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10 Nov 2011

Draft regulations to administer the National Registry of Emissions Units

by Brendan Bateman

The draft regulations for the National Registry of Emissions Units are crucial to ensuring there's a robust regulatory framework for the Carbon Farming Initiative and carbon pricing mechanism.

On 31 October 2011, the Commonwealth Government released draft regulations for consultation through the Australian National Registry of Emissions Units Regulations Act 2011 to support the Australian National Registry of Emissions Unit.

The introduction of the Regulations has occurred against the backdrop of the recently enacted Carbon Farming Initiative, and adds to the political momentum that has been gathering for the establishment of an Australian emissions trading scheme in the form of the Carbon Price Mechanism (CPM).

Background

Recently, a series of new pieces of legislation have passed or been introduced into Federal Parliament that are relevant to understanding where the Regulations fit in the context of emissions trading. Most notable is the Clean Energy law package that was introduced into Parliament in September 2011 and will commence on 1 July 2012. It is a package of 19 Bills that provide for Australia's clean energy future by creating governing rules for the CPM.

Prior to this, in August 2011, the Carbon Credits (Carbon Farming Initiative) Act 2011("CFI Act") was passed, establishing a scheme for creating carbon credits in the agricultural sector.

Subsequently in September 2011, the Australian National Registry of Emissions Units Act 2011 ("ANREU Act") was passed in order to provide a legislative basis for what is known as "the Registry".

The Registry was established by the Commonwealth Government in December 2008 in order to meet Australia's commitment under the Kyoto Protocol. It is an electronic system that can be likened to a bank in that it ensures accurate accounting of the issuance, transfer, acquisition, cancellation, retirement and carrying-over of Kyoto units. Under the CFI Act, it will act as the registry for tracking Australian Carbon Credit Units (ACCUs) created under the CFI scheme.

Upon commencement of the CPM in July 2012, the Registry will also act as the Registry for tracking carbon units issued under the CPM. It is maintained by the Carbon Credits Administrator. The main advantages of combining the Kyoto Protocol and CPM functions in one registry are that it will avoid duplication in account opening and operating procedures and keep implementation and transaction cost down.

The Regulations have been made with the mandate of carrying out all matters necessary or convenient for giving effect to the ANREU Act. They essentially provide a support function for the day-to-day operation of the Registry.

Why the Regulations are important – Administration and market integrity

The credibility of any emissions trading scheme in Australia is dependant upon the Registry being able to facilitate the aspirational aim of efficient, fair and orderly transactions. Carbon units need to be exchanged among economic agents without fear of disruption and loss caused by theft, fraud, market manipulation and other undesirable practices.

It is also important that the Australian market is harmonised with overseas carbon markets to the extent possible to facilitate future international changes. The Regulations are an important aspect of achieving this aim because they provide the necessary details to enable the effective administration of the Registry. In particular, they deal with:

  • the opening, closing and the particulars of Registry accounts, including identification procedures;
  • international and domestic transfers of Kyoto units;
  • the cancellation of Kyoto units; and
  • the application and implementation of the Kyoto rules.

If these Regulations are effectively implemented they will assist with providing a degree of market integrity to the CPM. However, this also depends on whether units are fungible, that is, emission reduction units must be equivalent across different industries to ensure consistency and fairness.

Moreover, in order for there to be market integrity, users must be confident that transferable units legally exist, that the registry operates efficiently and that it is free from corruption and fraud. An example of how the Regulations counter issues of fraud is the requirement that accounts not be opened unless the Administrator is satisfied that the account holder's identity can be verified after reviewing all identification evidence. Under the Regulations the Administrator is also given the power to request further information to verify a person's identity.

What's next?

Comments on the draft regulations will be taken into considerations when finalising the Regulations and public submissions are due by 14 November 2011. It will be interesting to see the sorts of discussions that will arise about whether the Regulations will be effective in giving credibility to the Registry.

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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.