By Elisa de Wit, Noni Shannon and Edward Campbell
The Clean Energy Bill 2011 was introduced to Parliament on 13 September 2011. Following parliamentary passage, the Clean Energy Act 2011 will require the Minister to take all reasonable steps to ensure that draft regulations are made before 1 March 2012.
The Department of Climate Change and Energy Efficiency (Department) has released an exposure draft of the key Clean Energy Regulations 2011 (Draft Regulations) for public consultation. The Draft Regulations provide the detail for the operation of the Jobs and Competitiveness Program and for the assistance package for coal-fired electricity generators. The intent of these schemes is to assist industry to remain competitive once the Clean Energy Bill commences operation.
The Department is seeking submissions on the draft Jobs and Competitiveness Program by 28 October 2011 and on the specific draft coal-fired generation assistance regulations by 13 October 2011.
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Jobs and Competitiveness Program
The Draft Regulations provide for the establishment of the Jobs and Competitiveness Program for the annual delivery of free carbon units in relation to emissions intensive, trade exposed (EITE) activities. We have previously commented on the Jobs and Competitiveness Program in our more detailed discussion of the carbon pricing mechanism.
The Jobs and Competitiveness Program is designed to provide assistance to the most emissions-intensive activities in the economy that are highly exposed to international competition. This is proposed to be achieved by allocating carbon units to the most emissions-intensive and trade-exposed industries free of charge in order to shield eligible businesses from the full impact of a carbon price, while retaining incentives to reduce carbon pollution.
The underlying policy framework for determining the eligibility of activities for EITE assistance is the same as that used for establishing eligibility for assistance provided under the Renewable Energy Target scheme (RET). The Jobs and Competitiveness Program will rely on the data which has been used to establish baselines under RET and it is expected that industry will have a familiarity with the eligibility mechanism and data used for RET.
In summary, the Jobs and Competitiveness Program will be administered using the following processes.
The Draft Regulations define EITE activities based on the inputs and outputs of particular business operations. Each activity has been classified as either:
- a ‘highly emissions-intensive activity’ – which will receive the highest assistance rate, starting at 94.5 per cent in 2012-13; or
- a ‘moderately emissions-intensive activity’ – which will receive the lower rate of assistance, starting at 66 per cent in 2012-13.
For each type of activity, the Draft Regulations define a particular measure of one or more products related to the activity as the basis on which free carbon units are issued. The Draft Regulations also define baseline intensities of direct emissions and electricity use associated with the production of the product by the relevant activity.
These baselines which apply consistently over time, combined with the assistance rate for a relevant year, will be used in calculating the amount of assistance that applies to each unit of production for a particular activity.
Only 31 EITE activities have been included in the Draft Regulations to date although more are expected to be included once more activities have been assessed for eligibility.
Application for assistance by 31 October
Under clause 702 of the Draft Regulations, entities that are seeking assistance for the EITE activities they undertake will be required to submit an application to the Clean Energy Regulator by 31 October in each financial year for the issue of free carbon units in relation to their operations in that financial year.
The free carbon units are intended to provide assistance in relation to an entity’s direct liability under the carbon pricing mechanism and the carbon costs incurred indirectly from some suppliers that are liable entities under the scheme, such as electricity generators.
Assessment of application
Before determining an application, the Clean Energy Regulator will assess applications for free carbon units to ensure that it is satisfied that the application meets the criteria of the Jobs and Competitiveness Program, including that:
- the applicant is an eligible person;
- the activity is an EITE activity; and
- the activity is conducted at the facility or facilities specified in the application.
Under clause 805 of the Draft Regulations, the Clean Energy Regulator must consult with an applicant and take their views into account before making a final decision to refuse an application or use a different production amount. The Regulator’s decisions will then be subject to the review provisions in Part 21 of the Clean Energy Bill 2011. Part 21 of the Draft Regulations lists the decisions under the Jobs and Competitiveness Program that are reviewable.
Under the Draft Regulations:
- free carbon unit allocations are to be determined based on the assistance formula and the baselines listed in the Jobs and Competitiveness Program in Part 9 of Schedule 1 of the Draft Regulations and production figures provided by the applicant for the previous financial year; and
- free carbon unit allocations in future years will be adjusted to account for any under or over allocation in the preceding year to the extent that actual production is lower or higher than the previous financial year.
Reporting and record keeping
The record keeping requirements of the Jobs and Competitiveness Program in Part 12 of Schedule 1 of the Draft Regulations include a requirement for an applicant to keep its application and measurements of the relevant product for 5 years in case the Clean Energy Regulator needs to investigate its allocation decisions under the Jobs and Competitiveness Program.
Other notable provisions
Other notable provisions in the Draft Regulations include:
- Part 7 of Schedule 1 provides the Jobs and Competitiveness Program structure for:
- situations where free carbon units will be relinquished; and
- methods of determining the maximum cap on allocations where facilities do not have production data from the previous year (including new facilities) or where facilities undergo significant expansion; and
- Part 13 of Schedule 1 relates to the relinquishment of carbon units.
It is worth noting that there are no provisions in the Draft Regulations relating to assistance for liquefied natural gas projects, the circumstance where a person is eligible for assistance but has an outstanding debt under the Clean Energy Act or any potential EITE activities for which a formal assessment has not been finalised. The Department has stated that these items will be included in later releases of draft regulations for consultation.
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Coal–fired electricity generation
The Clean Energy Bill 2011 also implements the Commonwealth government’s policy for the allocation of free carbon units to eligible coal-fired electricity generators. Part 8 of the Draft Regulations sets out the detail of the information, documents and reports that are required to be provided with an application to the Clean Energy Regulator. Specifically, consultation is being sought on:
- the approved form for applications to the Clean Energy Regulator to issue a certificate of eligibility for coal-fired generation assistance;
- the information that must accompany an application, primarily the historical energy and emissions intensity of the generation complex;
- the documents that must accompany an application, being the documents previously provided to the Commonwealth Government under the National Greenhouse and Energy Reporting Scheme (NGERS) and to the New South Wales IPART under the Greenhouse Gas Abatement Scheme; and
- the prescribed audit reports that must accompany an application, being an audit of the information contained in the application that is undertaken generally in accordance with the framework provided for under NGERS and the NGER Audit Determination 2011.
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The Department has invited submissions from stakeholders on the detail of Draft Regulations to ensure that the regulations that are made are robust, practical and clear expressions of government policy. Stakeholders may submit written comments to the Department in relation to:
- The Jobs and Competitiveness Program – before close of business on 28 October 2011; and
- The specific coal-fired electricity generation regulations– before close of business on 13 October 2011.
The Department has encouraged firms conducting potential EITE activities to submit audited data as soon as possible so that the eligibility of their activity can be assessed.
If you require further information on any aspect of the Draft Regulations or the Carbon Pricing Mechanism, please contact a member of our Climate Change team.
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