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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