Emissions Reduction Fund:Safeguard mechanismEmissions Intensity Benchmark GuidelinesApril 2016

DRAFT

Disclaimer

While reasonable efforts have been made to ensure that the contents of this publication are factually correct, the Commonwealth does not accept responsibility for the accuracy or completeness of the contents, and shall not be liable for any loss or damage that may be occasioned directly or indirectly through the use of, or reliance on, the contents of this publication.

© Copyright Commonwealth of Australia, 2016.

The Emissions Reduction Fund Safeguard Mechanism Emissions Intensity Benchmark Guidelines is licensed by the Commonwealth of Australia for use under a Creative Commons By Attribution 3.0 Australia licence with the exception of the Coat of Arms of the Commonwealth of Australia, the logo of the agency responsible for publishing the report, content supplied by third parties, and any images depicting people. For licence conditions see: http://creativecommons.org/licenses/by/3.0/au/

This report should be attributed as ‘Emissions Reduction Fund Safeguard Mechanism Emissions Intensity Benchmark Guidelines, Commonwealth of Australia 2016’.

The Commonwealth of Australia has made all reasonable efforts to identify content supplied by third parties using the following format ‘© Copyright, [name of third party] ’.

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Making a submission

The Government invites written submissions on the draft Emissions Reduction Fund Safeguard Mechanism Emissions Intensity Benchmark Guidelines (the draft benchmark guidelines) from all interested businesses and members of the community.

Submissions are due by 5pm AEST, Friday, 6 May 2016. Any submissions received after this date will be considered at the Government’s discretion.

Submission instructions

Where possible, submissions should be sent electronically, preferably in Microsoft Word or other text-based formats, to the email address listed below. Alternatively, submissions may be sent to the postal address below to arrive by 5pm AEST on 6 May 2016.

All submissions must include a cover sheet, available at www.environment.gov.au.

Submissions can be forwarded to:

Email: emissions-reduction-submissions@environment.gov.au (preferred)

Postal: Emissions Reduction Fund submissionsPolicy Frameworks BranchDepartment of the EnvironmentGPO Box 787CANBERRA ACT 2601

For further information, or to request a hard copy of the draft benchmark guidelines, please call 1800 852 974.

Confidentiality statement

All submissions will be treated as public documents, unless the author of the submission clearly indicates the contrary by marking all or part of the submission as ‘confidential.’

Public submissions, including any personal information of the author(s) and/or other third parties contained in the submission, may be published in full on the Department’s website.

If a submission contains the personal information of any third party individuals, please indicate in the submission whether they have provided consent to the publication of their information.

Any request made under the Freedom of Information Act 1982 for access to a submission marked confidential will be determined in accordance with that Act.

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CONTENTS1 Introduction..........................................................................................................................1

1.1 How to read these guidelines.......................................................................................2

2 Policy context.......................................................................................................................2

2.1 Definition of leading practice.........................................................................................2

2.2 Application of emissions intensity benchmarks............................................................3

2.3 Landfills.........................................................................................................................4

2.4 Electricity.......................................................................................................................4

3 Objective..............................................................................................................................5

4 Principles..............................................................................................................................5

5 Administrative process to be followed..................................................................................7

5.1 Overview of developing a benchmark...........................................................................8

5.2 Governance, roles and responsibilities.........................................................................9

6 Determining production variables and benchmarks...........................................................10

6.1 Selecting production variables....................................................................................11

6.2 Selecting data for emissions intensity benchmark calculations..................................19

6.3 Calculating the emissions intensity benchmark..........................................................21

7 Updating benchmarks........................................................................................................25

7.1 Changes to a benchmark value..................................................................................25

7.2 Changes to a production variable...............................................................................27

7.3 Changes to global warming potential values..............................................................28

8 Publication of information...................................................................................................28

8.1 Public disclosure of dataset details.............................................................................28

8.2 Minimum information to be published in the safeguard rule.......................................29

9 Definitions..........................................................................................................................30

1 INTRODUCTION

The Australian Government’s Emissions Reduction Fund implements a long-term framework for stable and sustainable climate change policy. It has three elements: crediting, purchasing and safeguarding emissions reductions (Figure 1). Implementation of the crediting and purchasing components is underway, with the first two auctions to purchase abatement completed in April and November 2015.

The safeguard mechanism ensures emissions reductions purchased by the Government are not offset by significant increases in emissions above business-as-usual levels elsewhere in the economy.

Figure 1 Emissions Reduction Fund components

The safeguard mechanism is established through the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 (the safeguard rule). It applies to facilities whose annual covered emissions (see section 9 – definitions) are more than 100,000 tonnes carbon dioxide equivalence (t CO2-e), and assigns each facility an emissions baseline that the facility must not exceed in net terms.

Further details on the safeguard mechanism can be found on the Department of the Environment’s website (www.environment.gov.au) and in the safeguard rule.

Under the safeguard mechanism, facilities that commence operation or significantly1 increase productive capacity after 1 July 2020 are able to apply for a new or updated emissions baseline that reflects leading practice in emissions intensity of production in their sector. Leading practice is reflected in the form of emissions intensity benchmarks (see section 9 – definitions).

Draft emissions intensity benchmarks will be developed by the Department of the Environment, informed by industry and community views. The Minister for the Environment will make final emissions intensity benchmarks by amending the safeguard rule to include the benchmarks.

The purpose of these guidelines is to set out the processes and considerations that will apply when a benchmark is made, and how and when it will be reviewed.

1.1 How to read these guidelines

The benchmark guidelines have formatting features to assist with understanding its content:

1 A significant expansion is defined in the safeguard rule and includes increasing the maximum productive capacity of a facility by more than 20 per cent or beginning production of a new product.

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Specific meanings are highlighted with bold italicised text the first time they appear and defined in section 9.

Shaded italicised text denotes guidance for determining benchmarks.

Boxed text contains background information and examples.

2 POLICY CONTEXT

The legislative framework for the safeguard mechanism has been established, as summarised in Table 1. The legislative framework reflects the Government’s policy decision with respect to benchmarks.

The benchmark guidelines are not a part of the legislative framework. This is a non-legislative document that supports the safeguard rule by setting a consistent approach for determining emissions intensity benchmarks.

Table 1 Summary of legislative context

Primary legislationThe National Greenhouse and Energy Reporting Act 2007 (NGER Act) establishes the safeguard mechanism, commencing 1 July 2016

Safeguard ruleThe National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 establishes the operational elements of the safeguard mechanism, such as the kind of facilities that have an obligation and how their baseline determination is made.

Other subordinate instruments:

NGER Regulations

NGER (Audit) Determination

The National Greenhouse and Energy Reporting Regulations 2008 and the National Greenhouse and Energy Reporting (Audit) Determination 2009 support the safeguard mechanism.

The Clean Energy Regulator (the Regulator) is responsible for administering the safeguard mechanism. The Clean Energy Regulator does not have a role in selecting a production variable or determining the benchmark value.

2.1 Definition of leading practice

Benchmarks will represent leading practice with respect to emissions intensity in each sector. Consistent with the Emissions Reduction Fund White Paper released in April 2014, leading practice will be defined as the weighted average emissions intensity of the best-performing (that is, least emissions-intensive) 10 per cent of Australian industry production2.

It should be noted that the benchmarks only consider emissions intensity. While many Australian businesses strive to implement leading practices in all aspects of their operations, these practices do not always relate to emissions intensity. The Government has designed the safeguard mechanism to be neutral to individual business’ practices, recognising that businesses are best placed to make decisions about their individual operations.

2 The average emissions intensity is weighted by the amount of production that each of the best-performing facilities contributes to the 10 per cent of Australian industry production.

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2.2 Application of emissions intensity benchmarks

Under the safeguard rule, existing large facilities are subject to baselines from 1 July 2016. A baseline is an absolute amount of emissions that a facility may not exceed in net terms, expressed in tonnes of carbon dioxide equivalence. A baseline is set out in a baseline determination made by the Regulator. Where no determination is made, a default baseline of 100,000 t CO2-e applies. Pre-2020 baselines are generally calculated using the facilities’ historical emissions, not benchmarks.

For new or significantly expanded facilities that exceeds (or expects to exceed) the safeguard coverage threshold of 100,000 t CO2-e after 1 July 2020, the Regulator will apply an emissions intensity benchmark to make the facility’s baseline determination.

The first baseline made for a facility using the emissions intensity benchmark is calculated on the basis of forecasted production and is set out in a benchmark-emissions baseline determination. It expires three years after it comes into effect for new facilities, and five years after it comes into effect for large new facilities3 (see section 39 of the safeguard rule).

After a benchmark-emissions baseline determination expires, if an application is made, the Regulator may make a production-adjusted baseline determination (see Subdivision 5 of Division 2 of Part 3 of the safeguard rule). The production-adjusted baseline is made using actual production data in place of the forecasted data used for the benchmark-emissions baseline. If the benchmark has been updated in the time since the benchmark-emissions baseline was made, then the updated benchmark is used. Once made, a production-adjusted baseline does not change, regardless of whether there are subsequent updates to the benchmark.

If an existing facility undertakes a significant expansion after 1 July 2020, the baseline for the expansion will be calculated using a benchmark. Examples of a significant expansion are expanding the productive capacity of a facility by more than 20 per cent or beginning to make a new product.

Subdivision 4 of Division 2 of Part 3 of the safeguard rule sets out the facilities eligible for a new baseline determination based on benchmarks.

Box 1 describes how a benchmark-emissions baseline determination is made under the safeguard rule.

3 The safeguard rule defines a large new facility as one that meets the criteria for new facilities (s39), is likely to emit more than two million tonnes of CO2-e over a five year period and is not a grid-connected electricity generator. An existing facility that significantly expands cannot meet the definition of a large new facility.

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Box 1 How is a benchmark-emissions baseline calculated?

Under the benchmark approach for setting a baseline in the safeguard rule, a facility’s baseline equals the aggregate of the baselines for each relevant production variable at the facility. The baseline for each production variable is calculated as:

Benchmark-emissions baseline for each relevant

production variable=

Emissions intensity benchmark for

production variablex

Estimated level of production

For a new facility, the benchmark-emissions baseline will be calculated using the highest annual expected production relevant to the production variable over the first three or five years of operation. After three or five years, baselines will expire and the Regulator upon receiving an application may permanently adjust baselines to reflect the highest actual annual production over that period (referred to as a production-adjusted baseline determination in the safeguard rule).

For a significant expansion, the benchmark-emissions baseline is the sum of its existing baseline and an additional allowance to account for the increased production resulting from the significant expansion. The additional allowance is worked out in the same way as the benchmark-emissions baseline for new facilities, except the estimated level of production is limited to the additional production that results from the significant expansion.

2.3 Landfills

Landfills do not produce an output in the way other facilities do. Even if the amount of waste deposited does not change from year to year, the amount of emissions produced by a landfill can increase over time. The Government has determined the benchmark for landfills will be set using the landfill gas capture rate. They are covered by a landfill-benchmark baseline determination as outlined under Subdivision 7 of Division 2 of Part 3 of the safeguard rule. Because the metric for the benchmark is already decided, the benchmark calculation is not subject to all aspects of the development process established in these guidelines.

2.4 Electricity

A sector-wide baseline of 198 million t CO2-e will apply to the electricity generators connected to any of the five grids listed in the safeguard rule. If this baseline is exceeded, individual baselines will come into effect for each electricity generator with emissions above 100,000 t CO2-e. Most electricity generators will have sufficient historical data for a reported-emissions baseline determination (the safeguard rule sets out how this type of baseline is made). The Regulator makes these kinds of individual baseline determinations without requiring an application from the facility.

These guidelines will be used to develop an emissions intensity benchmark applicable only to new electricity generators who first exceed the 100,000 t CO2-e after 1 July 2020, or an existing generator who has a significant expansion and is eligible for a baseline adjustment after 1 July 2020. Individual baselines for these facilities will not come into effect while the sector-wide baseline is in place (that is, while the annual covered emissions of the electricity generators connected to any of the five grids listed in the safeguard rule remains below 198 million t CO2-e).

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3 OBJECTIVE

Australia will meet its climate change targets through policies that reduce emissions, increase productivity and improve the health of the environment. At the core of these policies are the Emissions Reduction Fund and Safeguard Mechanism (including the emissions intensity benchmarks).

The objective of the emissions intensity benchmarks is to support improvement of the net emissions intensity of Australian industry.

4 PRINCIPLES

A set of principles will guide decisions made during the process of establishing benchmarks, including selecting production variables and data to calculate benchmarks. A summary of the principles is shown in Figure 2.

Figure 2 Summary of benchmark principles

Principle 1: Create incentives for investment in low-emissions production

To help achieve the objective and play their part in helping Australia meet its emissions reduction targets, benchmarks will need to send a clear signal to businesses to consider emissions intensity when making commercial decisions. This helps avoid the risk that facilities or new equipment with relatively high emissions intensity are locked in for the long term.

A business considering competing production options should be able to easily compare each option’s emissions intensity in order to factor it into the investment decision. This means production variable definitions should be readily understood and benchmarks should not discount or exclude factors that contribute to emissions.

To implement this principle, benchmark emissions intensities will represent leading practice and production variable definitions will aim to align with either market or commonly used industry definitions.

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Principle 2: Focus on outcomes

Rather than mandate the use of particular technologies, production practices or inputs, the Government’s policy is to set a benchmark for emissions efficiency of sectors, and leave businesses to make their own decisions about how best to meet it. The Government’s policy is that benchmarks will represent the average of the best-performing 10 per cent of Australian production.

Allowing special cases or exclusions will compromise the ability of a benchmark to incentivise emissions efficient investment.

The design of the safeguard mechanism recognises businesses may make choices that do not meet the benchmark so long as offsets are obtained to ensure a facility’s net emissions do not exceed its baseline. More information about obtaining and surrendering eligible offsets can be found in section 22XK and 22XN of the NGER Act.

To implement this principle, benchmarks will be developed to be neutral to technology, location, geography, production practices and inputs. Precedents or exclusions that make it more difficult to meet the principles for future benchmarks will be avoided.

Principle 3: Use a consistent approach to develop benchmarks and select production variables

While the Government wishes to make benchmarks that apply equally to industry peers, not altering the benchmark for individual facility circumstances (Principles 1 and 2), it is important to note many facilities covered by benchmarks will be complex operations. Some facilities will produce a single product, others will have multiple products. Something that is an intermediate product at one facility may be an output at another facility. A single facility may produce different grades of output that attract different prices, but have the same covered emissions intensity. Some facilities generate their own electricity; others buy it from the grid.

A consistent approach will be used so a production variable can apply to as many facilities in a sector as possible. Benchmarks will also apply to significant expansions of existing facilities, which over time will help level the playing field between market incumbents and new entrants.

To implement this principle, production variables will generally be based on outputs. Production variables may be defined using inputs or intermediate products where it is not possible to benchmark multiple outputs or if this enables a benchmark to apply to more facilities within an industrial sector. Production variables will cater for how businesses naturally structure their operations. Aspects of production that do not produce direct (scope 1) emissions will not be included. Production variable definitions will be equally applicable to new facilities and expansions of existing facilities.

Principle 4: Avoid perverse incentives and minimise red tape

The Government remains committed to reducing the burden of red tape for business. The objective will not be achieved if the production variable definitions and benchmarks incentivise businesses to restructure themselves to avoid liability. In addition, such restructuring is likely to be economically inefficient, meaning the benchmark would act as a drag on economic growth. This can be avoided by making sure production variables are defined to adequately account for the scope of a facility’s operations. At the same time, the number of benchmarks should be

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minimised because allocating emissions to numerous products within the one facility will make compliance burdensome.

To implement this principle, benchmarks are able to cover multiple industries if these industries use largely similar production processes. A single benchmark may cover multiple products if they are produced by a single process. Production variable definitions will not overlap. Separate benchmarks will not be created to reflect different internal company or business structures.

Principle 5: Base on the best possible data

To ensure the benchmarks reflect achievable and realistic emissions intensity of production, they will be developed using data from facilities operating in Australia. Production data and emissions data will both be required. Similarly, it is important to ensure that data from operating facilities is representative of typical operating conditions. The best source of production and emissions data is collected under the National Greenhouse and Energy Reporting Scheme (NGERS). Due to commercial confidentiality, some data from NGERS cannot be publicly released. There are also some sectors where production data is not reported under NGERS. For these, a different source of production data will be required.

To implement this principle, benchmarks will be calculated using datasets that meet criteria (see section 6.2). Benchmarks may be calculated using data supplied by industry or other third parties where this data meets the criteria in section 6.2.1. Facility-level data used to calculate benchmarks will not be published. Information will be published about the process used to gather and filter data, the sources, and the approach taken to calculation (see section 8).

Principle 6: Focus on continuous improvement

Technology continues to improve, and many industries are likely to continue the historical trend of becoming more efficient and less emissions-intensive over time. To achieve the Government’s intent that the benchmark represents the best-performing 10 per cent of Australian production, it will be necessary to adjust the benchmark from time to time. It is important that this is done in a way that promotes certainty for business.

To implement this principle, the guidelines establish conditions under which a benchmark’s value may be adjusted (see section 7) and when these new benchmark values will come into effect.

5 ADMINISTRATIVE PROCESS TO BE FOLLOWED

This section provides an overview of the administrative steps for developing emissions intensity benchmarks. Section 6 details how to determine production variables and calculate benchmarks. Section 7 details how benchmarks will be updated.

Benchmarks will be developed by the Department informed by the views of industry and other interested parties. For each sector needing a benchmark, the Department will establish a technical working group (see section 5.2.2). The technical working group’s role will be to assist the Department in determining the appropriate production variable and the associated emissions intensity benchmark.

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Benchmarks will be independently reviewed before recommendations are made to the Minister. Each benchmark (or set of benchmarks) for a sector will undergo an independent technical assessment, which will check the underlying data and process for errors. An Independent Committee (see section 5.2.3) will be established to scrutinise the process followed for each benchmark and provide assurance to the Minister that the Department has followed these guidelines and exercised reasonable judgement in recommending a benchmark. A summary of independent scrutiny of the benchmarking process is shown in .

Figure 3 Consultative aspects of the benchmark process

(note: TWG = technical working group)

5.1 Overview of developing a benchmark

The steps for developing a benchmark are:

1. The Department establishes the technical working group for the relevant sector.

2. The Department draws technical expertise from the technical working group to define the production variable.

a. In parallel, the Department begins identifying the data available for the emissions intensity benchmark and conducting preliminary analysis. The independent technical assessment may begin at this stage if required.

3. The Independent Committee considers the proposed production variable.

4. Public consultation on production variable.

a. In parallel, an independent technical assessment of the proposed production variable and the preliminary analysis for the benchmark will be carried out.

5. Production variable updated to incorporate public feedback and outcomes of the independent technical assessment. Emissions intensity benchmark calculation finalised for production variable.

a. If a reserve approach4 was used to determine the emissions intensity benchmark, the technical working group will be consulted during this stage.

4 The standard and reserve approaches for calculating benchmarks are set out in section 6.3.8

6. Independent technical assessment finalised for the production variable and benchmark.

7. Targeted consultation on the emissions intensity benchmark (affected parties only).

8. The Independent Committee considers the proposed production variable and benchmark, technical assessor’s report and Department’s response to feedback received in consultation, and makes an assessment of the proposed production variable and benchmark against the principles and process set out in the guidelines.

9. The Department provides the draft safeguard amendment rule, and the Independent Committee provides its assessment, to the Minister.

10. The Minister considers the Independent Committee’s assessment and makes decision on the draft safeguard amendment rule.

5.2 Governance, roles and responsibilities

5.2.1 The Department of the Environment

The Department will be responsible for:

identifying potential members for technical working groups and inviting their participation

developing technical papers for consideration by the technical working group

identifying and compiling the data for calculating the benchmark

drafting the terms of reference for the reserve approach, if required

managing contracts for technical assessments

preparing materials for consideration by the Independent Committee

drafting safeguard amendment rule for the Minister’s approval

managing the consultation process.

5.2.2 Technical working group

The technical working group will be expected to:

contribute technical expertise to assist the Department with the identification of production variables

assist the Department to identify relevant industry data where it is required to establish benchmarks

assist the Department draft the terms of reference for the reserve approach, if required.

Membership of the technical working group will be drawn from industry, academia, and government. Members will be chosen for their technical expertise.

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5.2.3 The Independent Committee

The Independent Committee will:

consider the proposed production variable before it is released for public consultation

consider the (amended) production variable and proposed benchmark after public consultation and technical assessment, and assess whether:

o the production variable and emissions intensity benchmark have been determined in accordance with the process and administrative framework set out in section 5, and (for updated benchmarks) section 7 of these guidelines

o the Department has made reasonable judgments in all matters of substance with respect to determining the production variable and emissions intensity benchmark in accordance with section 6

o The Department has appropriately balanced and given effect to the principles set out in section 4 of these guidelines

notify the Minister of outcomes of assessment

carry out any other duties commissioned by the Minister through the Independent Committee’s Terms of Reference.

Membership of the Independent Committee will be determined by the Minister, and will include a balance of in-depth industry knowledge, experience across industries, and experience in emissions reduction policy and regulation.

6 DETERMINING PRODUCTION VARIABLES AND BENCHMARKS

This section sets out the approach the Government will follow to determine an emissions intensity benchmark for a sector that is likely to have either new facilities or expanded existing facilities.

It sets out the technical approach for determining a production variable and calculating the benchmark. Due to the diversity of sectors that may require a benchmark, section 6 is presented at a high level – this ensures a consistent approach between and across sectors.

There may be instances where the approach requires adjustment to accommodate a sector’s specific issues or to ensure the approach gives effect to the principles. Any adjustments will be independently reviewed.

The approach for determining production variables and calculating the emissions intensity benchmark is outlined in Figure 4.

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Figure 4 Simplified overview of the benchmark process

6.1 Selecting production variables

The principles will inform the selection process of production variables. Production variables must also be measureable and there should be historical emissions and production records to enable the benchmark to be calculated. The term production variable is important to this section and defined in the safeguard rule, as explained in Box 2.

There are four steps to selecting the production variable:

• Step 1 – Describing the different facility types relevant for working out the benchmark(s) for a defined sector.

• Step 2 – Identifying the potential production variables at each of the described facility types.

• Step 3 – Assessing which of the potential production variables identified in Step 2 are the most suitable.

• Step 4 – Describing the characteristics of the production variables selected in Step 3 so it is universally understood and applicable to determining a benchmark-emissions baseline.

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These steps are completed in consultation with the technical working groups, whose role is set out in section 5.

Box 2 What is a production variable?

For benchmarks, the safeguard rule defines production variable as:

“A metric related to production at a facility that is applicable to thefacility in accordance with any requirements set out in the

Benchmark Emissions-Intensity Index.”

The Benchmark Emissions-Intensity Index is set out in a schedule to the safeguard rule. It will contain all of the benchmarks which can then be applied to a facility’s benchmark-emissions baseline.

In other words, the production variable is the metric for the benchmark, meaning each benchmark is expressed in tonnes of carbon dioxide equivalence per unit of production variable.

To ensure a consistent approach across sectors, and a common understanding of how to follow the guidance in section 6, potential production variables are limited to inputs, intermediate products, final outputs, or for transport facilities only, service units.

A facility’s final output is the obvious choice as a production variable; however, sometimes an input or intermediate product may be a better choice, such as for a complex facility type with multiple outputs. Services, rather than physical products, may also be a better descriptor of a facility’s output – this is why service units are also potential production variables for transport facilities.

6.1.1 Step 1—Define the sector and describe the facility type(s) relevant for benchmarking

This step identifies the facility types within a sector that are expected to require a benchmark. A facility is defined by how its emissions are reported under NGERS by the facility operator. A sector groups together industry peers that operate in the same segment of the economy. Within a sector multiple facility types may exist, producing the same, similar or different products.

The aim of identifying facility types is, as far as is practicable, to determine benchmarks that apply equally to all facilities within a sector. A facility type consists of one or more processes that are conducted at an NGERS facility.

Processes included in a facility type must result in covered emissions. Processes are broad descriptions, not necessarily aligned with the definition of activities under NGERS, but rather based on the Australian and New Zealand Standard Industrial Classification (ANZSIC) group and class codes or the activity definitions used under the Renewable Energy Target (these definitions are listed under Schedule 6 of the Renewable Energy (Electricity) Regulations 2001). Process descriptions will be neutral to technology. Box 3 shows an example of the difference between a sector, facility types and processes.

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There are more likely to be multiple facility types in a sector where businesses conduct more than one process. Businesses may have flexibility to report separate processes together as a single facility or separately as a number of facilities under NGERS.

Box 3 Difference between sector, facility type and process

The sector in this example is ‘Widget Manufacturing’, meaning it groups together facilities associated with manufacturing widgets. Two facility types are identified as applicable to the benchmark process based on the businesses likely to need a benchmark-emissions baseline. The processes that describe the facility types are ‘widget material extraction’ and ‘widget processing’.

Facility type one: conducts one process: ‘widget material extraction’

Widget material

extractionFacility Boundary

Facility type two: conducts two processes: ‘widget material extraction’ and ‘widget processing’

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The identification of facility type(s) will take into account:

the processes undertaken at the facility type

expected facility type for the businesses that are likely to need a benchmark-emissions baseline, considering the way covered emissions are reported under NGERS for existing businesses in the sector

where there is more than one possible facility type, distinguishing the types based on the processes they include (see Box 3 below).

6.1.2 Step 2—Identifying potential production variables

In this step, potential production variables are identified for each facility type identified in section 6.1.1.

To maintain consistency across sectors (Principle 3), potential production variables will be classified in a standard, replicable way. They can be an input, intermediate product, final output, or for a transport facility only, service unit.

The covered emissions caused by the processes identified in Step 1 should be attributable to potential production variables. By-products and waste products do not provide a good indication of the emissions intensity of production and are not potential production variables.

If there is a benchmark included in the safeguard rule applicable to one or more of the facility types identified in Step 1, then the production variable for this benchmark does not need to be identified as a potential production variable in Step 2. For example, if there is a benchmark for the production variable ‘electricity’ and it is applicable to any facility type generating electricity, then the benchmark should be used whenever electricity generation occurs.

Potential production variables will be identified for each facility type in a way that aims to align with market or commonly used industry definitions.

Potential production variables cannot be:

by-products

waste products

inputs that are not an essential component of a process

intermediate products that are not the end result of a process

inputs that are fossil fuels primarily combusted

of incidental quantity, for example, the amount used is likely to be less than five per cent of the quantity of the primary input.

It is possible a number of potential production variables will be identified. These should be grouped under the conditions described in the following shaded text. Grouping gives effect to Principle 1 - create incentives for investment in low-emissions production - and avoids the need for arbitrarily apportioning emissions between multiple products.

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As an example, for a facility producing different grades of metal from the same metal ore, tonnes of metal ore may be a useful way to group the products.

6.1.3 Step 3—Selecting the production variable

If Step 1 identified multiple facility types, then to give effect to Principles 1 to 4, where possible the choice of production variable should be common across facility types. An example of the selection process is shown in Box 4.

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Potential production variables for a facility type will be grouped together if they are of the same type – final output, intermediate product, input or service unit – and one of the following applies:

they are used or produced for the same or similar reason (e.g. the production variables may have the same end use)

they are used, produced or exist in a fixed proportion to one another

they are produced (or for service units - provided) using the same or similar technology and process.

Grouped potential production variables should be defined consistently across facility types.

The result of the grouping should be a measurable potential production variable.

The result of the grouping may be of a different type than the potential production variables grouped, as long as it is representative. For example, the input to the common process that produced the grouped potential production variables may be appropriate.

Sufficient production variables should be identified to adequately represent the emissions from processes that cause most of the covered emissions at a facility. Production variables should be identified to represent at least 95 per cent of the covered emissions which are expected to be produced at a leading practice facility. This is so that a benchmark-emissions baseline can be determined for a facility that addresses the processes it conducts.

Production data availability and the difficulty of apportioning emissions between multiple production variables may mean some potential production variables are unsuitable.

If no production variable is identified, then the ‘no-production variable approach’ should be used (see section 6.3.3).

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Production variables for facility types will be selected in the following order of preference:

1. the potential production variables that are common across facility types

o the primary final output where there is only one facility type

o common potential production variables are the result of a process existing in more than one facility type

o it is preferable for a facility type with several processes to attribute the covered emissions from each process to a production variable rather than attributing all covered emissions to its primary final output, if this means there are production variables common across facility types

2. facility types’ final outputs

o final outputs are preferenced when it is necessary to avoid disaggregation of emissions between processes, or within a process, where apportionment is not possible

3. facility types’ inputs and intermediate products

o despite the preference for benchmarking on final outputs, if emissions cannot be apportioned to multiple final outputs, then the selection of other potential production variables should be considered.

Preference should also be given to selecting production variables for which sufficient production records are available.

Approaches for assessing whether production variables represent at least 95 per cent (or less than five per cent) of a facility type’s covered emissions are:

reviewing the methods for reporting covered emissions under NGERS

analysing NGERS data

seeking industry knowledge and manufacturers’ specifications relevant to assessing the covered emissions resulting from an activity

assuming, where reasonable, that the processes are undertaken by a leading practice facility.

6.1.4 Step 4 – Describing the characteristics of the production variable

The characteristics of the production variables selected in Step 3 will be the basis for a description of the benchmark in the safeguard rule. Section 8.2 of these guidelines details the minimum information that will be included in the safeguard rule about each benchmark.

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Sufficient production variables will be identified so that:

the covered emissions attributed to the production variables together account for at least 95 per cent of covered emissions at the facility type

there is no overlap in the covered emissions accounted for by other production variables

the production variables do not include a material amount of covered emissions from processes that are not part of the facility type.

Provided that the above is satisfied, other potential production variables (for example inputs or final outputs) do not have to be defined as a production variable if, when separated, they account for less than five per cent of the facility type’s covered emissions on their own.

The description of each production variable should clearly identify:

the facility types and sectors eligible to use the production variable to work out a benchmark-emissions baseline

the processes and transformations causing covered emissions attributable to the production variable

the units for quantifying the production variable and any measurement and monitoring requirements

any interactions with the definitions of other production variables.

Box 4 Example – Selecting production variables

Facility type one: conducts one process: ‘widget material extraction’

Widget material

extractionFacility Boundary

Facility type two: conducts two processes: ‘widget material extraction’ and ‘widget processing’

The production variables selected for these facility types would preferably be:

‘widget material’ representing the emissions from the widget material extraction process

‘widgets’ representing the emissions from only the widget processing process and not widget material extraction.

The baselines for the facilities would be worked out using these benchmarks:

Facility type one – ‘widget material’ benchmark

Facility type two – ‘widget material’ benchmark and ‘widgets’ benchmark

If it was not possible to disaggregate the emissions for facility type two between the processes ‘widget material extraction’ and ‘widget processing’ (such as by analysing the data for existing facilities reporting to NGERS), then the production variables selected would be:

‘widget material’ representing the emissions from the widget material extraction process

‘widgets’ representing the emissions from both the widget material extraction and widget processing processes

In that case, the baselines for the facilities would be worked out using these benchmarks:

Facility type one – ‘widget material’ benchmark

Facility type two – ‘widgets’ benchmark

The first set of production variables is preferred because the ‘widget material’ benchmark is applicable to both facility types.

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Input = fuel

Final output = widget material

Input = fuel

Intermediate product = widget material

Final output = widgets

6.2 Selecting data for emissions intensity benchmark calculations

Production and emissions data are needed to calculate the leading practice emissions intensity for a production variable.

The data selection process gives effect to Principle 5 – base on the best possible data by ensuring the dataset used to calculate a benchmark contains sufficient quality data so a calculation can be made with reasonable confidence.

6.2.1 Data collection

Both production data and emissions data are required to calculate a benchmark. Only data from the three most recent years that data is available will be included in the dataset.

Potential sources of production data may include:

data collected by the Regulator third party databases state and territory government data (such as information collected for royalty and

taxation systems) research organisations public sources of information (such as company annual reports) information provided by industry.

Emissions data is available to the Department from NGERS.

If there is no production or emissions data available for a benchmark, for example where a production variable is required for a facility that is ‘first-of-a-kind’, then the benchmark is calculated using the ‘reserve approach’ rather than the standard approach (see section 6.3.2).

6.2.2 Data assessment

The data assessment process confirms the quality of the data in the dataset and its suitability for calculating the benchmark.

Data assessment may result in some data being excluded if it is inaccurate or unsuitable, or being adjusted so that it is suitable. For example, some facilities in a sector use on-site electricity generation; the direct emissions from electricity generation at these facilities might

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The benchmark dataset will comprise covered emissions data and production data for the three most recent years that data is available (meaning up to three records from any one facility may be present in the dataset). Data in the benchmarking dataset should meet the following specifications:

emissions data is data reported under NGERS

production data is:

o facility level or aggregated facility level

o representative of saleable quality (where relevant)

o actual records or historical estimates, not earlier forecasts or projections.

be adjusted to exclude these emissions from the benchmark being calculated. Checking data suitability is particularly important for the leading practice records.

Given the potential challenge of obtaining emissions and production data for some sectors, the Department will exercise judgment on the quality of production data and whether it should be used. The justifications will be documented for review by the independent technical assessment and the Independent Committee (see section 5).

6.2.3 Sufficient data check

The sufficient data check determines whether there is sufficient data for the Department to proceed with calculating a benchmark representative of leading industry practice.

The dataset will be used to calculate the benchmark using the standard approach (section 6.3.1) if it contains either:

a minimum of three different facilities; or

two different facilities, and the Department is confident that at least one of the facilities is representative of leading practice.

If there is insufficient data, then the benchmark will be calculated using the reserve approach (see section 6.3.2).

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Data in the dataset will be assessed as follows:

Ensuring records of facilities are relevant for the benchmark calculation.

Adjusting the emissions reported by a facility, for example by removing (where possible) the emissions not represented by the production variable.

Confirming the suitability of production data not reported under NGERS, checking:

o data matches the facility definition used for emissions reporting under NGERS, or can be adjusted so that it is suitable

o the time basis for production data is consistent within the dataset and matches emissions data, or is adjusted so that it does match (e.g. calendar year or quarterly figures)

o units of measurement are known, consistent and meet the measurability requirement for production variables, or can be adjusted so that its units do meet this requirement.

Confirming for the leading practice records:

o the facility boundary is appropriate for calculating the benchmark and consistent for the production and corresponding emissions data

o it represents normal operating conditions.

Adjusting for changes to the global warming potential values of greenhouse gases, if necessary.

6.3 Calculating the emissions intensity benchmark

The standard approach to calculating emissions intensity benchmarks gives effect to Principle 3 – use a consistent approach. A reserve approach may be used, but is only expected to apply where the number of existing facilities is limited or insufficient production data exists. If a production variable cannot be determined for a facility type, then the ‘no-production variable benchmark approach’ can be used, outlined in section 6.3.3. The criteria for selecting a benchmark approach are shown in Figure 5.

Figure 5 Criteria for selecting benchmark approach

6.3.1 Standard approach

Calculations using the standard approach are carried out by the Department. The dataset for the production variable is comprised of covered emissions data and production data for the three most recent years that data is available (how this data set is comprised is set out in section 6.2.1). The standard approach identifies the records in the dataset that represent leading practice, meaning they have the lowest emissions intensity making up 10 per cent of the overall production represented in the dataset. The benchmark is the weighted average emissions intensity of these leading practice records. An example dataset is shown in Box 5.

The benchmark will be determined using the dataset for the production variable by:

calculating the emissions intensity of each record in the dataset by dividing covered emissions by the quantity of the production variable

ranking the records in the dataset from lowest to highest emissions intensity selecting the leading practice facility records starting with the record that has the lowest

emissions intensity and selecting the next lowest, until these records make up 10 per cent of total production represented in the dataset

calculating the emissions intensity of the leading practice facility records, weighted by the proportion of production that the record represents within the top 10 per cent:

Benchmark=∑ of each leading practicerecord ' s emissionsintensity

multiplied by proportionof production∈top10 per cent

the dataset used to calculate the benchmark will be retained until the relevant part of the safeguard rule expires.

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Box 5 Example – Benchmark dataset

Record Facility Year Emissions intensity (tonnes CO2-e/cubic

metre)

Production (cubic metres)

Total productio

n (%)

Cumulative production

(%)

Production contribution to

top 10% (%)

1 A 2014-15 0.53 328,365 3 3 30%

2 A 2013-14 0.54 501,988 5 8 50%

3 B 2014-15 0.59 976,703 9 18 20%

4 B 2013-14 0.59 561,204 5 23

5 A 2012-13 0.63 714,315 7 30

6 C 2014-15 0.64 794,611 8 38

7 B 2012-13 0.68 658,444 6 44

8 C 2012-13 0.76 764,154 7 51

9 D 2014-15 0.78 504,914 5 56

10 E 2013-14 0.79 582,407 6 62

11 C 2013-14 0.8 919,315 9 71

12 D 2012-13 0.81 550,551 5 76

13 D 2013-14 0.83 964,866 9 86

14 E 2012-13 0.94 632,351 6 92

15 E 2014-15 0.94 844,964 8 100

Records highlighted in blue are the leading practice records and are used for the benchmark calculation. Note that record number three contributes only 20 per cent of the top 10 per cent of total production even though it represents nine per cent of total production.

The calculation of the benchmark is:

Benchmark = (0.53 x 30%) + (0.54 x 50%) +(0.59 x 20%)

= 0.55 tonnes CO2-e per cubic metre of production

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Box 5 Example – Benchmark dataset (continued)

The graph shows emissions intensity plotted by cumulative production for a subset of the example dataset. The proportion of production that the leading practice records contribute to the benchmark value is indicated by the red dashed line. The emissions intensity benchmark value is represented by the green line (0.55 tonnes CO2-e/ cubic metre).

6.3.2 Reserve approach

The reserve approach is used to calculate a benchmark that is indicative of the one that would have been calculated had sufficient data been available to use the standard approach, therefore giving effect to Principle 5. It is important that the approach uses conservative judgements and aims to deliver a benchmark value not higher than leading practice emissions intensity. This is to avoid business decisions being affected when a benchmark calculated from the reserve approach is replaced with a value calculated with the standard approach (see section 6.3.1), noting that a change in the benchmark would not cause a baseline to be updated.

The Department will consult with the technical working group to determine the best way for setting a benchmark using the reserve approach, and to develop terms of reference for its development by an industry expert with technical expertise. The terms of reference must include requirements to determine a benchmark representing leading practice that meets the principles.

Possible reserve approaches for developing benchmarks, which can be combined or adapted on a case-by-case basis, are:

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Faci

lity

A 2

014-

15

Faci

lity

A 2

013-

14

Faci

lity

B 2

014-

15

Faci

lity

B 2

013-

14

Faci

lity

A 2

012-

13

Faci

lity

C 2

014-

15

10% 20% >100%

0.55 t CO2-e/m3

0%Production (%)

Em

issi

ons

Inte

nsity

(CO

2-e/

m3 )

Theoretical leading class facility: The facility is based on the lowest emissions intensive technologies, processes and practices that are currently deployed within Australia or overseas (for ‘first-of-a-kind’ facilities). An emissions intensity benchmark is then calculated based on this theoretical facility’s production and emissions.

Literature review of the relevant sector: A sector may be described extensively in literature which provides suitable information for determining a benchmark. There may be emissions intensity estimates and benchmarks already calculated for other purposes that are nevertheless applicable if they confidently represent leading practice.

Sector-wide examination of emissions-intensity: examine data on emissions-intensity of production that is available. Company, state or national level data might be able to be adapted to derive a leading practice benchmark. Using a sector-wide average emissions-intensity would not be representative of leading practice and would need to be adjusted.

When the reserve approach is used, the Department will:

in consultation with the technical working group establish terms of reference for the reserve approach that:

o is consistent with the principles

o uses conservative assumptions and estimates to give confidence that the resulting benchmark value will meet leading practice

commission an industry expert with technical expertise in the sector to assist with determining the benchmark.

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6.3.3 ‘No production variable approach’

If no production variable is identified, then a different benchmarking approach is needed which follows the principles.

The Department will consult with relevant stakeholders to determine the ‘no-production variable approach’ for that sector or facility type, which follows leading practice.

An example of a benchmarking outcome when there is no production variable is the benchmarking approach for landfills. Landfills have no production variable, as there is no final output and the input, waste disposed, is not representative of a landfill’s emissions for the same time period.

Here the concept of leading practice is represented by how much landfill gas is captured and destroyed. Leading practice landfills are those which capture and destroy the highest proportion of landfill gas. The benchmark for this facility type will be based on landfill gas capture. This is not an emissions intensity type benchmark, but nevertheless a benchmark representing leading practice of Australian facilities and follows the principles.

Note that a ‘no-production variable approach’ is different to the reserve approach outlined in section 6.3.2. The reserve approach applies when a production variable is identified but there is not sufficient data available to calculate a benchmark.

7 UPDATING BENCHMARKS

In deciding whether and when to update a benchmark value or change a production variable, it will be important to balance business certainty against continuous improvement. Updating too frequently could create uncertainty, particularly for prospective facilities that have long lead times. Not updating the benchmark value often enough will mean that the benchmark no longer represents leading practice.

The following sections set out the circumstances in which the benchmark value or a production variable can be changed, the process that will be followed, and the notice period. There are three triggers for an update:

benchmark value changes (production variable is unchanged)

production variable changes (meaning a new benchmark value may need to be calculated)

changes to global warming potentials.

Furthermore, the Minister may direct the Department to review benchmarks at any time.

7.1 Changes to a benchmark value

7.1.1 Circumstances for changing the benchmark value

Over time the composition and performance of the best-performing 10 per cent of Australian production will change with the development of lower emissions technologies and improved industrial processes. This means that an existing benchmark value may no longer represent leading practice and will need to be updated (Principle 1). Consistent with Principle 6, upon

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identifying an emissions intensity benchmark has changed, it is expected that benchmarks will principally be made more stringent.

Identifying if the benchmark value has changed is possible using the most recent NGERS data, both new and revised historical data. Revised historical data that may affect the benchmark value include NGERS reports being resubmitted by businesses due to errors being found.

The Department will undertake an annual review of whether the benchmark value has changed based on NGERS data, both new data and revised historical data. The review will compare the current benchmark value with the value that would arise if the three most recent years that data is available were used to carry out the calculation, keeping the production variable constant.

The Department will recommend the benchmark value should be amended if:

the review reveals a material decrease in the current benchmark value (generally, a decrease of more than five per cent of the current value)

the review reveals a material increase in the current benchmark value (generally, an increase of more than five per cent of the current value) and either

o there is evidence that the current benchmark does not reflect leading practice because of errors in how it was calculated, or

o the current benchmark was calculated using the reserve approach.

7.1.2 Process and notification for changing a benchmark value

The process to change a benchmark value will follow the same process as for making a benchmark, without the production variable steps.

As the process only involves reviewing the data underpinning the benchmark, and not changes to the production variable, the Department will not convene a technical working group unless directed to by the Minister.

Generally new NGERS data will be available to the Department from 1 March (for the previous financial year). This will trigger the annual review described in section 7.1.1.

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Following the annual review of benchmark values, the Department will publish a notice of benchmark values recommended to change by 1 July.

The amended benchmark values will be submitted to the Minister for approval by 1 January.

Once approved by the Minister, the amended benchmark values will come into force:

o once the amended safeguard rule is made if the amended benchmark value is higher than the previous value or replaces a value calculated using the reserve approach; or for all other amended benchmark values

o three years after the notice date.

The process for updating benchmark values is summarised in Figure 6.

Figure 6 Updating benchmark values

7.2 Changes to a production variable

7.2.1 Circumstances for changing a production variable

Production variables will be reviewed by the Department periodically. The review will indicate:

no change

minor change (benchmark value stays the same)

major change (requiring a new benchmark value to be calculated).

An example of a major change is if the production variable is based on a different final output, intermediate product, service unit or input, triggering a change in the associated benchmark value. The process set out in section 5 will be followed to describe the new production variable and calculate the associated benchmark.

An example of a minor change is changing the units for quantifying the production variable or measuring and monitoring requirements. A minor change would not raise or lower the benchmark value, although it could be updated to reflect a different unit of measure.

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7.2.2 Process and notification for changing a production variable

The process to make a major change to a production variable will follow the process set out in section 5, including convening a technical working group and calculating a new benchmark value. The process should begin with the Department notifying its intention to make a major change.

There will be select consultation (affected parties only) for minor changes to production variables. Once the amendment is made, minor changes to production variables will be expected to come into force immediately.

7.3 Changes to global warming potential values

Section 56 of the safeguard rule ensures that changes in benchmarks because of a change in global warming potential values will be reflected in variations to existing baseline determinations.

Changes to global warming potentials of greenhouse gases will trigger a review of all benchmarks. The review timetable will follow the new data review process outlined in section 7.1.2. However, the benchmarks based on the new global warming potential values will not come into force until such time as they come into force in NGERS, irrespective of whether the benchmark value becomes higher or lower. This will ensure that benchmarks stay aligned with NGERS reports, the national greenhouse gas inventory and the national projections.

8 PUBLICATION OF INFORMATION

8.1 Public disclosure of dataset details

Publishing information about the process used to calculate a benchmark helps ensure that stakeholder engagement is maximised and increases public confidence in the policy. However, some of the data that underlies the benchmarks will be commercially sensitive.

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Details of a dataset will not be published if this enables a facility to be identified. In most circumstances the following could be released without identifying facilities:

number of records in a dataset

number of facilities in a dataset

time period covered

summary of data assessment stage outlining how data was adjusted.

If a review of production variables has indicated a major change may be required, meaning a new benchmark value needs to be calculated, then the Department will publish a notice about the intention for this major change. The process for how to develop a benchmark outlined in section 5 will then be followed.

If a production variable and benchmark value are changed, they will come into force three years after the notice date.

8.2 Minimum information to be published in the safeguard rule

Benchmarks will be published in the safeguard rule.

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For each benchmark, as a minimum, the safeguard rule will include:

the production variable

the types of facilities where the production variable can be applied

the benchmark associated with the production variable

the date from which the benchmark applies or expires.

9 DEFINITIONS

Term Definition

By-product Means an output that:

(a) results from a chemical or physical process undertaken by a facility other than for the purpose of producing the by-product; and

(b) will be disposed of, by sale or gift, without any further processing by the facility (other than further processing in accordance with standard industry practice which does not result in more than five per cent of covered emissions at the applicable facility type).

Covered emissions Covered emissions are direct (or scope 1) emissions which are defined in the National Greenhouse and Energy Reporting Act 2007. They include fuel combustion, emissions from physical and chemical processes and fugitive emissions. Indirect (or scope 2) emissions (e.g. associated with grid electricity consumption) are not covered emissions.

Emissions intensity benchmark

The safeguard rule includes the Benchmark Emissions-Intensity Index, which will set out benchmark levels of emissions intensity per unit of a production variable for certain kinds of facilities. Emissions intensity benchmark is the term used in these guidelines to refer to the benchmark levels of emissions intensity that will be included in the Benchmark Emissions-Intensity Index.

Facility types A facility type consists of one or more processes that are conducted at a facility reporting under NGERS

In order for the definition of the facility type to be outcomes focused (Principle 2) the processes at the facility type should be described in a way that is neutral to technology and process.

Final output Means an output that results from the final chemical, biological or physical process undertaken by a facility using one or more inputs or intermediate products.

Input Means anything that undergoes a chemical or physical process to produce an intermediate product or an output.

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Intermediate product Means a product that:

(a) results from a chemical or physical process undertaken by a facility using one or more inputs; and

(b) is then used as an input for the production of another output at the same facility (this could be a final output or another intermediate product).

Leading practice records

Means the records in the dataset for calculating the emissions intensity benchmark. These are the records with the lowest emissions intensity making up 10 per cent of the overall production represented in the dataset.

Measurable Means that a product is described in a way that aims to align with market definitions and can be measured according to standard industry practice.

NGER Act / NGERS National Greenhouse and Energy Reporting Act 2007 also referred to as the National Greenhouse and Energy Reporting Scheme.

Primary final output Means the final output that accounts for the most covered emissions. If there is only one final output, then this is a primary final output.

Primary input Means the input that accounts for the most covered emissions. If there is only one input, then this is the primary input.

Process Means a collection of one or more chemical or physical processes resulting in covered emissions. For the purposes of these guidelines, processes will aim to be defined based on existing definitions under the Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and the definition of emissions-intensive trade-exposed activities eligible under the Renewable Energy Target.

Production variable Defined in the safeguard rule in relation to baselines worked out using emissions intensity benchmarks as ‘a metric related to production at a facility that is applicable to the facility in accordance with any requirements set out in the Benchmark Emissions-Intensity Index’.

The emissions intensity benchmark is worked out as the emissions per unit of this variable. For the purpose of these guidelines a potential production variable is an input, intermediate product, final output or for transport facilities, a service unit.

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Saleable quality Means produced to a level at which it would ordinarily be considered by participants in the relevant market to have a commercial value as that final output.

Sector Means grouping together industry peers who operate in the same segment of the economy. A sector may include multiple facility types recognising that different facilities may produce the same or related products in different ways. Sectors will aim to group together peers that share common features and may potentially be covered by the same benchmark(s). The definition of a sector will be one that has a common industry understanding (such as division or subdivision titles defined under ANZSIC).

Service unit Means a unit of measure related to a transport facility (such as tonne-kilometre or available seat kilometre) determined taking into account standard industry practice and existing measurement systems.

Waste product Means an output or other product that meets all of the following:

results from a chemical biological or physical process undertaken by a facility other than for the purpose of producing the waste product

will be disposed of without any further processing by the facility (other than further processing in accordance with standard industry practice)

is not a by-product.

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