Carbon Price Mechanism - Clean Energy Regulator Workshops

07 May 2012Archived News Climate Change Matters

With less than 60 days to the start of the carbon pricing mechanism in Australia, the Clean Energy Regulator is conducting workshops to clarify reporting obligations and mechanisms available under the NGER and Clean Energy Acts.

Obligation Transfer Numbers (OTNs)

Natural gas suppliers are liable for the potential greenhouse gas emissions embodied in the gas they supply. However liability can be transferred to the end user via an Obligation Transfer Number (OTN). Key points to note for OTN holders and gas suppliers are:

  • It is mandatory for large gas consuming facilities (LGCFs) to apply for and quote an OTN to their suppliers and then manage their own natural gas liability,
    • A LGCF is classified as a facility that has emitted more than 25 ktCO2-e of natural gas emissions, in any financial year after 1 July 2010.
    • It is also mandatory for suppliers to accept the quotation of an OTN from a LGCF.
    • Controlling corporations, who have multiple small facilities using gas in addition to a LGCF in the corporate group, can select to quote the same OTN for the small facilities. However the supplier may choose not to accept this quotation.
  • Other facilities that may apply for and quote an OTN include facilities that use natural gas as a feedstock or in the manufacture of LNG, CNG and LPG. It is mandatory for suppliers to accept the quotation in these instances.
  • Facilities that apply to be considered a LGCF in the future may also apply for and quote an OTN. It is optional for a supplier to accept this quotation prior to the facility becoming a LGCF.
  • Consumers must apply to the Regulator for an OTN using an approved form.
    • Please note that these forms are expected to be finalised by 11 May 2012.
  • OTNs are valid from the date of acceptance by the Regulator and cannot be backdated. It is therefore essential that LGCFs are able to quote their OTN prior to the receipt of natural gas from the supplier.
  • Gas consumers intending to use OTNs must inform suppliers of their intention to quote an OTN at least 28 days prior to quoting the OTN.
  • The legislation allows the Regulator to take up to 90 days to process and approve an OTN application.
    • The Regulator acknowledges that there will be fewer than 90 days from the point at which the forms are ready and the Carbon Price Mechanism commences. They will be working round the clock to process forms prior to 1 July 2012 to ensure consumers are able to take on the liability and avoid pass through costs from retailers.
  • A gas supplier may choose to accept the OTN of a new facility which has the potential of becoming a large gas consumer in the future. If the facility becomes a LGCF then the supplier must accept the quotation if not previously accepted.
  • OTN holders and gas suppliers must have registered as liable entities by 1 April 2012.  OTN holders will be required to open an Australian National Registry of Emissions Units (ANREU) account.
  • Gas suppliers and OTN holders must determine their Interim Emissions Number (IEN) by 15 June of the corresponding compliance year during the fixed price period. The equivalent number of carbon units covering the IEN should be surrendered on the same day.
  • Direct emitters (not just OTN holders) can use 75% of the covered emissions of the previous reporting period to determine the IEN for the respective reporting period. IENs are not required to be reported in the flexible price years.
    • Note: Direct emitters may calculate their IEN by (1) taking 75% of the covered emissions from the previous financial year, or (2) making a reasonable estimate of 75% of the covered emissions for the current financial year. If there is an under-estimate in emissions using the first method, no unit shortfall charge will be issued. However if there is an under-estimate using the second method, a shortfall charge will be issued to the facility,
  • However, natural gas suppliers must use nine months emissions data of the current reporting year to determine their IEN by 15 June of the same reporting year.

Liability Transfer Certificates (LTC)

The default carbon liability for a facility falls on the person/entity with operational control of the facility. Liability Transfer Certificates (LTCs) can be used to transfer liability for covered emissions via the following mechanisms:

  • Corporate Group LTC - transfers liability between group members within a corporate group (note that one member must have operational control and the applicant must be the person wanting to take on the liability); and
  • Financial Control LTC - transfers liability from one group member with operational control to a group member in a different corporate group that has financial control of the facility.

Group members must apply to the Regulator for Corporate Group or Financial Control LTCs. A LTC can be backdated from the date of approval but only within the financial year to which it relates.

LTCs are not used to transfer reporting obligations under the NGER Act, only liability under the Clean Energy Act. If a group member has Corporate Group LTCs in place, an agreement can be made for the group member to report on the facilities for which it has LTCs (Section 22A reporting). In this instance, the controlling corporation would not be required to report on those facilities in their Section 19 report (i.e. their “regular” NGER annual). LTCs cannot be used to transfer indirect liabilities through mechanisms such as OTNs.

The mechanism for transferring NGER reporting obligations for a facility where a Financial Control LTC is in place is via Reporting Transfer Certificates (RTCs). These transfer reporting obligations from a group member that has operational control to the group member that has financial control.

Joint Ventures

There are two types of joint ventures under the Clean Energy Act - Mandated Designated Joint Ventures (MDJV) and the Declared Designated Joint Ventures (DDJV). From 1 July 2012, the term ‘responsible entity’ will be removed in relation to joint ventures. Under the revised regulations, group members will be able to nominate operational control.

Mandated Designated Joint Venture

A MDJV occurs where no one person has operational control. There is no application required but rather a notification to the Regulator.

All participants will share the liability which will be determined by the Participating Percentage Determination (PPD). This is the ratio of each participants’ liability and must be based on valid methodology (e.g. percentage ownership, basis for distributing income, etc.) and declared when the MDJV notification occurs.

Where a MDJV exists, all participants must register and report under Section 19 of the NGER Act and Section 22A of the Clean Energy Act.

It can be agreed between the participants that one entity reports on 100% of the emissions and the PPD and the remaining entities refer to the report submitted rather than re-entering data for the same facilities. The aim of this is to reduce the reporting burden. MDJVs cannot transfer carbon liabilities to other group members using LTCs.

Declared Designated Joint Venture

The DDJV mechanism allows for transfer of carbon liability between joint venture participants. It applies where one participant in the DDJV has sole operational control of a facility however all participants have elected to take on their share of the liability. Participants must jointly apply for declaration of a designated JV and will be required to register individually under the NGER Act and will be liable under the Clean Energy Act. Each participant of the DDJV will have to report on 100% of the emissions and their PPD portion unless one group member is nominated to be the sole reporter.

The total percentages of the PPDs from the JV participants must equal to 100% of the emissions of the JV facility

A designated joint venture cannot transfer carbon liability to other group members using LTCs.

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