Archives for posts with tag: Clean Energy Act

Many of our ‘Clean Energy liable clients’ are currently grappling with the complexities of tracking, managing and projecting for carbon units under the Clean Energy Act 2011. Historic emissions and energy systems have not typically been designed to account for carbon units, and some key regulations are yet to be established. Another piece of the puzzle has recently been added to the mix regarding the flexible price period – when carbon units will be auctioned by the Government and subsequently acquitted and/or traded on the secondary market.

The Climate Strategy and Markets division of DCCEE have released their position paper on the auction process for carbon units under the Act during the flexible price period (2015/16 onwards). Submissions are now being accepted up until the 24th February 2012 on the auction process. To save you some time and energy, the key recommendations and concepts described in the paper have been summarised as follows:

  • Auctions for permits under the flexible price period commence in 2013/14 (during the fixed price period).
  • Auctions are to be held for vintages up to three years ahead[1] (i.e. you can buy a 2016/17 permit in 2013/14).
  • Auctions will follow a sequential ascending clock format (more on this below).
  • Up to 4 auctions will be held each year approximately once per quarter.
  • Units from each vintage will effectively be distributed over 8 auctions;
    • Auctions 1-3: once per year for the three years leading up to the vintage year (1/8 +1/8+1/8 of the total units for the vintage per year)
    • Auctions 4-7: four auctions in the vintage year itself (1/8 + 1/8 + 1/8 + 1/8 of total); and
    • Auction 8: one following the end of the vintage year allowing liable entities to finalise their permit acquisition and satisfy liabilities (the final 1/8 of units)
  • Until a cap on permit numbers is set in the 2014 budget statement (based on national abatement targets/trajectories) only 15M units will be auctioned per session (first two sessions).
  • Unsold units will be carried forward to be auctioned in the next vintage period.
  • The regulator will set a reserve price based on the price floor; this will be announced at least 14 days prior to the auction date.
  • An electronic registry will be utilised, anyone with a registry account can participate in the auction.
  • Minimum bid is for one unit while the maximum is 25% of the total number of units up for auction in the session.
  • Proxy bids are allowed and settlement will be on a T + 3 basis (three days after transaction).

The Ascending Clock Auction format is generally meant to auction goods/services where there are significant numbers of non-unique items that need to be cleared fairly quickly. The auction process runs as follows:

  1. Auction commences with a low starting price for units.
  2. Participants nominate the number of units they are willing to purchase at the starting price.
  3. If the aggregate demand is greater than supply, the auctioneer increases the unit price and the next round begins.
  4. Participants then adjust the number of units they are willing to purchase at the increased price. Participants may only reduce the number of units requested as the price increases.
  5. This continues until the aggregate demand is less than or equal to supply at which point participants of the final round are allocated their permits with the price equal to the previous round.
  6. Should there be ‘left-over’ permits i.e. in the final round the aggregate demand is less than supply, the Regulator may choose to exercise an intra-round bid. In this participants of the final round nominate a price they are willing to pay for the remaining units which is greater than that of the second-last round but less than the last round.
  7. Permits will be auctioned in sequence based on their vintage year.

The Department have also released a tentative auction schedule as shown in the table below.


[1] Except the first auction will only apply two years in advance

To save you some time and effort, we have put together a timeline showing you the key dates for NGER and Clean Energy for the next two years or so:

(click on image for full-size)

In the coming months we will be working closely with our friends at the respected international law firm DLA Piper, to deliver to clients a complete picture of their carbon liabilities and risks – both direct and indirect. We believe effective carbon accounting and management is a multi-disciplinary field. With this in mind we have put together a team that can provide end-to-end advice in a systematic and comprehensive manner. We analyse and quantify the real risks across key aspects of the business, from legal, technical, data systems and financial aspects, and present findings that you can use immediately. Our methodology drills-down into five main areas:

Feel free to contact us if you would like more information or to arrange a meeting.

Dear readers, Happy New Year and welcome to 2012! This is going to be a very busy year for professionals in our space with the passing of the Clean Energy Act and a carbon price coming into effect on 1 July 2012.

In our December post, we mentioned that Ndevr Environmental Consulting is involved in the Clean Energy Regulator’s Pilot Regulatory Stakeholder Group. The Department of Climate Change and Energy Efficiency (DCCEE) have released much of the information presented at the first workshop.

There are important points included in the presentation, including detail about DCCEE’s long standing emissions and energy reporting tool, OSCAR. The replacement, ‘Emissions and Energy Reporting System’ (EERS) is under development and is targeted to be implemented prior to the 2012-13 reporting year. OSCAR will still be used for the 2011/12 period which is already over half-way through! EERS will include the additional functionality and security required under the carbon pricing mechanism.

The presentation also includes some important information in Parts 3 ‘Legislative overview of registration and reporting’ and, Part 4 ‘Registration—JVs, LTCs, OTNs, Liable Entities’. For more detail go to:

http://goo.gl/zWfgT

Another source of information we have found useful covers the consultation process, timelines, who is doing what and information about the Clean Energy Regulator which can be found at:

http://goo.gl/lXO6I

On Wednesday 14 December Ndevr Environmental Consulting’s Principal Consultant Matt Drum took part in the DCCEE run stakeholder reference group to discuss the Regulations that will sit under the Clean Energy Act 2011.

There is still a lot of detail to be finalised under the Act, however one thing is clear – all businesses whether directly or indirectly liable will face increased energy and compliance costs. Some other less thought of factors such as solid waste removal and waste water services will also have a carbon cost applied.

Trying to calculate exactly what this means to your bottom line is a complex exercise, but some issues organisations will need to consider are:

Direct Liability – where the Clean Energy thresholds are triggered

  • Is your company directly liable?
    • Facility level thresholds apply on covered sources.
  • The cost of purchasing permits and cash-flow concerns.
    • Permits or ‘units’ have to be acquired in two ‘tranches’ – an interim purchase (75% of projected emissions), and a ‘true-up’ where the remainder of reported liable units must be acquitted
  • The cost of other compliance obligations
    • Additional reporting and assurance requirements
    • Improving measurement and reporting accuracy and audibility

 Indirect Liability – where carbon costs occurring elsewhere will be passed to you from common energy sources and waste services

  • Grid  electricity
    • Each generator will face different carbon costs depending on their generation mix
    • Some emissions intensive generators in Victoria will receive some free permits which may limit the pass through cost
    • Competitive forces will come into play in Australia’s complex electricity markets as generators and retailers decide the amount of cost to pass on the amounts to absorb
    • Pass-through of the carbon cost associated with transmission/distribution line losses may or may not be applied
    • It may be time to re-evaluate procurement strategies and request the ‘itemised’ carbon cost to be applied by your retailer when the Act comes into play
  • Natural Gas
    • A carbon cost will be applied to natural gas – this may shift slightly due to the energy value embodied in the gas
    • Large users can apply for an Obligation Transfer Number (OTN) that allows them to manage their own carbon liability – effectively they have a direct liability
  • Liquid Fuels
    • Depending on when a liquid fuel is used for stationary or transport purposes will have an effect on how the carbon cost is applied and the net cost to business
  • Waste removal
    • As solid waste breaks down in landfills methane is released and this is a covered source under the Act. Landfill operators are currently working out their liabilities going forward, which will be passed back to your business via waste services contractors
    • Waste water also emits Kyoto gases covered under the Act. Similarly to solid waste, water service providers will be looking to pass this cost back to the consumers

The legislation is extremely complex, and just as business is grappling with how it will affect them, government is grappling with exactly how they will administer it from the start date, which is only six months away.

There is however some strategies you should consider as soon as possible to reduce your risk:

  1. Supply chain analysis: Understand the costs you can reasonably expect to be passed through. Your NGER report and procurement team can be key sources of information here.
  2. IT systems: Ensure your current system appropriate. IT implementations do not happen overnight, your system should have; change control, password protection, links to source data such as invoices or higher order emissions and energy content data.
  3. Funding opportunities: Investigate your eligibility for funding such as that administered under the Clean Energy Finance Corporation (CEFC)?
  4. Audit and compliance: Confirm whether or not you will be required to undergo mandatory audits. Consider a voluntary audit of your 2011/12 NGER report as this will be your last ‘free-hit’ before the Act takes affect
  5. Procurement: Arm yourself with the knowledge you need to negotiate with suppliers (step 1 above is the basis for this).
  6. Brief the Executive and/or Board: Ensure the leaders understand the impact the Act will have on your business and make sure budgets reflect the risk
  7. Opportunities under Carbon Farming Initiative: Your business may have opportunities to generate credits under the CFI – which can be used internally or sold on a market.

If you have any questions on the issues raised above, or would like to analyse these issues in more detail, please contact us.


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