Safeguard Mechanism Consultation Paper March 2015 The ERF has - - PowerPoint PPT Presentation

Emissions Reduction Fund Safeguard Mechanism

Consultation Paper March 2015

Crediting Purchasing Safeguard

The ERF has three key elements:

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Consultation

Emissions Reduction Fund Green Paper Dec 2013 Emissions Reduction Fund White Paper Apr 2014 Nov 2014 March 2015 Oct 2015 July 2015 Emissions Reduction Fund legislation enacted Safeguard mechanism consultation paper Safeguard mechanism draft legislative rules Safeguard mechanism final legislative rules Safeguard mechanism commences July 2016

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

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• 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.

Safeguard legislation

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Decisions already taken

ERF White Paper CFI Amendment Act

Coverage

• NGER facilities with direct

emissions of more than 100 kt CO2-e per year

• Safeguard obligation rests with

the person with operational control of the facility.

• JPDA and Greater Sunrise

excluded from coverage.

Baselines for existing facilities

• Facility level, absolute emissions

set at highest emissions over the period 2009/10 to 2013/14.

Baselines for new investments

• Set to encourage new entrants

to achieve and maintain best practice.

Emissions management and compliance

• ACCUs can be used to reduce net

emissions.

• Net emissions are adjusted for

ERF projects to avoid double counting abatement.

• Safeguard obligation is ongoing.
• Final sanctions include a civil

penalty and/or injunction.

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Source: Departmental estimate based on emissions in 2013-14 from likely covered facilities.

Metal manufacturing 10.4% Coal mining 9.7% Other Manufacturing 8.0% Oil and gas 7.5% Transport 3.7% Metal ore mining 3.2% Waste 0.6%

Electricity emissions 57% Other safeguard emissions 43% Around 140 businesses (or 330 facilities) are expected to be covered by the mechanism in 2016/17.

Safeguard mechanism: sectoral coverage

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Consultation Paper: Baselines

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YES Breach threshold after 1 July 2020 Breach threshold before 1 July 2020 Best Practice Benchmark 5 years of NGER data between 2009-10 and 2013-14 OR 3 years over 100,000 tCO2-e during this time Historical Baseline Highest emissions between 2009-10 and 2013-14. Independent Assessment Approach OR Facility elects to use historical data between 2009-10 and 2013-14, where available. NO

Possible arrangements for new investments

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Independent Assessment Approach

Facility meets criteria as a new entrant or significant expansion Facility estimates highest production level and associated EI for the first three years over 100kt/after expansion Facility submits application along with a limited assurance engagement conclusion from a registered NGER auditor CER makes baseline determination according to the application Baseline is revised after the three year period based on actual production high point

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Independent Assessment Approach

Year 1 Year 2 Year 3 Year 4 Year 5

Initial Baseline (emissions) Revised Baseline (emissions)

Estimated Production x Estimated Emissions Intensity Actual Production x Estimated Emissions Intensity

Baseline reflects application submitted by the facility, including a limited assurance engagement report from a registered NGER Auditor.

10 Estimated Estimated

Estimated

Actual Actual Actual Actual Actual

Estimated production Actual production

Year 1 Year 2 Year 3 Year 4 Year 5

Initial Baseline (emissions) Revised Baseline (emissions)

Estimated Production x Best Practice Benchmark Emissions Intensity Actual Production x Best Practice Benchmark Emissions Intensity

Best Practice Benchmarks

Baseline established using best practice benchmark, based on average emissions-intensity of top 10 per cent of industry peers. 11

Estimated production Actual production

Estimated

Estimated Estimated Actual Actual Actual Actual Actual

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

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Consultation Paper: Emissions Management

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Apply for a multi-year monitoring period Apply for an exemption, for example due to natural disaster Apply for significant expansion Baseline

Baseline setting period: Baseline reflects highest emissions between 2009/10 and 2013/14.

Emissions above baseline

Safeguard mechanism

• perational

Baseline 3 year average Expansion Baseline Revised baseline

Surrender eligible offsets

Baseline Offsets

Managing excess emissions

Option - apply for a multi-year monitoring period

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Baseline 3 year average

This would allow averaging of emissions over time, helping to accommodate natural variability in emissions. Applications could be assessed 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 evidence that the emissions could be returned to baseline levels over the extended period.

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Option - apply for a significant expansion adjustment

Significant expansions could be defined as an increase in production capacity

• f more than 20 per cent that results from the installation of new plant or

equipment.

Capacity Capacity Capacity Capacity Capacity

Year 1 Year 2 Year 3 Year 4 Year 5

More than 20% increase in capacity Baseline revised based on new investment policy

Revised Baseline Baseline

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Option – Surrender Eligible Offsets

Year 1 Year 2 Year 3 Offsets Year 3 - Net Emissions

Credits issued under the Emissions Reduction Fund— also known as Australian Carbon Credit Units or ACCUs—will be eligible

• ffsets under the safeguard
• mechanism. Offsets could be

surrendered at any time. (Section 22XM of the Act)

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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.

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Double counting - problem

Emissions (if no project) Emissions number (after project) Emissions reductions (actual) ACCUs surrendered

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Double counting - solution

Emissions (if no project) Applicable emissions number (after surrendering ACCUs from project) Net emissions Emissions reductions (actual) ACCUs surrendered ACCUs added to baseline

ACCUs issued are added to the emissions number in the relevant financial year . The emissions number is then reduced when the ACCUs are surrendered or sold to the Government under an ERF contract.

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Graduated compliance process (indicative)

Apply for an extended monitoring period, significant expansion or exemption Surrender offsets Infringement notice Injunction Civil penalty

Options available to the facility before an excess emissions situation exists Enforcement options available to the Clean Energy Regulator if a facility is in an excess emissions situation

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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
• n 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 this.

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Consultation Paper: Administration

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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;
• perators whose emissions over the monitoring period exceed their

baseline;

• facilities declared exempt from safeguard obligations due to

exceptional circumstances.

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Operational review of the safeguard mechanism

A review could be conducted in 2017-18 and cover the following elements:

• the operation of the safeguard mechanism in concert with the purchasing

and crediting elements of the ERF;

• the effectiveness of the independent assessment approach for new

investments already underway;

• the transition from independent assessment to an output-based approach

for new investments;

• any arrangements for existing facilities to adjust baselines;
• the operation of the safeguard mechanism in the electricity sector with

reference to the Renewable Energy Target; and

• the scope and timing of the next review.

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Consultation Paper: Electricity Sector

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• The Government is exploring a sectoral baseline as an alternative to

individual baselines for the electricity sector.

• A sectoral baseline may account for the interconnected nature of the

electricity grid.

• If the sectoral baseline is exceeded then average individual generator

baselines could apply from following financial year.

• Once enacted, average individual baselines would continue each year.

Thereafter, the sectoral baseline would not be re-established.

• Emissions management and new investment policy is proposed to remain

broadly consistent with general safeguard approach.

Electricity safeguard mechanism

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The sectoral baseline option – illustrative example

Generator emissions tCO2-e

Sectoral baseline Individual baseline Offset emissions Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7

Individual baselines apply from following financial year and continue thereafter

Total sector emissions Individual generator emissions

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