House of Representatives

Explanatory Memorandum

Minister for Climate Change and Energy Efficiency, the Hon Greg Combet AM MP

Chapter 2 Other amendments

Outline of chapter

2.1 Chapter 2 explains the other technical amendments to the CE Act and the NGER Act, including:

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amendments to the CE Act concerning the streamlining of the processes relating to the advance auctions of carbon units and relinquishment of carbon units;

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technical amendments to the NGER Act to provide the Minister with the power to determine methods to measure amounts of designated fuels and methods to adjust liabilities relating to potential greenhouse gas emissions;

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amendments to the CE Act permitting regulations to be made to determine how specific circumstances relating to the supply and use of natural gas are treated under CE Act; and

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a minor amendment to the provisions of the CE Act concerning the eligibility test for the Opt-in Scheme to expressly include GST joint venture operators as well as GST joint venture participants.

Context of amendments

Advance auctions of carbon units

2.2 Under Part 4 of the CE Act, the Regulator may auction carbon units before the first year for which they can be surrendered (that is, their vintage year). These auctions are known as 'advance auctions'.

2.3 The number of carbon units that can be advance auctioned is currently limited to a maximum of 15 million carbon units for each vintage per year, where the auction occurs more than six months before the beginning of the relevant vintage year and there is no carbon pollution cap number for that year. This limit prevents the advance auctioning of a large number of units which could reduce the Government's capacity to set future carbon pollution cap levels.

2.4 This limit is increased to 40 million units for carbon units whose vintage is 2015-16 that are auctioned in 2013-14; and 20 million units for other advance auctions where there is no carbon pollution cap number for that year. The new limit will ensure that liable entities have access to sufficient quantities of carbon units to enable risk management through forward contracting. It avoids the risk that auctions are delayed because of the disallowance period applicable to pollution caps.

Changes to the treatment of relinquished carbon units

2.5 Parts 7, 10 and 11 of the CE Act provide that carbon units may be relinquished voluntarily, or as a result of a court order to relinquish units. The rules concerning relinquishment are to be streamlined, so that the current requirement that relinquished units be transferred to a 'Commonwealth relinquished units account' is removed and those units will instead be cancelled, and a new unit issued by the Regulator in their place.

Amendments relating to measuring and adjusting amounts of designated fuels for the purpose of ascertaining potential greenhouse gas emissions

2.6 Section 7B of the NGER Act defines potential greenhouse gas emissions embodied in an amount of designated fuel, including natural gas and taxable fuel. ^[11] 'Potential greenhouse gas emissions' are used to assign liability for emissions, before they are produced, relating to natural gas and fuels covered under the liquid fuel Opt-In Scheme.

2.7 Section 7B of the NGER Act gives the Minister power to determine methods for ascertaining the potential greenhouse gas emissions embodied in an amount of designated fuel. Subsection 10(3) of the NGER Act gives the Minister the power to determine methods to measure amounts of emissions, energy consumption and energy production.

2.8 The amendments enable the Minister to adjust the liability resulting from potential greenhouse gas emissions embodied in an amount of designated fuel to account for discrepancies in the calculation of liability in the previous eligible financial year.

Changes to the treatment of some natural gas supply and use arrangements

2.9 The natural gas industry involves a complex array of supply arrangements which can change over time. Currently, the natural gas provisions cater for the vast majority of supply arrangements in use. In order for the carbon pricing mechanism to maintain effective and complete coverage of natural gas, a power will be included in the CE Act to allow regulations to be made to provide for coverage of alternative natural gas arrangements. This will help maintain competitive neutrality by supporting the complete coverage of natural gas under the carbon pricing mechanism over time.

2.10 Part 3, Division 2 of the CE Act provides for liability for natural gas emissions to apply to a person who is a liable entity for a facility where gas is used. Part 3, Division 3 of the CE Act provides for liability to arise for a natural gas supplier when they supply natural gas to a person and the natural gas is withdrawn from a natural gas supply pipeline for use. It also enables the use of obligation transfer number (OTN) to apportion liability between suppliers and end users.

2.11 Where the existing provisions in Part 3, Division 2 or Part 3, Division 3 of the CE Act do not apply, regulations may set out specific circumstances in which liability would arise for a supplier or end user of natural gas. 'Own-use notifications' and 'follow-up notifications' are mechanisms intended to enable suppliers to identify when the gas they supply is applied to a person's use. This will allow suppliers to determine where liability applies. Regulations may modify the definition of supply for the purpose of the new provisions and determine when supply occurs to facilitate their application.

2.12 These provisions are intended to apply to specific commercial arrangements in the natural gas sector. In general, they are not intended to cover natural gas used at large gas consuming facilities as liability would ultimately arise from the direct emitter provisions. Furthermore, the amendments are not intended to apply to small end users, such as households, as they obtain gas through generic supply arrangements which give rise to liability for a supplier under section 33 of the CE Act.

Clarifying the Interim Emissions Number for facilities

2.13 During fixed price years, liable entities that have an interim emissions number are required to make a provisional surrender by 15 June. The amendments remove any potential ambiguity in the drafting and confirm that all liable entities for facilities will have a provisional surrender obligation in 2012-13 and subsequent fixed price years, except where they are specifically exempt under section 127 of the Clean Energy Act 2011.

Changes to the Opt-in Scheme eligibility test

2.14 Under the Opt-in Scheme, a designated opt-in person must pass the eligibility test in respect of each acquisition, manufacture or import of fuel in order to be liable for the potential emissions embodied in the fuel. The eligibility test for GST joint venture participants is extended to also include GST joint venture operators.

Summary of new law

2.15 The limit on advance auctioned units under section 101 of the CE Act is increased to 40 million units for carbon units whose vintage is 2015-16 that are auctioned in 2013-14; and 20 million units for other advance auctions where there is no carbon pollution cap number for that year.

2.16 The Regulator must not auction units more than three years in advance of their vintage.

2.17 Relinquished carbon units will be cancelled and a new carbon unit will be auctioned in its place.

2.18 The Minister, from 1 July 2013, may adjust the liability resulting from potential greenhouse gas emissions embodied in an amount of designated fuel. These adjustments are designed to account for discrepancies in the calculation of liability in the previous eligible financial year which are the result of complexities in the market arrangements for designated fuels.

2.19 The Government may set out, through regulations, the specific circumstance in which liability would arise for a supplier or end user of natural gas where the use of the natural gas is not already covered by Part 3, Division 2 or Part 3, Division 3 of the CE Act.

Detailed explanation of new law

Preliminaries

2.20 Schedule 1, Parts 1 and 3, which make general amendments to the ANREU Act and the CE Act, will commence on the day after the bill receives the Royal Assent . [Clause 2, Clean Energy Amendment (International Emissions Trading and Other Measures) Bill 2012]

2.21 Schedule 1, Part 2, of the bill which makes amendments relating to fuel to the CE Act and the NGER Act, will commence on 1 July 2013. The amendments to the NGER Act made by this Part apply to reports relating to the 2012-13 financial year and all subsequent years . [Clause 2, Clean Energy Amendment (International Emissions Trading and Other Measures) Bill 2012]

Advance auctions of carbon units

2.22 The limit on advance auctioned units under section 101 of the CE Act is increased so that the Regulator can auction : [Item 58, section 101(1), CE Act] [Item 59, section 101, CE Act] [Item 60, section 101(2), CE Act]

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up to 40 million units of the 2015-16 vintage in 2013-14, if no carbon pollution cap is in place for 2015-16; and

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up to 20 million carbon units of a particular vintage before their vintage year, if no carbon pollution cap is in place for that vintage year.

2.23 The Regulator may not auction units of a particular vintage, unless the year in which the auction occurs is within 36 months of the relevant vintage year . [Item 61, section 101, CE Act]

Changes to the treatment of relinquished carbon units

2.24 As relinquished carbon units will be cancelled rather than auctioned, section 112 of the CE Act, which provides for auctions of relinquished carbon units, is repealed . [Item 68, section 112, CE Act] References to section 112 of the CE Act are no longer required and are removed from section 113(2) and subsection 102(3) of the CE Act . [Item 65, section 102(3), CE Act] [Items 69-72, section 113, CE Act] As it is no longer required, there will no longer be a Commonwealth relinquished units account . [Item 33, section 5, CE Act]

2.25 All relinquished units will be cancelled. Relinquished carbon units with a flexible charge vintage year will be cancelled and a new carbon unit will be subsequently auctioned in its place . [Item 87, section 210, CE Act]

2.26 To ensure that carbon unit supply is not affected by changes to the treatment of relinquished units, section 102 of the CE Act is amended so that the total number of carbon units issued by the Regulator takes into account the number of relinquished units . [Item 62, section 102(1)(a), CE Act] [Item 63, section 102(1)(b) and (c), CE Act] [Item 64, section 102(1), CE Act]

2.27 In particular, the number of carbon units with a particular vintage year that are issued by the Regulator will be equal to the total of : [Item 62, section 102(1)(a), CE Act] [Item 63, section 102(1)(b) and (c), CE Act] [Item 64, section 102(1), CE Act]

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the carbon pollution cap number for that year;

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the total number of carbon units with the corresponding vintage year that were relinquished before the start of the relevant vintage year; and

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the total number of carbon units with the relevant vintage year or an earlier vintage year that were relinquished during the relevant vintage year.

2.28 This approach ensures that if a carbon unit is relinquished, a new carbon unit will be issued, even if there will be no further auctions corresponding to the vintage year of that carbon unit.

Amendments relating to measuring amounts of designated fuels for the purpose of ascertaining potential greenhouse gas emissions

2.29 Complex commercial arrangements in markets for designated fuels can lead to difficulties in measuring amounts of fuel and therefore ascertaining potential greenhouse gas emissions embodied in an amount of fuel. Specifically:

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In the natural gas market there are time delays associated with the incorporation of natural gas supply meter readings into financial accounts. This delay means that reconciliation of accounts and meters are often required. These reconciliations may occur sometime after supply takes place.

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A key component of determining opt-in eligibility for taxable fuels is the entity's entitlement to a fuel tax credit for fuel acquisition, manufacture or import. Entitlement to a fuel tax credit is affected by the sector in which the fuel is used. This creates complexities where the fuel is not used (or the type of use is not known) until the following eligible financial year.

2.30 To account for these commercial complexities, the Minister's power to determine, by disallowable legislative instrument, the methods for measuring amounts of emissions and energy is expanded to include the capacity to determine methods for measuring fuels for the purposes of ascertaining potential greenhouse gas emissions. Additionally, the Minister has the power to determine adjustments to a person's 'provisional emissions number' (PEN) relating to potential greenhouse gas emissions. The purpose of the original determination-making power, and these amendments is to ensure the transparency, comparability, accuracy and completeness of reporting under the National Greenhouse and Energy Reporting System.

2.31 Under section 10 of the NGER Act, the Minister may determine methods, or criteria for methods, for measuring amounts of designated fuel for the purposes of ascertaining potential greenhouse gas emissions. This includes the capacity to determine methods for measuring natural gas, taxable fuel, liquefied natural gas, or liquefied petroleum gas. This means that the Minister can include measurement methods in the National Greenhouse and Energy Reporting (Measurement) Determination 2008 for natural gas and opt-in scheme fuels to quantify potential greenhouse gas emissions. The Minister may also determine that different measurement criteria apply under different circumstances. In keeping with existing determinations under section 10 of the NGER Act, this determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is a disallowable instrument . [Item 104, section 10, NGER Act] [Item 105, subsection 10(5), NGER Act]

2.32 The Minister may also determine adjustments to a person's PEN, where that PEN results from a provision under Divisions 3 or 3A of Part 3 of the CE Act or in the Opt-in Scheme. ^[12]

2.33 Where a person's PEN in the previous eligible financial year is found to exceed the actual PEN for that year, if for example due to full activity data not being available, the PEN in the current eligible financial year may be reduced to reflect the previous year's discrepancy. Reductions to a person's PEN can only occur where conditions specified in the determination are satisfied and where the person's PEN reported in the previous eligible financial year was less than the actual PEN resulting from the actual amount of designated fuel supplied, acquired, manufactured or imported in that year . [Item 105, subsection 10(6), NGER Act]

2.34 Similarly, where a person's PEN in the previous eligible financial year is found to be less than the actual PEN for that year, if for example due to full activity data not being available, the PEN in the current eligible financial year may be increased to reflect the previous year's discrepancy. Increases to a person's PEN can only occur where conditions specified in the determination are satisfied and where the person's PEN reported in the previous eligible financial year was greater than the actual PEN resulting from the actual amount of designated fuel supplied, acquired, manufactured or imported in that year . [Item 105, subsection 10(8), NGER Act]

2.35 The power to adjust PENs is limited as for both positive and negative adjustments to a person's PEN; the adjustment cannot be more than the amount of the discrepancy in the previous eligible financial year. The intent is to allow persons in situations that satisfy the conditions specified in the determination to reconcile fuel amounts between eligible financial years and not be subject to a shortfall charge . [Item 105, subsections 10(7)-10(9), NGER Act]

Example 2.1 Indicative example of how a PEN may be adjusted

In 2013-14 a natural gas supplier (IVY Corp) reported its PEN to be 50,000, based on the methods included in the Minister's Determination for measuring the amount of natural gas supplied. In 2014-15 IVY Corp ascertains that its 2013-14 PEN is 55,000 based on the amount of natural gas actually supplied. IVY Corp calculates its 2014-15 unadjusted PEN to be 60,000. Once adjusted, IVY Corp's 2014-15 PEN is 65,000, noting that the details regarding adjustment will be set out in the Minister's Determination.

2.36 To facilitate these adjustments, the definition of 'provisional emission number' has been amended in section 5 of the CE Act to refer to the adjustment provisions included in the amended NGER Act . [Item 96, section 5, CE Act]

2.37 'Liquefied natural gas' and 'liquefied petroleum gas' are defined to have the meanings given in Regulation 1.03 of the National Greenhouse and Energy Reporting Regulations 2008. ^[13] 'Taxable fuel' is defined in section 5 of the CE Act to have the same meaning as in section 110-5 of the Fuel Tax Act 2006. The terms 'natural gas supplier', 'Opt-in scheme', 'OTN' and 'supply' are all defined in section 5 of the CE Act . [Item 97, section 7, NGER Act] [Item 98, section 7, NGER Act] [Item 99, section 7, NGER Act] [Item 100, section 7, NGER Act] [Item 101, section 7, NGER Act] [Item 102, section 7, NGER Act] [Item 103, section 7, NGER Act]

2.38 The amendments to sections 7 and 10 of the NGER Act apply from 1 July 2013. Therefore, no adjustments are possible for PENs, preliminary emission numbers or interim emission numbers that relate to the 2012-13 eligible financial year . [Item 106, timing of application of amendments, NGER Act]

Changes to application signoff under the NGER Act

2.39 Currently, applications for registration and reporting transfer certificates must have approval from the chief executive officer of the corporation making the application. This requirement is altered to provide that approval from an executive officer of the corporation is sufficient for the purposes of registration and reporting transfers. An 'executive officer' is defined in section 7 of the NGER Act to include a broader category of senior officers of a body corporate, including directors, the chief financial officer and the secretary of a body corporate. Allowing an executive officer to sign-off on applications for registration and reporting transfers, streamlines the application process and aligns corporate sign off with other parts of the National Greenhouse and Energy Reporting System . [Item 94, subsection 12(3), NGER Act] [Item 95, subsection 12K(5)(d)(iii), NGER Act]

Changes to the treatment of some natural gas supply and use arrangements

2.40 Currently, liability arises under Part 3, Division 3 of the CE Act, where natural gas is supplied and it is withdrawn from a natural gas supply pipeline for use. Alternatively liability can arise where emissions from the use of natural gas count towards a facility's direct emissions under Part 3, Division 2 of the CE Act. Liability can apply to a natural gas supplier, a person who is a liable entity for a large gas consuming facility or a person who quotes the person's OTN for natural gas supplied to them, where the OTN quotation is accepted by the supplier.

2.41 Currently, there is the potential for certain commercial arrangements to lead to situations which may not be captured by the current provisions of the CE Act concerning emissions embodied in natural gas. Regulations may set out the circumstances in which liability applies to a supplier or end user in specific circumstances, enabling the Government to maintain competitive neutrality across the industry by supporting the complete coverage of natural gas under the carbon pricing mechanism. The specific provisions would be consistent with the current natural gas provisions in that liability would arise where the use of the natural gas results in greenhouse gas emissions. These specific regulations would reflect the commercial arrangements in place from time to time, ensuring that the maximum amount of natural gas is covered by the carbon pricing mechanism, consistent with the principle that all emissions embodied in natural gas should be covered, and opportunities to develop new commercial arrangements to avoid liability are minimised. Please note that the amendments concerning the treatment of natural gas do not take effect unless necessary regulations are made and the Government would consult on the development of any such regulations prior to their being recommended to the Governor-General-in-Council.

2.42 New Sections 35A and 35B of the CE Act allow the Government, through a regulation, to apply liability to a natural gas supplier or end user respectively. In making any necessary regulations, consideration would be given to the administrative efficiency of placing the liability on either the supplier or end user . [Item 52, section 35A, CE Act] [Item 52, section 35B, CE Act] The regulation would be a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is a disallowable instrument.

2.43 Where natural gas is supplied and no liability has arisen from that or any previous supply of the natural gas under sections 33 and 35 of the CE Act, and there is a reasonable expectation that no liability will arise from the use of natural gas as a result of Part 3, Division 2 of the CE Act, liability may be placed on the natural gas supplier under new section 35A of the CE Act. Regulations may specify an eligible financial year or years in which these arrangements would apply. To provide parties with sufficient notice regarding these arrangements, the specified eligible financial year must be later than the financial year in which the regulations are registered under the Legislative Instruments Act 2003. [Item 52, section 35A, CE Act]. Liability would apply to a natural gas supplier if:

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it supplies natural gas;

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no liability has arisen as a result of sections 33 or 35 of the CE Act;

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the supplier does not reasonably expect use of the natural gas will be covered by the direct emitter provisions in Part 3, Division 2 of the CE Act at the time the gas is supplied; and

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the conditions in the regulations are satisfied.

2.44 In certain circumstances, natural gas suppliers may not have sufficient information to determine the intended use of the gas supplied. For example, a supplier may not be reasonably expected to know the intended use of natural gas supplied to a person at an inlet flange of a natural gas supply pipeline where that person arranges their own transport of the gas. So that a supplier may form a reasonable expectation that the natural gas is supplied for use and know the amount supplied for use, an 'own-use notification' and a 'follow-up notification' from the end user could be required as conditions in the regulations. Further information about own-use notifications and follow-up notifications is set out in paragraphs 2.45 to 2.52 below . [Item 52, subsection 35A(1)(d), CE Act] The definition of 'accept' in section 5 of the CE Act has been updated to reflect these changes to the treatment of natural gas suppliers . [Item 28, section 5, CE Act]

2.45 If an own-use notification were to apply, the supplier could have a preliminary emissions number for the embodied emissions in the whole amount of natural gas supplied. The sum of preliminary emissions numbers for a supplier is a PEN, but this can be reduced by netted out numbers. A supplier may have a netted-out number where a follow-up notification has been provided by the end user to its supplier to report the amount of natural gas applied to own use. The remainder of the natural gas supplied, not subject to the follow-up notification, would be the netted-out number . [Item 52, section 35A, CE Act]

2.46 The Government may make regulations that permit or require a person to give an own-use notification to their natural gas supplier. This could permit or require the person to notify their supplier and therefore have liability for the natural gas rest with the supplier. This facilitates the application of liability to a supplier where, in the absence of such a notification, they could not readily form an expectation that the natural gas is supplied for use or know the portion of a supply which is for the person's use . [Item 39, section 5, CE Act] [Item 53, sections 64A-64C, CE Act]

2.47 Regulations may be made that permit or require a supplier to accept an own-use notification from their customer. This could permit or require the supplier to accept the notification of own use and therefore have liability for the natural gas rest with the supplier. Where conditions in the regulations are satisfied, this could allow the supplier to effectively reject an own-use notification . [Item 39, section 5, CE Act] [Item 53, sections 64D-64E, CE Act]

2.48 A person must not provide an own-use notification if they are not permitted or required to do so under section 64A or 64B of the CE Act. If a person provides an own-use notification where they are not permitted or required to do so, then the own-use notification is taken not to have been given. This limitation is provided to avoid the risk of misuse of an own-use notification, where the misuse could lead to avoidance of liability . [Item 53, section 64F, CE Act]

2.49 To ensure that such misuse does not occur, a person is also liable to pay a civil penalty if a court finds that the person has provided an own-use notification and they are not permitted or required to do so by the CE Act (see paragraphs 2.59 to 2.61 below) . [Item 53, section 64F(3), CE Act]

2.50 Regulations may be made that permit a person to give a follow-up notification to their natural gas supplier in relation to a supply of natural gas which is subject to an own-use notification. This could allow the person to inform their supplier of the amount of natural gas taken for own use. A supplier would not have the ability to not accept a follow-up notification . [Item 37, section 5, CE Act] [Item 53, sections 64G-64H, CE Act]

2.51 A person must not provide a follow-up notification if they are not permitted or required to do so under section 64G of the CE Act. If a person provides a follow-up notification where they are not permitted or required to do so, the follow-up notification is taken not to have been given. This limitation is provided to avoid the risk of misuse of a follow-up notification, where the misuse could lead to avoidance of liability . [Item 53, section 64J, CE Act] To ensure that such misuse does not occur, a person is also liable to pay a civil penalty if a court finds that the person has provided a 'follow-up' notification and they are not permitted or required to do so by the CE Act (see paragraphs 2.59 to 2.61 below) . [Item 53, section 64J(3), CE Act]

2.52 Where a supplier has a liability under section 35A and an own-use notification is provided in relation to an amount of natural gas, or the conditions in the regulations are satisfied, the emissions attributable to the gas do not count under sections 20 to 25 of the CE Act. This ensures liability does not arise for both the supplier and user of the gas. However, the amount of natural gas associated with the own-use notification does count for the purposes of determining whether a facility meets relevant thresholds for liability . [Item 46, section 20, CE Act] [Item 47, section 21, CE Act] [Item 48, section 22, CE Act] [Item 49, section 23, CE Act] [Item 50, section 24, CE Act] [Item 51, section 25, CE Act]

2.53 Section 5 of the CE Act defines supply as supply (including re-supply) by way of sale, exchange or gift. Regulations can determine whether there is or is not a supply of natural gas for the purposes of new section 35A of the CE Act. It allows an act or circumstance, which might be combination of acts and conditions, to constitute a supply. New section 35A of the CE Act will generally operate consistently with the commercial arrangements that industry would consider constitutes a supply of natural gas. For example, the transfer of title from owners or operators of natural gas supply pipelines to end users for the purpose of providing pipeline services would not generally be considered a supply. In such circumstances another entity such as a producer or retailer of natural gas would typically be considered to be making a supply to the end user . [Item 41, section 5, CE Act] [Item 42, section 5, CE Act] [Item 43, section 5A, CE Act]

2.54 To provide sufficient notice of any changed arrangements to affected liable entities, the Government may make regulations which specify an eligible financial year or years in which these arrangements would apply. The specified eligible financial year must be later than the financial year in which the regulations are registered under the Legislative Instruments Act 2003. [Item 41, section 5, CE Act] [Item 42, section 5, CE Act] [Item 43, section 5A, CE Act] The regulation would be a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is a disallowable instrument.

2.55 Section 6 of the CE Act specifies when supply of natural gas occurs. Currently regulations made for the purpose of the existing definition of supply provide for supply to occur in reference to the time of withdrawal. As new section 5A of the CE Act provides for modifying the definition of supply for the purposes of new section 35A of the CE Act, and as the concept of withdrawal might not apply in 35A, the regulations will need to determine when a supply of natural gas occurs in relation to section 35A.

2.56 To provide sufficient notice of any changed arrangements to affected liable entities, the Government may make regulations which specify an eligible financial year or years in which these arrangements would apply. The specified eligible financial year must be later than the financial year in which the regulations are registered under the Legislative Instruments Act 2003. [Item 464, section 6, CE Act] [Item 45, section 6, CE Act] The regulation would be a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is a disallowable instrument.

2.57 Where no liability has arisen from the use of natural gas as a result of Part 3, Division 2 or sections 33 and 35 or new section 35A of the CE Act, liability may be placed on the natural gas end user under new section 35B of the CE Act. Liability would apply to a person where natural gas is applied to a person's own use if : [Item 52, section 35B, CE Act]

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no liability has arisen as a result of sections 33 or 35 or new section 35A of the CE Act;

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use of the natural gas will not be covered by the direct emitter provisions in Part 3, Division 2 of the CE Act; and

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the conditions in the regulations are satisfied.

2.58 To provide sufficient notice of any changed arrangements to affected liable entities, the Government may make regulations which specify an eligible financial year or years in which these arrangements would apply. The specified eligible financial year must be later than the financial year in which the regulations are registered under the Legislative Instruments Act 2003. [Item 52, section 35B, CE Act] The regulations would be a legislative instrument for the purposes of the Legislative Instruments Act 2003 and is a disallowable instrument.

Civil penalties and infringement notices

2.59 New sections 64B, 64D, 64E, 64F and 64J of the CE Act are covered by existing civil penalty provisions in Part 17 of the CE Act. Subsection 252(4) of the CE Act provides that the pecuniary penalty payable by a body corporate must not exceed 10,000 penalty units (currently $1.1 million) for each contravention of a civil penalty provision. Subsection 252(6) of the CE Act provides that the pecuniary penalty payable by a person other than a body corporate must not exceed 2,000 penalty units (currently $220,000) for each contravention. The maximum levels of civil penalties reflect the seriousness of the contraventions and represent clear and strong disincentives for non-compliance. Any civil penalties provided for in the CE Act are maximums and any penalty that may be imposed by a court will be determined according to the circumstances of the particular case. The integrity of the carbon pricing mechanism could be compromised by liable entities or other market participants acting in a manner that is designed to avoid liability or mislead the Regulator by misusing the natural gas notification provisions. For further information about the application of civil penalties under the CE Act see paragraphs 7.73 to 7.94 of the Revised Explanatory Memorandum to the Clean Energy Bill 2011 . [Item 53, new section 64B(2), CE Act] [Item 53, new section 64D(7), CE Act] [Item 53, new section 64E(7), CE Act] [Item 53, new section 64F(3), CE Act] [Item 53, new section 64J(3), CE Act]

2.60 As a civil penalty applies to misusing the natural gas notification provisions, a person may also be the subject of an infringement notice under Part 18 of the CE Act. The applicable infringement notice penalty would be 2,000 penalty units (currently $220,000) for a corporation or 400 penalty units (currently $44,000) for any other person. For further information about the application of infringement notices under the CE Act see paragraphs 7.58 to 7.72 of the Revised Explanatory Memorandum to the Clean Energy Bill 2011.

2.61 In a proceeding for a civil penalty order against a person for misusing the natural gas notification provisions, it is not necessary to prove that person's state of mind, including the person's intention, knowledge, recklessness, negligence or any other state of mind under section 262 of the CE Act. Implicit in this is a reasonable expectation that those subject to the provision will take steps to prevent inadvertent contraventions . [Item 88, subsections 262(1)(ma)-262(1)(me), CE Act]

Clarifying the Interim Emissions Numbers for Facilities

2.62 Items 80A, 80B and 80C amend paragraphs 126(2)(a) and (b) and subsection 126(4) of the Clean Energy Act 2011 to confirm that, subject to section 127, all liable entities for facilities will have an interim emissions number in 2012-13 and subsequent fixed price years and will, therefore, have a provisional surrender obligation in those years. The amendments remove any potential ambiguity in the drafting and do not change the policy in those provisions . [Item 80A, subsection 126(2)(a), CE Act] [Item 80B, subsection 126(2)(b), CE Act] [Item 80C, subsection 126(4), CE Act]

2.63 The amendments make it clear that an interim emissions number is not dependent on a provisional emissions number for a facility arising under a particular provision of the CE Act for two consecutive years, but that a provisional emissions number for a facility may arise under different provisions of Division 2, Part 3 of the CE Act with respect to those years. For example holders of a liability transfer certificate (LTC) and participants in declared designated joint ventures will have an interim emissions number in the first year they are issued with LTCs or become participants in declared designated joint ventures . [Item 80A, subsection 126(2)(a), CE Act] [Item 80B, subsection 126(2)(b), CE Act] [Item 80C, subsection 126(4), CE Act]

2.64 Item 80D amends subparagraphs 127(1)(d)(ii) and (iii) of the CE Act to ensure consistency with the drafting in the new paragraphs 126(2)(a) and (b) and subsection 126(4) (see above) . [Item 80D, subsection 127(1)(d)(ii) and (iii), CE Act] These amendments do not alter the policy intent of section 127 of the CE Act, which is to provide that a provisional surrender will not be required concerning direct emissions from facilities that:

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were not required to provide a report under the NGER Act for the previous financial year (noting that this exception does not apply to natural gas suppliers, which will be required to make a progressive payment for supplies of natural gas);

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had covered emissions of less than 35,000 tonnes of CO2 equivalent greenhouse gases in the previous financial year; or

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are reasonably expected to have covered emissions of less than 35,000 tonnes of CO2 equivalent greenhouse gases in the current financial year.

Changes to the Opt-in Scheme eligibility test

2.65 The Opt-in Scheme is to be set out in regulations. A person who meets the Opt-in Scheme's criteria can choose to have emissions from specified liquid fuels covered directly under the carbon pricing mechanism instead of paying an equivalent carbon price through the fuel tax system. The amendments augment the existing provisions of Part 3, Division 7 of the CE Act. ^[14]

2.66 The eligibility test that must be passed by a designated opt-in person for that person to be liable for the potential emissions embodied in an amount of fuel makes reference to three classes of persons: members of a GST group, participants in a GST joint venture, and persons that are entitled to fuel tax credits for the fuel.

2.67 To provide consistency and clarity for all GST joint ventures, the eligibility test for the Opt-in Scheme is amended to include an explicit reference to GST joint venture operators as well as GST joint venture participants . [Item 54, section 92A, CE Act] [Item 55, section 92A, CE Act] [Item 56, section 92A, CE Act] [Item 57, section 92A, CE Act]