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Carbon Pricing Mechanism Workshops

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  1. Carbon Pricing Mechanism Workshops • Interim Emissions Numbers • Jane Wardlaw • Manager • Registrations, Applications, Determinations and LEPID February 2013

  2. Disclaimer • The presentation provides general information only. It has been developed by the Clean Energy Regulator to help persons understand their responsibilities under the law. Persons should refer to the Clean Energy Act 2011 (Clean Energy Act), the National Greenhouse and Energy Reporting Act 2007 (NGER Act), and their supporting Regulations, in their current form at the time of reading. Changes to the legislation may affect the information in this presentation. Ultimately, liable entities are responsible for determining their liabilities and obligations under the law, and for applying the law to their individual circumstances. This presentation is not intended to provide legal advice and is not a substitute for independent professional advice.

  3. This presentation will cover:-overview of National Greenhouse and Energy Reporting (NGER) structures - identifying who is a liable entity - what is an interim emissions number (IEN) - who has an IEN - IENsfor direct emitters - IENsfor natural gas suppliers - IENsfor OTN holders - reporting your IEN

  4. Carbon Pricing Mechanism Workshops Recap – overview of NGER reporting structures

  5. National Greenhouse and Energy Reporting (NGER) Act 2007 • The NGER Act, passed in 2007, introduced a national framework for the reporting and dissemination of information relating to greenhouse gas emissions, energy production and energy consumption • The NGER Act created reporting obligations. These obligations attach to certain corporations under a framework that centers around a number of key concepts: • Controlling corporations • Group members • Operational control; and • Facilities

  6. NGER Act – section 19 report – facility threshold For the 2012-13 reporting year... Controlling Corporation Register • s19 Report: • Facility 1’s • Scope 1 emissions • Scope 2 emissions • Energy production • Energy consumption Group Member (subsidiary) Group Member (subsidiary) Group Member (subsidiary of a subsidiary ) Facility 4 5kt Facility 3 5kt Facility 2 10kt Facility 1 25kt This corporate group has total emissions of 45kt, so has not met the corporate group emissions threshold But, its group member has operational control over a facility that meets a facility threshold

  7. NGER Act – section 19 report – corporate group threshold For the 2012-13 reporting year... Controlling Corporation Register • s19 Report: • All facilities’ • Scope 1 emissions • Scope 2 emissions • Energy production • Energy consumption Group Member (subsidiary) Group Member (subsidiary) Group Member (subsidiary of a subsidiary ) Facility 4 5kt Facility 3 10kt Facility 2 20kt Facility 1 25kt This corporate group has total emissions of 60kt, so has met the corporate group emissions threshold.

  8. Carbon Pricing Mechanism Workshops Clean Energy Act 2011/NGER Act

  9. Clean Energy Act 2011 • Clean Energy Act introduces the concept of a ‘liable entity’ • A liable entity is not just limited to corporations, or controlling corporations. Any ‘person’ can be a liable entity • A person is defined as being any of the following: • An individual • A body corporate (all companies will fall into this category) • A trust • A corporation sole • A body politic • A local governing body

  10. Clean Energy Act 2011 • Liable entities either • are responsible for facilities that give rise to a liability (direct emitters), and/or • supply natural gas and/or • are OTN holders and/or • are a designated fuel opt in person (DOIP – applies from 2013-14 onwards) • Some liable entities will be liable for a number of reasons listed above • Liability is in relation to covered emissions only (subset of scope 1 emissions)

  11. Clean Energy Act 2011 – liable entities • Direct Emitters • Direct emitters will be liable for a facility if during a year from 2012-13 onwards, they are the person responsible for a facility, and: • operations of the facility released covered emissions of 25,000 tonnes of C02-e or more • the facility is a large gas consuming facility, or • the facility is a landfill facility that released a total amount of covered emissions plus legacy emissions of 25,000 tonnes of CO2-e or more • Note: the 25,000 tonne threshold applies to covered emissions, while the NGER Act facility threshold applies to total scope 1 and scope 2 emissions

  12. Clean Energy Act 2011 • Default Position for liability – direct emitters • The default position is that liability will rest with the person with operational control over a facility • the exception to this is where a mandatory designated joint venture (MDJV) exists (where liability is shared between each participant in the JV) • This differs from a controlling corporation’s NGER obligations, where obligations attach to the controlling corporation, not its group members • The Clean Energy Act allows for liability to be transferred (via a liability transfer certificate (LTC) or a declaration of a declared designated joint venture (DDJV). • So, a person will be ‘responsible’ for a facility if they: • have operational control over it • hold an LTC in relation to it, or • are a participant in a designated joint venture that has it. • All liable entities are required to apply under the NGER Act, for registration if they are not already registered – this includes members of a registered controlling corporation’s group

  13. Carbon liability vs controlling corporation obligations • Presuming that all facilities are carbon liable facilities Controlling corporation is NOT a liable entity, but will have to be registered under the NGER Act on the basis of allfacilities’ scope 1 and scope 2 emissions and energy production and consumption Controlling Corporation A Group Member Group Member Group Member Each group member must also register on the basis that they are liable entities Facility Facility Facility Facility

  14. Corporate group LTCs – liability consolidation • q Controlling Corporation A s19 Report Facilities 1, 2 and 3 s22A/22AA Report Facilities 2 and 3 s22A/22AA Report Facility 1 Group Member 1 Group Member 2 Group Member 3 operational control LTC s22A/22AA Report Facilities 1, 2 and 3 operational control LTC Facility 3 Facility 1 Facility 2

  15. Corporate group LTCs – liability and s19 consolidation • o s19 Report Facilities 1, 2 and 3 s22A/22AA Report Facilities 1,2 and 3 s22A/22AA Report Facility 2 s22A/22AA Report Facility 3 s22A/22AA Report Facility 1 Controlling Corporation A q Group Member 2 Group Member 1 Group Member 3 LTC operational control LTC LTC operational control operational control Facility 3 Facility 2 Facility 1

  16. Financial control LTCs • a Controlling Corporation A Controlling Corporation B • s19 Report • Scope 1 emissions • Scope 2 emissions • Energy production • Energy consumption • s22E Report • Scope 1 emissions • Scope 2 emissions • Energy production • Energy consumption Group Member B Group Member A • s22A/22AA Report • Covered emissions • Liable for emissions • s22A/22AA Report • Covered emissions • Liable for emissions operational control LTC Facility

  17. MDJV – liability and reporting • q w s22A/22AA 100% covered emissions And PPD s22A/22AA 100% covered emissions And PPD s22A/22AA 100% covered emissions And PPD Controlling Corporation A Controlling Corporation B Controlling Corporation C Group Member A Group Member B Group Member C Participants in JV Facility

  18. NGER Act – operational control – sections 11 – 11D • A controlling corporation is responsible for reporting in relation to facilities under its operational control and under the operational control of its group members • A controlling corporation or group member will have operational control over a facility if: • They have the authority to introduce and implement any or all of the following for the facility: • - operating policies • - health and safety policies • - environmental policies, OR • Where more than one person has the authority to introduce and implement any or all of the policies mentioned above, the person that has the greatest authority to introduce and implement operating policies and environmental policies for the facility, OR • They have been nominated as having operational control over the facility. Nominations of operational control are only permitted where more than one person has the authority to introduce and implement any or all of the policies mentioned above, and no one person has the greatest authority to introduce and implement operating policies and environmental policies, OR • The Clean Energy Regulator declares that a person has operational control of the facility.

  19. Nominations of operational control (NGER Act) and liability (Clean Energy Act 2011) • How do the two interact where a MDJV exists? • Nominations of operational control in relation to JV facilities only apply to a controlling corporation’s s13 thresholds and s19 Reports • Liability for a facility (and associated s22A/22AA reporting obligations) are dealt with under the Clean Energy Act 2011 • Where a MDJV exists, a nomination of operational control is required to resolve s19 reporting obligations

  20. Nominations and MDJV • a s22A/22AA 100% covered emissions And PPD s22A/22AA 100% covered emissions And PPD s22A/22AA 100% covered emissions And PPD s19 Report s19 Report s19 Report Controlling Corporation A Controlling Corporation B Controlling Corporation C Group Member A Group Member B Group Member C Participants in JV Facility

  21. DDJV – liability vs s19 reporting obligations s19 Report Controlling Corporation A Controlling Corporation B Controlling Corporation C s22A/22AA 100% covered emissions And PPD s22A/22AA 100% covered emissions And PPD s22A/22AA 100% covered emissions Group Member A Group Member B Group Member C Participants in JV And PPD Operational Control Facility

  22. Clean Energy Act 2011 – liable entities • Direct Emitters • Note that the transfer mechanisms we have just looked at, apply to direct emitters only • i.e they only transfer liability in relation to the covered emissions from a facility • A natural gas supplier or OTN holder cannot transfer their liability using either type of LTC, or a declared designated joint venture. • Any liable entity that is not already on the National Greenhouse and Energy Register (this is different from the LEPID), must apply for registration under the NGER Act.

  23. Clean Energy Act 2011 – liable entities • If a liable entity is not already on the National Greenhouse and Energy Register: • During the fixed charge years, a liable entity that, as at 1 April, has, or is likely to have, an IEN for the current fixed charge year, must have applied for registration by 1 May of that year • All other liable entities must have applied for registration by 31 August following the financial year in which they first became a liable entity

  24. Audit under the Carbon Pricing Mechanism • Any liable entity with an emissions number exceeding 125,000 must arrange to have a pre-submission audit performed. These audits must: • be reasonable assurance engagements • be conducted in accordance with the National Greenhouse and Energy (Audit) Determination 2009 • be undertaken by a Category 2 or 3 registered greenhouse and energy auditor ENGAGE YOUR AUDITOR EARLY!!!

  25. Carbon Pricing Mechanism Workshops What is an IEN?

  26. What is an interim emissions number (IEN)? • Broadly speaking, an IEN represents 75 per cent of a liable entity’s estimated liability for the relevant financial year • This number is calculated differently, depending on the type of liability the liable entity has • Only applies during the fixed charge years (2012-13, 2013-14 and 2014-15) • This process of early surrender is called progressive surrender or provisional surrender • Who has an IEN, and how IENs are to be calculated are set out in sections 126 and 127 of the Clean Energy Act 2011 (the Clean Energy Act) • Acquisition and surrender of carbon units is also dealt with in Clean Energy Act • Registration and reporting obligations for people with an IEN are dealt with under the National Greenhouse and Energy Reporting (NGER) Act 2007

  27. What is an interim emissions number? • During the fixed charge years, liable entities with an interim emissions number must: • by 1 May of the relevant year • - apply for registration under section 15AA of the NGER Act (if not already registered) • by 15 June of the relevant year • - report to the Regulator on its IEN(s) under section 22AA of the NGER Act -acquire and surrender eligible carbon units to the value of its IEN(s) (to avoid incurring a provisional unit shortfall charge) Note: you will need an ANREU account to be able to acquire and surrender units • Eg. a liable entity that has an IEN in the 2012-13 eligible financial year must have applied for registration by 1 May 2013, and must report its IEN and surrender units by 15 June 2013 • Note: in 2013, 15 June falls on a Saturday. This means that the deadline is taken to be the next working day – so the deadline for IENs will actually be 17 June 2013.

  28. Carbon Pricing Mechanism Workshops Who has an IEN?

  29. Who has an interim emissions number? A person that is a liable entity during a fixed charge year, will have an IEN if they: • are a direct emitter responsible for a facility that: • gave rise to a provisional emissions number or numbers in the previous eligible financial year; and • where the person is likely to have a provisional emissions number for the facility in the current eligible financial year, and/or • Have supplied natural gas between 1 July and 31 March of the eligible financial year, where an Obligation Transfer Number (OTN) was not quoted in relation to that supply; and/or • Have quoted their OTN in relation to the supply of natural gas between 1 July and 31 March of the eligible financial year, where that quotation has given rise to a liability for the OTN holder • Will also include other gaseous fuels and liquid fuel opt-in persons in 2013-14

  30. Who has an interim emissions number? • ‘

  31. Carbon Pricing Mechanism Workshops Who has an IEN – direct emitters

  32. Who has an interim emissions number – direct emitters • g

  33. Who has an interim emissions number – direct emitters • Direct emitter responsible for a facility • A direct emitter is a person that: • has operational control over • holds a liability transfer certificate (LTC) in relation to, or • is a participant in a designated joint venture (mandatory or declared) that has, a facility. • A direct emitter will be a liable entity if they are the person responsible for a facility that in an eligible financial year: • had operations that released covered emissions of 25,000 tonnes of C02-e or more • was a large gas consuming facility, or • was a landfill facility that released a total amount of covered emissions plus legacy emissions of 25,000 tonnes of CO2-e or more. Am I the direct emitter responsible for a facility that will result in me having a provisional emissions number (PEN) this year?

  34. Threshold for liability vs PEN for a facility Am I the direct emitter responsible for a facility that will result in me having a provisional emissions number (PEN) this year? • Threshold for liability in relation to a facility • A direct emitter will be a liable entity if they are the person responsible for a facility that in an eligible financial year : • had operations that released covered emissions of 25,000 tonnes of C02-e or more, or • was a large gas consuming facility, or • was a landfill facility that released covered emissions plus legacy emissions of 25,000 tonnes of CO2-e or more. • Provisional Emissions Number (PEN) • In relation to a each facility for which a person is responsible, the PEN is the total amount of covered emissions from the operation of the facility, during the whole or part of the year that the person was responsible for the facility, that the person is liable for • Generally, a person’s PEN will = the total amount of covered emissions from the facility (ie the number that the threshold test is applied to), for the period that the person was responsible for the facility

  35. Threshold for liability re a facility vs PENs • PENs continued • For example, if Company A has operational control over a facility for all of 2012-13, and during the year, the facility gave rise to covered emissions of 27,000 tonnesof C02-e, the PEN for the facility would be 27,000 • However, the threshold test applied to a facility of a designated joint venture, is applied to the total covered emissions from the facility (for the time that the facility was the facility of the joint venture) • The PEN of each participant in the designated joint venture, in relation to the facility, is their participating percentage of the total liable covered emissions from the facility

  36. Threshold for liability re a facility vs PENs – designated joint ventures • For example, Company A and Company B are both participants in a designated joint venture. Each participant’s participating percentage is 50 per cent. • During 2012-13, Facility X is a facility of the joint venture for the whole year, and has covered emissions of 26,000 tonnes of CO2-e • Company A and B will both have a PEN in relation to the facility • Each person’s PEN will = 50 per cent of 26,000 • Therefore each company’s PEN in relation to the facility is 13,000 • Note: in this case, the person’s PEN in relation to a facility, is different from the number that the threshold test is applied to • Even though each person’s PEN is less than 25,000, the facility still gives rise to a liability, because in total, its covered emissions are 25,000 or more

  37. Threshold for liability re a facility vs PENs – natural gas and OTNs • Another circumstance in which the threshold number is different to a person’s PEN for the facility, is where natural gas is consumed at the facility, and no OTN was quoted in relation to the supply of that natural gas. Brief overview of natural gas and OTNs Natural gas supply • A natural gas supplier is liable for the ‘potential greenhouse gas emissions embodied’ in any natural gas they supply to another person (unless the person quotes an OTN in relation to the supply) • The person ‘upstream’ (the gas supplier) is liable, rather than the individuals who actually use the natural gas

  38. Threshold for liability re a facility vs PENs – natural gas and OTNs OTN holders • OTNs are a way of transferring liability, from a gas supplier, to a person that consumes a large amount of natural gas (the OTN holder) • When an OTN holder quotes their OTN, they take on the liability for the ‘potential emissions embodied’ in the natural gas that they are supplied Note that in either case, the person is liable for the ‘potential greenhouse gas emissions embodied’ in the natural gas. This is because at this stage, the gas has not been combusted

  39. Threshold for liability re a facility vs PENs – natural gas and OTNs Combustion of natural gas at a liable facility – no double counting – OTN quoted • Where an OTN is quoted in relation to natural gas that is combusted at a facility that gives rise to a liability, the OTN holder does not include the potential emissions embodied in the natural gas in its liability as an OTN holder • Instead, the direct emitter responsible for the facility, will include covered emissions from the combustion of natural gas at the facility, in its threshold assessment and PEN for the facility. • Note, that the person who quoted the OTN may or may not be the direct emitter responsible for the facility

  40. Threshold for liability re a facility vs PENs – natural gas and OTNs Combustion of natural gas at a liable facility – no double counting – NO OTN quoted • Where no OTN is quoted in relation to the supply of natural gas that is combusted at a facility that gives rise to a liability, the natural gas supplier is liable for the potential emissions embodied in the natural gas (remember that natural gas suppliers are liable for all natural gas supplied where an OTN was not quoted) • If the direct emitter was liable for the covered emissions from the combustion of this natural gas, the same amount of gas would give rise to two separate liabilities • Where no OTN is quoted, the direct emitter responsible for the facility will include covered emissions from the combustion of natural gas at the facility in its threshold assessment but will not include these emissions in its PEN for the facility.

  41. Threshold for liability re a facility vs PENs – natural gas and OTNs Combustion of natural gas at a liable facility – no ‘supply’ of natural gas • Where natural gas is combusted at a facility, but the provision of the natural gas has not met the Clean Energy Act definition of ‘supply, the resulting covered emissions are included in the direct emitter’s PEN

  42. Threshold for liability re a facility vs PENs Recap - PENs • A PEN in relation to a facility is the amount of liable, covered emissions, from the operations of the facility, during the whole or part of the year that the direct emitter is responsible for the facility • Generally, the PEN will be the same number that is used to determine whether the facility gives rise to a liability • Exceptions to this include: • The facility is a facility of a designated joint venture (the threshold is applied to the total covered emissions from the facility, and the PEN is each participant’s participating percentage of this) • Covered emissions from the facility are attributable to the combustion of natural gas, where NO OTN was quoted (the threshold is applied to the total covered emissions from the facility, and the PEN does not include covered emissions from the combustion of natural gas at the facility) • Landfill facilities, where the threshold applies to legacy plus covered emissions, but the PEN will only be covered emissions

  43. Threshold for liability re a facility vs PENs Am I the direct emitter responsible for a facility that will result in me having a provisional emissions number (PEN) this year? • If the answer is yes, can move to the next step in determining whether a person has an IEN • If the answer is no, the facility does not give rise to an IEN

  44. Who has an interim emissions number – direct emitters

  45. Who has an interim emissions number – direct emitters Last year, did anyone have a PEN in relation to the facility I am responsible for this year? • The person that is responsible for the facility this year, does not have to be the same as the person that was responsible last year • For example, if in 2011-12 the facility was under the operational control of Person A, but in 2012-13, Person B was issued with an LTC in relation to the facility, it may still be included in Person B’s IEN calculations (provided it meets the rest of the criteria) • It is also possible that more than one person was responsible for the facility in the previous year (ie because of part year operational control) • When answering this question in 2012-13, s126(6) of the Clean Energy Act tells us to assume that 2011-12 was an eligible financial year – so ask would anyone have had a PEN in relation to the facility in 2011-12 • If the answer is yes, you can move to the next step in determining whether a person has an IEN • If the answer is no, the facility does not give rise to an IEN

  46. Who has an interim emissions number – direct emitters

  47. Who has an interim emissions number – direct emitters Was a report under sections 19, 22G or 22X of the NGER Act required in relation to the facility last year? • The person that is responsible for the facility this year, does not have to be the same person that was required to report on the facility in the previous year • Example • In 2011-12 a facility was under the operational control of Company A, a member of Controlling Corporation A’s corporate group. The facility was included in Controlling Corporation A’s 2011-12 section19 report • In 2012-13, the facility is still under Company A’s operational control. Therefore Company A is the liable entity responsible for the facility • As a report was required under section 19, in relation to the facility in 2011-12, the facility is included in Company A’s IEN calculations (provided it meets the rest of the criteria)

  48. Who has an interim emissions number – direct emitters Was a report under sections 19, 22G or 22X of the NGER Act required in relation to the facility last year? • If a report was required in the previous year, but no report was submitted, the facility will also be included in the responsible person’s IEN calculation for the current year • If the answer is yes, can move to the next step in determining whether a person has an IEN • If the answer is no, the facility does not give rise to an IEN

  49. Who has an interim emissions number – direct emitters

  50. Who has an interim emissions number – direct emitters Did the facility give rise to a PEN of 35,000 or more last year? (Note: if more than one person had a PEN in relation to the facility, is the total of these PENs 35,000 or more?) • As noted earlier, the person that has a PEN for the facility this year, does not have to be the same person (or persons) that had a PEN in relation to the facility in the previous year • If a facility had more than one PEN in the previous year, add together all of the PENs, and see whether the total PENs came to 35,000 or more • Note that s127(1)(d) of the Clean Energy Act tells us to assume that 2011-12 was an eligible financial year. So, ask whether the facility would have had a PEN of 35,000 or more in 2011-12