Implications for energy, resources and carbon market sectors 10 min read
The recent flurry of carbon regulations in Australia has wide-ranging implications for corporates—from managing net emissions at large facilities through to trading carbon credits and verifying carbon neutral marketing claims. At the same time, a topic that has attracted less attention is the 'mission creep' for Australia's carbon market regulator, the Clean Energy Regulator (CER).
In light of the CER's 2022-23 compliance and enforcement priorities and the expanded scope of its oversight responsibilities, this Insight discusses the likelihood that the CER will adopt a more interventionist regulatory approach in the coming years, as well as the likely areas of focus for any such change in direction. Given the CER's broad remit across emissions reporting, green energy certificates and carbon accounting, these developments have implications for numerous stakeholders across the energy, resources and carbon market sectors and beyond.
- The enforcement powers of the CER continue to expand, with new legislative schemes relating to emissions reporting and carbon markets, including a suite of anti-avoidance measures recently added to the National Greenhouse and Energy Reporting Act 2007 (Cth).
- The CER's compliance and enforcement priorities for the coming year demonstrate that its focus will be on maintaining transparency in emissions reporting and green certificate markets. There are also expanded consequences under the Safeguard Mechanism for Australia's greenhouse gas emitters that fail to comply with their declining emissions caps.
- Given the increasing scrutiny on misleading statements about green energy credentials and greenwashing more broadly in the corporate sector, we expect to see the CER cooperate more actively with other regulators in this area. The CER has recently confirmed that, while it will not lead investigations into suspected greenwashing activities, it may support other regulators who do so. This may include:
- sharing relevant data and information
- taking supporting regulatory action against companies suspected of greenwashing activity1
Having started life as a specialist regulator focused on carbon measurement and carbon offset projects, the CER is now at the forefront of decision-making and enforcement in Australia's widening carbon regulations. Understanding the CER, and having a pro-active engagement plan, is now a key capability for companies operating in the Australian market.
The CER was established in 2011 to administer the patchwork arrangement of emissions reduction and offsetting, and reporting legislation in Australia. Its regulatory scope has widened considerably since then, with the overhaul of the Safeguard Mechanism and burgeoning private interest in the market for tradeable renewable energy certificates, buoyed by public support for greater oversight of those organisations responsible for the highest greenhouse gas emissions.
Against the backdrop of this range of reforms (whether already implemented, or proposed to come into effect in the coming years), the CER may now look to take a more active enforcement role to ensure compliance with these schemes. These schemes are growing in number, and include:
This framework is designed to monitor and govern emissions in the resources and industrial sectors. The recently expanded framework now prescribes emissions baselines for Australia's highest emitting facilities, which will ratchet down annually by 4.9% to support Australia's net zero targets. Also, safeguard facilities can now generate a new kind of tradeable green certificate known as a Safeguard Mechanism Credit (SMC), by reducing greenhouse gas emissions below their baseline. The CER will continue to monitor compliance with the Safeguard Mechanism, including oversight over the new carbon offset market.
Established by the National Greenhouse and Energy Reporting Act 2007 (Cth), the NGER Scheme is a single national framework for reporting and disseminating company information on greenhouse gas emissions and energy production and consumption. Importantly, it underpins many of the key measurement and boundary concepts in the Safeguard Mechanism.
The RET Scheme is designed to incentivise renewable energy generation through the administration of the tradeable green energy certificates, each representing a megawatt hour of renewable power generated. The CER will administer the RET Scheme until its scheduled sunset date in 2030, including monitoring the compliance of electricity retailers with their obligations to surrender a minimum quantity of green energy certificates.
While the Safeguard Mechanism will attract much of the regulatory (and media) attention in the coming years, the CER continues to perform important carbon offset responsibilities, including issuing ACCUs for emissions abatement activities undertaken as part of the Emissions Reduction Fund. ACCUs can be surrendered to satisfy emissions reduction responsibilities under the Safeguard Mechanism or sold in the secondary market.
There are more changes on the horizon for the CER. The RET Scheme's expiry in 2030 will take with it the large-scale generation certificates (LGCs) created by eligible generators under that scheme. In the meantime, the Guarantee of Origin Scheme (GO Scheme) is expected to commence in 2024. The GO Scheme is anticipated to create an ongoing renewable energy certificate framework designed to support the ongoing energy transition, to be administered by the CER under new legislation. This will involve the CER monitoring compliance with a novel product-based emissions accounting framework, as well as regulating the creation of a new carbon offset market.
As the shape of Australia's carbon abatement policies continue to change, so too does the role of the CER. Tasked with the administration of a dynamic regulatory landscape and operating increasingly in the national spotlight, stakeholders will watch with interest to see how the CER approaches the critical role of enforcement under these various schemes.
On 30 May 2023, the CER released its 'emerging' compliance and enforcement priorities for 2022-23:
1. Emissions reduction transparency
The CER will introduce a new voluntary disclosure initiative (the Corporate Emissions Reduction Transparency Report), that allows eligible companies to publicly report their progress towards emissions reduction and renewable electricity commitments. If the CER has concerns over false or misleading claims in the report, it may refer concerns to the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
2. Misleading green certificate claims
Solar retailers that provide false or misleading statements will be deemed ineligible to participate in the small-scale renewable energy scheme and will not be able to sell systems that include those applicable certificates as incentives.
3. Emissions Reduction Fund (ERF) projects
ERF Project participants with forest regeneration projects are required to undertake regular 'regeneration checks' to assess and demonstrate forest regeneration. Project participants registered in 2017-18 will be required to provide a regeneration check for the first time in 2022-23.
4. Reporting obligations
The CER will focus on ensuring that facilities in the oil and gas industry report consistently with the legislative amendments to the Safeguard Mechanism.
These priorities are in addition to the 'enduring' compliance and enforcement priorities of the CER, including accuracy of claims in relation to ACCUs or the RET Scheme, and non-compliance with reporting requirements under the NGER Act.
The CER has also recently confirmed its role in investigation and enforcement action against greenwashing (broadly, the practice by which some companies misrepresent their green credentials).
Recent commentary from ASIC, the ACCC and the CER indicates that greenwashing will not fall under the purview of the CER.2 While the CER has stated it has limited regulatory powers to act with respect to greenwashing, in doing so it has indicated its willingness to take a supporting role, share data and information, and refer potential greenwashing activity to other regulators, including ASIC and the ACCC.3
The CER has emphasised its focus is on misrepresentations in relation to carbon emissions reductions claims and identified the following potential areas of risk for greenwashing in relation to carbon emissions:
- low emissions claims in relation to products, services and investments, sometimes referred to as 'Scope 3' or 'value chain emissions'
- aspirational claims of carbon neutrality without a plan to achieve them
- double counting of abatement claims in relation to carbon units and certificates. The CER's stated position is that only the party cancelling the carbon units and certificates can claim the emissions reduction.4
The CER has a range of enforcement powers at its disposal, including:
- Revocation of accreditation: the CER has the power to suspend or revoke accreditation or registration under a suite of legislative schemes that it regulates, and has powers to impose conditions on, suspend or deregister greenhouse and energy auditors.
- Enforceable undertakings: the CER may accept enforceable undertakings from a regulated entity, however, the CER does not have the power to compel entry into an enforceable undertaking.
- Infringement notices: the CER can issue infringement notices setting out the nature of the alleged contraventions and the penalty.
- Proceedings for civil or criminal penalties: the CER can commence court proceedings for contraventions of criminal and civil penalty provisions, including for breaches of the Safeguard Mechanism, and for dishonest or fraudulent conduct in relation to the carbon offset markets or emissions reporting requirements.
These enforcement powers may differ in scope and exercise depending on the particular scheme that a person or corporation is alleged to have breached. For instance, new anti-avoidance measures under the NGER Act empower the CER with broad authority to declare that an undertaking or enterprise is a 'facility' where it determines that a facility has been defined, or redefined, with the intention of evading emissions reduction obligations for the purposes of the Safeguard Mechanism.
While the CER has demonstrated a less active approach to prosecuting breaches than its wholesale and retail energy market equivalent, the Australian Energy Regulator (AER), this may be a product of the nature of its limited historic scope. In the future, its widened functions (notably, the alterations to the Safeguard Mechanism and the mooted introduction of the GO Scheme) may necessitate a more active approach to enforcement.
In recent years in Australia, other industries—and the financial services sector in particular—have faced the scrutiny of increasingly active regulators and grappled with the risk of enforcement action. Lessons can be drawn from these industries and applied by stakeholders in the energy, resources and carbon market sectors, which are subject to possible enforcement action by the CER. Often, risks can be easily mitigated long before the regulator takes action by some simple, good governance steps. Against the current backdrop, those organisations subject to the CER's enforcement powers should consider taking action now.
Companies that participate in schemes administered by the CER should be cognisant of their expanding enforcement responsibilities. While much remains to be seen—most notably the detailed design of the GO Scheme and how that will interact with the RET Scheme in the coming years—companies seeking to mitigate possible exposure to CER enforcement activity can act now by taking the following steps:
- Consistent and accurate reporting, which is critical to ensuring compliance with the emissions reduction schemes administered by the CER. As pressure mounts on Australia's largest greenhouse gas emitters, companies should take care to ensure information submitted to the CER is accurate (not false or misleading) and based upon an up-to-date emissions accounting methodology aligned with the applicable legislation.
- If participating in overlapping carbon accreditation schemes at the same time, careful attention should be given to the risk of double counting. Transitional arrangements can be complex to navigate, and the CER will be alive to the possibility of double counting with respect to emissions reduction or green energy certificates (either with respect to ACCUs or SMCs for the purposes of the Safeguard Mechanism, or—as will likely be the case with LGCs and tradeable green certificates—under the GO Scheme).
- ESG-related statements, particularly net zero commitments, emissions reporting and claims concerning renewable energy credentials, need to be factually accurate and evidence based. If the CER identifies possible misleading conduct as part of its oversight and monitoring role, it is likely to cooperate with other regulators on potential enforcement action.
CER, 'Submission: Environment and Communications References Committee – inquiry into greenwashing' dated 6 June 2023.
At the Australian Financial Review's recent ESG Conference, ASIC Chair Joe Longo noted '…when the [CER] appoints an operator, [ASIC] will play our part in the development of a carbon market in Australia by ensuring standards of integrity and transparency, as we do in other Australian licensed markets'. More detail on ASIC's recent interventions in greenwashing can be found in our Insight.
CER, 'Submission: Environment and Communications References Committee – inquiry into greenwashing' dated 6 June 2023.
CER, 'Submission: Environment and Communications References Committee – inquiry into greenwashing' dated 6 June 2023, p. 2.