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In brief:

- In August, the Commonwealth Government introduced legislation to establish a national system for greenhouse and energy reporting by companies.

- This is seen as a necessary prerequisite to the introduction of an emissions trading scheme.

- The first reporting period will be the financial year commencing 1 July 2008. By this date, companies should have assessed whether they will be required to report under the legislation, and if so, have implemented systems for measuring their total greenhouse emissions and energy use.

On 15 August 2007, the Commonwealth Government introduced legislation to establish a national system for greenhouse and energy reporting by companies. The National Greenhouse and Energy Reporting Bill 2007 (Cth) will, if enacted, require companies to annually report their greenhouse gas (GHG) emissions, energy production and energy use.

Why the need for a national reporting system?

On 3 June 2007, Prime Minister John Howard announced that the Commonwealth Government will introduce an Australian Emissions Trading Scheme (AETS) by 2012. Details of the proposed scheme are set out in Australia's Climate Change Policy, released on 17 July. The scheme will implement the key design recommendations made in the final report of the Prime Minister's Task Group on Emissions Trading issued on 31 May. For more details on the AETS, see our August 2007 edition of Greenhouse Update.

The establishment of a national reporting system is seen as a necessary prerequisite to the introduction of the AETS. The information reported by companies under the new system will inform decisions about permit allocation and incentives for early abatement action under the AETS.

The Bill also aims to remove the duplicative reporting requirements which currently exist as a result of multiple Commonwealth, State and Territory requirements (see our February 2006 edition of Greenhouse Update on page 13). In his media release of 15 August, the Minister for Environment and Water Resources, Malcolm Turnbull, explained that:

"In some cases, corporations are preparing eight different reports, based on similar data, under eight different programmes. The excessive red tape and unnecessary cost this situation inflicts on the Australian economy will be eliminated by this new system."

Key features

- The legislation is expected to commence by July 2008.

- Companies which emit prescribed levels of greenhouse gases or which produce or consume prescribed amounts of energy will be required to register with the National Greenhouse and Energy Register (NGE Register) and to annually report their emissions.

- Registration and reporting obligations will be progressively phased in over 3 years, to give companies time to prepare for the scheme.

- First reports will be due at the end of October 2009.

- An on-line reporting tool will be used to submit reports, and data will be made available on a public internet site.

- The scheme will be administered by the new Greenhouse and Energy Data Officer (GEDO).

Who will be required to register?

The Government expects that about 700 companies will be required to register and report under the new system. The thresholds have been set at a level which aims to capture a significant proportion of Australia’s emissions, while avoiding significant impacts on small business.

A company must register under the NGE Register if it is the controlling corporation and its group meets one of the reporting thresholds for a financial year.

A controlling corporation is one that does not have a holding company incorporated in Australia. In other words, it is the company that sits at the "top of the chain" in Australia.
The group consists of the controlling company itself and, in certain circumstances, its subsidiaries, partnerships and joint ventures.

Companies which currently report under the Commonwealth's Energy Efficiency Opportunities Act 2005 will be familiar with this model of corporate reporting.

Which facilities?

A controlling corporation will be required to report GHG emissions, energy production and energy use from facilities over which it or a member of its group has operational control. These are facilities over which the company has authority to introduce and implement operating policies, health and safety policies, or environmental policies.

Offshore facilities involving the extraction of, or exploration for, oil or gas in Australia's exclusive economic zone are included.

Only one company can have operational control over a facility at any one time. The Bill itself does not go into detail about how to determine the control of a facility or boundaries around facilities. It is expected that regulations will be made to deal with these issues. A company may also apply to GEDO for a declaration about which activities constitute a facility and which company has operational control.

Reporting thresholds

The thresholds at which companies will be obliged to register and report will be phased in over 3 years. A higher threshold will apply initially and will then be reduced, so as to cover more companies over time. This is intended to allow time for companies that are not reporting under existing schemes to implement reporting systems.

Reporting will be required if a threshold is triggered at either:

- the corporate group level; or

- the facility level.

The corporate group thresholds prescribed in the Bill are:

- for the financial year commencing on 1 January 2008 - 125 kilotonnes (kt) of carbon dioxide equivalent (CO2-e) or 500 terajoules (TJ) of energy produced or consumed annually;

- for the financial year commencing on 1 January 2009 - 87.5 kt CO2-e or 350 TJ of energy annually; and

- for the third and subsequent years - 50 kt CO2-e or 200 TJ of energy annually.

A facility level threshold of 25 kt CO2-e or 100 TJ of energy annually will apply consistently from the start of the new system.

The corporate group level thresholds have been set so as to exclude companies with relatively low total emissions or energy use or production. The facility level threshold is intended to capture larger facilities with significant emissions operated by companies that do not trigger the company level threshold (such facilities may require emission permits under the AETS).

The table below illustrates how the threshold system might work for GHG emissions for 3 hypothetical companies, each with 3 facilities.

- Company A, with group-wide emissions of 125 kt CO2-e, would trigger the group level threshold and would be required to report group-wide emissions.

- Company B, with group-wide emissions of 40 kt CO2-e and a highest facility level emissions figure of 20 kt CO2-e, would not trigger either the group level or facility level thresholds. Company B would not be required to report any emissions.

- Company C, with group-wide emissions of 40 kt CO2-e and a highest facility level emissions figure of 25 kt CO2-e, would not trigger the group level threshold, but would trigger the facility level threshold. It would be required to report group-wide emissions.

Calculating emissions

The Bill itself does not define how GHG emissions, energy use or energy production is to be measured. These things are to be specified in regulations to be made under the Act.

It is likely that the thresholds will apply to a company's total:

- gross "scope 1" data - fuel and energy produced or consumed and GHG emissions produced directly by the company; and

- gross "scope 2" data - GHG emissions from consumption of electricity, heat or steam imported from sources outside the company boundaries.

"Scope 3" emissions (all other indirect emissions from sources not owned or controlled by the company) would not be considered in applying the threshold, but could be reported by companies at their discretion.

It is expected that the system will require companies to calculate emissions and energy use using ABARE's Fuel and Electricity Survey (ABARE FES) and the AGO Factors and Methods Workbook. Company-specific factors and methods may be approved by GEDO, where these are more accurate than the default methods.

Reporting emissions

A company registered on the NGE Register must submit an annual report to GEDO about GHG emissions, energy production and energy consumption from the operation of facilities under the operational control of the company and entities that are members of its group.
Reporting obligations are expected to commence in the financial year starting 1 July 2008. Reports will be due 4 months after the completion of the reporting period, making first reports due at the end of October 2009. Failure to report is subject to a fine of $220,000, and an additional penalty of $11,000 for each day the report is overdue.

The obligation to report rests with the company registered on the NGE Register (the controlling corporation). However, the legislation will allow another member of the group to provide part of the report relating to a facility for which that member has operational control.

Data will be submitted via an on-line reporting tool based on the OSCAR system used for the Commonwealth's Greenhouse Challenge programme.

Reporting abatement

Companies will be able to voluntarily report information about emissions reductions, removals and offsets from a "greenhouse gas project" that meets requirements to be specified in the regulations. Abatement action taken before 3 June 2007 (the date the Prime Minister announced the Government's intention to introduce an AETS) is unlikely to be taken into account.

Companies that wish to report on the "bigger picture" of their emissions profile will need to consider whether their abatement actions will meet the definition of a "greenhouse gas project" under the legislation. If so, they will need to implement systems for measuring offsets in accordance with requirements to be specified in the regulations.

Publication of data

Data will be displayed on a public internet database. The aim is to provide easily accessible information to investors and the general public on emissions and energy use by Australian companies.

Companies can apply for an exemption on the basis that disclosure would reveal trade secrets or affect the commercial value of another matter.

Record keeping and audits

Companies will be required to keep records for at least 7 years, in the manner to be specified in regulations.

GEDO will have power to appoint an external auditor to audit a company's compliance with the legislation.

Enforcement

The Bill establishes a system for monitoring compliance with the scheme, including the use of infringement notices, enforceable undertakings, and civil penalties (fines).

CEOs may be subject to civil penalties if their companies fail to comply.

The Government has indicated that the emphasis in the initial years of the scheme will be on encouraging compliance, rather than on punitive measures. As the scheme matures, a more stringent approach will be taken, particularly with regard to data that will inform decisions about emissions trading.

What will happen to reporting under the National Pollutant Inventory?

As reported in our August 2007 edition of Greenhouse Update, the States and Territories agreed in June this year to an amendment to the National Environment Protection Measure for the National Pollutant Inventory (NPI NEPM) to require companies to report GHG emissions under the NPI.

The Bill will override the GHG reporting requirements of the NPI NEPM. This is consistent with the NEPM itself, which provides that its GHG reporting requirements will be repealed if a more comprehensive national reporting system is introduced.

This means that companies will not be subject to duplicative reporting requirements under the NPI.

What happens to reporting under State/ Territory laws?

As noted above, one of the aims of the legislation is to establish a single reporting scheme that removes the duplicative reporting burden currently experienced by some companies as a result of multiply national, State and Territory reporting requirements.

Clause 5(2) of Bill specifically states that it is intended to apply to the exclusion of all State and Territory laws which provide for the reporting or disclosure of information related to a constitutional corporation's:

- GHG emissions;

-
greenhouse gas projects (offsets);
energy consumption; or
energy production.
The effect of this provision is that "inconsistent" State and Territory laws about these matters will be invalid to the extent of the inconsistency, pursuant to section 109 of the Constitution. The impact of this ouster clause will depend on the characterisation of State and Territory laws and whether their continued operation is "inconsistent" with the national reporting legislation.

Clause 5(2) is widely drafted. It may potentially exclude a wide range of State and Territory laws, including, for example:

environmental and planning laws and policies which require assessment and disclosure of GHG emissions as part of the project approval process;
conditions of environmental approvals which require reports on GHG emissions and energy use; and
disclosure requirements concerning energy efficiency of a corporation's premises.
The legislation will provide some flexibility, allowing the Commonwealth Minister to exempt a State or Territory law from this provision. This suggests that some State and Territory reporting requirements could remain in effect, at least during the transitional phase.

At this stage, it is unclear which existing reporting requirements will be phased out, and when. Regulations are expected to be made specifying which State and Territory laws will be overriden by the national scheme. The Commonwealth Government has said it will work cooperatively with State and Territory Governments to transition towards a single national reporting system.

What next?

An inquiry into the Bill is being conducted by the Senate Environment, Communications, Information, Technology and the Arts Committee, which is expected to report by 6 September.

The Commonwealth Government has indicated it will release a consultation paper in late September which is expected to contain additional detail about the implementation of the reporting scheme and the matters to be dealt with in the regulations. The regulations will contain important operational requirements, including details about measuring emissions, determining reporting boundaries, eligible offset projects, and State laws that are to be excluded.
Affected companies may wish to comment on the consultation paper and participate in the public consultation process for the development of the regulations.

BDW