Safeguard Mechanism Xenophon Amendments

Topics Rationale and how it works Baselines. Case Study Acquiring ACCUs Some conclusions Topics

Rationale Government has spent almost $2.55B To purchase emission reductions Through the Emissions Reduction Fund. We need a mechanism to safeguard those reductions To ensure they aren’t negated By increases elsewhere in the economy Rationale

How it works OR Surrender by 28 Feb Pay & Surrender Carbon Credits Above Australian Carbon Credit Units Surrender by 28 Feb Compare Facility >100,000 TCO2e Baseline Regulator NGER Report OR NGER Report Oct 31 Environmental Accountant Data Supporting Documents Pay Below Late Penalty & Surrender Carbon Credits How it works

Excess Emissions This is a “Baseline & Surrender” system [Net Emissions] = [Covered Emissions] – [Units Surrendered] Excess Emissions Situation = [Net Emissions] > [Baseline] Duty to ensure that excess emissions situation does not exist (NGER Act §22XF) Excess Emissions

Getting a Big Green Tick Units Surrendered Excess Emissions Situation Excess Emission Penalty Paid After Feb 28 Until more units surrendered Baseline Net Emissions equal Baseline Covered Emission Net Emission Getting a Big Green Tick

Some New Terminology Designated Large Facility Facility emitting more than 100,000 TCO2e Needs to be registered with Clean Energy Regulator Existing facilities >100,000 TCO2e automatically registered Others need to be registered Responsible Emitter Group Member with operational control (NGER definition) Onus is on the Responsible Emitter to register DLF Some New Terminology

Unit Acquisition Obvious question “Where do I get units?” Not clear how units are acquired Maybe through offset projects Maybe International Units Maybe private contract with holder of ACCUs Current policy is that Units will not be needed Unit Acquisition

Every designated large facility has a monitoring period Default period is financial year This means emissions are compared with the baseline every 12 months Facility can apply for Multi Year period where emissions are averaged Cannot be more than 3 years Monitoring Period

Current policy is to set baselines so that no excess situation occurs under “business as usual” conditions Facility threshold of 100,000 TCO2e (effectively a default baseline) Initial baseline set by Regulator at: Highest reported emission 2009-10 to 2013-14 Future baselines to be production adjusted Baselines

Baselines What happens if reported baseline is too low? Can apply for Calculated Baseline Four Criteria (at least one of which must be met): New Facility Significant Expansion Inherent Variability Initial Calculated Baseline Criteria spelled out in “Safeguard Rules” Baselines

Calculated Baselines Essentially emissions intensity Expressed as absolute number Example: Intensity = 141.6 kgCO2e/Tonne Production = 1,000,000 Tonne Baseline = 141,600 TCO2e Calculated Baselines

Legislation National Greenhouse & Energy Reporting Act 2007 §22XB through to §22XS National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 Legislation

Timetable Started 1 July 2016 Regulator issuing determinations First 22XB report due 31 Oct 2017 Duty to ensure excess emissions situation does not exist. (§22XF) Must “make good” the excess by 1 March 2018 Timetable

Penalty If excess situation on or after 1 March Late Penalty of 100 Penalty Units per day Until ACCUs surrendered Up to 100 Days (i.e. 10,000 penalty units) Penalty Unit = $210 Max penalty = $2,100,000 - Each year Same for 1 TCO2e as 1,000,000 TCO2e Penalty

What to do? Review past NGER Reports If facility emissions are over 100,000 Work out what the Reported Baseline will be Will future emissions be above or below? Below - then accept Reported Baseline Above - then apply for Calculated Baseline What to do?

Calculated Baseline Forecast production 2016-17 to 2018-19 If 2017-18 will be max production; Apply by 30 July 2017 If 2018-19 will be max production Apply by 31 Oct 2017 Calculated Baseline

Calculated Baseline Application must be accompanied by An audit report Forecasts – Limited assurance Criteria Tests – Reasonable assurance Historical Data – Reasonable assurance an outline of measures to reduce GHG intensity. Most recent environmental impact assessment Calculated Baseline

Existing coal mine in SA Baseline = 651,584 T CO2e Forecast emissions: 2016-17 = 599,311 T CO2e (below) 2017-18 = 775,674 T CO2e (above) 2018-19 = 574,336 T CO2e (below) Variation due to normal operating practices (stockpiling) Potential Excess Emission Situation 2017-18 Actual emissions this year 2016-17 Case Study

Technicalities in Safeguard Rules prevent a Calc’d Baseline 2016-17 to 2018-19 Technicalities prevent a 3 year multi year monitoring period for 2016-17 to 2018-19 2 year monitoring period is possible – but average emissions will be above baseline. 124,090 ACCUs need to be acquired and surrendered by 1 March 2019. Consequences

ACCUs are held on the Australian National Registry of Emission Units (ANREU) If not on ANREU they do not exist Government policy is to acquire all ‘spare’ ACCUs through the ERF At 02 June there were Zero uncontracted ACCUs on ANREU ACCUs

Options Do an ERF Project Plan, specify, finance and register project Undertake project Report and audit project Claim ACCUs Process takes around 2 years minimum or wait and hope that some ACCUs become available before 1 March 2019 Sitting back and paying the penalty is not an option Options

What happens if the facility inadvertently exceeds the baseline by a small number? Where do you buy 100 ACCUs? What happens if the excess is less than the uncertainty on the emissions? The legislation is silent on these issues Other Questions

Conclusions The Safeguard Mechanism looks simple BUT Each facility must be looked at in detail There are some unexpected outcomes Acquiring ACCUs will not be straightforward Conclusions

It gets quite complicated The End It gets quite complicated