Bills Digest no. 182 2008–09
Renewable Energy (Electricity) Amendment Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date introduced: 17 June 2009
House: House of Representatives
Portfolio: Climate Change and Water
Commencement: Sections 1 and 3 commence on the day of Royal Assent, as
does Schedule 1. Other individual Parts or Items commence on various dates –
notably Schedule 2 commences on the same day as section 3 of the Carbon
Pollution Reduction Scheme Act 2009.[1]
Links: The relevant links to the Bill, Explanatory Memorandum
and second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can
be found at ComLaw, which is at http://www.comlaw.gov.au/.
The Renewable Energy (Electricity)
Amendment Bill 2009 (the Bill) amends the Renewable
Energy (Electricity) Act 2000 to give
effect to the Governments’ commitment to replace the existing Mandatory Renewable Energy Target (MRET) scheme with a
national Renewable Energy Target (RET) scheme.
The RET scheme aims to see an annual 45 000 GWh of
electricity produced in Australia from renewable energy sources by 2020, in
comparison to the existing MRET scheme which has a 2010 target of 9500 GWh. The
45 000 GWh renewable power generation target is expected to ensure that
‘the equivalent of at least 20 per cent of Australia’s electricity supply’ is
generated from renewable sources by 2020, when combined with an estimated
baseline renewable generation of 15 000 GWh.[2]
The policy origins of the MRET can
be traced back to then Prime Minister John Howard’s statement Safeguarding
the Future: Australia’s Response to Climate Change, in which he said:
Targets will be set for the inclusion of renewable energy in
electricity generation by the year 2010. Electricity retailers and other large
electricity buyers will be legally required to source an additional 2 per cent
of their electricity from renewable or specified waste-product energy sources
by 2010 (including through direct investment in alternative renewable energy
sources such as solar water heaters). This will accelerate the uptake of renewable
energy in grid-based power applications and provide an ongoing base for
commercially competitive renewable energy. The program will also contribute to
the development of internationally competitive industries which could
participate effectively in the burgeoning Asian energy market.[3]
The MRET
scheme was subsequently implemented through the Renewable Energy
(Electricity) Act 2000 (the REEA), and the associated Renewable Energy
(Electricity) Regulations 2001.
The REEA requires Australian
electricity retailers and other large buyers of electricity ('liable entities')
to collectively source an additional 9 500 GWh per annum of electricity from
renewable sources by 2010. The 9 500 GWh figure was intended to push the amount
of renewable energy used in electricity generation from 10.7 per cent in 2000
to 12.7 per cent by 2010. This two per cent target increase was later changed
to 9 500 GWh to provide more certainty to the market.
The key feature of the MRET scheme
is what are termed ‘renewable energy certificates’, or RECs. The bulk of RECs
are created by accredited power stations that generate power from renewable
energy sources in excess of a 1997 'baseline' amount, with one REC created for
every 1 MWh of renewable energy power generated in excess of the baseline. However, eligible solar water heater installations[4] and eligible small generation unit installations[5] may also give rise to RECs, in which case the amount of RECs depends on various
factors, including the location of the installation. These
RECs have a fluctuating economic value (which appears to be currently around $49
or so per REC) and can be bought and sold.[6]
The REEA requires liable entities
to surrender to the Renewable Energy Regulator (the regulatory body
administering the REEA) sufficient RECs to cover their required purchases of
electricity generated from renewable sources or otherwise pay a ‘shortfall
charge’. The number of RECs required to avoid the shortfall charge is
calculated as a percentage of electricity purchased, and this has been
progressively increased over time. Currently, this percentage is 3.64
per cent. Thus a liable party purchasing 100 000 MWh of electricity in 2009
must surrender 3640 RECs to fully discharge their liability
for this year.[7] Liable entities will generally acquire the RECs by
purchasing them. If liable entities do not surrender sufficient RECs, the
shortfall charge is $40 per MWh.[8] The shortfall charge is not deductible for tax purposes.
Section 162 of the REEA required an independent review of
the operation of the Act. The report of that review (commonly known as the
Tambling report) was given to the Government in September 2003.[9] The Tambling report made a number of recommendations about the operation of the
MRET scheme that were subsequently implemented through, amongst other ways, the Renewable Energy (Electricity) Amendment Act 2006. Notably however, the Tambling
report also recommended that the timeframe for the MRET scheme to be extended
out from 2010 to 2020 and a target for electricity generation for renewable
sources be set for 2020 at 20 000 GWh. In releasing its June 2004 Energy White
Paper, the Government did not accept this recommendation. Further historical information
is available in the relevant Bills Digest.[10]
In the lead up to the 2007 election, the various political
parties issued revised policies for ‘clean’ and / or renewable energy
production. The Australian Labor Party’s (ALP) policy set a 20 per cent renewable
energy target by 2020, and committed to a national scheme, effectively absorbing
and replacing any existing state-based renewable energy schemes. Following the
ALP’s election, and subsequent discussion between the Commonwealth and the
States and Territory governments, the Council of Australian Governments (COAG)
issued a discussion paper on the proposed RET scheme.[11]
Following this, draft exposure legislation was released in
December 2008. Based on the design of the RET scheme reflected in the exposure
draft legislation, the Government commissioned a technical report on its costs
and benefits.[12] During the development of the RET scheme, the Government was also developing
its legislative-based scheme to address climate change, subsequently called the
Carbon Pollution Reduction Scheme (CPRS). A prominent issue in the CPRS debate,
and one also relevant to the RET scheme, was the impacts on what were called
the ‘emissions-intensive, trade-exposed (EITE) industries’ such as the
aluminium, cement, iron and steel industries. In relation to the RET, the
affected industries are electricity–intensive, or ‘RET–affected,
trade–exposed’ (RATE industries). A further COAG discussion paper on this
subject was issued in late 2008.[13]
At its meeting of 30 April 2009, COAG agreed on the design
of the RET scheme.[14] Following introduction into Parliament of the CPRS legislation in May 2009, a
further exposure draft of the RET legislation was released on 9 June 2009. That
draft legislation differed from the previous draft in introducing assistance
for RATE industries and amendments relating to transition of State RET schemes.
The Bill the subject of this Digest is the same as the exposure draft dated 9
June 2009.
The Bill has been
referred to the Senate Economics Committee for inquiry and report by 12 August.
Details of the inquiry are at: http://www.aph.gov.au/Senate/committee/economics_ctte/renewable_energy_09/index.htm
Interestingly, the Senate Selection
of Bills Committee was unable to agree on whether to refer the Bill for inquiry
and report. It appears both the ALP and the Greens wanted to Bill to be debated
in the Senate before the Winter recess – even if this meant a committee inquiry
of only a few days. However, when the issue was debated on the floor of the
Senate, the Coalition and Senator Xenophon supported a motion by Senator Fielding
for inquiry and report by 12 August, effectively ruling out a vote before the
Winter Parliamentary recess which commences on 26 June 2009.[15]
Environmental groups support the expanded RET, but the great
majority disagree with the assistance given to RATE industries. Many criticise
the scheme target of 20 per cent of electricity to be sourced from renewable
energy sources by 2020 as too low.[16]
Environmental groups as a rule believe that no assistance
should be given to RATE industries under the expanded RET.[17] The Australian Conservation Foundation (ACF) points out that the notional
rationale for such assistance is to reduce the possibility of carbon leakage,
or offshore relocation of such industries. However, in developing the policy,
the ACF states that no assessment has been made about whether Australia’s trade
competitors in such industries have comparable renewable energy policies or
electricity prices. It notes that in fact the EU, China, the US and many other
nations do have substantial policies to support renewable energy growth, and
that Australia’s electricity prices are among the lowest in the world.
Furthermore, it states that many such industries have long-term price contracts
that will shield them from potential price increases.[18]
Some environmental groups oppose the inclusion of native
forest biomass energy in the RET scheme, as they believe native forests are not
managed or harvested sustainably, and they would be better exploited as a
carbon sink.[19]
Industry groups express concern that the RET scheme will
unnecessarily burden electricity-intensive industries and other electricity
users. They generally do not support the RET scheme, saying that the proposed
emissions trading scheme (the CPRS) will provide emissions mitigation at lower
cost. However, if the RET scheme is to be introduced, industry groups stress
the necessity of provision of assistance to RATE industries.
The Business Council of Australia, Minerals Council of
Australia, Australian Industry Greenhouse Network (AIGN) and Australian
Industry Group (AiG) question the need for the RET in addition to an emissions
trading scheme (ETS), and state that the Treasury modelling shows that
emissions savings under the RET scheme come at three times the cost of the ETS.[20] AIGN states that this view is supported by assessments of the Productivity
Commission, the Garnaut Review, the Treasury and the Wilkins Review.[21]
The Australian Industry Group (AiG) supports full exemption
from the scheme for RATE industries. AiG notes that AIGN analysis of modelling
of the impact of the scheme by McLennan Maganasik Associates estimates that
trade-exposed mining and manufacturing industries, which consume 37 per cent of
Australia’s electricity, could see losses in competitiveness of $340 million in
2010 and $700 million in 2020, and that the costs imposed by the RET ‘do not
exist for many of Australia’s international competitors’.[22] AiG also states that the estimated cost of the scheme to the economy of $2–3
billion over the life of the scheme have been shown by the Productivity
Commission to come with no additional abatement, which questions the validity
of the scheme.[23]
AGL supports assistance to RATE industries, but has
expressed concern that the proposed mechanism of assistance, which results in a
large proportion of electricity purchases being exempt from the RET scheme,
will result in undue burden on retailers servicing the remaining customers. It
suggests that costs may not be adequately passed through, which could
compromise the viability of electricity retailers. AGL suggested an alternative
means of compensation be provided through additional allocation of permits
under the CPRS, leaving the REC market to operate without distortion.[24]
CSR points out that state RET schemes propose provision for
assistance to RATE industries, and as the national RET scheme is to subsume
these schemes, these provisions should carry over.[25]
Another criticism from both industry and environmental
groups is that the design of the RET scheme will not encourage sustainable
development of a diverse range renewable energy technologies, but will favour
easily deployed and currently viable technologies (particularly wind).[26] This may result in continued need for subsidisation to support the renewable
energy industry beyond the end of the scheme.[27] Hydro Tasmania advocates continuation of the RET scheme beyond 2030 until such
time as the CPRS can be relied upon to ensure the 20 per cent share of
renewable energy will be maintained.[28]
There has been much criticism
from the Coalition over the linkage of the RATE assistance in the RET scheme to
the passage of the CPRS.[29] The Coalition had indicated their support for the expanded RET scheme until it
became clear that this provision was reliant on the CPRS being passed. The
Greens were also critical of the RET and CPRS bills being linked, reportedly
saying that ‘the Government is playing political games in the face of climate
crisis’.[30] However, the Greens supported a snap inquiry into the RET legislation that
would allow it to be passed before the winter break, as they consider any
further delay an unacceptable setback to dealing with climate change.[31] On 18 June 2008, the Coalition and independent Senator Nick Xenophon gave their
support to pass Family First Senator Steve Fielding’s motion to refer the Bill
to the Senate Economics Committee for inquiry and report by 12 August 2009.
The Explanatory Memorandum to the Bill states:
As part of the 2008-09 Budget,
the Government provided $15.5 million over five years for the Office of the
Renewable Energy Regulator to administer the expanded Renewable Energy Target.
The measure included $2.2 million over two years in capital funding to modify
and expand the capacity of the renewable energy certificate online register and
$14.0 million over five years in administered revenue from the increased trade
in Renewable Energy Certificates.[32]
The Bill is legally linked with the CPRS legislation in the
sense that commencement of Schedule 2 of the Bill is dependent on the passage
of the Carbon Reduction Pollution Scheme Bill 2009.[33] Schedule 2 is a key part of this Bill, as it provides a partial exemption from
liability from paying any shortfall charge (which arises is an entity has not
bought sufficient electricity from renewable sources) for ‘emissions-intensive
trade-exposed’ activities.
The Government’s rebate for solar photovoltaic systems under
the Solar
Homes and Communities Plan[34] has now been phased out, with it being replaced by ‘Solar Credits’ under the
proposed RET scheme. This is intended to operate by introducing a ‘multiplier’
on the number of RECs that will be created when a small generation unit (SGU) is
installed.[35] The multiplier is set at 5 from 9 June 2009 to 30 June 2012, progressively
phasing out to 30 June 2015. The intention is that persons installing a SGU will
receive the relevant number of RECs (in practice the economic value of these),
boosted by the appropriate multiplier, that reflects the generating life of the
SGU. They will have the option of receiving them at installation, thus
effectively receiving an upfront-payment to defray the cost of the SGU. The
‘fact sheet’ issued by the Government illustrates how this might work:
The level of subsidy will depend on a number of factors,
including the price of Renewable Energy Certificates (RECs), the deeming period
chosen by the applicant, the location of the solar PV system and the size of
the system.
For example, a solar PV system in Sydney, Perth, Adelaide,
Brisbane or Canberra will receive $5,150 for a 1 kW system and $7,750 for a 1.5
kW system installed in 2009, based on a $50 REC price.
A system installed in Melbourne
or Hobart will receive fewer RECs as these areas have less sunshine so less
renewable energy is produced. For example, a 1 kW system installed in 2009 will
receive $4,400 and a 1.5 kW system will receive $6,650 based on a $50 REC
price.[36]
One of the objects of the
REEA in existing section 3 is to ‘reduce emissions of greenhouse gases’. Item
1 amends this to ‘reduce emissions of greenhouse gases in the electricity
sector’.
Currently, section 4 provides that the effective life of the
MRET scheme is 2021. Item 4 extends this to 2031.
Item 6 will amend section 23B to give effect to the
Solar Credit part of the RET scheme, by enabling a higher number of RECs to be
generated by these units via the application of a multiplier, but only up the
first 1.5kW rated power output. From 9 June to 30 June 2012, the multiplier is
5. The multiplier progressively decreases in future years out to 2014–2015.
Details of the circumstances in which the multiplier effect would apply are to
be contained in regulations: proposed subsection 23B(2).
Existing section 40 sets out the targets for the production
electricity generated from renewable sources from 2001. Currently, the target
for 2010 and subsequent years is 9 500 GWh. Item 8 amends the table to
raise the 2010 target to 12 500 GWh, with progressive increases reaching 45 000
GWh in 2020, whereafter the target remains at this level to 2030.
Section 162 required an independent review to be done of the
REEA as soon as practical after two years of the REEA coming into operation.
That review was done 2003 (the Tambling review). However, there is currently no
requirement for subsequent review. Item 9 substitutes a new section
162 that will require a new independent review to be done as soon as
practical after 31 December 2013. Unlike the current version, new section 162 does
not specify the particular issues that must be covered by the review. A report
of the Review must be tabled by the minister within 15 sitting days of
receiving it. The policy intention is that timing of the review will be
coincident with a review of the CPRS under the proposed CPRS legislation.
In introducing the Bill, Greg Combet, Minister Assisting the
Minister for Climate Change, stated:
The government recognises the impact of the renewable energy
target on emissions-intensive trade-exposed industries in the context of the
proposed Carbon Pollution Reduction Scheme and the additional pressures these
firms are experiencing as a result of the global recession. As part of the
consultation process, stakeholders suggested that assistance under the
renewable energy target should take account of the cumulative impact of the Renewable
Energy Target and the Carbon Pollution Reduction Scheme.
The government listened to industry, particularly industries such
as the aluminium smelting sector, and has therefore decided to provide
assistance under the renewable energy target, reflecting the cumulative impact of
the renewable energy target and the Carbon Pollution Reduction Scheme.
The Bill provides for regulations to be made to provide partial
exemptions from liability under the expanded Renewable Energy Target. As agreed
by COAG on 30 April 2009, partial exemptions will apply to those activities that
are emissions-intensive trade-exposed activities under the Carbon Pollution
Reduction Scheme. Exemptions will apply to 90 per cent or 60 per cent of an entity’s
liability under the renewable energy target, according to the respective
category of assistance provided under the Carbon Pollution Reduction Scheme framework.
All businesses will contribute to supporting renewable energy as the exemptions
will only apply for liability above the existing 9,500 gigawatt hour target.[37]
Schedule 2 implements the above policy position.
A key concept is ‘partial exemption certificates’
Item 14 contains new sections
46A-46C. As noted above, the second reading speech indicates the exemption will
apply to 90 per cent or 60 per cent of an entity’s liability under the
renewable energy target, and corresponds to criteria set out under the CPRS.[38] New paragraph 46B(1)(a) indicates that the ‘amount’ of the partial
exemption for the purposes of the certificate will be ‘calculated according to
a method prescribed by regulations’. Partial exemption certificates are not
legislative instruments.[39]
New section 38C, inserted by item 8, requires the
Australian Climate Change Authority (the Authority) to publish information on a
partial exemption provided to a liable entity each year. This information must
include the name of the liable entity, the value in dollars of the amount of
the entity’ partial exemption for the year, and any other information relating
to a partial exemption, as prescribed in the regulations. If a liable entity’s
partial exemption is later reduced or increased, the Authority must correct the
information on its website.
New section 46C enables the amendment of partial
exemption certificates in certain circumstances, by the Authority either on its
own behest or at the request of the person who has been issued the certificate.
Neither the Explanatory Memorandum nor the Minister’s second reading speech indicate
the situations in which this might be required, but new subsection 46C(3) states that the circumstances under which the Authority amends a certificate on
its own behest will be contained in regulations. Action by the Authority to
amend, or refuse to amend, will be reviewable by the Administrative Appeals
Tribunal: item 15.
Item 2 inserts new sections 7B and 7C. New
section 7C is a key element of the Bill as it exempts constitutional
corporations[40] from complying with ‘any law of State that substantially corresponds to this
Act’. The Explanatory Memorandum comments that:
This item operates to ensure that the national Renewable
Energy Target will operate as a single, national scheme by granting
constitutional corporations immunity from compliance with obligations arising
under a law of a State that substantially corresponds to this Act. This
provision is not intended to apply to feed-in tariffs or other support
mechanisms for renewable energy that do not substantially correspond to this Act.[41]
It is understood the only current State law that comes
within this definition is the Victorian Renewable Energy Act 2006.[42]
Where a (electricity-producing)
power station is currently accredited under a State Act that
substantially corresponds to this Act, item 4 effectively deems that the
power station is accredited under the REEA. However, the nominated person for
the power station may give notice that the automatic accreditation should not
apply to the station: item 5.
Item 6 deals with the conversion of State RECs to
REEA RECs. The holder of State RECs may elect to voluntary surrender such
certificates, even if they do not have a liability to do so. Where the holder
does so expressly for the purposes of item 6, and subject to various procedural
requirements, the State renewable energy regulator may give notice of this to
the Commonwealth, and the Commonwealth Regulator[43] must then create a REC under the REEA.
Item 7 states that nothing in item 6 makes the Commonwealth
Regulator liable to be prosecuted for an offence. Presumably this ensures that,
where a certificate improperly is created because some administrative or other
error in the conversion process, the Commonwealth Regulator would not be liable
for prosecution of an offence under existing section 24 of the REEA.[44]
Item 9 enables the Governor-General to make
regulations required or permitted by Part 2 of Schedule 3, or necessary
or convenient for giving effect to it. Subitem 9(2) provides a
non-exhaustive list of what such regulations might cover, namely:
- matters arising from the amendment or repeal of a State Act
- exemptions from fees payable under regulations
- and the number of RECs that may be created in relation to a small
generation unit.
Members, Senators and
Parliamentary staff can obtain further information from the Parliamentary
Library on (02) 6277 2764 (Angus Martyn) and (02) 6277 2411 (Julie Styles).
Angus Martyn
Julie Styles
24 June 2009
Bills Digest Service
Parliamentary Library
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