Greenhouse gas reporting - The Carbon Pricing Mechanism triggers changes to NGERS

15 August 2011

As the National Greenhouse and Energy Reporting Scheme (NGERS) will underpin the carbon pricing mechanism, various changes to NGERS are proposed to accommodate the mechanism and streamline existing reporting obligations.

Companies that are currently reporting under NGERS or that may have obligations under the carbon pricing mechanism should carefully review and assess the implications of these proposed changes and consider making a submission before the Monday 22 August 2011 deadline.

The exposure draft Clean Energy (Consequential Amendments) Bill 2011 proposes the following two key changes to NGERS:

  • the introduction of a new reporting requirement for ‘liable entities’ under the Clean Energy Bill 2011 (Liable Entity Reporting); and
  • the streamlining of existing reporting obligations for controlling corporations (Controlling Corporation Reporting).

What are the new Liable Entity Reporting requirements?

All ‘liable entities’ and entities that may reasonably be expected to become ‘liable entities’ under the Clean Energy Bill 2011 will be required to report their direct greenhouse gas emissions (scope 1 emissions) and their emissions number. This applies regardless of whether that entity reaches the current thresholds for reporting under NGERS.

It is important to note that, under the Clean Energy Bill 2011, a liable entity is generally the person who has operational control of a facility, whereas under NGERS, it is the controlling corporation of the entity in operational control (ie. the ultimate Australian holding company) that must report. As the proposed new Liable Entity Reporting is in addition to the existing NGERS Controlling Corporation Reporting requirements, there is likely to be some duplication where the liable entity and its controlling corporation differ. It appears that the information may be able to be submitted in one report (although the draft legislation is not clear on this point). However, each party would be separately legally responsible for ensuring that accurate information is submitted to the regulator within the required timeframes.

This potential overlap is an important consideration for directors who hold multiple directorships across a corporate group, as a failure to accurately report greenhouse gas emissions from one or more facilities in the corporate group may constitute multiple breaches of the NGERS requirements and directors are potentially liable for such breaches (where they have acted knowingly or recklessly).

The overlap may be avoided by transferring the carbon pricing mechanism and NGERS reporting obligations within a corporate group under the proposed liability transfer certificate (LTC) arrangements and amendments to the existing NGERS arrangements (set out below).

Key differences between the Controlling Corporation Reporting and Liable Entity Reporting requirements

While they apply in parallel, there are a number of important differences between the Controlling Corporation Reporting and Liable Entity Reporting requirements:

  • Liable entities need only report direct greenhouse gas emissions (scope 1 emissions) and their emissions number and are not required to report indirect emissions associated with purchased electricity (scope 2 emissions) or energy production or use.
  • During the fixed price period (1 July 2012 – 30 June 2015), liable entities must report their interim emissions number by 15 June of each year, in addition to reporting direct greenhouse gas emissions (scope 1 emissions) and their emissions number by 31 October of each year.  The interim emissions number is used to calculate a liable entity’s progressive surrender obligations under the Clean Energy Bill 2011.  Liable entities may either report their interim emissions number as 75% of the previous year’s emissions number or estimate 75% of the current year’s emissions.  Estimating the interim emissions number presents a risk, as if emissions are underestimated the liable entity will be required to pay a unit shortfall charge.
  • Liable entities face much higher penalties for breaching reporting obligations than controlling corporations ($1,100,000 compared to $220,000), as these are aligned with the penalties in the Clean Energy Bill 2011.
  • Mandatory auditing will be required for liable entities who exceed a specified threshold (currently expected to be 125,000 tonnes CO2e/yr). These audits must be completed under the supervision of a registered greenhouse and energy auditor and submitted at the same time as the NGER report. There has been concern regarding the potential costs associated with undertaking these audits.

Implications for public disclosure of information

Although NGERS information is published, it is published at the controlling corporation level not at the facility level. Therefore, if a controlling corporation is responsible for reporting on various facilities it is generally not possible to attribute information to one specific facility.

In contrast, greenhouse gas emission information provided by each liable entity will be published, such that facility level greenhouse gas emission information may be available to the public, for example where facilities are controlled by separate subsidiaries. This may result in potentially commercially sensitive information being publicly disclosed.

Companies should consider the Liable Entity Reporting requirements applicable to their corporate structure and, if there is a risk that commercially sensitive information will be disclosed, consider applying to the regulator to withhold publication.

How Liability Transfer Certificates (LTCs) work

Under the Clean Energy Bill 2011, it is possible for liable entities to transfer their carbon pricing mechanism obligations to:

  • a company outside the corporate group that has financial control of the relevant facility (via a financial control LTC); or
  • another member of their corporate group (via a controlling group LTC),

subject to meeting certain criteria and obtaining approval from the regulator.

The company wishing to take on the obligation will apply for and (if approved) be issued with an LTC. A company cannot apply for an LTC without the consent of the liable entity.

If a financial control LTC is issued, the company to whom it is issued is required to take on all of the NGERS reporting obligations in addition to the carbon pricing mechanism obligations. This means assuming the obligation to report energy use and production as well as scope 1 and 2 greenhouse gas emissions and the emissions number. The original liable entity (and its controlling corporation) will be relieved of both sets of reporting obligations. Companies with financial control over a facility (eg banks and other financial institutions) who are considering assuming the carbon pricing mechanism liabilities for that facility should be aware of taking on this wider scope, particularly if they do not otherwise have any obligations under NGERS.

In contrast, where a controlling group LTC is issued, only the obligation to report scope 1 greenhouse gas emissions and the emissions number with respect to the relevant facility is transferred to the holder of the controlling group LTC. The wider NGERS reporting obligations with respect to the relevant facility remain with the controlling corporation (which would not have changed), subject to the new ability for a controlling corporation to transfer its NGERS reporting obligations within its corporate group (set out below).

Streamlining and clarifying amendments

To streamline existing reporting requirements under NGERS, it is proposed that:

  • A controlling corporation will be able to transfer its Controlling Corporation Reporting obligations to another member of its corporate group. In conjunction with the LTC provisions in the Clean Energy Bill 2011, this will permit companies to transfer all NGERS reporting and carbon pricing mechanism obligations to one member of a corporate group, or for all NGERS reporting and carbon pricing mechanism obligations to sit with the controlling corporation.
  • Certain existing State-based greenhouse gas reporting requirements will not apply to entities that report under the new NGERS arrangements, meaning that companies would only have to report through a single framework. At this stage, the Commonwealth has not identified the relevant State legislation (which will be prescribed in regulations) but consultations with State and territory governments are continuing.
  • If it is unclear which company has ‘operational control’ over a facility, the parties involved must nominate one party as having operational control for NGERS purposes. Failure to nominate will incur a fine of $110,000.
  • The reporting obligations under NGERS will apply to all legal persons (including statutory bodies and local governments) rather than just corporations (as is currently the case).
  • The definitions of ‘facility’, ‘activity’ and ‘operation’ will be amended to include emissions from carbon capture and storage, solid waste deposit and waste storage, even if the facility is closed and no more waste is being received.

Submissions on the exposure draft Clean Energy (Consequential Amendments) Bill 2011 close on Monday 22 August 2011.


The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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