EXPLANATORY STATEMENT

Carbon Credits (Carbon Farming Initiative) Act 2011

Carbon Credits (Carbon Farming Initiative—Commercial and Public Lighting) Methodology Determination 2015

EXPOSURE DRAFT

Background: Emissions Reduction Fund

The Carbon Credits (Carbon Farming Initiative) Act 2011 (the Act) enables the crediting of greenhouse gas abatement from emissions reduction activities across the economy. Greenhouse gas abatement is achieved either by reducing or avoiding emissions or by removing carbon from the atmosphere and storing it in soil or trees.

In 2014, the Australian Parliament passed the Carbon Farming Initiative Amendment Act 2014, which establishes the Emissions Reduction Fund (ERF). The ERF has three elements: crediting emissions reductions, purchasing emissions reductions, and safeguarding emissions reductions.

Emissions reduction activities are undertaken as offsets projects. The process involved in establishing an offsets project is set out in Part 3 of the Act. An offsets project must be covered by, and undertaken in accordance with, a methodology determination.

Subsection 106(1) of theAct empowers the Minister to make, by legislative instrument, a methodology determination. The purpose of a methodology determination is to establish procedures for estimating abatement (emissions reduction and sequestration) from eligible projects and rules for monitoring, record keeping and reporting. These methodologies will help ensure that emissions reductions are genuine—that they are both real and additional to business as usual.

In deciding to make a methodology determination the Minister must have regard to the advice of the Emissions Reduction Assurance Committee (ERAC), an independent expert panel established to advise the Minister on proposals for methodology determinations. The Minister must not make or vary a methodology if the ERAC considers it inconsistent with the offsets integrity standards, which are set out in section 133 of the Act. The Minister will also consider any adverse environmental, economic or social impacts likely to arise as a result of projects to which the determination applies.

Offsets projects that are undertaken in accordance with the methodology determination and approved by the Clean Energy Regulator (the Regulator) can generate Australian Carbon Credit Units (ACCUs), representing emissions reductions from the project.

Project proponents can receive funding from the ERF by submitting their projects into a competitive auction run by the Regulator.The Government will enter into contracts with successful proponents, which will guarantee the price and payment for the future delivery of emissions reductions.

Further information on the ERF is available on the Department of the Environment website at:

Background: Commercial and Public Lighting

Improving the energy performance of commercial and public lighting systems by upgrading existing lighting systems can reduce emissions associated with the generation of electricity consumed in buildings and public spaces. The draft Determination is intended to apply to lighting upgrades undertaken in commercial and industrial buildings, as well as lighting upgrades to public areas, such as pedestrian, street and traffic lighting.

Most greenhouse gas emissions generated by lighting systems are indirect, primarily emissions from electricity that is consumed by the lighting systems (scope 2 emissions). Lighting systems that generate direct (scope 1) emissions, through the provision of lighting using direct fuel combustion (for example, gas lighting), are not considered under this draft Determination.

For this draft Determination, the upgrading of a lighting system involves the modification, installation, removal or replacement of lighting equipment within an existing lighting system for the purpose of decreasing energy usage of that system as a whole. Examples of activities that may contribute to emissions reductions under the draft Determination include modifying, installing, removing or replacing:

  • illumination equipment (such aslamps and ballasts);
  • lighting control systems (such asmotion sensors, sensor lights, programmable and manual dimmers), which affect the waylighting systemsconsume energy; and
  • equipment that generates electricity for direct use by the lighting systems (such as integrated photovoltaic luminaire units).

The draft Determination would provide for lighting upgrades in multiple buildings or public spaces to be included in a single lighting upgrade project. The draft Determination does not specify the particular activities that would need to be undertaken or products to be installed, providing flexibility for project proponents to determine what activities or technologies are most appropriate for each upgrade.

Theenergy consumption of commercial lighting systems can be estimated using the nominal lamp power (NLP) of each lamp or luminaire and taking into account deemed values or adjustment factors for lamp type, control gear, hours of operation for the lighting space type, lighting control devices and air conditioning where applicable. The draft Determination makes use of NLP and these deemed values/adjustment factors to establish baseline emissions for the lighting system. The baseline emissions are then compared to project emissions to quantify emissions reductions and energy savings from activities undertaken as part of the lighting upgrade project.

An additional option is included to allow a public lighting project, should the proponent choose to do so, to use information and data contained in the public lighting inventory and the National Electricity Market Load Tables for Unmetered Connection Points published by the Australian Energy Market Operator in calculating the baseline and project emissions. This option has been provided to align with current reporting and record keeping practices in the public lighting sector.

Project proponents could include owners, operators or tenants of commercial and industrial buildings, local and state governments, electricity companies, lighting manufacturers/suppliers and other lighting project aggregators.

The draft Determination is based on a similar method under the New South Wales Energy Savings Scheme(ESS). In line with advice from stakeholders, the Department has sought to maintain consistency with the New South Wales method. There remain however some differences between the New South Wales method and the draft method due to differences in overall scheme design and coverage.

Application of the draft Determination

The draft Determination sets out the detailed rules for implementing and monitoring offsets projects that reduce greenhouse gas emissions associated with lighting upgrades to existing commercial and public lighting systems.These rules have been designed to help ensure that emissions reductions are real and additional to business as usual.

Project proponents wishing to implement projects under the draft Determination, once it is made, must make an application to the Regulator under section22 of the Act. They must also meet the general eligibility requirements for an offsets project set out in subsection 27(4) of the Act, which include compliance with the requirements set out in the draft Determination, and the additionality requirements in subsection 27(4A) of the Act. The additionality requirements are:

  • the newness requirement;
  • the regulatory additionality requirement; and
  • the government program requirement.

Subsection 27(4A) of the Act provides that a methodology determination may specify requirements in lieu of the newness requirement or the regulatory additionality requirement. The draft Determination does not specify any requirements in lieu, and so the general requirements apply tohigh efficiency commercial appliances projects.

Public consultation

The draft Determination has been developed by the Department of the Environment and has been reviewed by a stakeholder group which met on 3 February 2015. The stakeholder group comprised representatives from industry, experts from the energy efficiency sector and the Regulator.

The exposure draft of the Determination has been published on the Department’s website for public consultation from 17 March 2015 to 14 April 2015. Details for how to make a submission are provided on the Department of the Environment website,

Draft Determination details

The draft Determination will be a legislative instrument within the meaning of the Legislative Instruments Act 2003.

Details of the draft Determination are at Attachment A.

Note on this explanatory statement

Numbered sections in this explanatory statement align with the relevant sections of the draft Determination.

Definitions for terms which are highlighted in bold italics can be found in the draft Determination.

Attachment A

Details of the draft Methodology Determination

Part 1 Preliminary

1Name

The full name of the draft Determination is the Carbon Credits (Carbon Farming Initiative—Commercial and Public Lighting) Methodology Determination 2015.

2Commencement

Section 2 provides that the draft Determination would commence on the day after it isregistered on the Federal Register of Legislative Instruments.

3Authority

Section 3 provides that the draft Determination would be made under subsection 106(1) of theAct.

4Duration

Under subparagraph 122(1)(b)(i) of the Act, a methodology determination remains in force for the period specified in the determination.

Section 4 provides that the draft Determination will be in force from its commencement (asprovided for in section 2) until the day before it would otherwise be repealed under subsection50(1) of the Legislative Instruments Act 2003.

Instruments are repealed under that provision on the first 1April or 1 October following the tenth anniversary of registration of the draft Determination on the Federal Register of Legislative Instruments. In accordance with subparagraph 122(1)(b)(i) of the Act, paragraph4(b) of the draft Determination sets out the time that the draft Determination would expire.

If the draft Determination expires in accordance with section 122 of the Act or is revoked under section 123 of the Act during a crediting period for a project to which the draft Determination applies, the draft Determination will continue to apply to the project during the remainder of the crediting period under subsections 125(2) and 127(2) of the Act. Project proponents may apply to the Regulator during a reporting period to have a different methodology determination apply to their projects from the start of that reporting period (seesubsection 128(1) of the Act).

Under section 27A of the Act, the Emissions Reduction Assurance Committee may also suspend the processing of applications under a determination if there is reasonable evidence that the methodology determination does not comply with one or more of the offsets integrity standards. This does not impact applications for declaration already received by the Regulator before such a suspension or declared eligible offset projects which apply the draft Determination.

5Definitions

Section 5 defines a number of terms used in the draft Determination.

Generally, where terms are not defined in the draft Determination but are defined in section 5 of the Act, they have the meaning given by the Act.

Under section 23 of the Acts Interpretation Act 1901, words in the draft Determination in the singular number include the plural and words in the plural number include the singular.

Key definitions in section 5 of the draft Determination include those set out below.

baseline lighting equipment is defined for a lighting upgrade project tomean the lighting equipment in the serviced area immediately before the commencement of the lighting upgrade.

control gear is defined to mean equipment that converts electricity to a different voltage, current or waveform, for the purpose of powering a lamp.

integrated photovoltaic luminaire unit is defined in item 20 of Schedule 1.

lampis defined to mean equipment that converts electricity to visible light.

lighting control device is defined to mean equipment that controls the amount of power delivered to a lamp or luminaire, in response to sensors or user input.

lighting equipment, whichis defined in paragraph 8(2)(b), includes any control gear, lighting control device, lamp or luminaire.

lighting system, which is defined in paragraph 8(2)(a), means a system of equipment that delivers artificial light to a particular area.

lighting upgrade, which is defined in subsection 8(2), means the modification, removal or replacement of the lighting equipment of an existing lighting system, or the installation of lighting equipment, for the purpose of decreasing energy usage by increasing the energy efficiency of that system.

lighting upgrade project, which is defined in subsection 8(1), means an offsets project that involves one or more lighting upgrades, and can reasonably be expected to result in eligible carbon abatement.

luminaire is defined to meana piece of equipment that affixes to lamps and may reflect, direct or diffuse the light output by those lamps to deliver illumination services in an area, together with the lamps.

nominal lamp power (NLP) means the electrical power drawn by a lamp or luminaire.

project abatement amountis defined by reference to a lighting upgrade project for a reporting period to mean the carbon dioxide equivalent net abatement amount for the project in the reporting period for the purposes of paragraph 106(1)(c) of the Act. The term is used throughout the draft Determination and has been included to assist with readability.

project control gearis defined to mean control gear included in a lighting system following the completion of a lighting upgrade.

project lighting equipment is defined to mean lighting equipment included in a lighting system on the completion of a lighting upgrade.

public lighting inventory means the inventory of the lighting equipment of a public lighting system that:

  • is maintained by the provider of a lighting service (for example, an electricity company) or the client of that provider (for example, a local council) for billing, regulatory or management purposes; and
  • records the number and type of lamps and luminaires and their locations.

public lighting system means a lighting system for a road or public space of a classification specified in AS/NZS 1158 Lighting for roads and public spaces.

serviced area is defined to mean the physical area serviced by a lighting system.

type, of a serviced area, is defined to mean:

  • if the serviced area fits a description in an item of Schedule 4—that description; and
  • otherwise—the description that it fits in an item of Schedule 5.

6Factors and parameters from external sources

The calculation of the net abatement amount in the draft Determination includes factors and parameters determined from other sources, such as the NGA Factors document.

Section 6 specifies that such factors or parameters should be determined by using the version of the external source that is current at the end of the reporting period, unless the draft Determination specifies otherwise (see paragraph 6(2)(a)) or it is not possible to define or calculate the factor or parameter by reference to the instrument or writing as in force at the end of the reporting period (see paragraph 6(2)(b)).

It is not expected that paragraph 6(2)(b) will apply under this draft Determination. However, if paragraph 6(2)(b) does apply, it is expected that project proponents will use the version of legislative instruments in force at the time at which monitoring or other actions were conducted (see section 10 of the Acts Interpretation Act 1901 and section 13 of the Legislative Instruments Act 2003 which operate such that references to external documents which are legislative instruments are to versions of those instruments as in force from time to time).

Subsection 23(6) sets out reporting requirements to be followed when paragraph 6(2)(b) applies.

7Definitions in other instruments relating to lighting equipment

This section provides that the definitions ofEEIand ELVin section 5, lamp and luminaire in Schedule 1, and control gear types in Schedule 2, are determined by reference to definitions in an Australian or international standard that applied at a particular time. That time is the time the lighting system is verified as meeting its design specifications, following testing undertaken after the lighting upgrade. This is intended to ensure that, if any of these standards change over the life of the project, whether the project meets a project requirements is assessed by reference to the definitions in standards that applied at the time the lighting upgrade was first in commission.

Part 2Lighting upgrade projects

8Lighting upgrade projects

The effect of paragraphs 27(4)(b) and 106(1)(a) of the Act is that a project must be covered by a methodology determination, and that the methodology determination must specify the kind of offsets project to which it applies.

Section 8 provides that the draft Determination applies to an offsets project with the following characteristics:

  • it involves one or more lighting upgrades; and
  • it can be reasonably expected to result in eligible carbon abatement.

A lighting upgrade is the modification, removal, replacement or supplementation of the lighting equipment of an existing lighting system, or installation of lighting equipment, for the purpose of decreasing energy usage by increasing the energy efficiency of that system.

A lighting system is defined to mean a system of equipment that delivers artificial light to a particular area.

The lighting equipmentof the lighting system includes any control gear, lighting control device, lamp or luminaire.

Part 3Project requirements

9Operation of this Part

The effect of paragraph 106(1)(b) of the Act is that a methodology determination must set out requirements that must be met for a project to be an eligible offsets project. Under paragraph27(4)(c) of the Act, the Regulator must not declare that a project is an eligible offsets project unless the Regulator is satisfied that the project meets these requirements.

Part 3 of the draft Determination specifies a number of requirements that must be met in order for a project to be an eligible offsets project. These requirements are set out in sections 10 and11.

10Information to be included in application for declaration

Section 22 of the Act provides that a person may apply to the Regulator for the declaration of an offsets project as an eligible offsets project. Section 10 of the draft Determination requires information in relation to each lighting upgrade forming part of the project to be included in the application. This includes a description of what the lighting upgrade will involve (whether it will be a modification, replacement or supplementation of existing lighting); details of the systems already identified for upgrade at the time of the application (including location, type of serviced area, baseline equipment and proposed project equipment); where systems are yet to be identified, information about the class of the potential lighting system (including how systems will be identified, in what general areas, what potential types of lighting service area will be targeted; how project lighting equipment is proposed to improve the existing systems); and proposed methods for disposal of equipment removed as part of the project.