Safeguard mechanism guidance

Variation of baseline determination for reduction in emissions intensity

Version 1.0, 10 July 2017

Contents

Contents.........................................................................................................................................................1

Revision history..................................................................................................................................................2

Purpose of the guidance....................................................................................................................................2

1 Background................................................................................................................................................3

1.1 Emissions intensity baseline variations: an overview.........................................................................3

2 Emissions intensity test..............................................................................................................................4

2.1 Identifying production variables.........................................................................................................4

2.2 Baseline intensity comparison year....................................................................................................4

2.2.1 Reported baseline determination...............................................................................................4

2.2.2 Calculated baseline determination.............................................................................................5

2.2.3 Production-adjusted baseline determination.............................................................................5

2.3 Emissions intensity test – non-landfill facilities..................................................................................5

2.4 Emissions intensity test for landfill facilities.......................................................................................6

2.5 Emissions intensity test for benchmark facilities................................................................................6

2.6 Calculating emissions intensity of a production variable....................................................................7

2.6.1 Facilities that are not landfill or benchmark facilities.................................................................7

2.6.2 Benchmark facilities....................................................................................................................8

2.6.3 Emissions intensity calculation criteria: apportioning emissions to production variables..........8

3 The application process..............................................................................................................................9

3.1 Application form and requirements...................................................................................................9

3.1.1 Executive officer.........................................................................................................................9

3.2 Application deadlines.........................................................................................................................9

3.3 Application processing and decision-making....................................................................................10

3.3.1 Application receipt and processing timeframes.......................................................................10

3.3.2 Requests for information..........................................................................................................10

3.3.3 Withdrawal of application........................................................................................................11

3.3.4 Decision to make a baseline variation......................................................................................11

3.3.5 Decision to refuse to make baseline variation..........................................................................12

3.3.6 Review rights............................................................................................................................12

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Revision historyVersion Date Details

1.0 10 July 2017 First version

Purpose of the guidanceThe purpose of this guidance is to provide information about baseline variations for a reduction in emissions intensity (emissions intensity baseline variations) under the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 (the Safeguard Rule) and to assist responsible emitters to apply to the Clean Energy Regulator for this type of baseline variation.

This guidance document should be read in conjunction with the Safeguard Rule, the National Greenhouse and Energy Reporting Act 2007 (the NGER Act), and the National Greenhouse and Energy Reporting Regulations 2008 (the NGER Regulations), as in force at the time. All references in this guidance document to legislative provisions relate to the Safeguard Rule unless otherwise indicated.

Note

Changes to the legislation may affect the information in this document. It is intended that this document will be updated in light of any legislative changes or if further clarity on a particular issue is required. The information contained in this document is provided as guidance only.

This document is general in nature, and does not cover every situation that may arise in relation to the safeguard mechanism.

Responsible emitters should be aware of their obligations under the legislation and its application to their individual circumstances. They should seek professional advice if they have any concerns. This document does not contain legal advice.

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1 BackgroundThe safeguard mechanism is one of three components of the Emissions Reduction Fund (ERF) which is the centrepiece of the Australian Government’s policy suite to reduce greenhouse gas emissions. The safeguard mechanism aims to prevent emissions abatement purchased under the ERF from being offset by increases in emissions in other parts of the economy. It does this by requiring large facilities to keep their emissions below a ‘business as usual’ baseline level. The mechanism commenced on 1 July 2016 and applies to facilities with covered scope 1 emissions greater than 100,000 tonnes of carbon dioxide equivalent (t CO2-e).

The safeguard baselines are set in different ways depending on whether the facility is new or well-established, how much historical data it has reported under the National Greenhouse and Energy Reporting (NGER) scheme and, in some instances, what type of facility it is. Currently, most baselines are reported baselines , which are for established facilities that have sufficient reported data under the NGER scheme for the five years from 1 July 2009. Calculated baselines are another type of baseline that facilities may have, where a facility is new or historical emissions are not representative of future business-as-usual emissions for the facility. There are a number of other types of baselines , but these will not apply to facilities until after 1 July 2019. Where a facility is not covered by a specific baseline type (currently either a reported or a calculated baseline), they will have a default baseline which is set at 100,000 t CO2-e.

1.1 Emissions intensity baseline variations: an overview

For many facilities, increased production levels will result in increased emissions and this may cause a facility to exceed their existing baseline in that year. In this situation, facilities have a number of options to manage their excess emissions and one of these options is to apply for an emissions intensity baseline variation.

To be eligible for a baseline variation, the facility must meet the relevant emissions intensity test for that facility. The test allows the facility to demonstrate that, while the facility’s emissions may have increased, it is improving its emissions intensity. The test will differ depending on the type of facility and the number of production variables (see chapter 2 of this guidance document for more information about the emissions intensity test).

An emissions intensity baseline variation is temporary, only covering the financial year in which the baseline was exceeded. The variation increases the facility’s baseline to the actual level of covered emissions in that year. After that year, the previous emissions baseline applies. There is no limit to the number of emissions intensity baseline variation applications that can be submitted. However, once an emissions intensity baseline variation has been approved for a facility, subsequent applications must demonstrate that the facility’s emissions intensity has improved compared to the year that the last emissions intensity baseline variation was made. This has the effect of encouraging facilities to continually improve their emissions intensity.

Applications for a baseline variation must be accompanied by an independent audit report confirming the application has been prepared in accordance with the Safeguard Rule. The application form can be found on the Clean Energy Regulator website and must be provided to the Clean Energy Regulator no later than 31 October after the financial year in which the baseline was exceeded. Under certain circumstances, the application deadline can be extended to the following 1 February (see chapter 3 of this guidance document for more information about these circumstances and the application process).

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2 Emissions intensity testA facility must meet the emissions intensity test to be eligible to apply for an emissions intensity baseline variation. The test will differ depending on the type of baseline and the number of production variables the facility has.

The emissions intensity test for facilities other than landfill or benchmark1 facilities compares the emissions intensity of the facility’s production variables in the financial year for which the variation is sought, with the emissions intensity of the facility’s production variables in the baseline intensity comparison year.

2.1 Identifying production variables

Production variables represent the productive output of the facility. Appropriately identifying production variables is the first step in determining whether a facility meets the emissions intensity test.

Production variables must be identified in accordance with sections 4 and 5 of the Safeguard Rule. Section 5 specifically relates to the identification of production variables, and section 4 provides definitions for a number of important related concepts including outputs, output variables, inputs, by-products, intermediate products, and waste products. Chapter 3 in the calculated baselines guidance document outlines how to identify a facility’s production variables in accordance with the requirements of the Safeguard Rule.

If a calculated baseline is already in place in relation to the facility, the production variables used for the purposes of the calculated baseline application must be used for the emissions intensity variation application.

It is important that production variables are identified correctly at the start of the application process. Applicants are encouraged to contact the Clean Energy Regulator at an early stage to discuss the selection of the production variables.

2.2 Baseline intensity comparison year

The baseline intensity comparison year is defined in section 4 of the safeguard rule.

The first time an emissions intensity variation is made, the baseline intensity comparison year will depend on the type of baseline that would otherwise apply to the facility (eg. reported or calculated).

If the facility has previously had an emissions intensity baseline variation, the baseline intensity comparison year is the year of the last emissions intensity baseline variation. This rule encourages facilities to continually reduce the emissions intensity of production.

2.2.1 Reported baseline determination

If, in relation to the year that the emissions intensity baseline variation is sought, the baseline determination that is in force for the facility is a reported baseline, the baseline intensity comparison year is the year that was used to set the reported baseline. This will be a year between 2009-10 and 2013-14.

1 Benchmark facility means a facility for which (a) a benchmark-emissions baseline determination has been made, or (b) a production-adjusted baseline determination has been made on the basis of an application under paragraph 40(1)(b).

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2.2.2 Calculated baseline determination

2.2.2.1 Non-landfill facilities

Where a facility has a calculated baseline (and no previous emissions intensity baseline variations have been made in relation to the facility), the ‘baseline intensity comparison year’ is the first year of that calculated baseline.

However, the emissions intensity forecast(s) used to determine the calculated baseline are again used when applying the emissions intensity test. That is, the forecast emissions intensity for each production variable that was used to determine the calculated baseline is compared against the actual emissions intensity in the year for which the variation is sought.

Example one – calculated baseline in place

A facility has a calculated baseline determination which goes from 2016-17 to 2018-19. The calculated baseline was set using emissions and emissions intensity forecasts for 2017-18. The responsible emitter for the facility wants to apply for a emissions intensity baseline variation in relation to 2016-16. The emissions intensity test compares the actual emissions intensity for 2016-17 with the forecast emissions intensity for 2017-18 (as used to set the calculated baseline number).

2.2.2.2 Landfill facilities

If a landfill facility had a calculated baseline determination during the year for which the variation is sought, the baseline intensity comparison year is the first year of the calculated baseline determination.

2.2.3 Production-adjusted baseline determination

If a facility had a production-adjusted baseline determination during the year for which the variation is sought, the baseline intensity comparison year is the year that was used to set the production-adjusted baseline.

If the facility has previously had its baseline varied as a result of passing the emissions intensity test, the baseline intensity comparison year is the year the baseline was last varied due to a reduction in emissions intensity. This rule encourages facilities to continually reduce the emissions intensity of production.

2.3 Emissions intensity test – non-landfill facilities

For facilities that have only one production variable (identified in accordance with section 5) the emissions intensity test is passed if the emissions intensity in the financial year that is the subject of the application is lower than the emissions intensity in the most recent baseline intensity comparison year.

Example one – emissions intensity test for one production variable

If the highest production year of a reported-emissions baseline determination (2013-14) had an emissions intensity of 2 t CO2-e per tonne of synthetic rutile2, and in 2017-18 the emissions intensity decreased to 1.95 t CO2-e per tonne of synthetic rutile, the emissions intensity test would be passed for 2017-18.

For facilities that have more than one production variable, the emissions intensity test is passed if there is a positive result from comparing the emissions intensity of all production variables between the financial year that is the subject of the application, and the most recent baseline intensity comparison year. The following formula must be used for this purpose (see paragraph 47(1)(b)):

2 Synthetic rutile is a synthetic form of titanium dioxide and is commonly used as a pigment.

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∑ (EIb,p – EIf,p) x Qf,p

p

Where:

EIb,p is the emissions intensity of the production variable (p) in the most recent baseline intensity comparison year (b)

EIf,p is the emissions intensity of the production variable (p) in the financial year the subject of the application (f)

Qf,p is the quantity of the production variable (p) produced in the financial year the subject of the application (f)

If the result of the formula is positive, the emissions intensity test is passed.

The formula accommodates for occurrences when an increase in emissions intensity of some variables is offset by a decrease in emissions intensity of other variables, providing the overall effect of the formula is positive.

Example two – emissions intensity test for multiple production variables

The highest production year of a reported-emissions baseline determination (2013-14) had an emissions intensity of 2 t CO2-e per tonne of synthetic rutile and 1.5 t CO2-e per tonne of titanium dioxide. In 2017-18 the emissions intensity changed to 1.9 t CO2-e per tonne of synthetic rutile and 1.6 t CO2-e of titanium dioxide. If 50,000 tonnes of synthetic rutile and 10,000 tonnes of titanium dioxide were produced in 2017-18, the equation for 2017-18 would be ((2 - 1.9) x 50,000 + (1.5 – 1.6) x 10 000) = 4,000. As this number is positive, the emissions intensity test is satisfied for 2017-18.

2.4 Emissions intensity test for landfill facilities

Landfill facilities that are not covered by a landfill-benchmark baseline determination pass the emissions intensity test if the percentage of landfill gas captured in the financial year for which the variation is sought is higher than in the most recent baseline intensity comparison year. The purpose of this approach is to encourage the capture of an increasing amount of landfill gas as emissions from landfill facilities continue to increase over time, even if the amount of waste deposited does not change.

2.5 Emissions intensity test for benchmark facilities

In the emissions intensity test for benchmark facilities, the emissions intensity of production in the year for which the variation is sought is compared with the relevant benchmark emissions intensity.

Benchmark facilities that have only one production variable will pass the emissions intensity test if the emissions intensity of the production variable, in the financial year for which the variation is sought, is lower than the relevant benchmark emissions intensity from the benchmark emissions-intensity index.

Benchmark facilities that have more than one production variable pass the emissions intensity test if the result of the following formula is positive (see paragraph 47(2)(b)):

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∑ (EIr,p – EIf,p) x Qf,p

p

Where:

EIr,p is the relevant benchmark emissions intensity (r) of the production variable (p)

EIf,p is the emissions intensity of the production variable (p) in the financial year the subject of the application (f)

Qf,p is the quantity of the production variable (p) produced in the financial year the subject of the application (f):

If the result of the formula is positive, the emissions intensity test is passed.

This formula calculates the net difference in emissions in the year for which the variation is sought and the emissions if the facility’s production in this year met the relevant benchmark emissions intensity. The result of the formula cannot be positive if the lower intensity production of one production variable is matched or exceeded by the higher intensity production of another significant production variable on a weighted basis.

2.6 Calculating emissions intensity of a production variable

How the emissions intensity of a production variable is calculated will differ depending on the type of facility and the number of production variables produced by the facility.

2.6.1 Facilities that are not landfill or benchmark facilities

If a facility has only one production variable, the emissions intensity is the covered emissions divided by the quantity of the production variable for the financial year.

If a facility has more than one production variable, the covered emissions must first be apportioned between the production variables. The emissions apportioned to each production variable are then divided by the quantity of that production variable. Emissions must be apportioned consistent with the emissions-intensity calculation criteria (see 2.6.3 emissions intensity calculated criteria), and must be apportioned the same way in the baseline intensity comparison year, the year for which the variation is sought, and in any previous application for a baseline variation that is based on the same production variables. This allows for emissions intensity to be accurately compared.

2.6.2 Benchmark facilities

If a facility is a benchmark facility, the emissions intensity of a production variable is based on the quantity of each production variable in the financial year as measured using the units specified in the benchmark emissions-intensity index, and meeting any measurement requirements or procedures specified in the benchmark emissions-intensity index.

2.6.3 Emissions intensity calculation criteria: apportioning emissions to production variables

If there are two or more production variables, the total covered emissions of the facility must be apportioned between each production variable in accordance with the emissions intensity calculation criteria as set out in section 6 of the Safeguard Rule:

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The calculation of emissions intensity of a greenhouse gas must measure and apportion emissions in a manner that is consistent with the National Greenhouse and Energy Reporting (Measurement) Determination 2008.

The emissions intensity of each production variable must fairly represent the actual emissions attributable to the production variable. For example, covered emissions should not be attributed to a production variable when in fact they could with greater or equal justification be attributed to a different production variable identified in accordance with section 5.

If an emissions source could be attributed to the emissions intensity of two or more production variables, then covered emissions from that source should be apportioned between the variables. As a principle, the sum of the emissions apportioned to each variable in the year to be varied should be no more than five per cent different than the total expected covered emissions from that source during the most recent baseline intensity comparison year. This principle helps prevent the overestimation of emissions by apportioning emissions between different output variables for one mix of output variables and then calculating or estimating emissions for a different mix of the same output variables.

The method used to calculate the emissions intensity of a facility’s production variable should be consistent with the method used in any previous successful variation in relation to that facility. This ensures that the emissions intensity calculation captures actual changes in emissions intensity, rather than changes in the method used to calculate emissions intensity. If a facility’s production variables have changed this may not be practicable, and the facility would not be expected to use the same method as previous variations.

The apportionment of emissions to individual production variables should be free of bias that may lead to an overestimate of emissions to be covered by the baseline determination or variation resulting from changes to the relative mix of production variables. That is, emissions should be apportioned fairly between production variables.

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3 The application process

3.1 Application form and requirements

An application for a baseline variation must be completed by the responsible emitter for the facility, using the form approved by the Clean Energy Regulator.

The application must be signed by the executive officer of the responsible emitter.

The application form can be found on the Clean Energy Regulator website.

Applications must be complete and include all information required by the form, including the information required under section 48, and an audit report that complies with section 49 of the Safeguard Rule. An application that is not complete and has not included all information will be invalid.

Supporting evidence for the information included in an application will need to be retained by the responsible emitter and made available to auditors. The NGER Act requires responsible emitters to keep records of their activities that are relevant to compliance, and allow for accurate reporting for a period of five years after the end of the year in which the activity took place.

3.1.1 Executive officer

An executive officer is defined in the NGER Act as follows:

for a body corporate, a person who holds one of the following positions or an equivalent position:

» Director

» Chief Executive Officer

» Chief Financial Officer

» Company Secretary

for a trust, a trustee of that trust

for a corporation sole, the person that comprises the corporation sole, or

for a body politic or local governing body, a person that holds an office created under the instrument or legislation that establishes the body politic or local governing body.

The executive officer is required to sign the application and make a declaration that, among other things, the information supplied is true and correct.

3.2 Application deadlines

An application can be given to the Clean Energy Regulator no later than the 31 October after the financial year for which the baseline emissions number is to be varied. However, under certain circumstances, the responsible emitter may be able to apply for a baseline variation up to 1 February after the financial year for which the baseline emissions number is to be varied.3 These circumstances are:

3 Section 46 of the Safeguard Rule.

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Where an initial application for a baseline variation is made before 31 October, but the Regulator refuses to vary the baseline and a new application cannot be submitted before 31 October.

If the responsible emitter provides reasons why it was impractical to meet the 31 October deadline, the Regulator may accept an application made no later than 1 February.

Note that if one of the deadlines above falls on a Saturday, Sunday or public holiday in the Australian Capital Territory, then the application can be submitted on the next business day (in accordance with subsection 36(2) of the Acts Interpretation Act 1901).

3.3 Application processing and decision-making

3.3.1 Application receipt and processing timeframes

Upon receipt of an application form, the Clean Energy Regulator will email the responsible emitter acknowledging receipt. The Clean Energy Regulator will then check to ensure the application is a complete application. If the application is not complete, the Clean Energy Regulator may either:

refuse to accept the application and require the application be resubmitted, or

request that the information required to complete the application be provided so that a formal assessment of the application can begin.

If the application is complete (or the additional required information is provided), the Clean Energy Regulator will begin the formal assessment process and take all reasonable steps to ensure a decision is made on an application within 60 days of the complete application being submitted.4

3.3.2 Requests for information

If additional information is required to inform the decision-making process, section 50 provides that the Clean Energy Regulator may, by written notice, request further information in relation to the application. The request for information will specify the period in which the information must be provided. This will typically be 14 days from the date of the notice, unless complex or extensive information is being requested.

If all the requested information is provided, the Clean Energy Regulator will take all reasonable steps to ensure a decision is made on the application within 60 days of the additional information being provided.

In the event that information is not provided within the specified time period, the Clean Energy Regulator may refuse to consider the application, or refuse to take any action or any further action, in relation to the application.5

Note

In requesting information under section 50 of the Safeguard Rule, the Clean Energy Regulator may request information that is additional to the information required under section 48. It will consider this additional information in making a determination..

4 Section 51 of the Safeguard Rule.5 Section 50 of the Safeguard Rule.

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3.3.3 Withdrawal of application

A responsible emitter may withdraw an application at any time before a decision is made on the application.6

3.3.4 Decision to make a baseline variation

If an application has been made in accordance with section 46, the Clean Energy Regulator may make the variation applied for if it is satisfied that:

the audit report accompanying the application contains reasonable (including qualified) assurance conclusions in accordance with section 49

the relevant emissions test is met

the quantities of production variables have been measured in accordance with subsection 48(2) and paragraph 48(3)(a), and

the application complies with the Safeguard Rule in all other respects.7

Publication of a baseline variation

As soon as practicable after varying a baseline determination, the Clean Energy Regulator will provide written notice of the decision to the responsible emitter, and publish details of the baseline variation on its website.8

Request not to publish a baseline variation

Responsible emitters can apply under section 25 of the NGER Act to request that details of the baseline variation not be published.

A request can only be made in relation to information which reveals, or could be capable of revealing:

trade secrets, or

any other matter having a commercial value that would be, or could reasonably be expected to be, destroyed or diminished if the information were disclosed about a specific facility, technology or corporate initiative relating to the corporation or person.

An application form to request information not be published can be found on the Clean Energy Regulator website.

In assessing an application, the Clean Energy Regulator will consider whether the applicant has demonstrated that there are real and substantial grounds to find that publishing the information will (or could reasonably) reveal a trade secret or affect the commercial value of a specific facility, technology or corporate initiative. Grounds that are speculative, hypothetical or theoretical will not be sufficient.

3.3.5 Decision to refuse to make baseline variation

Before making a decision to refuse to make a baseline variation, the Clean Energy Regulator will notify the responsible emitter of its intention and its preliminary reasons, and afford the responsible emitter time to respond. If the Clean Energy Regulator decides to refuse to make a baseline variation, written notice of the decision will be provided to the responsible emitter.

6 Subsection 46(5) of the Safeguard Rule.7 Section 51 of the Safeguard Rule.8 Subsection 51(5) of the Safeguard Rule.

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If the Clean Energy Regulator has refused to make a baseline variation, applied for in a properly made application, subsection 46(6) of the Safeguard Rule provides that a new application may be accepted no later than the 1 February after the 31 October deadline. This provision allows responsible emitters to address the matters that caused the Clean Energy Regulator to refuse to make the baseline variation applied for, within the general application window.

3.3.6 Review rights

The Clean Energy Regulator will notify the responsible emitter of their review rights when making a decision.

Internal decision review is not specifically required, but is available. Please see http://www.cleanenergyregulator.gov.au/About/Internal-Review-of-Decisions.

A person whose interests are affected by a decision of the Clean Energy Regulator to make or refuse to make a baseline variation and who is not satisfied with the decision, may also apply to the Administrative Appeals Tribunal for review of the decision (see section 56 of the NGER Act).

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