04 Feb 2011

Opportunity to streamline Energy Efficiency Opportunities program

by Claire Smith, Rebecca Hawke

Proposed changes to the Energy Efficiency Opportunities program would allow corporations to choose to participate under "financial control", not "operational control", rules, streamline reporting requirements and improve cohesiveness between EEO and NGERS.

Halfway through the third reporting period under the National Greenhouse and Energy Reporting Scheme (NGERS), with no clear parliamentary decision on emissions trading and rising electricity costs, energy efficiency is once again high on the agenda.

Energy Efficiency Opportunities program

The Federal Energy Efficiency Opportunities (EEO) program requires large energy-using businesses to identify, evaluate and report publicly on cost-effective energy saving opportunities. The Energy Efficiency Opportunities Act 2006 (Cth), associated regulations and capacity building program commenced in 2006. The EEO operates in five-year assessment and reporting cycles, the first being 2006 to 2011. It is regulated by the Department of Resources, Energy and Tourism (DRET).

Mid-Cycle Review

A Mid-Cycle Review completed in December 2010 looked at the effectiveness of the EEO up until mid-2010 (Energy Efficiency Opportunities Program: Mid-Cycle Review). It found that energy savings identification and implementation are occurring and the program is providing some benefit, but many corporations considered that there was too much duplication and reporting of the same data in different ways to meet the requirements of both State and Commonwealth schemes.

Discussion Paper for consultation

Following the EEO Mid-Cycle Review, DRET released a Discussion Paper on proposed changes to the EEO program assessment and reporting requirements with clarification on the second cycle on 27 January 2011.

DRET has focused on several key areas for improvement within the EEO program. Noteworthy proposed changes include:

  • improving cohesion between EEO and NGERS: Various changes to streamline participation in both the EEO program and NGERS including allowing registration for the EEO program through the NGERS OSCAR system, reducing duplication in reporting data by allowing the EEO program to source some information from NGERS and making the assessment framework for the two schemes more cohesive;
  • increasing flexibility by allowing participation under "financial control" rules rather than just "operational control" rules (discussed in more detail below); and
  • additional measures to streamline the EEO program including:
    • amending participation rules to ensure large energy using facilities and fleets continue to participate in the program irrespective of changes to corporate ownership structure;
    • changing the sites that may be excluded from assessment, for example for small activities such as a canteen that have nothing to do with core production;
    • developing, in consultation with industry, a number of standard energy use indicators for individual industry sub-sectors so that corporations can benchmark their performance against others in their industry; and
    • improving the effectiveness and efficiency of public and government reporting, including by reducing unnecessary compliance burden.

DRET intends to make these changes to the Energy Efficiency Opportunities Regulations 2006 (Cth) by 30 June 2011.

Financial control v operational control – increasing flexibility for participants

A key issue for EEO participants is the proposal to increase flexibility with regard to liable entities. Initially EEO attributed liability for participation in the program to the entity that was the last purchaser of energy. The EEO regulations were changed on 1 July 2008 to align the program with NGERS which primarily attributes responsibility for participation to the entity that has "operational control" over the facility at which energy is used.

Since then, the NGER Act has been amended so that from 19 September 2009, in certain circumstances, facilities may transfer their NGERS obligations from the entity with "operational control" of a facility to the entity with "financial control". The entity with financial control may take on the NGERS obligations by applying for Reporting Transfer Certificate providing the following criteria are met:

  • the financial control entity must be a constitutional corporation and a company registered under Part 2A.2 of the Corporations Act 2001;
  • the financial control entity must not be a member of the same corporate group as the entity with operational control;
  • the controlling corporation of the operational control entity must consent to the transfer;
  • the controlling corporation of the financial control entity must consent to the transfer;
  • the financial control entity must have the capacity and the access to information necessary for it to comply with the reporting obligations; and
  • the relevant facility must meet one of the thresholds under the NGER Act.

DRET is proposing that the EEO be similarly amended to allow corporations the option of using financial control rules rather than operational control rules. The Discussion Paper notes that "Corporations can require the collection of energy use data in contracts and fulfil NGERS data collection and reporting requirements but it is not as simple to get shared buy-in to undertake assessments and implement findings, particularly where the financial liability and benefits of improved energy use or energy using equipment lies with the other party." Amongst other things, the Discussion Paper asks stakeholders to comment on the following question:

"Could the regulations be changed to require corporations that own and or operate energy using equipment and or pay for energy use to participate in the energy efficiency assessment of the corporation that has operational control to assist in addressing ongoing landlord tenant /owner operator barriers to improved energy efficiency?"

The benefits and drawbacks of the financial control option have been considered before. In consultation over the same issue with regard to the then proposed Carbon Pollution Reduction Scheme, the Government found that:

  • in some instances, for example in the mining sector and the pipeline industry, using an operational control test would impose liability on an entity that does not derive the financial rewards from a facility; and
  • the entity with financial control over the facility (that is, the entity that has the ability to direct the financial and operating policies of the facility with a view to gaining economic benefits from its activities) has the greatest influence over emissions.

Submissions

Submissions on the Discussion Paper may be made by email to energyefficiencyopportunities@ret.gov.au by 25 February 2011.

Interested parties may also like to nominate to participate in various focus groups which will devise clear guidance on particular areas. Nominations may be made by email to the address above by 11 February 2011.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.