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Focus: Climate Change – July 2008Greenhouse and energy reporting regulations releasedIn brief: On June 26, the Federal Climate Change Minister Penny Wong released the National
Greenhouse and Energy Reporting Regulations 2008, providing important detail for companies who may be required to report under the National
Greenhouse and Energy Reporting Scheme which commences on 1 July 2008. Partner Grant Anderson
BackgroundOn 29 September 2007, the National Greenhouse and Energy Reporting Act 2007 (the NGER Act) commenced. (See previous Focus publications, August 2007, October 2007, and February 2008 for more detail about the NGER Scheme.) The NGER Act creates a national system for the reporting of information about the greenhouse gas emissions, energy production and energy consumption of corporations. Data reported under the NGER Act will facilitate and underpin Australia's future emissions trading scheme. Under the Act, a corporation must be registered on a national database if it is the ultimate Australian holding company of a corporate group and the corporate group or facilities under the operational control of the corporate group meet one or more specified thresholds for greenhouse gas emissions, energy production or energy consumption. Each year, registered corporations will be required to report on the greenhouse gas emissions, energy production and energy consumption of their corporate group and the facilities under the operational control of their corporate group. Those companies that come within the reporting threshold for the 2008/09 financial year must register for the scheme by 31 August 2009 and submit their first report by 31 October 2009. The applicable reporting thresholds, which are prescribed by the NGER Act, are set out below.
Importantly, if a corporate group or a facility exceeds one of the corporate group thresholds or facility level thresholds (as applicable), it will be necessary for the corporate group or facility to report on its greenhouse gas emissions, energy consumption and energy production even if the thresholds are not exceeded in respect of all of these elements. Much of the specific detail about how the NGER Act applies to companies and how data is to be collected and reported is not spelt out in the Act itself. Instead, section 77 of the NGER Act provides for regulations to be made to flesh out the necessary detail.
The RegulationsThe National Greenhouse and Energy Reporting Regulations 2008 (the NGER Regulations) follow the release of the Regulations Discussion Paper (October 2007), the Regulations Policy Paper (February 2008), and the Technical Responses to Stakeholder Feedback on the Regulations Policy Paper (May 2008) which outlined the proposed content of the NGER Regulations. (These documents are available on the Government's climate change website.) The 94-page NGER Regulations comprise six parts and two schedules. Part 1 provides a commencement date of 1 July 2008 and sets out the definitions used in the NGER Regulations. Part 2 contains crucial interpretive detail. For example, it:
Part 2 also sets out the rules for nominating responsible entities within a joint venture or partnership and for revoking those nominations. Part 3 sets out the information required for registration under the NGER Act and the requirements for deregistration applications, and identifies what information will be included on the public register maintained by the Greenhouse and Energy Data Officer (the GEDO). Following amendments that are to be made to the NGER Act (see below), the information that will be published includes separate totals of scope 1 and scope 2 emissions for the corporate group and its members. Part 4 sets out the obligations of registered corporations. Importantly, it indicates what greenhouse gas emissions data must be included in reports to the GEDO in relation to different emissions sources (coal mining, oil and gas exploration and production, carbon capture and storage waste management) and how that data is to be calculated. It also indicates the nature of the energy production and energy consumption data that must be included in these reports. In addition Part 4 specifies the treatment that is to be accorded to small facilities. Part 5 specifies persons to whom the GEDO may disclose greenhouse gas and energy information. Part 6 provides further detail about the information that must be included in particular kinds of applications made under the NGER Act. Schedule 1 lists fuels and other energy commodities that constitute 'energy' for the purposes of the NGER Act and Schedule 2 provides the meaning of 'industry sector'. The Federal Government has provided an online calculator and fact sheet on operational control to assist companies in determining whether they have new obligations under the scheme.
IssuesThe following are some of the issues that arise out of the NGER Regulations. The definition of 'production' of energy is not limited to the combustion of fuel, or the use of solar, wind or water power, to produce energy. Instead, it also covers the extraction of primary fuels from fossil reserves and biofuel sources (eg. the extraction of coal), and the manufacture of secondary fuel products (eg. diesel oil, LPG, bitumen, wax and petrochemical feedstocks). Equally, the definition of 'consumption' of energy is not limited to the consumption of heat or power. In particular, it covers the consumption of energy commodities for non energy purposes (eg. the consumption of petroleum products for the manufacture of plastics). The consumption of energy also covers own use and losses in the extraction, production and transmission of fuels and energy commodities (eg. as may occur through flaring or in the form of fugitive emissions that escape from gas pipelines). Broadly speaking, a 'facility' is defined as:
For these purposes a corporation has 'overall control' of an activity where it has the authority to introduce and implement operating, health & safety or environmental policies in relation to those activities. Once a facility has been identified, the facility is to be classified according to the ANZSIC 2006 classification that applies to the 'principal activity' which is included in that facility. The 'principal activity' is the activity the output of which is produced for sale on the market and which produces the most value of all of the activities that constitute the facility. In a change from the Regulations Policy Paper, transport activities may constitute a facility at the state (rather than national) level, with those activities being attributable to the state in which the fuel is purchased. In terms of reporting, the NGER Regulations deal with both vertically integrated production processes and the treatment that is to be accorded to small facilities and incidental emissions and energy sources that are located within a facility. A vertically integrated production process comprises two or more 'facilities' that occur at one or more locations where it is only the output of the facility in the final stage of the production process that results in the production of a product or service that is sold on the market. In such a case, the registered corporation has the option of reporting the greenhouse gas emissions, energy production and energy consumption of that production process in an aggregated form, but only where the process occurs within a state and provided that this data is apportioned as between the relevant ANZSIC categories (for this purpose fairly 'high level' ANZSIC categories are used). In the case of small facilities, ie facilities that fall below the facility level thresholds, it is permissible to aggregate their greenhouse gas emissions, energy production and energy consumption to the extent the facilities are within a state and are attributable to a single ANZSIC classification. In such a case, the information may be provided at the level of either each member of the corporate group or each relevant business unit. The registered corporation is also permitted to use a less rigorous estimation methodology for:
Where activities are subcontracted at a facility, but the facility owner retains operational control over the facility, the facility owner will be required to report the greenhouse gas emissions, energy production and energy consumption attributable to the contractor, separately from its own data, where the contractor is a 'major' contractor – that is, a contractor whose activities exceed any of the facility level thresholds. The Federal Government has indicated that it will make further regulations for the purposes of defining what constitutes a 'greenhouse gas project' – namely, a project that is designed to remove or reduce emissions of greenhouse gases – once the design elements of the proposed Australian emissions trading scheme have been settled. However, in amendments to be made to the NGER Act (see below), the Government will enable the reporting of offsets which do not arise from a greenhouse gas project conducted by the reporting entity. This would, for example, allow for the reporting of the retirement of renewable energy certificates assuming such certificates qualify as offsets. The Federal Government has also indicated that regulations regarding auditing will be made during the next half of this year. In addition, there will need to be further refinements to the reporting scheme to accommodate the proposed Australian emissions trading scheme – for example, to require the reporting of sub threshold data relating to trade exposed emissions intensive industries and of emissions that are attributable to the upstream supply of liquid fossil fuels (assuming that petrol is to be included in the emissions trading scheme).
Other developmentsAlso on 26 June, the Government introduced the National Greenhouse and Energy Reporting (Amendment) Bill 2008 which proposes to amend the NGER Act. The Bill proposes amendments to allow the GEDO to publish additional information collected under the NGER Scheme and allow the Minister to specify ratings systems or conditions relating to methods for estimating emissions and off-sets. The Federal Department of Climate Change has indicated that '[t]he Amendment Bill does not represent any major shifts in government policy and the proposed changes will not impose additional regulatory burden.' On 27 June, the Government released a National Greenhouse and Energy Reporting (Measurement) Determination 2008, which details the methods (and criteria for methods) that will be used to estimate greenhouse gas emissions, energy production and energy consumption for the purposes of the NGER Scheme. The general principle is that default methodologies may be applied for the estimation of greenhouse gas emissions, with higher order methodologies (that turn on facility specific factors) being able to be adopted at the option of the reporting group. Given the financial consequences that will attach to emissions under the proposed emissions trading scheme, it would be expected that reporting groups will implement these higher order methodologies where the use of the default methodologies may overestimate their greenhouse gas emissions. The Department of Climate Change has indicated that it will release reporting and technical guidelines in July and that from 1 July 2008, an online registration application tool will be available to streamline the registration process under the NGER Act.
For further information, please contact:
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