The NGER Scheme, the Safeguard Mechanism, and how any expansion of these schemes could be a key risk to large emitters in Australia
The National Greenhouse and Energy Reporting (NGER) scheme requires some companies to account for the scope 1 and scope 2 emissions they are responsible for. Scope 1 emissions are direct emissions for which a company is responsible, whilst scope 2 emissions are indirect emissions from the purchase of electricity. The NGER scheme is administered by the Clean Energy Regulator under the National Greenhouse and Energy Reporting Act 2007 (Cth).
The NGER scheme applies to corporate groups that exceed statutory emissions, energy use or energy production thresholds. If a facility operated by a company in a controlling corporation's corporate group exceeds a facility level threshold, the controlling corporation of the corporate group must register on the National Greenhouse and Energy Register.
Current policies will only drive a further 9% decrease in emissions from electricity generation to 20301
If a corporate group exceeds a corporate level threshold, again the controlling corporation of the corporate group must register on the National Greenhouse and Energy Register.
The current thresholds for NGER registration are as follows:
- Facility threshold: emission of 25,000 tonnes CO2 equivalent or more of greenhouse gases, production of 100TJ or more of energy, or consumption of 100TJ or more of energy per financial year.
- Corporate group threshold: emission of 50,000 tonnes CO2 equivalent or more of greenhouse gases, production of 200TJ or more of energy, or consumption of 200TJ or more of energy.
Regardless of the trigger, once the controlling corporation is registered, that corporation will be responsible for preparing an annual report on the greenhouse gas emissions, energy production and energy consumption for the corporate group.
In the absence of a carbon pricing mechanism in Australia, the Safeguard Mechanism remains one of the only tools at the Federal Government's disposal to cap emissions. Any entity that operates a facility with scope 1 emissions of more than 100,000 tonnes CO2 equivalent per year is covered by the Safeguard Mechanism.
The Clean Energy Regulator sets emissions baselines for each facility covered by the Safeguard Mechanism. The person with operational control of that facility must keep the facility's emissions at or below the emissions baseline. If the facility exceeds the baseline, the operator of the facility must purchase and surrender an amount of Australian Carbon Credit Units equivalent to the excess.
There are four main types of emissions baselines – reported baselines (which will cease on 1 July 2020), calculated baselines, production-adjusted baselines and benchmark baselines. An emissions baseline cannot be set below the threshold of 100,000 tonnes of CO2 equivalent.
The Clean Energy Regulator is required to publish information about all designated large facilities covered by the Safeguard Mechanism for each reporting year. In addition to keeping its emissions at or below its baseline, a company subject to the Safeguard Mechanism must also adhere to the general reporting and record keeping requirements of the NGER scheme.
The majority of large corporations that have been reporting under the NGER regime and have been operating under a Safeguard Mechanism baseline have, over time, become comfortable with these regulatory obligations and have developed the capabilities to measure and report their emissions.
It is frequently speculated that if the Federal Government adopted a more ambitious emissions reduction target, it would be underpinned and driven by amendments to the Safeguard Mechanism so that it covers more companies and imposes stricter baselines.
This is a key risk to large emitters in Australia. It also presents a key opportunity for those entities whose operations contain the potential for emissions abatement or sequestration. This is because a stricter Safeguard Mechanism will create a more robust carbon credit market in Australia which can create the opportunity for additional revenue streams.
- Has your organisation undertaken diligence to establish whether its emissions, energy use or energy production trigger reporting under the NGER scheme? (Reporting can sometimes be missed where emissions and/or energy use occurs over many separate sites.)
- If currently registered under the NGER scheme, is your organisation likely or unlikely to meet the relevant threshold in the future?
- If currently registered under the NGER scheme, have suitable arrangements been made with third-party suppliers to require them to provide relevant data to support your compliance?
- Has your organisation undertaken diligence to establish whether the Safeguard Mechanism applies? If so, is it satisfied it can continue to meet its baseline?