EMISSIONS REDUCTION FUND

Transcription

1 EMISSIONS REDUCTION FUND Methodology Determination Guidelines January 2015

2 Table of Contents 1. Introduction The Emissions Reduction Fund Making methodology determinations Emissions Reduction Assurance Committee Decision by the Minister Requirements for methodology determinations Methodology determinations should be streamlined Additionality Baselines Greenhouse gas assessment boundary Crediting periods Monitoring, reporting and record keeping Offsets integrity standards Eligible carbon abatement Supporting evidence Conservative estimates Other technical issues Accounting for variability Materiality Models and calculators Forward crediting Global Warming Potentials Electricity grid factors References to technology, equipment and products Partial reporting Review of methodology determinations

3 1. Introduction Methodology determinations set out the rules for estimating emissions reductions from different activities. They ensure that emissions reductions are genuine that they are both real and additional to business-as-usual operations. Methodology determinations will be made as legislative instruments by the Minister for the Environment. Methodology determinations are developed by the Department of the Environment (the Department) through consultation with technical working groups that include business, technical experts and government representatives, including from the Clean Energy Regulator and other relevant agencies. Methodology determinations are assessed by an independent expert committee, the Emissions Reduction Assurance Committee. The Emissions Reduction Assurance Committee will assess methodology determinations against the requirements set out in the Carbon Credits (Carbon Farming Initiative) Act 2011 (the Act), including the offsets integrity standards in section 133 of the Act. Under paragraph 123A(5)(b) of the Act, the Emissions Reduction Assurance Committee must also have regard to any relevant matters specified in a direction under section 123B of the Act. It is intended that by direction under section 123B of the Act the Emissions Reduction Assurance Committee will be asked to have regard to whether or not a proposed methodology determination, variation of a methodology determination or revocation of a methodology determination is consistent with this document. Accordingly, the purpose of these guidelines is to: include other matters that the Emissions Reduction Assurance Committee will take into account when assessing whether a methodology determination should be made, varied or revoked, and serve as a useful guide to stakeholders and technical working groups in developing methodology determinations. 2. The Emissions Reduction Fund The Emissions Reduction Fund provides an incentive to businesses across the economy to reduce emissions. Its aim is to reduce emissions at lowest cost and contribute towards Australia s 2020 emissions reduction target of five per cent below 2000 levels by The Emissions Reduction Fund allows businesses, state and local governments, community organisations and individuals to undertake approved emissions reduction projects and to compete for payment from the Government for those projects through a reverse auction or other purchasing process. The Emissions Reduction Fund makes a positive difference to the environment and boosts productivity by supporting projects such as: upgrading commercial buildings improving the energy efficiency of homes and industrial facilities reducing electricity generator emissions 2

4 capturing landfill gas reducing waste coal mine gas reforesting and revegetating marginal lands improving Australia s agricultural soils reducing emissions from agriculture upgrading vehicles and improving transport logistics, and managing fires in savanna grasslands. The Emissions Reduction Fund is administered by the Clean Energy Regulator. The Clean Energy Regulator will issue Australian Carbon Credit Units for emissions reductions that are generated using approved methodology determinations. These credits can then be purchased through the Emissions Reduction Fund or used under voluntary carbon offsetting programmes. Methodology determinations for crediting emissions reductions are under development for activities, such as capturing gas from landfills, as well as for large industrial facilities. To enable a wide range of businesses to participate in the Emissions Reduction Fund, a range of emissions reduction methodology determinations will be available. The Clean Energy Regulator will purchase emissions reductions at the lowest available cost, primarily through reverse auctions. The Clean Energy Regulator will enter into contracts with successful bidders, which will guarantee payment for the future delivery of emissions reductions. Emissions reductions will be purchased at the bid price. The contracts will be standardised, provide commercial terms and conditions, and provide for payment to be made on delivery of emissions reductions. 3. Making methodology determinations The Minister will identify the priorities for methodology development, following consultation with business and advice from the Emissions Reduction Assurance Committee and the Department. The Government will work collaboratively with business, through technical working groups, to develop priority methodology determinations. The Minister will also seek the advice of the Emissions Reduction Assurance Committee on the priorities for methodology development. The Department will provide draft methodology determinations to the Emissions Reduction Assurance Committee for assessment. Where there are significant differences of view within the technical working group about aspects of the draft methodology determination, these will be brought to the attention of the Emissions Reduction Assurance Committee for consideration. 3

5 3.1 Emissions Reduction Assurance Committee The Emissions Reduction Assurance Committee provides advice to the Minister on the suitability of methodology determinations. Methodology determinations will be released for a public consultation period of 28 days unless the Emissions Reduction Assurance Committee considers that a shorter period of public consultation is appropriate, for example because the draft methodology determination is a relatively straightforward variation of an existing methodology determination. Public submissions on methodology determinations will be published on the Department s website unless the author specifically requests that they remain confidential. The Emissions Reduction Assurance Committee may request an external technical assessment of methodology determinations during the public consultation period. Technical assessments of draft methodology determinations may also be undertaken by the Department in consultation with technical working groups during the methodology determination development process. These will also be provided to the Emissions Reduction Assurance Committee. The draft methodology determination may be revised in light of the outcomes of public consultation and any technical assessment, and the views of the Emissions Reduction Assurance Committee. The Emissions Reduction Assurance Committee will then consider the revised methodology determination, taking account of feedback from the Clean Energy Regulator, and advise the Minister on whether they consider that the determination meets the offsets integrity standards. The advice of the Emissions Reduction Assurance Committee will be published on the Department s website as soon as practical after the Minister has decided whether to make a methodology determination. The Emissions Reduction Assurance Committee will monitor and review methodology determinations on an ongoing basis to ensure that they are consistent with the offsets integrity standards. Members of the public can also request that the Emissions Reduction Assurance Committee review methodology determinations. The Emissions Reductions Assurance Committee can suspend a methodology determination for up to 12 months where there is reasonable evidence that it does not comply with the offsets integrity standards. This will not affect existing projects. 4

6 3.2 Decision by the Minister The Minister will decide whether or not to make a methodology determination. The Minister may also vary or revoke a methodology determination. The Minister cannot make or vary a methodology determination if the Emissions Reduction Assurance Committee has advised that this would be inconsistent with the offsets integrity standards. In making these decisions, the Minister will consider: whether the methodology determination complies with the offsets integrity standards the advice of the Emissions Reduction Assurance Committee any adverse environment, economic or social impacts from projects applying the methodology determination identified through public consultation any other matters (if any) as the Minister considers relevant, and advice from the Department on the above Adverse impacts and project risks When deciding to make a methodology determination, the Minister will consider whether the activity can be undertaken safely and without adverse impacts, and the regulatory frameworks already in place to encourage this to occur. Some activities could have adverse social, environmental or economic consequences. It would be inconsistent with the Government s broader policy objectives to provide incentives for activities that have significant adverse impacts through the Emissions Reduction Fund. Some emissions reduction activities cannot be undertaken safely or are very likely to have significant adverse impacts. For example, feeding cattle nitrate supplements at low concentrations can reduce methane emissions and improve productivity. At higher concentrations these supplements can reduce the condition of the cattle and cause illness or death of the cattle. The Government has developed a methodology determination for the use of nitrate supplements for cattle, which restricts the amount that can be fed to the cattle to levels well below those that could be toxic. The Minister will not make a methodology determination for an activity that cannot be undertaken safely or is very likely to have significant adverse impacts, including where regulatory frameworks are still evolving. In most cases there are existing regulatory frameworks in place to address these risks and potential impacts. The Act does not exempt or diminish any obligations a project participant may have under other government laws, including workplace health and safety laws. The Act also provides that credits will not be issued for projects until they have obtained all relevant environmental and planning approvals. Nonetheless, the relevant Commonwealth, State and Territory regulators are responsible for enforcing compliance with obligations imposed outside of the Act, not the Clean Energy Regulator. In general, restrictions should not be included in a methodology determination to address potential, hypothetical or indirect adverse impacts. For example, methodology determinations should not be used to indirectly regulate matters that are not directly related to the conduct of the project such as the downstream disposal of equipment related to a project. In exceptional circumstances this could be considered, where the benefits of doing so: clearly outweigh the costs 5

7 relate directly to the emissions reductions that can be credited, and are auditable. The Department will issue further guidance on this issue, noting the ERAC s role in providing advice to the Minister. 4. Requirements for methodology determinations 4.1 Methodology determinations should be streamlined Reducing red tape is a key part of the Australian Government s plan to build a strong, prosperous economy. Through the deregulation agenda, the Government is reducing the burden on business while achieving better environmental outcomes. Methodology determinations will ensure that the regulatory burden on Emissions Reduction Fund projects is minimised wherever possible. This means that methodology determinations will be as simple as possible and the resources required to apply them, including the proponent s time, should be as low as possible. 4.2 Additionality Under the Emissions Reduction Fund, additionality will be assessed at two stages - in developing and making methods, and when a project is registered with the Clean Energy Regulator (4.2.2). The offsets integrity standards specify that a methodology determination should result in emissions reductions that are unlikely to occur in the absence of the incentive provided by the scheme. For each type of activity there will be different factors that can have an impact on additionality. Each methodology determination will need to ensure that, to the maximum extent practical, business-asusual emissions reductions are accounted for and not credited. Methodology determinations include a number of elements that can be used to ensure that emissions reductions are additional, including: eligibility criteria baselines, and crediting periods. These guidelines contain information about each of these elements, including how they can be used to ensure that emissions reductions are genuine and additional. The Emissions Reduction Assurance Committee may advise the Minister that the methodology determination should be reviewed more frequently than every four years. For example, in the case of a broad based methodology determination where information becomes available about the range of projects applying a methodology determination over time, it will become easier to assess whether a baseline scenario is appropriate for all of the covered projects or only appropriate for some projects. These early reviews will consider whether a methodology determination should be varied to include new eligibility criteria or whether new, activity-specific methodology determinations should be developed, with tailored baselines, for some types of projects. This will enable approaches to additionality to be monitored and refined over time. 6

8 4.2.1 Eligibility criteria Eligibility criteria are used to define the types of projects that are permitted under a methodology determination and can include industry type, activity scope, and geographic location. They can be used to ensure that emissions reductions are additional. For example, a methodology determination for alternative waste treatment may be limited to advanced composting technologies that are not common practice and exclude traditional composting practices that are commonly undertaken. Methodology determinations must specify the eligibility criteria. If a project ceases to meet these criteria, the Clean Energy Regulator is unable to issue Australian Carbon Credit Units for the project until the project complies with eligibility requirements, or alternatively the Regulator may revoke the project s registration. Eligibility thresholds can be used to identify additional activities. For example, a building energy efficiency methodology determination could require projects to gain a minimum number of energy rating stars under an energy rating system before they can begin to receive credits for further energy efficiency improvements. The eligibility criteria will not place unnecessary restrictions on the way project proponents can undertake projects. Where possible, determinations will accommodate common events or differences in projects by including approaches for calculating their impact on emissions reductions Other additionality requirements Additionality will also be assessed when a project is registered with the Clean Energy Regulator. The Act requires the Clean Energy Regulator to only register projects that are new, are not required by Commonwealth or state government regulations and would not occur as a result of funding from another government program. Methodology determinations can, however, prescribe alternative additionality requirements in lieu of the newness and regulatory additionality requirements in the Act. The specific requirements relating to how the Emissions Reduction Fund interacts with support from other government programmes will be set in legislative rules. Methodology determinations may establish an approach for regulatory additionality that, in some cases, utilises sectoral specific baselines. 4.3 Baselines Methodology determinations should provide rules for establishing project baselines. The project baseline is the alternative emissions scenario that would eventuate in the absence of the project. It reflects the activity, practice or level of emissions likely to occur in the normal course of events. Emissions reductions are measured relative to the project baseline Absolute or intensity baselines Baselines can reflect absolute emissions (or levels of sequestration), emissions intensity per unit of production, or other factors. Absolute baselines can be used where the project activity is the main variable (although not necessarily the only variable) that affects emissions from the project. For example, absolute baselines are often used in methane capture and flaring methodology determinations, which 7

9 measure the amount of gas that would otherwise be released into the atmosphere. Absolute baselines are also used for sequestration projects, which typically compare carbon stocks before and after the project. Other variables, such as natural variation, can affect emissions and sequestration rates, and absolute baselines may need to account for this natural variability. Emissions intensity baselines should be used where variables other than the project activity are the main variable that affects emissions from the project. For example, a smelter may increase or decrease its production in response to changes in global prices for its product. These changes are unrelated to the project activity but have a large affect on the project s emissions. Emissions intensity baselines can be used to ensure that credits are not issued for business-as-usual emissions reductions that are the result of factors such as lower production, or changes to product mix or building occupancy or function. Emissions intensity baselines also enable incentives to be provided for improvements in energy efficiency, irrespective of whether production increases with a resulting increase in the project s net emissions Historical or projected data Baselines can be based on simple linear extrapolations from historical emissions trends or more complex forecasting techniques that rely on the identification of relationships with underlying variables. In the absence of a project where activity and production methods are expected to remain relatively stable or change at a predictable rate, historical data can provide a good guide to the likely emissions. Where historical emissions data shows a trend, either upwards or downwards, this trend should be reflected in the baseline over the crediting period. This approach should be used where there is enough historical data to establish a statistically significant trend over time. Historical data does not, however, account well for circumstances where activities or emissions intensity is expected to change in the future in unpredictable ways. For example, historical data is not a good indicator of future emissions from underground coal mines where emissions are a product of geological factors rather than regulatory, economic or technological trends. Projected baselines forecast future emissions based on expected future changes in external circumstances, such as changes in technologies, the regulatory environment or other economic drivers. Like all forecasts, projected baselines rely on assumptions about the future and are subject to uncertainty. For more on the evidence required to support baseline assumptions see below Comparison baselines Baselines can be set by identifying a comparison group that is similar to the households and/or businesses in the project. Changes in the emissions or energy use of the project group are measured relative to those in the comparison group. Provided that the comparison group is similar, this provides an accurate way to set a baseline and ensure that credits are only issued for genuine abatement. This is because any changes that are not the result of the project can reasonably be expected to be reflected in the comparison group emissions and deducted from the abatement attributed to the project. 8

10 Comparison baselines can also be project specific. For example, a baseline for a methane capture and flare piggery project could represent the emissions that would have occurred in the absence of the project Standardised baselines For some emissions reduction activities, it may be appropriate to develop standardised baselines that are representative of particular industry practices under particular circumstances or conditions. Standardised baselines are useful when it is not possible or practical to use a project specific baseline and when there is little variability in the practices across an industry. Standardised baselines may be developed for entire industry sectors, particular sub-sectors or products within an industry or on a regional basis. Standardised baselines must be based on robust data and should be set at a high standard of practice to reduce the risk of over-crediting. They can also be used to address regulatory additionality. 4.4 Greenhouse gas assessment boundary Methodology determinations must account for all material emissions sources and sinks that are emitted as a direct consequence of the project. For example, methodology determinations for methane capture and flaring must account for emissions from fuel used to operate the flare but they do not need to include the embodied emissions in the project equipment. This is also called the greenhouse gas assessment boundary. Greenhouse gases may be excluded from the greenhouse gas assessment boundary if they are immaterial or where it is conservative to do so. For example, it may be appropriate for some sources of emissions not to be included in the greenhouse gas assessment boundary where emissions are estimated to be small or difficult to measure or where another source of emissions reductions is not counted and the overall emissions reduction outcome is conservative. Some methodology determinations will cover projects that may result in emissions leakage by displacing activities outside their greenhouse gas assessment boundary. For example, this displacement could result in an increase in production elsewhere that increases emissions and reduces the net abatement associated with the offset project. If this displacement is material and has not been sufficiently accounted for in the methodology determination, the Emissions Reduction Assurance Committee may provide advice on how it should be accounted for. This may include the determination of an appropriate discount rate that will need to be applied. If a project increases production in areas that are within the control of the project proponent these emissions should form part of the greenhouse gas assessment boundary. Methodology determinations that credit differences in emissions intensity do not need to account for increases in a project proponent s net emissions that occur because they have expanded production and displaced production by less efficient producers. However, methods may account for specific displacement effects within the greenhouse gas assessment boundary where direct and material consequences can be established and readily determined. Under international greenhouse gas accounting conventions, countries are responsible for their own greenhouse gas emissions (emissions that occur within their jurisdiction). For this reason, 9

11 methodology determinations do not need to account for displacement of an activity to other countries. 4.5 Crediting periods The Emissions Reduction Fund will credit projects for a defined crediting period. The crediting period is the period of time over which a project can create Australian Carbon Credit Units. Emissions avoidance offsets projects will have a default crediting period of seven years (except for savanna burning projects which will have a 25-year crediting period) and sequestration offsets projects will have a default crediting period of 25 years. The Emissions Reduction Assurance Committee will review methodology determinations when the first project approved under a methodology determination is one year from the end of its crediting period and advise the Minister on whether to extend the crediting period. The Act allows for methodology determinations to specify a different crediting period. This allows crediting periods to be adjusted to reflect differences in the period over which a project is likely to remain additional to business-as-usual. For example, while a seven year crediting period would be provided for a whole-of-building energy efficiency upgrade, a shorter crediting period could be considered for some space heating projects that may become business-as-usual very quickly. Conversely, large and ambitious projects with the potential to make a substantial single contribution towards reducing Australia s emissions may involve the implementation of an innovative technology that is unlikely to become business-as-usual for a long time. These projects could be provided with a longer crediting period of up to 10 years to account for this. 4.6 Monitoring, reporting and record keeping Projects will be subject to a number of general requirements in the Regulations and legislative rules to keep certain records and include information or documents in each offsets report or application for a certificate of entitlement for the project. Division 3 of Part 6 of the Act, Regulations and legislative rules will also impose a number of general requirements for project to notify the Clean Energy Regulator of certain matters during a reporting period. These general requirements may be sufficient to ensure that the Clean Energy Regulator and any auditor of the project are able to be satisfied that: a project has complied with the methodology determination and calculation methodology in a reporting period credits should be issued, and there is no need to take compliance action against the proponent, such as revoking a project s declaration or applying a carbon maintenance obligation. What information is required in an offsets report will impact the issues which an auditor will seek assurance over in conducting audits under the Act. Nonetheless, methodology determinations should, where appropriate, specify: requirements to include specified information in some or all offsets reports for the project 10

12 requirements to notify the Clean Energy Regulator of particular matters record keeping requirements, and requirements to monitor the project (which are not the subject of general Regulations or rules). In deciding whether particular requirements are necessary or appropriate to include in a methodology determination, the potential costs of compliance should be considered in light of the risks of crediting non-additional abatement and undetected non-compliance. Consideration may also be given to how often certain information needs to be reported or monitored given the materiality and risks associated with the issue. Methodology determinations are not, however, required to use NGER methods if doing so would not result in conservative or credible estimates. For example, where a monitoring device which is central to measuring project abatement (e.g. a device which records the volume of methane sent to a flare) fails, methodology determinations may require a specific value including zero is included in abatement calculations for the period the monitoring device was not correctly operating. This would encourage project proponents to effectively maintain and operate project equipment and install back-up systems. In including obligations in methodology determinations, it should be taken into account that there is a range of civil penalties which may be sought by the Clean Energy Regulator in relation to noncompliance with these in sections 80, 193 and 194 of the Act. 5. Offsets integrity standards The offsets integrity standards are designed to ensure that credits are issued for emissions reductions that are genuine, additional to business-as-usual and can be counted towards Australia s emissions reduction targets. The Emissions Reduction Assurance Committee will consider the integrity standards as a suite of principles designed to work together rather than focusing on each individual component in isolation. Methodology determinations will meet the integrity standards as simply and cost-effectively as possible. The integrity standards underpin all of the guidance in this document. For example, the monitoring and record-keeping requirements should ensure that emissions reductions are measurable and verifiable, while eligibility criteria and baselines should ensure they are additional. This section provides more detailed guidance on some of the integrity standards. 5.1 Eligible carbon abatement Eligible carbon abatement under the Emissions Reduction Fund is abatement that can be used to meet Australia s emissions reduction target under the Kyoto Protocol or a successor agreement. Methodology determinations made after the commencement of the Emissions Reduction Fund must ensure that credits are only issued for eligible carbon abatement. Where possible, this should be achieved by using estimation methods from the National Greenhouse and Energy Reporting (NGER) (Measurement) Determination. Many of these methods are already familiar to business and their use will reduce the cost of applying methodology determinations. 11

13 The NGER (Measurement) Determination typically provides businesses with a range of options for estimating emissions from industrial sources. Methodology determinations may specify that project proponents must apply the same method for reporting under the NGER scheme and calculating emissions reductions for the Emissions Reduction Fund. Methodology determinations may also allow project proponents to apply a higher-order NGER method. Where a higher-order method is applied, a project proponent will not, however, be able to revert to another lower-order NGER method. This is to prevent proponents from manipulating their accounting practices in order to increase their accounted abatement. Methodology determinations for agricultural and land-based emissions, which are not covered by the NGER scheme, can apply methods used to develop Australia s National Inventory of greenhouse gases where applicable. Where these are unsuitable, methodology determinations can apply more conservative or precise approaches than those used to develop the National Inventory. The Department of the Environment can provide advice on whether such approaches will result in emissions reductions that can be counted towards Australia s Kyoto Protocol target. 5.2 Supporting evidence When assessing methodology determinations, the Emissions Reduction Assurance Committee will consider whether the evidence provided is clear and convincing. Evidence is clear and convincing where it is: Complete all claims in methodology determinations (including methods for quantifying greenhouse gas emissions and removals) must be supported by evidence or with reference to NGERS or the National Greenhouse Gas Inventory; Transparent claims must be transparently documented and replicable, such that they are capable of being independently verified; Relevant all information, claims and decisions must be directly relevant to proving that the integrity criteria and other legislative requirements have been met; Consistent all information, claims and assumptions must be consistent across all aspects of the method; and Credible bias and uncertainties must be reduced as far as is practical. Approaches to data collection must be rigorous and applied appropriately. Estimation and modelling approaches must be consistent, replicable and supported by robust data and science. 5.3 Conservative estimates Estimates, projections or assumptions that underpin the methodology determination should be conservative. This is designed to limit the risk of over-estimation. Where methodology determinations can apply to a broad range of activities, the baseline scenario should reflect conservative assumptions about the kinds of projects that will apply the methodology determination. For example, if a methodology covers businesses whose emissions are increasing as well as decreasing, the baseline scenario should not automatically be based on the assumption that emissions from all projects are increasing. Instead, the baseline scenario could reflect the more conservative assumption that emissions in the absence of the project will decline or remain the same. 12

14 The cumulative effect of this requirement should, however, not result in estimates that significantly under-estimate the total emissions reductions from the project. Conservativism will be judged on the cumulative effects of the assumptions and approaches adopted in the determination. 6. Other technical issues 6.1 Accounting for variability Emissions from most activities are subject to natural or normal variability. In the land sector, variability can result from changes in rainfall and weather patterns, harvest, and land-clearing cycles. In the industrial sector, variability can result from changes in production, the geology of the project site, or the product mix. Methodology determinations must account for natural or normal variability to manage the risk that credits are issued for emissions reductions or temporary peaks in carbon stocks that are likely to occur in the normal course of events Emissions reduction projects In most cases, emissions variability will be the same (driven by the same factors) in the baseline scenario and after a project is implemented. This variability will be accounted for already where methods use a model to estimate emissions in the baseline and project scenarios, or compare project emissions to those of a comparison group. This is illustrated below. Project Baseline Emissions (CO 2 -e) Year Where methodology determinations use simple linear extrapolations from historical emissions data to derive a baseline, one potential approach to accounting for variability would be to take the lowest historic emissions levels as the baseline to ensure that credits are not issued for normal variations in emissions. This is illustrated below. 13

15 Baseline period Crediting period Emissions (CO 2 -e) Lowest year Project implemented Potential credits Year bottom Crediting baseline Emissions Intensity Crediting Sequestration projects Carbon stock levels in sequestration projects are often affected by factors unrelated to the project. For example, soil carbon levels can fluctuate depending on climate variability. Methodology determinations should seek to credit projects only for sequestration resulting from the project activity as opposed to external factors that are unrelated to the project. For example, soil carbon methodology determinations should apply a treatment that smoothes the fluctuations in soil carbon stocks that can occur because of natural variation such as wet and dry periods. Methodology determinations should manage the risk that credits will be issued for temporary increases in carbon stocks. Methodology determinations for these projects should manage the risk of over crediting by applying rules to aspects of crediting (eg. averaging and applying discounts). Any averaging approaches used must ensure that averages are unbiased and are representative of long term carbon stocks. For example, the figure below shows that an averaging approach that uses two full harvest cycles generates an average that is representative of long term carbon stocks (long dotted line) while an approach that uses a one year period (short dotted line) is not representative. 14

16 Sequestration Year Full Cycle average Sequestration One year average (selected period) 6.2 Materiality An emissions source or sink that is estimated at greater than or equal to five per cent of net abatement is considered material and must be included in the greenhouse gas assessment boundary. The sum of all immaterial emissions sources and sinks excluded from the greenhouse gas assessment boundary should not exceed five per cent of total abatement. This is in accordance with international standards. If the sum of immaterial sources and sinks exceeds five per cent of total abatement, the methodology should include some of these in the project s greenhouse gas assessment boundary to reduce total exclusions to below the five per cent materiality threshold or apply a discount. As relative proportions of emissions may vary over time, methodology determinations may account for materiality on average across a relevant number of years. Methodology determinations should consider peak emissions from the source or sink when calculating average emissions. The materiality of some emissions sources, or sinks, can be very difficult to estimate. This is particularly the case for land-based activities. These emissions or sinks can be excluded from the project boundary provided that doing so is likely to result in conservative estimates of net abatement. The Emissions Reduction Assurance Committee will consider whether the inclusion or exclusion of an emissions source is justified based on clear and relevant evidence including information received from stakeholders, consultants and Government analysis which was considered during the development of the methodology. Notwithstanding the above, NGERS reporters who undertake Emissions Reduction Fund projects should be required to calculate emissions in the same way for both purposes to ensure consistency in crediting and the National Greenhouse Gas Inventory. 15

17 6.3 Models and calculators Methodology determinations may provide for emissions reductions to be calculated using specified models or calculators. The Emissions Reduction Assurance Committee will assess any models or calculators or other documents which are adopted by a methodology determination. The Act allows for such models, calculators or other documents to be incorporated either: as in force at a particular time, or as in force from time to time. If a calculator, model or other document is incorporated as in force from time to time, any changes to that document apply without triggering a variation of the methodology determination. This means that methodology determinations should only incorporate a model, calculator or document as in force from time to time where the process for making variations to the model, calculator or document is appropriately constrained, transparent and credible. Further, the Emissions Reduction Assurance Committee must be confident that the methodology is likely to remain consistent with the integrity standards following any changes. This is more likely where a government entity is responsible for the model, tool or document, it has a defined purpose and there are established processes for making and publishing any changes. The Australian Government s Full Carbon Accounting Model (FullCAM) is an example of a model incorporated into determinations as in force from time to time. This model is used to produce Australia s National Inventory, varied only by the Department of the Environment and subject to international review under the United Nations Framework Convention on Climate Change. The intended purpose and function of a model, calculator or other document should be specified in the determination. This can be a useful way of constraining the extent to which the document may change and achieve a different outcome to that originally intended by the initial version of the document. In some cases it may be appropriate to consider restricting the types of amendments to the model, calculator or other document which are adopted by a methodology determination. If the changes were inconsistent with the restrictions, the earlier version of the document would apply. Generally, third party models, calculators or documents should be incorporated as in force at a particular time. The determination could then be varied to incorporate any updates that comply with the offsets integrity criteria. The models and calculators used in the methodology must be made available on either the Clean Energy Regulator s website or the Department s website. Where publication is not possible due to copyright restrictions then updated details of how to access any tools referenced in the methodology must be made available on these websites. 6.4 Forward crediting In general, methodology determinations should provide for credits to be issued as the emissions reductions occur or where project emissions diverge from what occurs in the baseline. For example, in a waste diversion project the abatement occurs at the time the emissions would have been 16

18 released from the landfill had the waste not been diverted, not at the time the waste is diverted. Similarly, credits for reforestation projects are issued only after the trees grow, not at the time of planting. In the case of waste diversion, the Government has decided that credits will be issued for all emissions savings in equal amounts over a seven-year period after the waste is diverted. This is to avoid the need for waste diversion businesses to report and apply for credits over decades as the landfill gas would otherwise have been emitted from landfill Pre-calculating emissions reductions Methodology determinations can use modelling or data to pre-calculate emissions reductions from certain activities. The use of modelling is applied widely in comparable project-based emissions reduction programmes, including the Carbon Farming Initiative and state-based energy efficiency schemes. Where there is sufficient data to develop credible models or approaches, this can reduce implementation costs for proponents by eliminating the need for highly dispersed, small-scale projects, such as energy efficiency improvements in households and small businesses, to be individually measured and verified. However, while emissions reductions would be calculated at the beginning of the project, credits would be issued as emissions reductions occur over time. 6.5 Global Warming Potentials Global warming potential is a relative measure of how much heat a greenhouse gas traps in the atmosphere. It compares the amount of heat trapped by a certain mass of the gas in question to the amount of heat trapped by the same mass of carbon dioxide. Methodology determinations should apply the global warming potentials for different greenhouse gases that are used by the National Greenhouse and Energy Reporting Regulations in force at the end of the relevant reporting periods (rather than the global warming potential in force when the reductions occurred). 6.6 Electricity grid factors Methodology determinations may use emissions factors for electricity to calculate the emissions savings from projects that reduce electricity use. Emissions savings will depend on the emissions intensity of the electricity that would have been generated in the absence of the project, which varies across different parts of Australia. Methodology determinations should apply an emissions factor that reflects the average emissions intensity of the electricity grid to which the project is connected. This provides a more accurate estimate of emissions savings than alternative factors based, for example, on the average emissions intensity of electricity generation within a particular state or across Australia as a whole. Off-grid entities would use either the emissions intensity of their electricity supplier where available or the Darwin-Katherine Interconnected System (DKIS) factor, consistent with current NGERS practice. The relevant National Greenhouse Accounts electricity grid factors will be published on the Department s website. 17

19 6.7 References to technology, equipment and products Methodology determinations must not mandate the use of trademarked or proprietary products but must instead provide general descriptions of any technologies, equipment or products needed to undertake projects. This allows methodology determinations to have broader applicability and remain current as new and improved technologies or products come onto the market. 6.8 Partial reporting Projects are now able to report for only part of their eligible offset project under section 77A of the Act. However, the division of a project must be consistent with any rules specified in the methodology determination. In particular, it may be necessary to impose restrictions on the division of a project in a methodology determination where such a division is incompatible with the application of the calculation methodology in the determination or would add significantly complexity to such calculations. 7. Review of methodology determinations Generally, the Emissions Reduction Assurance Committee will review methodology determinations once every four years. A methodology may be reviewed more frequently however, for example: in light of new data or scientific evidence to reflect changes in industry practices or regulatory standards to reflect new technological or modelling developments. If the variation involves a change to the baseline scenario or broadens the scope of the method, it may be more appropriate to develop a new methodology determination. Proposals for variations will be assessed against the same criteria as the original methodology determination and will also be subject to the consultation period. Any changes to methodologies that follow the review process apply only to new projects. 18