1. Clean Energy Future – Carbon Pricing Mechanism and NGER Act Overview

2. Overview Clean Energy Legislative Package Carbon Pricing Mechanism – Coverage – Compliance Timeline – Fuels and Synthetic Gases Impacts on the NGER Act – Purpose of NGER Act – Registration/deregistration – Reporting – Methodologies – Audit – Public Disclosure

3. Overview Clean Energy Legislative Package Clean Energy Bill 2011 – Creates the carbon pricing mechanism Clean Energy Bill 2011 – Creates the carbon pricing mechanism The Clean Energy (Consequential Amendments) Bill 2011 – e.g. makes amendments to NGERS to support the mechanism Other Bills: The Clean Energy Regulator Bill 2011, Climate Change Authority Bill 2011, Clean Energy (unit Shortfall charge – General) 2011, Clean Energy (Unit Issue Charge- General – General) 2011, Clean Energy (Charge – Excise) Bill 2011, Clean Energy (International Unit Surrender Charge) Bill 2011, Ozone protection and Synthetic Greenhouse Gas (Import Levy) Amendment Bill 2011, Ozone Protection and Synthetic Greenhouse Gas (manufacture Levy) Amendment Bill 2011, Excise Tariff Legislation Amendment (Clean Energy ) Bill 2011, Customs Tariff Amendment (Clean Energy) Bill 2011, Fuel Tax Legislation Amendment (Clean Energy) Bill 2011, Clean Energy Amendment (Household Assistance) Bill 2011

4. Introducing a Carbon Price The objective – cut pollution at lowest cost through use of a market mechanism The carbon price will be established by: – an emissions trading scheme (ETS) starting on 1 July 2012, commencing with a 3 year fixed price period – adjustments to fuel tax arrangements – levies imposed on the use of synthetic gases Around two thirds of Australia’s emissions will face a carbon price A carbon price will not apply to agricultural emissions, light on-road vehicles or on-site use of fuel by the agriculture, forestry and fisheries industries.

5. Coverage of Carbon Pricing Mechanism Broad Coverage – stationary energy; industrial processes; fugitive emissions; and non-legacy waste emissions – no agricultural and land sector emissions – equivalent carbon price applied through separate legislation for some business transport, non-transport use of liquid and gaseous fuels and synthetic greenhouse gases General 25,000 t CO₂-e covered scope 1 facility thresholds The liable entity will generally be the person with operational control – Upstream coverage of natural gas Some flexibility for downstream obligation through Obligation Transfer Numbers

6. Coverage and Liable Entities Existing NGER Reporters Covered emissions Landfill facilities Facilities  25 CO 2-e Kt  Covered Emissions Equivalent carbon price applied through separate legislation to: some business transport emissions, non-transport use of liquid and gaseous fuels, and synthetic greenhouse gases Natural Gas Retailers

7. Compliance Timeline – Fixed Price Year 1 July Compliance Year 1 Compliance Year 2 15 June – Progressive Surrender compliance year 1 31 October – NGERS Reporting compliance year 1 1 February – Final Surrender compliance year 1 15 June – Progressive Surrender compliance year 2

8. Compliance Timeline – Flexible Price Year 1 July Compliance Year 4 Compliance Year 5 31 October – NGERS Reporting compliance year 4 1 February – Final Surrender compliance year 4

9. Fixed Price Architecture The carbon pricing mechanism will commence on 1 July 2012 with a three year fixed price period. The carbon price will start at: – $23.00 in 2012-13 – $24.15 in 2013-14 – $25.40 in 2014-15 Fixed Price Permits: – liable entities purchase permits up to emissions levels – purchased permits cannot be traded or banked Freely allocated permits can be traded or sold back to the Government but cannot be banked Linked to the Carbon Farming Initiative – up to 5% of liability

10. Setting Pollution Caps Climate Change Authority makes recommendations to Government by Feb 2014 First five years announced in the 2014 Budget and set no later than 31 May 2014 Extended by one year every year Set considering a range of specific criteria Default pollution cap arrangements imply automatic transition to flexible price – Default caps are consistent with achieving a trajectory towards a -5 % target in 2020

11. Flexible Price Architecture Price Ceiling – first three years of the flexible price period – level set in Regulations Price Floor – first three years of the flexible price period – starting at $15 in 2015-16; rising by 4% real p.a. Auctions – details set out in legislative instrument – advance auctions – no double-sided auctions or deferred payments Unlimited banking Limited borrowing – 5% of liable entity’s obligation International and CFI Linking

12. Treatment of Fuel & SGG’s A carbon price will be applied to fuels and synthetic gases via other legislation Fuel tax credits will be adjusted to impose an effective carbon price on the use of transport fuels in other ways – the Government intends to apply an effective carbon price to fuel used by heavy vehicles from 2014/15. Aviation fuel excise will be adjusted to impose an effective carbon price on aviation fuels Existing import and manufacture levies under the Ozone Protection and Synthetic Greenhouse Gas Management Legislation used to apply effective carbon price to high global warming potential synthetic greenhouse gases

13. Impact on NGERS NGERS underpins the carbon pricing mechanism: – Registration/deregistration – Reporting – Methodologies – Audit – Public Disclosure Revisions to facilitate carbon pricing mechanism requirements Intended to be streamlined to minimise duplication of effort.

14. Purpose of NGER Act NGER Act objectives: Informing Australian government policy formulation and the Australian public. Meeting Australia’s international reporting obligations. Assisting Commonwealth, State and Territory government programs and activities. Avoiding duplication of similar reporting requirements in the States and Territories. Underpinning the carbon pricing mechanism

15. Registration Registration for “controlling corporations” that meet thresholds under section 13 remains unchanged (i.e. under Division 3 of Part 2). Additional types of registration post 1 July 2012, including: –Liable entities register by 31 August following the first FY which triggers their registration requirement (required to register under Division 4 of Part 2). Generally, entities only have to register once.

16. Deregistration New deregistration provisions to enable possible deregistration of all “persons”. The Regulator must deregister the person meets criteria, for example: –unlikely to meet the thresholds in section 13. –unlikely to be a liable entity for next 2 years. –do not hold an OTN. –complied with obligations under the Act. The Regulator may also initiate deregistration where a ‘person’ is no longer a legal entity (that is, it has ceased to exist).

17. Reporting Reporting requirements for controlling corporations (registered under Division 3) remain unchanged. New reporting entity categories: –Liable Entities –Holders of financial control liability transfer certificates –Reporting obligations transferred to member of corporate group Report due dates are the same as for controlling corporations (by 31 October). Only emissions using methodologies in the Measurement Determination are to be reported.

18. Reporting (Liable Entity) Liable entities (registered under Division 4 required to report (for example): –Covered scope 1 (direct) emissions. –Potential emissions embodied in an amount of natural gas (if applicable). –the calculation of its provisional /final emissions number. Not required to report scope 2 emissions, energy consumption or energy production data. During the fixed charge period, must also report interim emissions number info. (if not exempt from the progressive payment obligation ). To streamline reporting, all information can be provided in a single report

19. Reporting (Example 1) Existing reporter — not liable Company A consumes 250 terajoules of energy and has direct emissions of 5000 tonnes CO2-e in 2012- 2013. Has obligations to register and report because it meets an energy threshold under s13 It is not a liable entity under the carbon pricing mechanism. Company A’s reporting requirements under the NGER Act will remain unchanged and it will not have any additional reporting obligations due to the carbon pricing mechanism.

20. Reporting (Example 2) Existing reporter — Liable Company B has operational control over a facility with annual scope 1 (covered) emissions of 35,000 tCO 2 -e. It meets a facility threshold [s13(1)(d)]. Its scope 1 (direct emissions) are covered under the carbon pricing mechanism. It will therefore become a liable entity from 1 July 2012. Company B’s existing reporting requirements under the NGER Act will remain unchanged It will have additional reporting requirements due to the carbon pricing mechanism from 1 July 2012, including: –specified scope 1 covered emissions –the calculation of its emissions number.

21. Methodologies The methods contained in the Measurement Determination will be used as the basis for quantifying emission liabilities. Amendments to the NGER Regulations and the Measurement Determination may be required to ensure that methodologies exist to meet specific obligations under the carbon pricing mechanism. These amendments may be made after passage of the Clean Energy Bill 2011.

22. Audit Mandatory audits apply to liable entities whose “gross emissions number” exceeds the number to be specified in the regulations. –The specified amount is expected to correspond to 125,000 tCO 2 -e scope 1 covered emissions. The gross emissions number is the total of the person’s provisional emissions numbers : –May include multiple facilities. –Excess surrender and make good numbers are not taken into account for the purposes of meeting the audit threshold. The type of audit, the matters to be covered by the audit, the form of the audit and the kinds of details it is to contain will be specified in the Regulations.

23. Public Disclosure The Regulator will publish a liable entity’s total provisional emissions numbers: –split according to the total scope 1 and potential emissions embodied in natural gas. –at the entity level and not at the facility level. The Regulator will also publish emissions and energy production data for designated generation facilities. –principal activity is electricity generation. –not part of a vertically-integrated production process (VIPP). –facilities generating electricity for own use or as a secondary activity will not have their emissions and electricity production data published.

24. Other General Amendments Penalties in the NGER Act that relate to carbon pricing mechanism obligations and liability aligned with penalties under the main bill. All persons to retain records for five years, in line with taxation record keeping Executive officers of bodies corporate are liable under the NGER Act (in line with CEB 2011). Decisions by the Regulator not to register and not to deregister a person are reviewable by the Administrative Appeals Tribunal.

25. Next Steps DateStep August - September Government considers stakeholder views and decides the final form of the Clean Energy Future Legislation Package September - November Clean Energy Future Legislation Package considered by Parliament. Drafts of key regulations will be available at this time. The Legislation can be accessed at: www.climatechange.gov.auwww.climatechange.gov.au Clean Energy Regulator to be stood up within 6 months of assent Carbon pricing mechanism commences 1 July 2012

26. Questions ?