1. Safeguard Mechanism
Xenophon Amendments

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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 to
Future baselines to be production adjusted
Baselines

11. 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

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

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

14. 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

15. 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

16. 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?

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

18. 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

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

20. Technicalities in Safeguard Rules prevent a Calc’d Baseline 2016-17 to 2018-19
Technicalities prevent a 3 year multi year monitoring period for to
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

21. 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

22. 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

23. 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

24. 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

25. It gets quite complicated
The End
It gets quite complicated