Emissions Reduction Fund Safeguard Mechanism Consultation Paper March 2015
The ERF has three key elements: Crediting Purchasing Safeguard 2
Consultation Submissions are invited on the safeguard consultation paper prior to midday, 27 April 2015 . For further information, please email: Emissions-Reduction- Submissions@environment.gov.au Dec 2013 Apr 2014 Nov 2014 March 2015 July 2015 Oct 2015 July 2016 Emissions Emissions Emissions Safeguard Safeguard Safeguard Safeguard Reduction Fund Reduction Reduction mechanism mechanism mechanism mechanism Green Paper Fund Fund consultation draft final commences White legislation paper legislative legislative Paper enacted rules rules 3
Safeguard legislation • The high level framework of the safeguard mechanism was legislated as part of the Carbon Farming Initiative Amendment Act 2014. • Once commenced, the safeguard mechanism will be part of the National Greenhouse and Energy Reporting Act 2007 . • The detailed design of the safeguard will be implemented through legislative rules and regulations. 4
Decisions already taken ERF White Paper CFI Amendment Act • NGER facilities with direct • Safeguard obligation rests with emissions of more than 100 kt the person with operational CO2-e per year control of the facility. Coverage • JPDA and Greater Sunrise excluded from coverage. • Facility level, absolute emissions Baselines for set at highest emissions over the existing facilities period 2009/10 to 2013/14. • Set to encourage new entrants Baselines for to achieve and maintain best new investments practice. • ACCUs can be used to reduce net emissions. • Net emissions are adjusted for Emissions ERF projects to avoid double management counting abatement. and compliance • Safeguard obligation is ongoing. • Final sanctions include a civil penalty and/or injunction. 5
Safeguard mechanism: sectoral coverage Metal manufacturing 10.4% Coal mining 9.7% Other safeguard Electricity Other emissions emissions Manufacturing 43% 57% 8.0% Oil and gas 7.5% Transport 3.7% Waste Metal ore mining 0.6% 3.2% Around 140 businesses (or 330 facilities) are expected to be covered by the mechanism in 2016/17. 6 Source: Departmental estimate based on emissions in 2013-14 from likely covered facilities.
Consultation Paper: Baselines 7
Possible arrangements for new investments Historical Baseline Highest emissions between 2009-10 and 2013-14. YES 5 years of NGER data between 2009-10 and Breach 2013-14 threshold before OR 1 July 2020 3 years over Independent Assessment Approach 100,000 tCO2-e NO OR during this time Facility elects to use historical data between 2009-10 and 2013-14, where available. Breach threshold Best Practice Benchmark after 1 July 2020 8
Independent Assessment Approach Facility estimates Facility submits highest application along Baseline is Facility meets CER makes production level with a limited revised after the criteria as a new baseline and associated EI assurance three year period entrant or determination for the first three engagement based on actual significant according to the years over conclusion from production high expansion application 100kt/after a registered point expansion NGER auditor 9
Independent Assessment Approach Initial Baseline (emissions) Revised Baseline (emissions) Estimated Production x Estimated Emissions Intensity Actual Production x Estimated Emissions Intensity Estimated production Actual production Estimated Estimated Estimated Actual Actual Actual Actual Actual Year 1 Year 2 Year 3 Year 4 Year 5 Baseline reflects application submitted by the facility, including a limited assurance engagement report from a registered NGER Auditor. 10
Best Practice Benchmarks Initial Baseline (emissions) Estimated Production Revised Baseline (emissions) x Best Practice Benchmark Actual Production Emissions Intensity x Best Practice Benchmark Emissions Intensity Estimated production Actual production Estimated Estimated Actual Actual Actual Actual Actual Estimated Year 1 Year 2 Year 3 Year 4 Year 5 Baseline established using best practice benchmark, based on average emissions-intensity of top 10 per cent of industry peers. 11
Baselines to be consistent with emissions reporting Baselines could be changed in some circumstances, such as: • Changes to emissions estimation • Not changed if moving to a higher order method • Recalculated if GWPs change • Vertically integrated production processes • CER could pro-rata baselines or facility could submit data • Changes to facility boundaries • CER could pro-rata baselines or facility could submit data 12
Consultation Paper: Emissions Management 13
Managing excess emissions Apply for a multi-year monitoring period Baseline 3 year average Emissions above baseline Apply for significant expansion Baseline Revised baseline Expansion Baseline Surrender eligible offsets Offsets Baseline Baseline setting period: Baseline reflects Safeguard mechanism Apply for an exemption, for highest emissions between 2009/10 and operational example due to natural 2013/14 . disaster
Option - apply for a multi-year monitoring period This would allow averaging of emissions over time, helping to accommodate natural variability in emissions. Baseline Applications could be assessed 3 year average by the Clean Energy Regulator, having regard to: • whether the operator has previously met all of its safeguard requirements; and • whether the operator has provided satisfactory Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 evidence that the emissions could be returned to baseline levels over the 15 extended period.
Option - apply for a significant expansion adjustment Revised Baseline Baseline revised based on new Baseline investment policy More than 20% increase in capacity Capacity Capacity Capacity Capacity Capacity Year 1 Year 2 Year 3 Year 4 Year 5 Significant expansions could be defined as an increase in production capacity of more than 20 per cent that results from the installation of new plant or 16 equipment.
Option – Surrender Eligible Offsets Credits issued under the Emissions Reduction Fund — also known as Australian Carbon Credit Units or ACCUs — will be eligible offsets under the safeguard mechanism. Offsets could be surrendered at any time. (Section 22XM of the Act) Year 1 Year 2 Year 3 Offsets Year 3 - Net Emissions 17
Option – Apply for an Exemption • The Clean Energy Regulator could disregard emissions increases linked to an exceptional event if reasonable steps were taken to mitigate the risk of the increase. Exceptional events are: • natural disaster; and • criminal activity. • Events that reflect normal operations or market dynamics, such as: • changes to price; • production inputs and outputs; or • maintenance; ...are not proposed as eligible for exemption. 18
Double counting - problem Emissions reductions (actual) ACCUs surrendered Emissions Emissions number (after project) (if no project) 19
Double counting - solution ACCUs ACCUs issued are added to baseline added to the emissions number in Emissions the relevant financial reductions year . (actual) The emissions number ACCUs surrendered is then reduced when the ACCUs are surrendered or sold to the Government under an ERF contract. Emissions Applicable emissions Net emissions (if no project) number (after surrendering ACCUs from project) 20
Graduated compliance process (indicative) Apply for an extended monitoring period, significant expansion or exemption Options available to the facility before an excess emissions situation exists Surrender offsets Enforcement options available to the Infringement notice Clean Energy Regulator Injunction if a facility is in an excess Civil penalty emissions situation 21
Inherent emissions variability associated with existing natural resources and reserves A facility could apply in 2016-17 for a baseline using the independent assessment approach if: • there is a natural resource or reserve associated with the operation of the facility; • the grade or depth of the resource or reserve will have a direct effect on the emissions performance of a facility; • the facility has limited ability to control for such emissions; and • facility emissions are expected to exceed their historical baseline and the change in natural resource grade or depth is the primary reason for 22 this.
Consultation Paper: Administration 23
Publication of information To ensure that information about the effectiveness of the safeguard mechanism is available to the public, the Clean Energy Regulator could publish information relating to: • facilities covered by the safeguard mechanism; • baseline determinations for each facility; • baseline applications for new investments; • covered emissions and surrendered offsets for each facility; • facilities that have a multi-year monitoring period; • operators whose emissions over the monitoring period exceed their baseline; • facilities declared exempt from safeguard obligations due to 24 exceptional circumstances.
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