrendering (to the Regulator) the Exemption Certificates it received from its EITE electricity customers.
Previously, the REE Regulations stipulated that electricity used in activities defined as 'highly emissions-intensive' was exempted at a 90 per cent rate whereas electricity used in activities defined as 'moderately emissions-intensive' was exempted at a 60 per cent rate.
These rates of partial exemption only applied to the additional RET liability flowing from the expansion of the scheme in 2009, effectively reducing the actual level of partial exemption below the 60 per cent or 90 per cent levels. The Regulations remove the separate rates of partial exemption and replace them with a full exemption that applies to RET liability resulting from the full scheme, not just the liability flowing from the 2009 expansion of the scheme.
For administrative simplicity, the amount of exemption each EITE business receives is based on an industry average of the electricity intensity for that particular EITE activity rather than individual electricity use. In reality, most EITE businesses use either more or less electricity than the industry average. This means they are either over or under exempted.
The Regulation provides for full exemption from RET liability for EITEs by removing references to partial exemptions from the Regulations and adjusting the assistance rate to 100 per cent.
The Renewable Energy (Electricity) Amendment Act 2015 requires the CER to amend the partial exemptions already issued for 2015 to provide full exemptions. The Regulation complements this by including provisions to reissue Exemption Certificates where there have been changes in liable entities or the inclusion of a second liable entity since the original partial exemption had been issued.
The regulations are the first amending regulations within the meaning of item 37 of Schedule 1 to the Renewable Energy (Electricity) Amendment Act 2015.
Consultation
Consultation on the impact of the RET upon businesses, including the exemptions provisions of the scheme, occurred as part of the 2014 Independent Expert Panel Review of the RET and the negotiations that followed to determine which reforms would be implemented. The call for submissions for the Review expressly asked if the current exemption arrangements were appropriate. In total the review received over 23,000 submissions and held over 100 separate meetings.
The RET Review Report states that a number of stakeholders including Rio Tinto, Alcoa and the Australian Aluminium Council, Australia Pacific LNG, the Cement Industry Federation, the Australian Industry Greenhouse Network, the Business Council of Australia, the Australian Petroleum Production and Exploration Association, the Chamber of Minerals and Energy of Western Australia and the Tasmanian and Queensland State Governments supported increasing the exemption for EITE businesses, with some suggesting a 100 per cent exemption.
Some businesses in the manufacturing sector that do not receive exemptions under the RET did not support an increase in the EITE exemption, arguing it would lead to an increase in their electricity costs. However, the impact of the 100 per cent EITE exemption on other electricity users is more than offset by the reduction in the Large-Scale Renewable Energy Target from 41,000 GWh to 33,000 GWh in 2020.
These Regulations only give effect to the changes made to the REE Act and so were not separately consulted upon. The consultations undertaken as part of the Review process, and afterwards during negotiations, were sufficient.
The Regulations needed to be in place quickly to try to ensure the 100 per cent exemption is in effect before 28 July 2015, when liable entities are required to surrender small-scale technology certificates for the 2015 second quarter.
Further consultation and analysis will be undertaken to determine how the full exemption for 2016 onwards will operate to ensure the exemption is appropriately applied, administratively efficient and does not result in any unintended consequences.
General
Details of the proposed Regulations are set out in Attachment A.
A statement of the Regulation's compatibility with human rights is set out in
Attachment B.
ATTACHMENT A
Details of the proposed Renewable Energy (Electricity) Amendment (Exemptions for EITE Activities) Regulation 2015
Section 1 - Name
This section provides that the title of the Regulation is the Renewable Energy (Electricity) Amendment (Exemptions for EITE Activities) Regulation 2015.
Section 2 - Commencement
This section provides for the Regulation to commence the day after it is registered.
Section 3 - Authority
This section provides that the legislative authority for the Regulation is the Renewable Energy (Electricity) Act 2000.
Section 4 - Schedules
This section provides that the Renewable Energy (Electricity) Regulations 2001 (the Principal Regulations) is amended as set out in the Schedule.
Schedule 1 - Amendments
Removing 'partial'
The majority of the amendments amend the terms 'partial exemption certificate' and 'partial exemption' to be an 'exemption certificate' and 'exemption' consistent with the amendments to the REE Act. This is achieved by items [1] - [26], [28] - [29], [32] - [52], [54] - [79], [81] - [82], [84] - [189]
100 per cent exemption amendments
Item [27]
Repeals subregulation 22Z(7) to remove a reference to the requirement for the CER to publish the weighted average price of Large-scale Generation Certificates. This reference is no longer necessary as the requirement is removed by Item [53].
Items [30] and [31]
Amends subregulation 22ZA(1) and repeals subregulation 22ZA(2), which set out components of the method for calculating the level of exemption for the partial exemption assistance rate, and replaces it with a component that provides for a full (100 per cent) exemption assistance rate.
Item [53]
Repeals Subdivision F of Division 5 of Part 3A, which requires the CER to estimate and publish the volume weighted average market price for Large Scale Generation Certificates. This provision was a component required to calculate the level of the partial exemption assistance rate under Subregulations 22ZA(2) and is redundant with the repeal of that subregulation.
Item [80]
Inserts a regulation that provides for:
* The Regulations, as in force before the commencement of these Regulations, to continue to apply in relation to partial exemptions provided for 2014 and earlier years. This includes the record keeping requirements in regulation 22ZT and the information publication requirements in regulation 22E relating to partial exemptions and partial exemption certificates.
* The CER to amend partial exemption certificates issued for 2015 which have been split because of a change in liable entity or the inclusion of a second liable entity prior to the making of the Regulations. The CER will amend these as though they had been provided after the making of the Regulations. This ensures that the split partial exemptions already granted in 2015 are increased to full (100 per cent) exemptions. The current provisions relating to splitting exemptions are in regulations 22ZF, 22ZG, 22ZP and 22ZQ.
As the existing partial exemption certificates will be amended under this item or the Renewable Energy (Electricity) Amendment Act 2015, existing applications under regulations 22ZF and 22ZG will be determined based upon the amended Regulations without the need for specific transitional provisions.
Item [83]
Amends a note to subclause 601(1) to provide an accurate cross reference to the Principal Regulations following changes made by the Regulations.
ATTACHMENT B
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Renewable Energy (Electricity) Amendment (Exemptions for EITE Activities) Regulation 2015
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 Legislative Instrument
The Renewable Energy (Electricity) Amendment (Exemptions for EITE Activities) Regulation 2015 amends the Renewable Energy (Electricity) Regulations 2001 in order to provide full exemption from Renewable Energy Target liability for Emissions-Intensive-Trade-Exposed activities. It does this by changing the assistance rate in the regulations to 100 per cent, removing redundant provisions, ensuring transition of split certificates and amending terminology to be consistent with the amended Renewable Energy (Electricity) Act 2000. These amendments are minor in nature and consistent with the amendments to the Act passed by Parliament.
Human rights implications
This Legislative Instrument does not engage any of the applicable human rights or freedoms.
Conclusion
This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.
The Hon Greg Hunt MP
Minister for the Environment
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