Senate

Revised Explanatory Memorandum

(Circulated by authority of the Minister for Climate Change and Energy, the Hon. Chris Bowen MP)

GLOSSARY

GENERAL OUTLINE

Under the Paris Agreement, to which Australia is a Party, countries are taking action to limit global warming to well below 2, and preferably to 1.5, degrees Celsius compared to pre-industrial levels. To achieve this goal, countries are required to communicate their Nationally Determined Contribution, or NDC, which sets out their emissions reduction ambitions. On 16 June 2022, Australia communicated its updated NDC under Article 4 of the Paris Agreement to the UN. This updated NDC included confirmation of Australia's commitment to achieve net zero emissions by 2050, and a new, increased, 2030 target of 43 per cent below 2005 levels by 2030. The Climate Change Act 2022 prescribes these commitments into Australian law.

The Australian Government is reforming the Safeguard Mechanism as part of its whole-of-economy plan to reduce emissions to meet these legislated targets. The reforms will support industry to reduce emissions efficiently, helping them maintain competitiveness as the global economy decarbonises.

Many businesses that operate facilities covered by the Safeguard Mechanism have made long-term climate commitments that match or surpass Australia's climate targets. The reforms will provide a supportive policy framework for industry to meet these commitments, with the right signals to drive investments in emissions reductions, and flexibility so that businesses find the lowest cost abatement, wherever it occurs.

The proposed changes include reducing Safeguard Mechanism baselines and enabling Safeguard facilities that stay below their baselines to generate tradable credits, known as Safeguard Mechanism Credits or SMCs. The purpose of the Bill is to enable the crediting element of the reforms.

The Bill will amend the National Greenhouse and Energy Reporting Act 2007 (NGER Act) and Australian National Registry of Emissions Units Act 2011 (ANREU Act) to establish the framework for creating SMCs, covering how credits are issued, purchased, and included in Australia's National Registry of Emissions Units. These credits each correspond to a tonne carbon dioxide equivalent of emissions (or difference in emissions compared to a facility's baseline) and can be traded and used by other facilities to reduce their net emissions.

Crediting would mean that facilities with emissions below baseline levels have an incentive to further reduce their emissions if they have cost-effective emissions reduction opportunities.

To maintain the integrity of Australia's offsets framework under the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act), and because facilities covered by the Safeguard Mechanism will be eligible to receive SMCs, the Bill contains amendments to enable eligible offsets projects at Safeguard-covered facilities to be phased out.

The Bill also includes amendments to address inconsistencies in the framework for protecting information under the CER Act and the NGER Act. These amendments implement Recommendation 14 of the Climate Change Authority's 2018 Review of the NGER Act.

The Bill envisages the continued use of Australian Carbon Credit Units (ACCUs). The recent Independent Review of ACCUs (the ACCU Review) made 16 recommendations to help strengthen the integrity, transparency and provide participants with greater confidence in the scheme. The Government has accepted all 16 recommendations in principle. The Bill will amend the CFI Act to implement the first stage of the Government's response to the ACCU Review.

Legislative rules

The Bill includes a number of provisions for the Minister to make legislative rules prescribing certain matters. Consultation will be undertaken in developing or amending any such legislative rules, and the usual disallowance processes apply.

The NGER Act provides for safeguard rules on the detailed elements of the framework for issuing SMCs such as application processes, the number of units issued, how that number is worked out, conditions that may be imposed, and any rights of review or reconsideration. This structure is necessary because the crediting framework is inextricably linked to the technical details of how Safeguard baselines are determined. As baseline determinations are set out in the safeguard rules, it is appropriate for the details of the crediting framework to also be set out in the safeguard rules. In addition, item 37 of Schedule 1 of the Bill requires the Minister to only make safeguard rules that are consistent with the objects of the NGER Act.

The provisions in the ANREU Act for delegated legislation related to SMCs essentially ensure consistent treatment with ACCUs.

FINANCIAL IMPACT STATEMENT

The Bill has no financial impact on the Australian Government Budget. Any financial impacts of rules made under provisions within this Bill would be outlined in the relevant explanatory statement. The remuneration for the full-time Emissions Reduction Assurance Committee Chair will be determined by the Remuneration Tribunal.

CONSULTATION

The Department released a consultation paper on reforms to the Safeguard Mechanism on 22 August 2022 and submissions were open until 20 September 2022. Over 240 submissions were received and all non-confidential submissions were published on the Department's website.

An exposure draft of the Bill was open to public consultation from 10 October 2022 to 28 October 2022. Submissions from over 50 businesses, industry groups and individuals were received during the consultation period and all non-confidential submissions were published on the Department's website.

In response to submissions on the exposure draft, the Bill now includes an amendment to the objects of the NGER Act, and requires the Minister to be satisfied that the safeguard rules are consistent with the objects of the Act. The Bill will add to the second object of the Act a reference to ensuring that the aggregate net covered emissions from the operation of facilities covered by the Safeguard Mechanism decline. The purpose of the second object of the Act to contribute to the achievement of Australia's greenhouse gas emissions reduction targets is unchanged.

Under the NGER Act, an excess emissions situation occurs if the net emissions of a facility covered by the Safeguard Mechanism exceeds its baseline, and there is a duty to ensure that an excess emissions situation does not exist. In response to feedback that the penalty for an excess emissions situation should reflect the impact on the climate, the Bill now includes provisions that will base penalties for an excess emissions situation on both the size of the excess emissions situation and the number of days in which the excess emissions situation exists.

The exposure draft Bill provided for publication of holdings of ACCUs and SMCs in Registry accounts. Some submissions raised concerns about this provision. To address these concerns, the Bill has been updated so that legislative rules can provide for publication. This will allow for further consultation, to ensure the final settings provide for increased transparency while appropriately addressing matters raised by stakeholders.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Safeguard Mechanism (Crediting) Amendment Bill 2022

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

The Safeguard Mechanism provides a robust, legislated framework that limits the net emissions of around 215 large industrial facilities-those with more than 100,000 tonnes carbon dioxide equivalent each year. To date, the Safeguard Mechanism has not been designed to reduce emissions. Instead, emissions limits-known as baselines-have been calibrated to track business-as-usual operations.

Under the Paris Agreement, to which Australia is a Party, countries are required to communicate their Nationally Determined Contribution, or NDC, which sets out their emissions reduction ambitions. On 16 June 2022, Australia communicated its updated NDC under Article 4 of the Paris Agreement to the UN. This updated NDC included confirmation of Australia's commitment to achieve net zero emissions by 2050, and a new, increased, 2030 target of 43 per cent below 2005 levels by 2030. The Climate Change Act 2022 prescribes these commitments into Australian law.

The Safeguard Mechanism (Crediting) Amendment Bill 2022 (the Bill) builds on the Climate Change Act 2022 and incentivises facilities covered by the Safeguard Mechanism to reduce emissions and contribute to Australia's international commitments. The reforms to the Safeguard Mechanism will support emissions reductions in the industrial sector, helping to ensure Australian businesses can remain competitive as the world decarbonises.

Many businesses that operate facilities covered by the Safeguard Mechanism have made long-term climate commitments that match or surpass Australia's climate targets. Reforms to the Safeguard Mechanism will provide a supportive policy framework for industry's climate change commitments, and provide the right signals to drive investments in emissions reductions.

Many of the details of the design of the Safeguard Mechanism, such as how baselines are set, are contained in subordinate legislation referred to as safeguard rules, such as the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015. A core element of the reforms to the Safeguard Mechanism will be a framework where baselines decline predictably and gradually over time. It is important to do this efficiently, so that business find the lowest cost abatement, wherever it occurs. Doing so supports strong emissions reductions being delivered by Safeguard facilities.

To support this, the Bill provides for credits, known as Safeguard Mechanism Credits or SMCs, to be issued to facilities whose emissions are below baseline levels. These credits each represent a tonne of emissions and can be traded and used by other Safeguard covered facilities to reduce their net emissions. This means that facilities with emissions below baseline levels will retain an incentive to reduce their emissions if cost-effective emissions reduction opportunities exist.

Human rights implications

The amendments in the Bill will primarily regulate entities or corporations, which are not covered by human rights treaties, rather than individuals.

The Bill engages, or may engage, the following human rights:

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the right to privacy - Article 17 of the International Covenant on Civil and Political Rights (ICCPR)

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the right to freedom of expression - Article 19 of the ICCPR.

The Bill will primarily regulate entities rather than individuals

While the amendments in the Bill purport to place various obligations on "persons", generally it uses that term to denote an entity which is not an individual, including body corporate safeguard-covered entities and greenhouse gas project proponents (see the definition of "person" under sections 2B and 2C of the Acts Interpretation Act 1901).

The primary classes of "persons" that will be regulated by Schedule 1 of this Bill are "responsible emitters", as defined in 22XH of the National Greenhouse and Energy Reporting Act 2007 (NGER Act), for facilities covered by the Safeguard Mechanism. These entities are listed on the Clean Energy Regulator's website at https://www.cleanenergyregulator.gov.au/NGER/The-safeguard-mechanism, and it is understood that each so listed is a constitutional corporation.

As such, there are very few provisions of the Bill that regulate and consequently limit the human rights of individuals.

Amendments in relation to the protection of certain information in Schedule 3 of the Bill may impact the treatment of an individual's personal information, or limit what information individuals can disclose, and therefore are dealt with below. Other provisions which are likely to impact individuals do not engage any human rights.

Right to Privacy and Reputation - Article 17 ICCPR

Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with a person's privacy, family, home and correspondence, and unlawful attacks on a person's reputation. The right to privacy includes respect for informational privacy, including in respect of storing, using and sharing personal information, and the right to control the dissemination of this information. It also provides that persons have the right to protection of the law against such interference or attacks. The rights contained in Article 17 of the ICCPR may be subject to permissible limitations where limitations are authorised by law and are non-arbitrary. For limitations to be non-arbitrary they must be reasonable, necessary and proportionate to a legitimate objective.

Provide for publication of certain information on the Regulator's website including holdings of ACCUs and SMCs in the Registry and carbon estimation areas

Schedule 1 of the Bill amends the NGER Act to enable legislative rules to require the Regulator to publish information on its website. Proposed section 22XNG engages the right to privacy by requiring the Regulator to publish certain information (including personal information) in relation to relinquishment requirements on the Regulator's website.

Schedule 2 of the Bill amends the Australian National Registry of Emissions Units Act 2011 (ANREU Act) to enable legislative rules to require the Regulator to publish information about holdings of ACCUs and SMCs held in Registry accounts and the registered holders of such units. This engages the prohibition on unlawful or arbitrary interference with privacy to the extent that it relates to personal information regarding the registered holders of such units. The Registry includes the names of registered holders of such units but does not include sensitive information as defined in the Privacy Act 1988. Proposed sections 63, 65(2) and 66(2) also engage the right to privacy by requiring the Regulator to publish certain information (including personal information) in relation to ACCUs and SMCs on its website.

Publishing this information is reasonable and necessary to provide transparency on the operation of the SMC framework and proportionate for the scrutiny of the Safeguard Mechanism's contribution to meeting Australia's climate targets. A statement of compatibility with human rights, including the right to privacy, would be prepared in relation to any legislative rules made under these provisions.

These changes do not limit the prohibition on unlawful or arbitrary interference with privacy. The Bill builds upon existing provisions in the Clean Energy Regulator Act 2011 (CER Act) and provides a lawful basis for obtaining, storing and sharing personal information appropriately. The provision and use of personal information occurs to the extent that it is necessary, reasonable and proportionate to administering the schemes. Existing secrecy provisions in section 43 of the CER Act and subsection 47(3) of the CER Act do not authorise the release of personal information, and this restriction will be maintained by the Bill to ensure privacy of personal information is adequately protected.

Schedule 4 of the Bill requires the publication of carbon estimation area information and other information prescribed by the rules. It is not expected that information that would be published would generally include personal information. It is also expected that most project proponents would be body corporates, for which the protection in the Privacy Act will not apply.

Notwithstanding this, there is a risk that, in limited circumstances, some carbon estimation

area information would be able to be used to infer identity of an individual through a

combination of the carbon estimation area location, the Register, and a title search.

Accordingly, the amendments proposed by items 1A and 8 to 14 of Part 2 of Schedule 4 to

the Bill would involve a limitation on the right to privacy. However, this limitation is reasonable, necessary and proportionate to achieve legitimate objectives. This is because the amendments are intended to implement recommendation 4 of the Independent Review of Australian Carbon Credit Units (ACCU Review).

Requiring the publication of carbon estimation information data about offset projects is intended to achieve the legitimate objective of improving transparency around projects and their efficacy in reducing emissions (and in particular, to help re-establish that relevant offset projects generate genuine carbon abatement). This, in turn, is intended to address the ACCU Review's findings that lack of transparency about projects was undermining public trust in scheme.

Similarly, allowing the rules to prescribe additional information to be published that is relevant to Australia's meeting its obligations under the UNFCCC, Kyoto Protocol, Paris Agreement or another international agreement is reasonable and proportionate as it is consistent with the objects of the CFI Act, which are intended to implement Australia's international obligations.

It should also be noted that information that has been given to the Regulator by a project proponent will generally have been provided by a person who is choosing to participate in the carbon credit market under the CFI Act. A person who has voluntarily participated the carbon credit market under the CFI Act should expect that, in order to obtain the benefits of the system, a certain amount of personal information will need to be provided to the Regulator and that that information may be used in the administration of the relevant legislation. Given that one of the objects of the CFI Act is to facilitate compliance with Australia's international obligations relating to climate change and emissions reduction, such persons should also expect that information collected under that Act may also be used for such purposes.

For these reasons, this limitation to the right to privacy is reasonable, necessary and proportionate to achieve legitimate objectives and is consistent with the right to privacy in Article 17 of the ICCPR.

Address inconsistencies in the framework for protected information

Schedule 3 of the Bill amends the CER Act and the NGER Act to address inconsistencies in the framework for protecting information obtained prior to April 2012, which engages the right to privacy. This amendment will ensure that protected information under the CER Act includes all information held by the Regulator regardless of when it was obtained. As a result, the Regulator will retain its ability to disseminate emissions and energy information obtained prior to 2 April 2012.

The vast majority of protected information affected by these amendments will relate to entities that are not individuals. However, the changes in the Bill engage the prohibition on unlawful or arbitrary interference with privacy, as it is considered that protected information obtained under the CER Act and NGER Act may include personal information. These changes do not limit the prohibition on unlawful or arbitrary interference with privacy. The Bill builds upon existing provisions in the CER Act and NGER Act, and provides a lawful basis for storing and sharing personal information appropriately. The provision and use of personal information occurs to the extent that it is necessary, reasonable and proportionate to administering the schemes. Existing secrecy provisions in section 43 of the CER Act, subsection 47(3) of the CER Act and Part 4 of the NGER Act do not authorise the release of personal information, and these restrictions will be maintained by the Bill to ensure privacy of personal information is adequately protected.

The changes made by the Bill to address inconsistencies in the framework for protecting information do not limit the right to privacy, as they do not impact existing protections for personal information and are both lawful and non-arbitrary to the extent that personal information is used .Right to freedom of expression - Article 19 ICCPR

Schedule 3 of the Bill engages the right to freedom of expression in Article 19 of the ICCPR. Item 16 of Schedule 3 engages the right to freedom of expression. It amends section 27 of the NGER Act - which provides for certain disclosures of information to States and Territories - by maintaining an offence for non-compliance with conditions on the disclosure of information. The level of the offence is consistent with the offence under the existing legislative framework that is repealed by item 11 of Schedule 3 of the Bill.

This provision limits the right to freedom of expression by imposing a penalty on certain disclosures of greenhouse and energy information.

Article 19(2) of the ICCPR states that 'everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds'. Article 19(3) of the ICCPR provides that the right to freedom of expression may be subject to 'certain restrictions' if they are provided by law and necessary for respect of the rights or reputations of others, for the protection of national security, public order, or public health or morals. This would extend to the right to protection of sensitive commercial-in-confidence information collected in audits.

The disclosure of information offence ensures all audit information will be appropriately protected by auditors, and that audit information cannot be disclosed to another person except where specified by law. This therefore engages the right to freedom of expression by establishing measures that may restrict the communication or publication of certain information collected in the conduct of such audits.

The restrictions are considered compatible with the purpose of protecting the rights or reputations of others under Article 19(3) of the ICCPR because they are reasonable, necessary and proportionate to promote the integrity of audits carried out under the NGER Act, ensure businesses' commercial-in-confidence information is sufficiently protected and are consistent with other existing restrictions under the NGER Act and CER Act. Further, individual auditors impacted by these provisions participate in the scheme voluntarily, and operate in a profession where maintaining commercial confidentiality is a matter of standard practice.

Conclusion

The Bill is compatible with human rights as it promotes the protection of human rights, and only limits human rights insofar as it is reasonable, necessary and proportionate to the legitimate goals of the amendments.

Notes on Clauses

Clause 1 Short Title

1. Clause 1 provides for the Safeguard Mechanism (Crediting) Amendment Bill 2022 (the Bill), when enacted, to be cited as the Safeguard Mechanism (Crediting) Amendment Act 2022.

Clause 2 Commencement

2. Clause 2 provides for the commencement of the Bill. The table under clause 2 provides for the commencement for each provision of the Bill as specified.

3. The table .would have the effect that:

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clauses 1 to 3 of the Bill (and anything in the Bill not elsewhere covered by the table) would commence the day the Bill receives the Royal Assent;

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Schedule 1, 2 and 3 to the Bill, and Part 1 of Schedule 4 to the Bill, would commence on the day after the Bill receives the Royal Assent;

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Part 2 of Schedule 4 to the Bill would commence on a date fixed by proclamation or, if no proclamation is made within 6 months of the Bill receiving the Royal Assent, on the day after the end of that period.

4. Subclause 2(2) provides that any information in column 3 of the table is not part of the Act. It also clarifies that information may be inserted in column 3 of the table, or information in it may be edited, in any published version of the Act.

Clause 3 Schedules

5. Clause 3 provides that legislation that is specified to be amended or repealed as set out in a Schedule to the Bill has effect according to the terms of the relevant Schedule.

6. Schedule 1 to the Bill amends the NGER Act to create SMCs and apply the laws about registration, transfers and compliance obligations to SMCs that are consistent with the treatment of ACCUs. Schedule 1 to the Bill also amends the Income Tax Assessment Act 1997 so that SMCs receive the same tax treatment as other specified units, like ACCUs.

7. Schedule 2 to the Bill amends the ANREU Act to provide for SMCs to exist in the Registry and establish arrangements for SMCs in the Registry that mirror the treatment of ACCUs.

8. Schedule 3 to the Bill amends the Clean Energy Regulator Act 2011 (CER Act), the NGER Act and the Clean Energy (Consequential Amendments) Act 2011 to ensure consistent protection of information held by the Regulator.

9. Schedule 4 to the Bill amends the CFI Act. These amendments relate to interactions between the Safeguard Mechanism and eligible offsets projects.

Schedule 1 - Safeguard mechanism

PART 1 - Amendment of the National Greenhouse and Energy Reporting Act 2007

Overview

10. The purpose of Part 1 of Schedule 1 to the Bill is to amend the NGER Act to establish the framework for issuing SMCs and enable them to be surrendered to reduce the net emissions number of facilities covered by the Safeguard Mechanism. It is intended that each SMC would correspond to a tonne carbon dioxide equivalent.

11. The amendments enable safeguard rules to provide for the issuance of credits to persons with a Registry account and who are registered under that Act. The rules would deal with issues such as Regulator determinations and audit requirements relating to the number of SMCs to issue. The rules could also specify if annual audit reports are required for crediting purposes or for assessing liability under Safeguard Mechanism obligations.

12. To further protect the integrity of SMCs, the Bill provides for the relinquishment of SMCs for false or misleading information or reporting, similar to provisions in the CFI Act related to ACCUs. The Regulator's general information gathering power is extended to the Act's associated provisions to ensure it has necessary information for issuing credits.

13. Section 22XM of the NGER Act specifies that ACCUs can be used to reduce the net emissions of Safeguard facilities and allows for the safeguard rules to determine what other units can be used to reduce the net emissions of Safeguard facilities. The Bill specifies that SMCs can also be used to reduce net emissions of Safeguard facilities.

14. The Bill amends section 15B of the NGER Act to enable a person other than a controlling corporation or responsible emitter for a designated large facility to register to report under the NGER Act. This could be used to allow facilities to continue to generate SMCs if they are no longer covered by the Safeguard Mechanism and are not covered by existing registration provisions in the NGER Act. This would mean that they continue to have an incentive to reduce emissions as they near the Safeguard Mechanism's coverage threshold.

15. The Bill makes it possible to transfer a percentage of all SMCs issued into a Commonwealth Registry account. These SMCs could then be transferred to facilities to manage carbon leakage risks or for other purposes.

16. The Bill adds provisions to the NGER Act (Subdivisions B and C of Division 4A) for relinquishment of SMCs issued as a result of false or misleading information or reporting, similar to provisions for relinquishment of ACCUs set out in the CFI Act.

National Greenhouse and Energy Reporting Act 2007

Item 1 Subsection 3(2)

17. Item 1 amends the second object of the NGER Act, which is to contribute to achieving national emissions reduction targets, so that it includes ensuring aggregate net emissions of Safeguard covered facilities decline.

18. Expressly stating that it is an object of the Act that aggregate Safeguard net covered emissions must decline helps to provide an understanding of the basis for the detailed provisions of the Bill, and ensures that the safeguard rules will achieve the objectives of the reforms.

19. For example, the Bill establishes a safeguard mechanism crediting framework, where SMCs could be issued to a facility that has emissions below its baseline, who may then sell the credits to a facility that has net emissions above its baseline. The Bill requires the detailed provisions for the crediting framework, including in subordinate legislation, to result in overall net emissions reductions. Item 37 of this Schedule requires the Minister to only make safeguard rules that are consistent with the Act's objects.

Items 2 and 3 Section 7; and Section 7 (definition of 1 March )

20. Items 2 and 3 replaces the definition of 1 March with a definition of 1 April. This reflects that item 24 of this Schedule changes the due date in subsection 22XF(1) for ensuring an excess emissions situation does not exist from 1 March to 1 April the following financial year.

21. An application provision (item 67) means that this new compliance date first occurs on 1 April 2025, so it applies to monitoring periods after the Safeguard reforms are intended to commence (1 July 2023). For previous monitoring periods the compliance due date remains 1 March.

Item 4 Section 7

22. Item 4 inserts the definitions of 'associated provisions', 'Commonwealth Registry account' and 'issue'. The definition of associated provisions is consistent with the CFI Act. This definition, referred to in subsequent items relating to auditing and enforcement, helps to ensure the Regulator will have the necessary enforcement information to issue SMCs. In particular, the Criminal Code provisions for obtaining benefits by the provision of false or misleading information are relevant to information with the potential to influence the issuance of SMCs.

23. The definition of Commonwealth Registry account ensures references to this term in the NGER Act will have the same meaning as in the ANREU Act.

24. The definition for 'issue' refers to the issue of SMCs under section 22XNA of the NGER Act, which is added by this Bill.

Item 5 Section 7 (definition of registered holder )

25. Item 5 amends the definition of 'registered holder' in the NGER Act to extend the types of units to which the term relates to include relinquishable units, as defined by the following item.

Item 6 Section 7

26. Item 6 inserts the definition for 'relinquishable unit' in the NGER Act, which means an ACCU or an SMC. The term helps establish that in certain situations both ACCUs and SMCs can be used to meet a requirement to relinquish issued SMCs. The person relinquishing units will be able to choose which unit to relinquish, providing flexibility if there is a temporary shortage of one of the unit types or the person has easier access to a particular unit type.

Item 7 Section 7 (definition of safeguard audit )

27. Item 7 amends the definition of 'safeguard audit' to include an audit for the purposes of issuing SMCs. Through a provision in this Bill, this is a type of audit set out in paragraph 22XNA(4)(c) of the NGER Act.

Item 8 Section 7 (definition of safeguard audit report )

28. Item 8 amends the definition of safeguard audit report to include a report of an audit for the purposes of issuing SMCs, so that they are subject to the general audit framework in the NGER Act. Through a provision in this Bill, this is a type of audit set out in paragraph 22XNA(4)(c) of the NGER Act.

Item 9 Section 7

29. Item 9 inserts the definition of 'safeguard mechanism credit unit' in the NGER Act, which means a unit issued under the provisions set out in section 22XNA of the NGER Act for issuing SMCs.

30. The reference to 'unit' in this definition is consistent with the use of 'unit' in the Registry, which is particularly relevant to the general provisions for units in the ANREU Act.

Item 10 Section 7 (after paragraph (c) of the definition of safeguard provisions )

31. Item 10 amends the definition of 'safeguard provisions' in the NGER Act so that it also covers the provisions relevant to SMCs. These provisions relate to prerequisites for issuing a person SMCs set out in paragraph 18B(3)(ba).

Item 11 Paragraph 9(1)(b)

32. Item 11 amends the meaning of a facility in the Act so it includes a declaration of a facility made by the Regulator under section 54B, in addition to declarations made under sections 54 and 54A.

33. Section 54B is inserted by item 46 of this Schedule and concerns facility declarations made on the Regulator's own initiative as an anti-avoidance measure.

Item 12 At the end of section 10

34. The existing subsection 10(3) of the NGER Act allows the Minister to make legislative instruments that set out methods for measuring various emissions and energy information (measurement determinations). This item adds new subsections 10(4) to 10(8), which help ensure a robust measurement framework to support issuing SMCs.

35. The new subsections 10(4) and 10(5) allow the measurement determination to apply, adopt or incorporate matters contained in other instruments (such as an industry standard), as in force or existing at a particular time or as in force from time to time. This is consistent with the treatment of legislative instruments under the CFI Act and the Renewable Energy (Electricity) Act 2001 (the REE Act). It is important that the measurement of emissions and energy at facilities uses the latest industry standards or Government-prescribed emissions or energy content factors, and that reporters are not required to use superseded standards because of the way they have been incorporated into measurement determinations. This will also enhance the ability for reporting to be consistent with Australia's international emissions and energy reporting obligations.

36. When the measurement determination refers to another document (whether it is as in force or existing at a particular time, or from time to time), it is intended that the explanatory statement would provide a description of the incorporated documents and an indication of how they may be obtained. Where an incorporated document is available for free online, the explanatory statement would provide details of the website where the document may be accessed.

37. The new subsection 10(6) requires the Regulator to publish on its website the text of any applied, adopted or incorporated matter. This is to ensure that those obliged to obey the law have adequate access to its terms. The Regulator is not required to publish the matter if publication would infringe copyright (subsection 10(7)).

38. The new subsection 10(8) allows the measurement determination to provide in relation to a matter by conferring a power on the Regulator to make an administrative decision. This is consistent with the treatment of legislative instruments under the CFI Act and the REE Act and is intended to remove any doubt about the issue. An example of such a decision is where the approval of the Regulator may be required to use a particular measurement or estimation technique. Although the Act does not place a statutory requirement for seeking an internal review of a decision by the Regulator, the Regulator could consider the need for review rights for such decisions if any are conferred on the Regulator.

Items 13, 14, 15 and 16 Subdivision B of Division 1 of Part 2 (heading); Section 15B (heading); After subsection 15B(3); and Subsection 15B(4)

39. Item 15 inserts subsection (3A) to section 15B of the NGER Act to enable a person other than a controlling corporation or responsible emitter for a designated large facility to register to report under the NGER Act. This could be used to allow facilities to continue to generate SMCs if they are no longer covered by the Safeguard Mechanism and would not otherwise be able to register. This would mean that they continue to have an incentive to reduce emissions as they near the Safeguard Mechanism's coverage threshold. The safeguard rules would set out the detail on which persons may register to report emissions.

40. Items 13 and 14 amend the headings in section 15B to clarify that its provisions now apply to persons who are not controlling corporations, and not necessarily responsible emitters for designated large facilities.

41. Item 16 extends the existing requirements for submitting an application to register to report to those registering under the new subsection 15B(3A).

Item 17 After paragraph 18B(3)(b)

42. Item 17 inserts paragraph 18B(3)(ba) into the NGER Act to amend the conditions for the Regulator to deregister a person from reporting under the NGER Act to include that if the person has been issued SMCs, then the Regulator is satisfied they have complied with relevant requirements specified in the safeguard rules. Reporting of emissions is important for facilities who have been issued SMCs and this provision will ensure that deregistration is not used to avoid reporting.

Items 18, 19 and 20 Paragraph 22XB(1)(b); Paragraphs 22XB(1) (note); and At the end of subsection 22XB(1)

43. Item 18 amends paragraph 22XB(1)(b) of the NGER Act to provide an obligation for facilities to report covered emissions if that facility is specified in the safeguard rules.

44. This reporting obligation applies if a reporting obligation is otherwise not required under sections 19, 21, 22G and 22X of the NGER Act, or under the other provisions of 22XB that apply to non-controlling corporations with safeguard obligations, such as trusts or corporations other than constitutional corporations.

45. Item 18, alongside item 15, enables facilities to be able to continue to generate SMCs if they are no longer covered by the Safeguard Mechanism. Item 18 is relevant when the facility would not otherwise report under the NGER scheme. These items complement each other, as they together could allow a facility to register to report (under new subsection 15B(3A)) and to submit a report (under amended paragraph 22XB(1)(b)) in circumstances where a facility does not meet registration and reporting provisions in the Act that relate to either controlling corporations, or non-controlling corporations of designated large facilities. Both provisions apply to facilities specified in the safeguard rules.

46. Item 20 adds a note to section 22XB alerting that subsection 13(3) of the Legislation Act 2003 is relevant when specifying in the safeguard rules which facilities must report emissions. This section of the Legislation Act relates to specifying in legislation a class or classes of matters, which in the context of this provision means a class of facilities.

47. Item 19 updates the numbering of the notes to section 22XB to reflect there are now two notes.

Item 21 At the end of Section 22XD

48. Item 21 amends the simplified outline to Part 3H to reflect that the NGER Act includes provisions for SMCs, namely for issuing and relinquishing SMCs.

Items 22, 23, 24, 25, 26 and 45 Subsection 22XF(1); Subsection 22XF(1); Paragraphs 22XF(1)(c) and (d); Subsection 22XF(1) (civil penalty); Subsections 22XF(2) to (4); and Paragraph 49(1)(q)

49. Items 24 to 26 amend section 22XF to set a maximum new civil penalty for an excess emission situation and change the due date for resolving an excess emissions situation. An excess emissions situation exists when a facility's net emissions are above its baseline.

50. Under existing subsections 22XF(2) to (4), the maximum civil penalty for an excess emissions situation is set out in the NGER Regulations. Setting the penalty in regulations is inconsistent with the expression of other civil penalties directly in the Act.

51. Items 25 and 26 therefore set the new maximum civil penalty into subsection 22XF(2). The maximum penalty is set to be at the level of 1 penalty unit multiplied by the size of a facility's excess emissions (the net emissions number for a facility and monitoring period minus the baseline emissions number for a facility and monitoring period).

52. Item 24 extends the date for resolving an excess emissions situation by one month from 1 March to 1 April. This extra time provides responsible emitters an opportunity to resolve an excess emissions situation, such as to source and surrender prescribed carbon units. The new compliance date will first apply on 1 April 2025.

53. Items 22 and 23 update section 22XF so that it applies to 1 April after the relevant monitoring period, rather than any day on or after 1 April. This means that there is a continuing contravention if an excess emissions situation is not resolved, so that section 30 of the NGER Act is applicable.

54. This approach for setting the maximum civil penalty differs to the existing penalty that is set in the NGER Regulations, which for a non-individual is 100 penalty units for each day in an excess emissions situation, up to a maximum of 10,000 penalty units. For an individual, the existing penalty is 20 per cent of this amount. However, no responsible emitters covered by the Safeguard Mechanism are individuals. All responsible emitters so far are corporations, and the only responsible emitters likely to be covered in the future that are not corporations could be local governments that operate landfills (if those entities are not corporations).

55. In order for civil penalties to be fair, there should be a degree of proportionality between the seriousness of the contravention and the quantum of the penalty. The impact of greenhouse gas emissions on climate change depends on the magnitude of emissions, and measuring emissions using 'carbon dioxide equivalent' allows different greenhouse gases to be considered in a way that reflects their impact on climate change. As such, changing the maximum penalty to be based on the size of the excess emissions situation represents a proportional scale model of penalty amounts, based on clear and objective criteria. The penalty better reflects the scale of the contravention and its impact on achieving Australia's emissions reduction targets and on climate change.

56. The level of the maximum penalty, being set at 1 penalty unit per tonne carbon dioxide equivalent of excess emissions, is intended to be commensurate with the adverse economic impacts of climate change, now and in the future, of a carbon dioxide equivalent tonne of greenhouse gas emissions on humans and ecosystems.

57. Relevant adverse economic impacts include damage to infrastructure, property and natural habitats from sea level rise; effects on agricultural productivity; effects on human health; property damage from increased frequency and severity of flooding, bushfires and other events caused by changed climate and weather patterns; and adverse consequences of species extinction and other changes to the value of ecosystem services.

58. In the first five financial years that the Safeguard Mechanism operated, there have been no excess emissions situations. In some cases responsible emitters have surrendered ACCUs in order to avoid an excess emissions situation. When this has occurred, the number of ACCUs surrendered has ranged between 152 ACCUs and 133,104 ACCUs, and averaged at around 18,000 ACCUs. This provides a broad indication of the potential size of a civil penalty if it arises. The potential size of any excess situations could increase as baselines decline, but will not exceed the total covered emissions of a facility. Large civil penalties could arise, but this reflects that the Safeguard Mechanism covers many of Australia's largest greenhouse gas emitters and reflects the potential significance of an excess emissions situation.

59. Importantly, as is currently the case, the amount of any penalty imposed for a breach will be decided by the court taking into account relevant matters prescribed by subsection 31(4) of the NGER Act, including 'the nature and extent of the contravention', 'the circumstances in which the contravention took place' and 'whether the person has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct'.

60. As a result of the changes to section 22XF that are introduced by the items above, item 45 updates the scope of injunctions in subsection 49(1) so that the reference to an excess emissions situation remains valid.

Items 27 and 28 Subsection 22XK(2); and After subsection 22XK(2)

61. Items 27 and 28 amend the provision in the NGER Act that provides for the net emissions number of a Safeguard facility to be reduced by the number of prescribed units it surrenders.

62. Item 27 inserts paragraphs 22XK(2)(c) and (d) that allow the safeguard rules to set rules on how the surrender of prescribed units reduces the net emissions number, for the case the reduction should not simply be by the number of surrendered prescribed units.

63. Item 28 inserts subsection 22XK(2A) providing that the safeguard rules can further set requirements based on the kind of prescribed unit, so that the reduction in net emissions is less than the number of prescribed units surrendered.

64. These amendments reflect that, to date, the only type of prescribed carbon unit has been ACCUs. However, the Bill provides for SMCs to also be prescribed carbon units, and prescribing other units could be considered in the future. With these changes the rules could account for situations where the units have different supply levels or characteristics or more than one unit needs to be surrendered for each tonne of emissions.

Item 29 At the end of section 22XK

65. Item 29 inserts subsection 22XK(5) of the NGER Act to allow the safeguard rules to prescribe circumstances where subsection 22XK(4) does not apply. This allows the safeguard rules to provide circumstances where ACCUs would not be added to the net emissions number under subsection (4). This would address the potential situation where ACCUs are issued for emissions reductions that do not relate to emissions covered by the Safeguard Mechanism, such as reduction in scope 2 emissions or legacy landfill emissions, are added onto the net emissions number of a Safeguard facility.

66. This could ensure that net emissions numbers under the Safeguard Mechanism only reflect covered scope 1 emissions, and could allow existing offset projects that are credited ACCUs for reducing scope 2 emissions or legacy landfill emissions to be undertaken at Safeguard facilities without those activities artificially increasing net emissions numbers.

Item 30 After paragraph 22XM(1)(a)

67. Item 30 specifies that SMCs, in addition to ACCUs, are 'prescribed carbon units' in the NGER Act, which can be surrendered under section 22XK to reduce the net emissions number of a designated large facility to ensure that an excess emissions situation does not exist.

Items 31 and 32 Subsection 22XN(1); and Paragraph 22XN(2)(b)

68. Items 31 and 32 amend subsection 22XN(1) and paragraph 22XN(2)(b) of the NGER Act to require prescribed carbon units to only be surrendered if the person, the surrender, and the period comply with any requirements specified in the safeguard rules. The August 2022 consultation paper indicated that limits on certain types of prescribed carbon units could be contemplated in certain circumstances. For example, limits could be desirable on banking SMCs to use for compliance in future years. It may also be desirable to place limits on the period, for example to prevent surrenders being made with regard to periods in the future as a way of getting around future rule changes.

69. Item 31 also inserts subsection 22XN(1A) to set out that these requirements may relate to the quantities of different units surrendered, based on the kind of prescribed carbon units or particular conditions. Item 31 inserts subsection (1B) to clarify that the safeguard rules relating to the surrender requirements are not limited by the requirements set out in subsection (1A).

70. The amendments at items 27, 28, 31, and 32 are intended to provide flexibility that may be required to ensure the integrity of any new kinds of prescribed carbon units in the future. For example, item 31 means that rules could be made under subsection 22(1A) stating that the number of units of the new kind that is surrendered in relation to a monitoring period can be no more than 50 per cent of the facility's baseline for that monitoring period. These amendments, including the new subsection 22XK(2A), could also specify that if the number of these units that are surrendered exceeds 50 per cent of the facility's baseline, each additional unit surrendered would only reduce the facility's baseline by four-fifths of a tonne.

Item 33 At the end of section 22XN

71. Item 33 adds subsection 22XN(7) of the NGER Act to provide that the deemed surrender arrangements in subsection 22XN(6) do not apply in circumstances prescribed by the safeguard rules. The August 2022 consultation paper on the Safeguard Mechanism reforms sought feedback on options for removing deemed surrender, and this provision enables these options to be implemented. This provision also enables consistency with new subsection 22XK(5) (see item 29) as subsections 22XK(4) and 22XN(6) were always intended to be mirror provisions. In particular, it could avoid a potential circumstance where ACCUs are not added to a net emissions number because of rules under subsection 22XK(5), but are still taken to be deemed to be surrendered under subsection 22XN(6).

Item 34 After Division 4 of Part 3H

72. Item 34 inserts a new division to the NGER Act titled Division 4A-Safeguard mechanism credit units.

73. The new division has three subdivisions. Subdivision A relates to issuing SMCs, Subdivision B provides for the requirement to relinquish SMCs, and Subdivision C deals with compliance with a relinquishment requirement.

74. The provisions inserted in item 34 mirror the provisions for the issue and relinquishment of ACCUs set out in the CFI Act. Given the framework for the issue and relinquishment of SMCs and ACCUs underpin the integrity of the respective mechanisms it is appropriate that the requirements are similar.

Subdivision A - Issuing safeguard mechanism credit units

75. Subsections 22XNA(1) and (2) set out that the Regulator will issue SMCs on behalf of the Commonwealth, and that the safeguard rules may set provisions in relation to this issuance. Subsection (3) sets out that these provisions for issuance may cover how to apply for SMC issuance (if an application process is needed), how to work out the number of SMCs to issue and the conditions imposed by the Regulator on the person issued with SMCs.

76. The safeguard rules may also set out whether decisions related to issuing SMCs are reviewable or can be reconsidered. Such a provision would be consistent with the approach of ensuring decisions are correct and persons affected by decisions are treated fairly. It is intended that the decisions of the Regulator would be subject to review in the Administrative Appeals Tribunal, consistent with other schemes administered by the Regulator. The decision to issue SMCs is also listed as a reviewable decision under section 56 of the Act.

77. How the Regulator determines the number of SMCs to issue is a key element of the amendments, and subsection (4) sets out certain aspects for doing this that can be detailed in the safeguard rules. These aspects include the methodology the Regulator will use to determine the number of credits, how a person can apply for the Regulator to make this determination, and whether such an application should be accompanied with an audit report. Any such audit report would need to be prepared by a registered greenhouse and energy auditor who is the team leader. Using the pre-existing auditors registered under the NGER Act would increase administrative efficiency and reduce duplication.

78. The use of legislative rules for the crediting arrangements is necessary so that the crediting rules continue to be aligned with the existing safeguard rules which set baselines for facilities. The use of subordinate instruments for the detail of crediting is also consistent with the framework in the CFI Act. The legislative rules are subject to the usual disallowance process and will be consulted upon before being made or amended.

Entry in Registry account must be made if safeguard mechanism credit units issued

79. Section 22XNB directs the Regulator to issue SMCs through making an entry in the relevant person's Registry account. The SMC is therefore represented by an electronic entry in the Registry, rather than by a paper certificate. The Regulator can only issue SMCs to a registered person who has a Registry account. A registered person is someone whose application for registration under the NGER Act has been approved by the Regulator and their name is entered on the National Greenhouse and Energy Register.

80. Section 22XNC sets out that the Regulator will identify all issued SMCs with a financial year (their 'vintage'), with details of how to assign a vintage determined by the safeguard rules. For transparency, it is proposed that the safeguard rules would set out that each SMC has a vintage corresponding to the reporting period used to calculate the number of SMCs to be issued. The number of SMCs to issue would be worked out using data reported through NGER, which is reported in the financial year after emissions occur. Because emissions are reported after the financial year they occur, SMCs would not be issued until after the financial year used to calculate how many SMCs are issued.

81. Section 22XND provides for the situation that the government may hold SMCs in a registry account for specific purposes that could be detailed in the safeguard rules. It is appropriate that the detailed rules for the government's holding and use of SMCs are in subordinate legislation to align with the other detailed rules regarding crediting. The legislative rules are subject to the usual disallowance process and will be consulted upon before being made or amended.

Subdivision B - Requirement to relinquish safeguard mechanism credit units etc.

82. Subdivision B provides the ability to require relinquishment of issued SMCs where problems with their issuance have been identified. The provisions to identify and require relinquishment underpin the integrity of SMCs. It mirrors section 88 of the CFI Act which applies to ACCUs.

Regulator may require relinquishment of safeguard mechanism credit units etc. issued on false or misleading information

83. Section 22XNE sets out that if a person received SMCs because they or another person gave false or misleading information to the Regulator, then they would have to surrender the relevant number of relinquishable units. This means that the units surrendered do not necessarily have to be SMCs, but could be ACCUs. An example of this type of situation would be if a report relied on to determine the number of SMCs to issue contained inaccurate information about greenhouse gas emissions. Since the beginning of the NGER scheme, there have been a number of reports of greenhouse gas emissions resubmitted to correct minor reporting errors. Under the NGER Act the reports may be submitted by the responsible emitter who was also issued SMCs, but could also be submitted by a controlling corporation who is legally separate from the entity who is the responsible emitter with operational control of the facility.

84. Subsection 22XNE(2) directs the Regulator to set out the relinquishment requirement by written notice, and subsection (3) provides that the number of relinquished units cannot be more than the number of SMCs that were issued directly or indirectly as a result of the false or misleading information.

85. Subsection 22XNE(4) provides the person has 90 days to relinquish the units after the Regulator gives the written notice. If the person does not comply with the notice, then an administrative penalty is payable under section 22XNI.

86. The Regulator has a discretion of when to seek relinquishment and will consider all relevant circumstances in doing so. These decisions are subject to review under section 56 of the NGER Act.

Court may order relinquishment of safeguard mechanism credit units etc. issued as a result of fraudulent conduct

87. In addition to the above situation justifying a relinquishment requirement, section 22XNF provides that the Court may also order relinquishment of SMCs issued as a result of fraudulent conduct. It is equivalent to Part 13 of the CFI Act which applies to ACCUs.

88. Subsection 22XNF(1) sets out that conduct in relation to the issuing of SMCs may constitute contravention of certain provisions of the Criminal Code. For example, conviction for an offence against provisions of the Criminal Code specified in subparagraphs (1)(b)(i) to (viii) is one of the preconditions for a Court to order a person to relinquish units. The applicable provisions of the Criminal Code include section 136.1 which relates to giving false or misleading information to a Commonwealth entity.

89. Following a conviction against any of the specified provisions in the Criminal Code, subsection 22XNF(2) provides that the Court may order the offender to relinquish a number of units within a specified timeframe, based on an application from the Director of Public Prosecutions or the Regulator. Like the relinquishment provisions in section 22XNE, the units relinquished do not necessarily have to be SMCs, but could be ACCUs.

90. Paragraph 22XNF(1)(c) requires that the issue of at least some of the SMCs was directly or indirectly attributable to the commission of the offence. Subsection (2) means the Court can order a number up to the whole amount of units issued as it considers appropriate.

91. Subsection 22XNF(3) provides that a person must comply with the Court's order to relinquish units. If they do not comply, then an administrative penalty is payable. Subsection (4) clarifies that in order to comply with the Court's order, the person must specify that the Court's order is the reason they are relinquishing units during the relinquishment process.

92. Subsection 22XNF(5) clarifies that a person is required to comply with such an order from the Court even if they are not the registered holder of any credit units.

93. Subsection 22XNF(6) requires the Court to give a copy of the order to the Regulator.

94. Subsection 22XNF(7) defines Court to be the Court that convicted the person of the offence, the Federal Court of Australia or the Supreme Court of a State or Territory.

95. Subsection 22XNF(8), to avoid doubt, sets out that the provisions in section 22XNF do not affect the operation of Part VIIC of the Crimes Act 1914. This part of the Crimes Act relates to pardons, quashed convictions and spent convictions, and contains provisions which may mean a person is not required to disclose spent convictions as well as require persons aware of such convictions to disregard them.

Information on Regulator's website regarding relinquishment requirements

96. Section 22XNG requires the Regulator to publish on their website details of relinquishment requirements. Subsection (1) sets out the type of information to publish, including the person's name and details of the relinquishment requirement. This information contributes to transparency about the operation of SMC issuance.

97. Subsection 22XNG(2) provides that the Regulator will also indicate on the website whether the relinquishment requirement is the subject of an application for review made to the Administrative Appeals Tribunal, and the outcome of these reviews.

98. This section is equivalent to Division 4 of Part 12 of the CFI Act for ACCUs.

Subdivision C - Compliance with relinquishment requirement

Relinquishing safeguard mechanism credit units etc. to comply with requirements

99. Section 22XNH sets out the provisions for how to relinquish units (e.g. SMCs or ACCUs) in order to comply with a relinquishment requirement associated with the issue of SMCs. These provisions are equivalent to Part 15 of the CFI Act.

100. Subsection 22XNH(1) provides that a person can electronically relinquish units they hold by giving notice to the Regulator.

101. Subsection 22XNH(2) details that the notice they give to the Regulator must specify the units being relinquished, the reason why the units are being relinquished (such as in response to a Court order), and the details of the one or more accounts containing the units to be relinquished.

102. Subsection 22XNH(3) sets out that relinquished units are cancelled and removed from the person's Registry account by the Regulator.

103. Subsection 22XNH(4) requires the Registry to make a record of each notice transmitted to relinquish units.

Administrative penalty if relinquishment requirements not complied with

104. Section 22XNI sets out that failing to relinquish units as required will result in an administrative penalty. This is equivalent to section 179 of the CFI Act.

105. Subsection 22XNI(1) sets the scope of the section is in relation to the failure to meet a relinquishment requirement associated with the issue of SMCs.

106. The administrative penalty payable upon failure to meet a relinquishment requirement is proportional to the shortfall in relinquishment. Subsection 22XNI(2) sets out that if a person has relinquished none of the units required to be relinquished, then the penalty is calculated with the formula:

Penalty amount = Number of units required to be relinquished × Prescribed amount


107. Subsection 22XNI(3) sets out the administrative penalty in situations where the person has relinquished only some of the required units. In this case, the penalty is calculated with the formula:

Penalty amount = (Number of units required to be relinquished - Number of relinquished units) × Prescribed amount


108. The prescribed amount in these formulas is $20 for each unit not relinquished or 200% of the market value of a SMC as at the compliance deadline, whichever is greater. Subsection 22XNI(6) provides that the safeguard rules may set the method for working out the market value of SMCs.

109. Subsection 22XNI(4) sets out the administrative penalty is due and payable 30 days after the compliance deadline, which was the due date for the relinquishment requirement.

110. Subsection 22XNI(5) clarifies that a person is required to pay the penalty even if they are not the registered holder of sufficient relinquishable units to meet the relinquishment requirement.

Late payment penalty

111. Subsection 22XNJ(1) sets out that a late penalty will accrue if the administrative penalty was not paid by the specified time, in the same way as section 180 of the CFI Act. This penalty is worked out as an interest payment of 20% per annum of the unpaid amount, unless a lower rate is specified in the safeguard rules.

112. Subsection 22XNJ(2) empowers the Regulator to remit the late payment in part or whole if it is satisfied certain criteria are met. For example, the Regulator may remit some or all of the penalty if there are special circumstances. Subsection (3) provides that a person can make a written application to the Regulator to remit the late payment, or the Regulator can do this on its own initiative.

113. Subsection 22XNJ(4) directs the Regulator to notify the person who made a written application to remit the late payment, if the Regulator decides not to remit some or all of the penalty payment.

114. Section 22XNK provides that these administrative penalties are a debt due to the Commonwealth, in the same way as section 181 of the CFI Act.

115. Section 22XNL provides that the administrative penalties may be set-off against any amount payable to the person by the Commonwealth, in the same way as section 183 of the CFI Act.

116. Section 22XNM requires the Commonwealth to refund an overpayment of any of these administrative penalties with provisions in subsections (2) and (3) for interest to be paid by the Commonwealth on these overpayments, in the same way as section 182 of the CFI Act.

117. Subsection 22XNM(4) provides a power to allow the Consolidated Revenue Fund to be appropriated so that the Commonwealth can make interest payments on overpayments. This appropriation power is limited in the sense that the administrative penalty will apply only to persons who are required to relinquish credit units, but fail to do so.

118. Section 22XNN empowers the court to stay proceedings for recovery of an administrative penalty following failure to relinquish the required number of units, if the decision to require relinquishment is the subject of an application for review by the Administrative Appeals Tribunal.

119. In practice the Regulator is unlikely to pursue debts associated with an unmet relinquishment requirement while a decision about the requirement is under review. However, this provision provides greater certainty for participants in the Safeguard Mechanism about their ability to access the courts to halt recovery proceedings.

Item 35 After subparagraph 22XR(3)(b)(v)

120. This provision amends section 22XR, which provides an alternative constitutional basis for the safeguard provisions in the NGER Act. It means that in the situation where an alternative constitutional basis comes into operation and the external affairs power does not apply, item 35 provides that the persons referred to in the provisions related to issuing SMCs (section 22XNA) are confined to persons who are a constitutional corporation or an authority of the Commonwealth.

Items 36, 37 and 38 Subsection 22XS(1); After subsection 22XS(1); and At the end of section 22XS

121. Section 22XS allows the Minister to make safeguard rules that give effect to the safeguard provisions in the NGER Act, including those related to SMCs.

122. Items 36 and 37 inserts new subsection 22XS(1A) to require the Minister only make safeguard rules that the Minister is satisfied are consistent with the second object of the NGER Act. Note that item 1 of the Bill amends the Act's objects to include ensuring that aggregate net covered emissions of Safeguard covered facilities decline.

123. Item 38 adds new subsections 22XS(4) to (7).

124. Subsection 22XS(4) allows the safeguard rules to apply, adopt or incorporate matters contained in other instruments, as in force or existing at a particular time or as in force from time to time. Subsection (5) ensures the provision in subsection (4) is enabled despite subsection 14(2) of the Legislation Act 2003 which provides that this may not be done, unless a contrary intention appears.

125. The provision allowing the safeguard rules to apply, adopt or incorporate matters contained in other instruments is consistent with the treatment of legislative instruments under the CFI Act and the REE Act. As with emissions and energy reporting, this will permit the rules relating to the Safeguard Mechanism to take into account current industry standards as in force from time to time. This will ensure that measurement of production variables is consistent with the measurement of these quantities for commercial purposes. This is likely to be relevant to the incorporation of defined prescribed production variables and default emissions-intensity values in the rules, as is currently the case in the emissions-intensive trade-exposed activities defined in the Renewable Energy (Electricity) Regulations 2001.

126. When the safeguard rules refer to another document (whether it is as in force or existing at a particular time, or from time to time), it is intended that the explanatory statement would provide a description of the incorporated documents and an indication of how they may be obtained. Where an incorporated document is available for free online, the explanatory statement would provide details of the website where the document may be accessed.

127. Subsection 22XS(6) requires the Regulator to publish on its website the text of any matter contained in other instruments that was applied, adopted or incorporated in the safeguard rules. This is to ensure that those obliged to obey the law have adequate access to its terms. Subsection 22XS(7) clarifies the Regulator is not required to publish the matter if publication would infringe copyright.

Item 39 Subsection 30(2A)

128. Item 39 amends subsection 30(2A) of the NGER Act to provide that continuing to not fulfil a requirement to provide an audit report, such as related to the issuance of SMCs, would be a continuing contravention. This means that a civil penalty accumulates for each day of non-compliance. This would be set at 20 penalty units per day (currently $4,440 per day) for an individual or 100 penalty units per day for everyone else (currently $22,200 per day). This would be in addition to the initial penalty applied for the breach of not complying with the audit requirement, set out in section 74AA, provided for by item 55 of the Bill.

129. The level of this civil penalty reflects the seriousness of the ongoing audit contravention and represents a clear disincentive for non-compliance.

Item 40 and 41 After subsection 30(2B); and Subsection 30(3)

130. Items 40 and 41 relate to continuing contraventions of the duty to avoid an excess emissions situation that is specified in section 22XF of the NGER Act. Amendments in this Bill to section 22XF mean that the continuing contravention provisions in section 30 of the NGER Act apply to excess emissions situations. Doing so provides responsible emitters with an incentive to address an excess emissions situation if it does exist, which achieves the environmental aims of the policy.

131. Items 40 and 41 amend section 30 of the NGER Act so that the amount of time for which a continuing contravention can apply is capped at 2 years. A cap of 2 years means the civil penalty will not increase indefinitely, but will remain as a deterrent to encourage an excess emissions to be addressed.

Items 42, 43 and 44 Section 41; Section 41; and At the end of section 41

132. Items 42, 43 and 44 amend section 41 of the NGER Act, which relates to infringement notices. The result of the amendments is existing infringement notice arrangements continue for civil penalties other than penalties under section 22XF for excess emissions situations; and a new subsection 41(2) is inserted specifying that the penalty in an infringement notice for an excess emissions situation would be a financial penalty equal to one third of the maximum penalty that a Court could impose, and be no more than 150,000 penalty units.

133. An infringement notice is a financial penalty for an alleged civil penalty offence; if a person pays the penalty, the civil penalty allegation is discharged. Existing Section 41 sets a uniform infringement notice penalty for any civil penalty under the Act so the amount cannot exceed 60 penalty units, or 12 penalty units for an individual.

134. The maximum amount that could be imposed by a Court is set out in section 22XF, introduced by items 25 and 26. In many cases the size of the civil penalty could be large, reflecting that the Safeguard Mechanism covers many of Australia's largest greenhouse gas emitters and the potential significance of an excess emissions situation. In these cases, this amount could far exceed the existing 60 penalty unit cap (currently $13,320).

135. In some cases, an infringement notice would be more appropriate than having a Court impose a penalty for an excess emissions situation. For example, if a responsible emitter was unable to reduce their emissions intensity to a level required to keep their covered emissions below their baseline during the monitoring period, and subsequently is unable to source enough prescribed carbon units to avoid an excess emissions situation on 1 April, but has otherwise acted in good faith to manage their emissions, the Regulator may consider it more appropriate for them to receive an infringement notice. However, if the maximum infringement notice was 60 penalty units, it may no longer be appropriate because it is too small in the context of the compliance obligation, especially if it is cheaper to pay the infringement notice penalty than it typically would cost to avoid the excess emissions situation.

136. The Regulator can also apply an injunction in addition to a civil penalty to rectify the excess emissions situation under paragraph 49(1)(q) of the NGER Act.

137. The following example illustrates how infringement notices can be used. HameCo is the responsible emitter for a designated large facility HeartLabs, whose baseline emissions number for the financial year beginning on 1 July 2023 is 100,000 tonnes, and whose covered emissions for this financial year are 103,000 tonnes CO2-e. HameCo acquires 3,000 prescribed carbon units, but unfortunately its CEO misunderstands HameCo's duty to ensure that an excess emissions situation does not exist, and does not surrender them until after 1 April 2025, when the prescribed carbon units are surrendered in relation to HeartLabs for the monitoring period beginning on 1 July 2023. Because an excess emissions situation exists on 1 April 2025, Section 22XF of the NGER Act, as modified by this Bill states that HameCo is liable for a maximum civil penalty of 3,000 penalty units (3,000 the difference between the net emissions number and baseline emissions number for HeartLabs for the financial year beginning on 1 July 2023). Because HameCo quickly resolved the excess emissions situation, the Regulator does not take them to Court, and instead issues an infringement notice for 1000 penalty units, which is a pecuniary penalty equal to one third of the maximum penalty that a Court could impose on the person for that contravention, as specified in subsection 41(2) of the NGER Act. HameCo pays the penalty on time, and under section 43 of the NGER Act, HameCo's liability has been discharged for the excess emissions situation.

138. The following example illustrates that if an infringement notice penalty for an excess emissions situation is paid, further civil penalties could be applied if the excess emissions situation continues. Suppose that KorbenCo is the responsible emitter for a Safeguard facility whose net emissions number was 9,000 tonnes above its baseline emissions number for the monitoring period ending on 30 June 2024, resulting in an excess emissions situation. The Regulator gives KorbenCo an infringement notice for 3,000 penalty units, which is one third of the maximum civil penalty. KorbenCo pays the notice, which under section 43 of the Act discharges their liability for the excess emissions situation. KorbenCo does not resolve the excess emissions situation until 10 April 2025 when they surrender 9,000 prescribed carbon units. Because an excess emissions situation remains for 9 more days, there is a continuing contravention for 9 days under section 30 of the NGER Act, which specifies a maximum civil penalty of 100 penalty units per day. KorbenCo accordingly may also be taken to court for a civil penalty of up to 900 penalty units or issued another infringement notice for 300 penalty units.

Item 46 After section 54A

139. Item 46 inserts section 54B into the NGER Act which is an anti-avoidance provision. Section 54B enables the Regulator, on its own initiative, to declare that an undertaking or enterprise, that consists of one or more activities and referred to as the expected undertaking or enterprise, is a facility. The concept of expected undertaking or enterprise is consistent with regulations regarding the definition of facility in section 9 of the NGER Act. Given the section concerns anti-avoidance measures, it would apply from the date the Bill is introduced.

140. In order for such a declaration to be made, there must be another activity or series of activities, including ancillary activities, which would otherwise be a facility (referred as the relevant activities). It must also be the case that some or all of the relevant activities would, or might reasonably be expected to form, all or part of the expected undertaking or enterprise if it were not for a scheme that has been entered into, begun to be carried out, or carried out.

141. For such a declaration to be made, it must also be the case that it could reasonably be concluded that a participant in the scheme did so, or is doing so, solely or substantially for the purpose of achieving the result that: the relevant activities are not a designated large facility; or is a facility with a higher baseline emissions number or fewer covered emissions than the expected undertaking or enterprise; or the facility is a different industry sector to the expected undertaking or enterprise.

142. Subsection 54B(2) states that a declaration specifies the manner in which the scheme is entered into or carried out, the form and substance of the scheme, the timing of the scheme, and the result in the operation of the Act (if any) would or might reasonably be expected to be achieved by the scheme.

143. Subsection 54B(3) requires the Regulator notify the relevant person in writing about its declaration of their facility.

144. Section 54 and section 54A also enable the Regulator to declare that an activity or series of activities are a facility. It is not intended that section 54B limits the ability of the Regulator to make a declaration under section 54 or section 54A, even if the declaration is related to circumstances that are similar to the circumstances covered by section 54B.

145. An example of how the anti-avoidance provision could work is as follows. HeidiCo is a company that sets up a number of wells to mine a fictional commodity called vespene gas and would use 18 wells, each of which emit 10,000 tonnes carbon dioxide equivalent of scope 1 emissions each year. Rather than declare the whole undertaking is a facility, HeidiCo declares two facilities, Facility A and Facility B, each of which has 9 wells, resulting in each facility having 90,000 tonnes carbon dioxide equivalent of scope 1 emissions each year. In this case, Facility A and Facility B are each a set of relevant activities.

146. The safeguard rules and section 22XJ of the NGER Act specify that a designated large facility is a facility with covered emissions of at least 100,000 tonnes carbon dioxide equivalent in a financial year, with covered emissions being scope 1 emissions for HeidiCo's wells. The Regulator concludes that HeidiCo has participated in a scheme and did so substantially for the purpose of preventing any facilities associated with this enterprise from being designated large facilities. The Regulator also concludes that if not for the scheme, the operation of the 18 wells would constitute a single facility and be the expected undertaking or enterprise. As such, the Regulator declares under this section that the 18 wells are a facility.

147. Another example of how the anti-avoidance provision could work is as follows. Wallace Industries is a company that constructs a vespene gas mine that is part of the 'vespene gas production' industry sector. It supplies vespene gas to an adjacent power station that provides electricity to the National Energy Market. This means that the power station is a grid connected electricity generator. It purchases the power station and declares that the mine combined with the power station is a single facility that is part of the 'electricity generation' industry sector. The operation of the power station and vespene gas mine are the relevant activities.

148. The safeguard rules specify that emissions of one or more greenhouse gases from the operation of a grid-connected electricity generator are not covered emissions, unless total reported scope 1 emissions of all grid-connected electricity generators exceed 198 million tonnes carbon dioxide equivalent in that financial year. In 2020-21, emissions from grid-connected electricity generators was less than 148.3 million tonnes carbon dioxide equivalent. Because electricity emissions are declining, emissions from the facility are not covered emissions and are unlikely to be covered emissions in the future. As such, the facility is not a designated large facility.

149. The scope 1 emissions from the vespene gas mine are 400,000 tonnes carbon dioxide equivalent. As such, if it was not a grid-connected electricity generator, it would be a designated large facility. The Regulator concludes that a substantial reason for declaring the relevant activities to be a facility was to achieve the result that the vespene gas mine is not a designated large facility, and also concludes that a substantial reason for declaring the relevant activities to be a facility was for the relevant activities to be a different industry sector. The Regulator also forms a conclusion that Wallace Industries has entered into a scheme and that the expected undertaking or enterprise was the vespene gas mine, and declares under this section that the vespene gas mine and the power station are separate facilities.

Items 47 and 48 After paragraph 56(dc); and After paragraph 56(gb)

150. Item 47 inserts paragraphs 56(dca), (dcb), (dcc) and (gc) of the NGER Act to provide that if a person is not satisfied with the Regulator's decisions to refuse to issue SMCs, require relinquishment of issued credit units, refuse to remit a payment, or to declare a facility under anti-avoidance criteria (section 54B), then they can apply to the Administrative Appeals Tribunal to review these decisions.

Item 49 Subsection 71(1)

151. Item 49 extends the Regulator's general information gathering power to provisions associated with, but not contained in, the NGER Act, such as the safeguard rules or the sections of the Criminal Code relevant for a Court order to relinquish units. This provision, in conjunction with provisions in the subsequent items of this part relating to audits and compliance, helps ensure the Regulator will have the necessary information for compliance and enforcement under the SMC scheme.

152. The definition of 'associated provisions' is inserted into the NGER Act under item 4 of the Bill.

Items 50 to 54, 56, 58, and 60 Subsection 73(1); Paragraph 73(2)(b); Subsection 73A(1); Paragraph 73A(2)(b); Subsection 74(1); Subsection 74A(1); Paragraphs 74B(1)(c) and (2)(b); and Subsection 74C(2)

153. Items 50, 51, 52, 53, 54, 56, 58, and 60 amend subsections and paragraphs 73(1), 73(2)(b), 73A(1), 73A(2)(b), 74(1), 74A(1), 74B(1)(c), 74B(2)(b) and 74C(2) of the NGER Act so that greenhouse and energy audits can cover compliance with 'associated provisions'.

154. The definition of 'associated provisions' is inserted into the NGER Act under item 4 of Schedule 1 of the Bill and includes the regulations, the legislative rules and relevant parts of the Criminal Code (such as those dealing with the giving of false or misleading information) that relate to the Act, as well as the legislative instruments under the Act and regulations.

Item 55 After section 74

Audit of persons providing reports under section 19, 22G, 22X or 22XB

155. Item 55 inserts section 74AA of the NGER Act providing for audits of designated large facilities or other facilities that could be eligible for SMCs that meet conditions set out in the safeguard rules. This new section enables the safeguard rules to require audits related to the issuance of SMCs and Safeguard Mechanism obligations and liability. Audit scopes could be on matters related to SMC issuance, such as the facility's scope 1 emissions and its baseline, which are key inputs to working out the number of SMCs to issue.

156. Subsection 74AA(1) sets out the scope of the provision, limiting its application to facilities that report emissions under the NGER Act (sections 19, 22G, 22X, and 22XB relate to the three types of NGER reports), are Safeguard facilities, and that further meet conditions set out in the safeguard rules.

157. Subsection 74AA(2) sets out that the relevant person for the facility must appoint an audit team leader, and necessary aspects of the audit are the NGERs report, record-keeping, and matters specified in the safeguard rules. The audit report is to be submitted to both the relevant person and the Regulator.

158. Not complying with the audit requirements in subsection 74AA(2) constitutes a civil penalty of 200 units (currently $44,400) for an individual and otherwise 1000 units (currently $222,000). Further, subsection (4) requires the person to give the audit team reasonable access and assistance, and a failure to do so constitutes an additional civil penalty of 50 penalty units for an individual or otherwise 250 penalty units (currently $11,100 and $55,500 respectively).

159. The level of the civil penalties reflects the seriousness of audit contraventions and represents a clear disincentive for non-compliance.

160. Subsection 74AA(3) provides that the safeguard rules may specify the type of audit, matters to be audited, and the form and detail of the audit report. It is appropriate that audit details are in subordinate legislation to align with the other detailed rules on the issuance of SMCs. The legislative rules are subject to the usual disallowance process and will be consulted upon before being made or amended.

Items 57 and 59 Paragraph 74B(1)(a); and Paragraph 74C(1)(a)

161. Items 57 and 59 amend sections 74B and 74C of the NGER Act to make the responsible emitter for Safeguard facility a 'relevant person,' including non-corporations, for the purposes of those sections. This means that the Regulator can require this person to arrange an audit of the person's compliance with the Act and the associated provisions.

162. For example, the amended provisions could apply in circumstances where the Regulator suspects that a relevant person has provided false or misleading information.

Item 61 After paragraph 75A(5)(i)

163. Item 61 inserts paragraphs (ia) and (ib) into subsection 75A(5) of the NGER Act, which lists the matters which the regulations may provide for in relation to the register of greenhouse and energy auditors, including inspecting auditor performance. Paragraphs (ia) and (ib) reflect the involvement of greenhouse and energy auditors in the conduct of ERF audits (under the CFI Act) and safeguard audits (for the purposes of preparing an audit report prescribed by safeguard rules made for the purposes of paragraph 22XNA(4)(c) or subsection 22XQ(3)).

Items 62 and 63 Section 77; and at the end of section 77

164. Items 62 and 63 amend section 77 of the NGER Act, which empowers the Governor-General to make regulations for the purposes of the Act. Item 63 adds subsections (2) to (6).

165. Subsections 77(2) and (3) allow the regulations to apply, adopt or incorporate matters contained in other instruments (such as industry standards), as in force or existing at a particular time or as in force from time to time. This is consistent with the treatment of legislative instruments under the CFI Act and REE Act, and other legislative instruments made under the NGER Act. It is important that the measurement of emissions and energy at facilities are able to use the latest industry standards or Government-prescribed emissions or energy content factors, and that reporters are not required to use superseded standards because of the way they have been incorporated into the regulations. This also allows auditor registration requirements to adopt current standards published by the Australian Securities and Investments Commission, such as on insurance levels. It further helps ensure that reporting is consistent with Australia's international emissions and energy reporting obligations.

166. When the regulations refer to another document (whether it is as in force or existing at a particular time, or from time to time), it is intended that the explanatory statement would provide a description of the incorporated documents and an indication of how they may be obtained. Where an incorporated document is available for free online, the explanatory statement would provide details of the website where the document may be accessed.

167. Subsection 77(4) requires the Regulator to publish on its website the text of any applied, adopted or incorporated matter. This ensures that those obliged to obey the law have adequate access to its terms. The Regulator is not required to publish the matter if publication would infringe copyright subsection (5).

168. Subsection 77(6) allows the regulations to confer a power on the Regulator to make an administrative decision. This is consistent with the treatment of legislative instruments under the CFI Act and REE Act and is intended to remove any doubt about the issue.

PART 2 - Amendment of the Income Tax Assessment Act 1997

Overview

169. Amendments to the Income Tax Assessment Act 1997 define SMCs as specified registered emissions units, so that they receive the same tax treatment as other specified units, like ACCUs.

Items 64 to 66 After paragraph 420-10(d); After subparagraph 420-52(a)(iii); and Subsection 995-1(1)

170. Items 64, 65 and 66 amend sections 420-10, 420-52, and 995-1 of the Income Tax Assessment Act 1997 to include SMCs as specified registered emissions units, so that they receive the same tax treatment as other specified units (currently Kyoto units and ACCUs).

PART 3 - Application of amendments

Item 67 Application of amendments

171. Amendments to the section 22XF of the NGER Act change the date from which an excess emissions situation for a monitoring period must not exist from 1 March to 1 April after the end of the monitoring period. Sub-item 67(1) accordingly states that the definition of 1 March in section 7 of the NGER Act continues to apply in relation to previous financial years.

172. Sub-item 67(3) states that amendments to section 22XF apply in relation to the financial year beginning on 1 July 2023 and subsequent financial years. The financial year beginning on 1 July 2023 is intended to be the year that the reforms to the Safeguard Mechanism commence and aggregate net emissions start to decline.

173. Amendments to section 22XF repeal a provision for regulations to set a civil penalty. Because these amendments apply in relation to the financial year beginning on 1 July 2023 and subsequent financial years, sub-item 67(2) enables these regulations to continue to apply in relation to earlier financial years.

174. Sub-items 67(4) and 67(5) state that amendments to sections 30 and 41 of the NGER Act that relate to the amended section 22XF apply to the monitoring periods to which the amendments to section 22XF apply.

175. Sub-item 67(6) states that section 54B of the NGER Act, as inserted by the Bill, applies in relation to a scheme that is entered into, begun to be carried out, or carried out on or after the day the Bill is introduced into the House of Representatives. This mitigates the risk that people could see the provision and enter a scheme before commencement.

176. In addition, this item provides that amendments to sections 73, 73A, 74, 74AA, 74A, 74B and 74C of the NGER Act made by the items in Part 1 apply only in relation to notices given, and appointments made, after commencement of this item.

Schedule 2 - Australian National Registry of Emissions Units Act

Overview

177. The purpose of Schedule 2 of the Bill is to amend the ANREU Act to provide for SMCs to exist in the ANREU and establish arrangements for SMCs that mirror the treatment of ACCUs. The amendments provide for ownership and transfer arrangements for SMCs and requirements to publish information about holdings and cancellations of SMCs, consistent with other unit types.

178. Other amendments to the ANREU Act provide for legislative rules to be made relating to increasing transparency of information on unit holdings or to allow for the voluntary surrender of units. Amendments to provide for rules to improve information transparency reflects the findings of reviews by the Climate Change Authority.

Australian National Registry of Emissions Units Act 2011

Item 1 Section 3

179. Item 1 amends the simplified outline of the ANREU Act to reflect that the Registry will also include SMCs.

Items 2 and 3 Section 4 (after paragraph (d) of the definition of eligible international emissions unit); and Section 4 (definition of eligible international emissions unit)

180. Item 3 inserts paragraph (e) into the definition of eligible international emissions unit in the ANREU Act so that it includes SMCs, once prescribed by legislative rules. This helps ensure the treatment of these units under other Commonwealth laws is equivalent to ACCUs. In particular, once prescribed the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 would apply to these units in the same way it does to ACCUs. The units would also be financial products under the Australian Securities and Investments Commission Act 2001 and Corporations Act 2001. The units would also have the same treatment as ACCUs under the A New Tax System (Goods and Services Tax) Act 1999.

Item 4 Section 4 (definition of issue)

181. Item 4 replaces the definition of 'issue' so that in addition to ACCUs the term also extends to SMCs.

Item 5 Section 4

182. Item 5 inserts definitions of 'legislative rules' and 'quarter'. It specifies that 'legislative rules' refers to rules made under section 94A of the ANREU Act.

Item 6 Section 4 (definition of registered holder)

183. Item 6 repeals and substitutes the definition of 'registered holder' to reflect the addition of 'safeguard mechanism credit unit' into the Registry.

Item 7 Section 4

184. Item 7 inserts the term safeguard mechanism credit unit into the ANREU Act, which is to be defined in the NGER Act, as provided for by this Bill.

Item 8 Section 4 (definition of transfer)

185. Item 8 amends the definition of 'transfer' to reflect the addition of 'safeguard mechanism credit units' into the Registry.

Item 9 At the end of paragraph 9(4)(a)

186. Item 9 amends subsection 9(4) to reflect that the Registry will now be a registry for SMCs, as well as Kyoto units and ACCUs.

Item 10 Paragraph 11(5)(a)

187. Item 10 adds a reference to safeguard mechanism credit units to subsection 11(5) so they are relevant to any transaction limits on an account.

Item 11 At the end of subsection 15(2)

188. Item 11 adds reference to there being no SMCs in an account to subsection 15(2) as a condition for the voluntary closure of an account.

Item 12 At the end of paragraph 16(2)(b)

189. Item 12 adds reference to relevant legislative rules to subsection 16(2) as matters which must be dealt with in a written notice from the Regulator before closing an account for which there is an entry for a safeguard mechanism credit unit. This is equivalent to existing subparagraph 16(2)(b)(ii).

Item 13 After subsection 16(4)

190. Item 13 adds subsection 16(5) to set out what the Regulator must do on closing an account. It states that safeguard mechanism credit units need to be dealt with in accordance with the legislative rules. This ensures SMCs can be dealt with in accordance with any arrangements that are made in relation to their cancellation and holding.

Item 14 At the end of subsection 16(7)

191. Item 14 adds paragraph 16(7)(c) to ensure the Registry records any cancellations under subsection 16(5), as it does for other cancellations under the section.

Item 15 At the end of section 17

192. Item 15 inserts subsection 17(3) to reflect that the ANREU Act allows for the entry of SMCs into an account, in the same way that ACCUs and Kyoto units are dealt with by subsections (1) and (2).

Item 16 After paragraph 19(3A)(a)

193. Item 16 adds paragraph 19(3A)(aa) to ensure that the power of correction of the Registry is not exercised contrary to a safeguard mechanism credit unit being personal property that is transmissible by assignment or operation of the law.

Item 17 After paragraph 22(4A)(a)

194. Item 17 adds paragraph 22(4A)(aa) to ensure that any court rectification of the Registry is not made contrary to a safeguard mechanism credit unit being personal property that is transmissible by assignment or operation of the law.

Items 18 and 19 Subsection 26(3) (heading); and after subparagraph 26(3)(a)(ii)

195. Items 18 and 19 adds the holding of 'safeguard mechanism credit units' to the list of exceptions in subsection 26(3) consistent with other unit types.

Item 20 After paragraph 28A(1)(b)

196. Item 20 adds the transfer of 'safeguard mechanism credit units' to the list of units the Regulator may defer the transfer of under section 28A, consistent with other unit types.

Item 21 After paragraph 28B(1)(b)

197. Item 21 adds the transfer of 'safeguard mechanism credit units' to the list of units the Regulator may refuse to transfer under section 28B, consistent with other unit types.

Item 22 Subparagraph 28D(5)(a)(ii)

198. Item 22 adds reference to 'safeguard mechanism credit units' to the list of units in paragraph 28D(5)(a) that the Regulator must not issue if an account is suspended.

Item 23 At the end of subsection 28D(5)

199. Item 23 adds paragraph 28D(5)(c) that a notice to relinquish ACCUs and SMCs under section 22XNE of the NGER Act does not have effect if a Registry account is suspended.

Item 24 At the end of subsection 28D(16)

200. Item 24 adds reference to the NGER Act to subsection 28D(16) to ensure nothing in the ANREU Act would preclude the suspension of a registry account under section 28D.

Item 25 After Part 3

201. Item 25 adds Part 4 to the ANREU Act to provide for the inclusion of SMCs into the Registry. These provisions are equivalent to Division 3 of Part 11 of the CFI Act.

202. Section 48 provides a simplified outline of the new Part 4.

203. Section 48A provides for SMCs to be personal property, similar to the provisions for Kyoto units (section 45) and section 150 of the CFI Act.

204. Sections 48B to 48F constitute general provisions in relation to SMCs. These sections provide for the ownership and transfer of units within the Registry. Section 48D makes provisions for transfer by assignment, section 48E provisions for transfer by operation of the law and section 48F provisions for the transfer between Registry accounts owned by the same person. These are equivalent to provisions in Part 3 for Kyoto units and provisions for ACCUs in Division 3 of Part 11 of the CFI Act. Provisions for the declaration of transmission of credit units, such as evidence of transmission, may be provided in the legislative rules.

205. Sections 48G and 48H provide for the registration and existence of equitable interests in safeguard mechanism credit units, equivalent to sections 157A and 158 of the CFI Act for ACCUs.

206. Section 48J provides that the legislative rules may make further provisions in relation to SMCs. This is consistent with establishing the framework for a crediting mechanism in Acts, with the details to be included in legislative rules.

Item 26 Section 58

207. Item 26 amends the simplified outline of the Part 5, which is on publication of information, to reflect that the Registry and publication requirements will also cover SMCs.

Item 27 After section 60

208. Item 27 inserts sections 60A and 60B to enable legislative rules to allow for regular publication of information by the Regulator about ACCU and SMC unit holdings and registered holders of units. Information about the holding of units can contribute to market transparency. Regular publication of information about ACCUs was recommended by the Climate Change Authority in their 2017 review of the ERF. Consultation will be undertaken in developing any such legislative rules, to ensure transparency objectives are balanced with matters raised by stakeholders in consultation on the draft Bill.

Item 28 At the end of Part 5

209. Item 28 inserts section 63 to provide for publication by the Regulator of information about voluntarily cancelled SMCs (if allowed through legislative rules) in the same way that sections 61B and 62 provide for other unit types.

Item 29 At the end of subsection 65(2)

210. Item 29 enables legislative rules to specify other information to be set out when a person requests the Regulator to transfer some Kyoto units to a voluntary cancellation account. This provision is intended to mirror arrangements for SMCs provided for at item 30 below.

Item 30 At the end of Part 6

211. Item 30 adds section 66 to allow for the Minister to make a legislative instrument allowing for the voluntary cancellation of SMCs in the same form as for other unit types. Legislative rules may specify the information required to be in a notice to cancel SMCs, and also specify any other actions that must be taken by the Regulator.

Item 31 Section 82 (table item 1)

212. Item 31 inserts a reference to 48E(6) in the table in section 82 to ensure decisions to consider special circumstances are reviewable, equivalent to existing subsection 47(5). These decisions are regarding extensions to 90-day periods within which a transferee must give the Regulator a declaration of transmission and evidence of transmission of an SMC.

Item 32 After section 94

213. Item 32 adds section 94A to allow the Minister to make legislative rules required or permitted by the Act or necessary or convenient to be prescribed for carrying out or giving effect to the Act. Subsection 94A(2) is a standard provision limiting the power to make rules. Subsection (3) ensures relevant regulations prevail over any inconsistent rules.

214. Under subsection (4) the rules are able to incorporate documents by reference, such as international agreements or arrangements, as in force from time to time to ensure they continue to implement relevant international agreements and arrangements. The ANREU Act generally deals with a range of domestic and international units. In order to ensure accounting rules are consistent with other arrangements, it may be necessary to incorporate documents that are in force from time to time. This is consistent with rule making powers for other climate change legislation and is an important feature of adopting relevant international requirements that can evolve over time. This flexibility enhances the ability of the Registry to appropriately include SMCs. The same power in the case of regulations (rather than rules) is provided in section 95.

215. When the legislative rules refer to another document (whether it is as in force or existing at a particular time, or from time to time), it is intended that the explanatory statement would provide a description of the incorporated documents and an indication of how they may be obtained. Where an incorporated document is available for free online, the explanatory statement would provide details of the website where the document may be accessed.

216. Subsections (6) and (7) ensure that any incorporated documents are made publicly available, other than where copyright is infringed.

Item 33 Section 95 (heading)

217. Item 33 updates the heading of section 95 to clarify that it is referring to regulations rather than legislative rules.

Carbon Credits (Carbon Farming Initiative) Act 2011

Item 34 Paragraph 51(1)(b)

218. Item 34 amends paragraph 51(1)(b) of the CFI Act to include reference to the legislative rules in an existing reference to the ANREU Act and regulations. This is consequential upon item 32 above.

Schedule 3 - Clean Energy Regulator

Outline

219. Schedule 3 to the Bill contains amendments to the CER Act as well as consequential amendments to the Clean Energy (Consequential Amendments) Act 2011 and the NGER.

220. The amendments address inconsistencies in the framework for protecting information under the CER Act and the NGER Act. The issues arose with the establishment of the Regulator on 2 April 2012 and the transition of earlier protected information provisions in the NGER Act, the REE Act and the CFI Act. The result is that, currently, different protections and tests apply to information obtained before 2 April 2012 information than apply to information obtained from 2 April 2012 information. In particular, only information obtained from 2 April 2012 is protected information under the CER Act.

221. Protected information under the CER Act will be amended to include all information held by the Regulator, regardless of when it was obtained. These changes will enable the repeal of unnecessary transitional provisions in the Clean Energy (Consequential Amendments) Act 2011. An offence provision will be added to ensure State and Territory officials comply with conditions on disclosure under section 27 of the NGER Act, equivalent to the offence provision already under the CER Act for equivalent information. This will ensure the Regulator retains its ability to disseminate emissions and energy information obtained prior to 2 April 2012 while ensuring appropriate protections attach to that information. This is the most appropriate mechanism to ensure that this information can continue to be protected and, where appropriate, disseminated and published.

222. These amendments implement a recommendation of the CCA's 2018 review of the National Greenhouse and Energy Reporting Act 2007 that the "Government legislate to ensure the Regulator retains its ability to disseminate emissions and energy information obtained prior to 2 April 2012 and Australian Government ministers and agencies retain their ability to publish this information" (Recommendation 14).

Clean Energy (Consequential Amendments) Act 2011

Item 1 Items 219 to 220A of Schedule 1

223. This item repeals the transitional secrecy provisions for information obtained under the NGER Act, the REE Act, and the CFI Act before 2 April 2012. The way the Regulator manages protected information is set out under the CER Act and those provisions will now cover this historical information. Items 219 to 200A of Schedule 1 in the Clean Energy (Consequential Amendments) Act 2011 overlap with the new provisions in the CER Act, so are repealed to ensure consistency with how information is protected, used and disseminated.

Clean Energy Regulator Act 2011

Item 2 Section 4 (at the end of the definition of climate change law )

224. This item adds paragraph (o) to the definition of 'climate change law' so it references the Regulatory Powers (Standard Provisions) Act 2014, which is important because the Regulator exercises powers under that Act as applied by the NGER Act and CFI Act. The existing delegation power in section 35 of the CER Act is available in relation to these powers.

Item 3 Section 4 (paragraph (a) of the definition of protected information )

225. This item broadens the definition of protected information to include information that was obtained by Commonwealth officials prior to the establishment of the Regulator on 2 April 2012. The relevant test is simply whether the Regulator holds the information, rather than when it was obtained.

National Greenhouse and Energy Reporting Act 2007

Item 4 Section 7

226. Item 4 inserts the definition of engage in conduct into the NGER Act. Engaging in conduct means both doing something and failing to do something. It is relevant to the new offence being included in subsection 27(3) for when a disclosure is not provided for in section 27.

Item 5 Section 7 (definition of protected information)

227. Item 5 repeals the definition of protected information as it is no longer required due to the repeal of paragraph 23(1)(aa), provided for in Item 8. The CER Act now provides for relevant protections rather than section 23.

Item 6 Section 23 (at the end of the heading)

228. Item 6 amends the heading of section 23 of the NGER Act to better reflect the contents of the section now only outlines secrecy provisions related to audit information. This is due to amendments to section 23 provided for in items 7 to 14.

Item 7 Paragraph 23(1)(a)

229. Item 7 removes greenhouse and energy information from the secrecy provision in section 23 of the NGER Act as the revised CER Act and new protections in section 27 of the NGER Act will now protect this information. This amendment will allow the Regulator to continue to disseminate emissions and energy information obtained prior to the commencement of the CER Act consistent with the secrecy provisions in that Act. Supporting regulations to the Clean Energy (Consequential Amendments) Act 2011 already allow this information to be disseminated.

Item 8 Paragraph 23(1)(aa)

230. Item 8 repeals paragraph 23(1)(aa) of the NGER Act to allow the secrecy provisions to apply to the disclosure of audit information that is also protected information. This ensures all audit information will be appropriately protected by auditors and the term 'protected information' is now redundant. The way the Regulator manages protected information is set out under the CER Act.

Items 9 and 10 Subparagraph 23(1)(b)(ii); and Subparagraphs 23(1)(b)(iii) to (v)

231. Item 10 repeals subparagraphs 23(1)(b)(iii) to (v) of the NGER Act for consistency and to avoid overlapping and inconsistent provisions with the way protected information is managed under the CER Act and revised section 27 of the NGER Act. Item 9 adds a full stop to the end of subparagraph (ii) given the repeal of subparagraphs (iii) to (v).

Items 11 to 13 Paragraph 23(2)(c)

232. Items 11 and 13 repeal paragraphs 23(2)(c) and (e) to (g) as these paragraphs do not relate to audit information, so are no longer relevant to section 23 of the NGER Act.

233. Item 12 adds a full stop to the end of Paragraph 23(2)(da) given the repeal of paragraphs (e) to (g).

Item 14 Subsection 23(2) (note)

234. Item 14 amends the note to section 32 of the NGER Act to clarify that the CER Act sets out the way the Regulator manages protected information.

Item 15 Paragraph 27(1)(a)

235. The NGER Act requires corporations to report information that is specified by the regulations, and this includes information that a State or Territory has requested the Regulator collect. Item 15 amends paragraph 27(1)(a) to ensure that all information collected on behalf of the States and Territories can be disclosed to them, regardless if the reports are made under subsections 19(9), 22G(5) or 22X(6) of the Act.

Item 16 At the end of section 27

236. Item 16 adds subsection 27(3) to ensure that once protected information has been disclosed to State and Territory authorities, further disclosure of the information only takes place to the extent necessary and that conditions imposed under existing subsection 27(2) can be enforced. If the Regulator imposes restrictions on further disclosure of that information, it is an offence if a person engages in conduct that breaches those restrictions. This offence is punishable by a penalty of up to two years' imprisonment or 120 penalty units, or both. This offence replaces an offence with the same penalty that is removed by item 13 when it repeals paragraph 23(2)(e) from the NGER Act. This is consistent with the way protected information is managed and disclosed to States and Territories under the CER Act.

237. With this protection of disclosure of information included in section 27, the protections in section 23 imposed on State and Territory officials are no longer necessary and are removed by the items above.

Item 17 Application provision

238. Item 17 provides that conduct specified under new subsection 27(3) will become an offence on or after the day this Schedule commences in relation to information that was originally disclosed before, on or after commencement. This ensures that existing conditions can be enforced restricting disclosure and there is no loss of protection associated with the amendments to remove disclosure protections in section 23.

Schedule 4 - Other amendments

Outline

239. Schedule 4 to the Bill contains amendments to the CFI Act relating to offsets projects at facilities covered by the Safeguard Mechanism. The provisions enable legislative rules to prevent the Regulator from entering into carbon abatement contracts that reduce covered emissions of facilities covered by the Safeguard Mechanism as well as ensuring the Regulator considers the Safeguard Mechanism when assessing the regulatory additionality of proposed offsets projects. Schedule 4 also makes amendments consistent with the recommendations of the ACCU Review.

Carbon Credits (Carbon Farming Initiative) Act 2011

Item 1A Section 5

240. Item 1A amends section 5 to insert a new definition for carbon estimation area. A carbon estimation area, in relation to an area-based offsets project, would have the meaning given by the applicable methodology determination for the project.

Item 1 At the end of section 20C

241. Item 1 adds subsection 20C(3) to the CFI Act to prevent the Regulator entering a carbon abatement contract associated with a kind of offsets project specified in legislative rules, unless it is novation of a pre-existing contract. This provision enables legislative rules to be made to prevent the Regulator from entering into carbon abatement contracts that reduce covered emissions at Safeguard-covered facilities.

Item 2 After subsection 20G(2)

242. Item 2 inserts subsection 20G(2A) to the CFI Act to enable legislative rules to specify kinds of projects for which carbon abatement associated with the carrying out of these projects is excluded from carbon abatement purchasing processes.

Items 3 and 4 Paragraph 20H(1)(a); and After paragraph 20H(1)(a)

243. Items 3 and 4 amend paragraph 20H(1)(a) so that legislative rules can make provisions not just for the transfer of purchased units to a Government registry account, but also the transfer from and sale of units from such an account. This provides flexibility for how the Government might manage its holdings of ACCUs, such as if the Government decided to assist in price stability under the reformed Safeguard Mechanism.

Item 5 Subparagraph 27(4A)(b)(i)

244. Item 5 amends subsection 27(4A) so that the NGER Act is no longer exempted from the Regulator's consideration if the proposed offsets project meets the regulatory additionality requirement. Before the Regulator declares a proposed offsets project to be eligible the Regulator must consider if the project is required to be carried out by or under a law of the Commonwealth, a State or a Territory. The amendment means that the Safeguard Mechanism will now be relevant to the Regulator's consideration.

Item 6 Section 106

245. Item 6 amends section 106 of the CFI Act to insert new subsection 106(4A). New subsection 106(4A) would have the effect that the Minister would only be able to make a methodology determination if the Minister is satisfied that the determination complies with the offsets integrity standards. This would provide additional assurance and integrity to methodology determinations.

Item 7 Section 114

246. Item 7 amends section 106 of the CFI Act to insert new subsection 114(2AA). New subsection 114(2AA) would have the effect that the Minister would only be able to vary a methodology determination if the Minister is satisfied that the varied determination complies with the offsets integrity standards. This would provide further assurance and integrity to methodology determinations.

Item 8 Division 4A - subsection 166A(1)

247. Item 8 will insert a new Division 4A, that would consist of section 166A. New subsection 166A(1) would require the Regulator to publish on the Regulator's website any information that is held by the Regulator and that is specified in rules made for the purposes of new subsection 166A(2). New subsection 166A(2) would have the effect of allowing the rules to specify information that is required to be published under new subsection 166A(1), provided that the information is relevant to Australia meeting its obligations under any of the UNFCCC, Kyoto Protocol, Paris Agreement or any other international agreement.

Item 9 Paragraph 168(1)(b)

248. Item 9 would amend existing paragraph 168(1)(b) of the CFI Act to include a requirement that, if the project is an area-based offsets project, the Register must (in addition to setting out the project area or project areas) also set out the carbon estimation area or carbon estimation areas for the project.

249. A carbon estimation area would be defined in section 5 of the CFI Act by referencing to the meaning in the applicable methodology determination for the project. Publishing the carbon estimation areas for an eligible offsets project that is an area-based offsets project would increase transparency around such projects.

Item 10 Subsection 168(2)

250. Item 10 would repeal existing subsection 168(2) of the CFI Act. This amendment is consequential to the amendment in item 12, which would repeal existing section 169 of the CFI Act.

Item 11 Subsection 168(2A)

251. Item 11 would amend existing subsection 168(2A) to omit the words 'of this section'. This is a drafting style change and would not change the substantive meaning of this provision.

Item 12 Section 169

252. Item 12 would repeal section 169 of the CFI Act. This section provides a process for project proponents to, in certain circumstances, request that project area information for a particular project is not included in the Register.

253. Following the recommendations of the ACCU Review to maximise transparency, data access and data sharing, it is considered appropriate to repeal this provision, as it would increase transparency about projects covered by the scheme.

Item 13 Section 240

254. Item 13 amends section 240 of the CFI Act to remove item 21 of the table. This amendment is consequential to the amendment in item 12, which would repeal existing section 169 of the CFI Act.

Item 14 Transitional provisions

255. Item 14 inserts transitional provisions relating to the proposed repeal of section 169 of the CFI Act (see item 12). A 30-day grace period would be provided for proponents of existing declared eligible offsets projects to make a request under section 169 following its repeal.

256. Following the end of the 30-day grace period, project proponents for existing projects would also not be able to request that their project area information or carbon estimation area information is not published.

Item 15 Section 5

257. Item 15 amends section 5 of the CFI Act to insert a new definition for paid work. Paid work would be defined as work for financial gain or reward (whether as an employee, a self-employed person or otherwise). This definition would be relevant to the amendments to existing section 263 of the CFI Act (proposed by new item 19), which would prevent the new full-time Chair of the ERAC from engaging in other paid work without the Minister's approval.

Item 16 Subsection 257(3) and subsection 257(4)

258. Item 16 amends existing section 257 of the CFI Act to repeal subsections 257(3) and (4). Subsections 257(3) and (4) have the combined effect that the Chair of the ERAC cannot be an employee of the Commonwealth or a Commonwealth authority, or a person who holds a full-time office under a law of the Commonwealth. These restrictions would no longer be appropriate, as a full-time ERAC Chair would be a full-time office under a law of the Commonwealth.

Item 17 Section 257

259. Item 17 amends section 257 of the CFI Act to insert new subsection 257(6A). New subsection 257(6A) would require the Chair of ERAC to hold office on a full-time basis.

Item 18 Subsection 257(7)

260. Item 18 amends subsection 257(7) of the CFI Act to remove the requirement that the Chair of ERAC holds office on a part-time basis. . This is because the Chair of ERAC would hold office on a full-time basis rather than a part-time basis.

Item 19 Subsection 263(1)

261. Item 19 amends section 263 of the CFI Act to insert a new subsection 263(1). New subsection 263(1) would prevent the Chair of the ERAC from engaging in other paid work without the Minister's approval. This is appropriate as the ERAC Chair would hold office on a full-time basis.

Item 20 Section 263

262. Item 20 amends existing section 263 of the CFI Act to the effect that the existing requirement that an ERAC member must not engage in any paid employment that conflicts or may conflict with the proper performance of his or her duties.

Item 21 Section 263

263. Item 21 amends existing section 263 of the CFI Act to remove the existing requirement that an ERAC member must not engage in any paid employment that conflicts or may conflict with the proper performance of his or her duties; from applying to the ERAC Chair.

Item 22 Section 265

264. Item 22 amends amend section 265 of the CFI Act to repeal existing subsection 265(1) and substitute new subsections 265(1) and (1A). Subsection 265(1) would provide that the ERAC Chair has the recreation leave entitlements that are determined by the Remuneration Tribunal. This is appropriate for a full-time office under a law of the Commonwealth. Subsection 265(1A) would allow the Minister to grant the ERAC Chair a leave of absence (other than recreation leave) on the terms and conditions (as to remuneration or otherwise) that the Minister determines.

Item 23 Section 267

265. Item 23 amends section 267 of the CFI Act to repeal existing paragraph 267(2)(c). This amendment would be consequential to the amendments proposed by items 20, 21 and 25. This amendment is appropriate because the requirement in existing paragraph 267(2)(c), which pertains to the termination of the appointment of an ERAC member, would no longer be relevant to the ERAC Chair, given the proposed amendments to section 263 of the CFI Act (see items 20 and 21).

Item 24 Subsection 267(3)

266. Item 24 amends section 267 of the CFI Act to repeal existing subsection 267(3). This is appropriate as the ERAC Chair would be a full-time office under a law of the Commonwealth.

Item 25 Subsection 267(5)

267. Item 25 amends section 267 of the CFI Act to insert new subsections 267(5) and (6).

268. Subsection 267(5) would allow the Minister to terminate the appointment of the ERAC Chair if the Chair engages in paid work outside of the duties as the ERAC Chair without the Minister's approval. This would reflect the obligation in new subsection 263(1) that the full-time ERAC Chair not engage in other paid work without the Minister's approval (see item 19).

269. Subsection 267(6) would allow the Minister to terminate the appointment of an ERAC member (other than the Chair) if the member engages in paid employment that conflicts or may conflict with the proper performance of the member's duties. This reflects the obligation in new subsection 263(2) that an ERAC member not engage in paid employment that conflicts or may conflict with the proper performance of the member's duties (see item 21).