Explanatory Memorandum
(Circulated by the authority of the Minister for Climate Change and Energy Efficiency, the Hon Greg Combet AM MP and the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 4 Amendments relating to the Australian National Registry of Emissions Units
Outline of chapter
4.1 Chapter 4 explains amendments to the ANREU Act concerning the circumstances in which restrictions relating to the operation of a Registry account apply and the period within which the CER may defer giving effect to a transfer instruction.
Context of amendments
Amendments relating to the imposition of restrictions on the operation of Registry accounts
4.2 The ANREU Act provides the legislative basis for the Registry. The Registry tracks the location and ownership of carbon units issued under the CE Act, Australian carbon credit units (ACCUs) issued under the CFI Act, and certain international emissions units, including certain units issued in accordance with the Kyoto rules (Kyoto units). Carbon units and ACCUs can only be issued to or held by a person if the person has a Registry account.
4.3 Detailed provisions relating to the opening of Registry accounts are set out in the ANREU Regulations. Those regulations provide that the CER can only open an account for a person if satisfied that the person meets the fit and proper person criteria. In assessing whether a person meets the fit and proper person criteria, the CER has regard to a number of matters, including whether the person has been convicted of offences relating to dishonesty, whether the person has complied with the ANREU and NGER Acts, and whether the person is an externally-administered body corporate or an insolvent under administration.
4.4 Proposed amendments to the ANREU Regulations will relax the fit and proper person requirement in relation to liable entities and persons who are eligible to receive free carbon units under the CE Act. This is to ensure that liable entities are not precluded from meeting their surrender obligations under the CE Act by reason of their solvency status, for example. It is also to ensure that persons who would otherwise be eligible to receive free carbon units under the Jobs and Competitiveness Program or in accordance with Part 8 of the CE Act are not precluded from being issued those units because of their solvency status.
4.5 The amendment to section 27 of the ANREU Act is intended to allow restrictions to be imposed on the operation of accounts opened in circumstances where the CER is not satisfied that the account holder meets the fit and proper person criteria. This is to safeguard the integrity of the Registry and protect it from abuse, whilst also ensuring that liable entities can meet their surrender obligations and persons who would otherwise be eligible to receive free carbon units can be issued those units.
Amendments relating to the deferral of transfer instructions
4.6 Section 28A of the ANREU Act confers power on the CER to defer giving effect to an instruction to transfer a unit to or from a Registry account for a period not exceeding 48 hours in certain circumstances. This section is amended to increase the time in which instructions can be deferred to five whole business days to enhance the capacity of the CER to deal with suspicious conduct.
Summary of new law
Amendments relating to the imposition of restrictions on the operation of Registry accounts
4.7 The bill amends the ANREU Act to enable regulations to identify Registry accounts that are subject to restrictions or limitations in relation to the operation of the account, including restrictions or limitations on the transfer of carbon units, ACCUs, Kyoto units or prescribed international units to or from the identified account or the issue of carbon units to the account.
Amendments relating to the deferral of transfer instructions
4.8 The bill amends the ANREU Act to increase the period within which the CER can defer giving effect to an instruction from no more than 48 hours to no later than the end of the fifth business day after the day on which the instruction was received.
Comparison of key features of new law and current law
| New law | Current law |
| Regulations may restrict or limit the operation of identified Registry accounts. | There is no power to prescribe restrictions or limitations on the operation of identified accounts, other than by imposing transaction limits on accounts that are opened using less stringent identification procedures.
|
| Instructions to transfer units can be deferred until the end of the fifth business day after the day on which the instruction was received. | Instructions can be deferred for no more than 48 hours. |
Detailed explanation of new law
Amendments relating to the imposition of restrictions on operation of Registry accounts
4.9 The bill amends section 27 of the ANREU Act to provide that regulations made for the purposes of subsection 27(1) of the ANREU Act may restrict or limit the operation of certain Registry accounts, to be called 'restricted Registry accounts'. [Schedule 4, item 2, section 27(3A), ANREU Act]
4.10 The regulations may prohibit, restrict or limit the transfer of carbon units, ACCUs, Kyoto units or prescribed international units to or from a restricted Registry account. The regulations may also prohibit, restrict or limit the issue of carbon units to a restricted account. The regulations could, for example, provide that an account opened for a person who did not meet the fit and proper person criteria (discussed in 4.3 and 4.3 above) is a restricted Registry account, and prohibit the transfer of units into the account if the transfer would result in the account exceeding a set number of units. [Schedule 4, item 2, section 27(3B), ANREU Act] [Schedule 4, item 2, section 27(3C), ANREU Act]
4.11 As the detailed rules relating to the circumstances in which a Registry account are opened are set out in regulations, it is appropriate that the rules relating to when accounts are subject to restrictions limiting the operation of the account are also set out in regulations. This ensures that the restrictions can be appropriately tailored having regard to the content of the account opening rules.
4.12 The CER's power in section 28C of the ANREU Act to impose conditions on the operation of accounts is unaffected. The CER may still exercise this power if satisfied that it is prudent to do so to ensure the integrity of the Registry, to prevent, mitigate or minimise abuse of the Registry or to prevent, mitigate or minimise criminal activity involving the Registry. The existence of the section 28C power does not limit the content of regulations made under subsection 27(1). [Schedule 4, item 2, section 27(3E), ANREU Act]
4.13 Unlike section 28C, the restrictions imposed in accordance with this amendment are not intended to rely on the exercise of the CER's discretion. Rather, prescribed restrictions are intended to apply in prescribed circumstances.
4.14 The power in section 11 of the ANREU Act to prescribe transaction limits that apply to Registry accounts opened using less stringent identification procedures is also unaffected.
4.15 New subsections 27(3A) and (3B) are not intended to limit the otherwise broad power to make regulations making further provision in relation to the Registry. [Schedule 4, item 2, section 27(3D), ANREU Act]
Time period for delay in Registry transactions
4.16 The bill amends subsection 28A(2) of the ANREU Act to replace the period in which the CER can defer giving effect to a transfer instruction, currently set at 48 hours, with a period which lasts until the end of the fifth business day after the day on which the instruction was received. [Schedule 4, item 3, section 28A(2), ANREU Act]
4.17 Business days are defined as they exist in the Australian Capital Territory, where the Registry will be based, and therefore do not include Saturdays, Sundays or ACT public holidays as gazetted from time to time. [Schedule 4, item 1, section 4, ANREU Act]
4.18 Carbon units, ACCUs, Kyoto units and prescribed international units must be transferred within the Registry 'as soon as practicable' after an electronic instruction to transfer is received by the CER (see section 107 of the CE Act, section 156 of the CFI Act and sections 34 and 51 of the ANREU Act). International transfers will generally also need to be made as soon as is practicable.
4.19 It is expected that routine processing of transfer transactions, including checking for fraudulent transactions, could in some circumstances take up to five business days and that it will only be practicable to transfer the units once that processing has taken place. Only then will consideration be able to be given to the question of deferral of suspicious transactions under section 28A of the ANREU Act. It is therefore necessary to extend the time in section 28A to allow for deferral of suspicious transactions while further action (such as refusal to give effect to the transfer under section 28B of the ANREU Act) is considered.
Example 4.1 Current law - Time period in which an instrument may be made
If Stephen, an account representative, engaged in trading activity late on a Friday evening, then the 48 hour period in which the CER may take action would end on the following Sunday evening. Furthermore, this sort of activity could also occur on public holiday weekends, when Stephen may seek to take advantage of a longer period.Example 4.2 New law - Time period in which an instrument may be made
If Zali, an account representative, engaged in trading activity on Wednesday, then the five business day period in which the CER may take action would end at the end of the following Wednesday.
If Zali engaged in trading activity late on a Friday evening, then the five business day period in which the CER may take action would end at the end of the following Friday.
Application and transitional provisions
4.20 The provisions in Schedule 4 to the bill commence on the day after which it receives the Royal Assent. [Section 2]