Terms of reference announced for additional review of the Renewable Energy Target - Renewables

Introduction

On 17 February 2014 the Australian Government released the much anticipated terms of reference for an additional non-statutory review of the Renewable Energy Target (RET).

This legal update provides a brief background on the RET, summarises the current statutory review process (including the 2012 Review), outlines the content of the new non-statutory review process announced this week and then concludes with an explanation of the next steps in both processes.

The RET

The Howard Coalition Government introduced the original Mandatory Renewable Energy Target (MRET) through the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act).

The objectives of the REE Act are:

To encourage the additional generation of electricity from renewable sources;
To reduce emissions of greenhouse gases in the electricity sector; and
To ensure that renewable energy sources are ecologically sustainable.

As the REE Act notes, "this is done through the issuing of certificates for the generation of electricity using eligible renewable energy sources and requiring certain purchasers (called liable entities) to surrender a specified number of certificates for the electricity that they acquire during a year."

The current RET scheme commenced on 1 January 2011, replacing the MRET, and was designed to fulfil the Australian Government's (then bipartisan) commitment that the equivalent of at least 20% of Australia's electricity would come from renewable sources by 2020.

The RET is now split into two parts:

The Large-scale Renewable Energy Target (LRET); and
The Small-scale Renewable Energy Scheme (SRES).

Rather than setting a 20% LRET, the REE Act now includes a legislated target of 41,000 GWh of large-scale generation by 2020. Section 40 of the REE Act provides the annual targets, which increase incrementally to reach this 2020 target.

Current review arrangements

Currently the REE Act provides for two-yearly reviews by the Climate Change Authority (CCA). The CCA was established on 1 July 2012 by the Climate Change Authority Act 2011 (Cth) as an independent advisory body on climate change.

In addition to reviewing the RET, the CCA is responsible for periodic reviews on issues such as carbon pollution caps, progress towards meeting national emissions reduction targets (this report is due on 28 February 2014), the Carbon Pricing Mechanism and the Carbon Farming Initiative.

The legislated requirements for the review of the RET are to consider:

the operation of the Act and the scheme constituted by the Act;
the operation of the regulations;
the operation of the Renewable Energy (Electricity) (Large-scale Generation Shortfall Charge) Act 2000;
the operation of the Renewable Energy (Electricity) (Small-scale Technology Shortfall Charge) Act 2010; and
the diversity of renewable energy access to the scheme constituted by the Act, to be considered with reference to a cost benefit analysis of the environmental and economic impact of that access.

The 2012 Review

The CCA published its first review of the RET in December 2012 (see our previous legal update here).

Recognising its legislative obligations, the CCA's 2012 Review covered the following issues:¹

The capacity of the RET arrangements to support additional generation of electricity from renewable sources to contribute reductions in greenhouse gas emissions at a reasonable cost;
The role of the RET and its relationship to other policy measures;
The LRET, including the level and trajectory of the target;
The SRES, including its design, architecture, and administration;
The liability and exemptions framework, and the shortfall charge of both the large-scale and small-scale schemes;
The eligibility framework for both schemes and the diversity of renewable energy; and
The frequency and scope of future reviews under the REE Act.

In undertaking the 2012 Review, the CCA recognised that the policy landscape and indeed the electricity industry had changed significantly since the introduction of the MRET over a decade previously. As a result, the 2012 Review attempted to balance the promotion of investment in renewable generation with the containment of costs for electricity users.

Accordingly, the findings of the 2012 Review were delivered in four broad themes:

Increasing confidence and predictability;
Managing overall costs to electricity users and providers;
Providing flexibility and choice; and
Streamlining administration and compliance costs.

The Gillard Labor Government largely endorsed the CCA's 2012 Review in its formal response in March 2013.² However, since the change of Federal Government in September 2013, the Coalition Government has attempted to abolish the CCA (though the passage of Climate Change Authority (Abolition) Bill 2013 was unsuccessful in December 2013).

Despite the tabling of the repeal bill and this week's announcement of a terms of reference for a separate panel to review the RET, the CCA nevertheless continues to have a statutory obligation to undertake the 2014 Review. Accordingly, on 14 February 2014 the CCA released a request for tender which closes on 3 March 2014.

The tender is seeking economic analysis of mitigation policies in the electricity sector and the aim of the research is "to explore options and to help inform policy developments in the context of the Government's 2014 Review of the RET and its development of the Emissions Reduction Fund." The final report is due by 30 May 2014.³

Terms of reference for the non-statutory 2014 Review

Notwithstanding the provisions of the REE Act and the CCA's on-going responsibility for the 2014 Review, on Monday this week the Federal Ministers for Industry and the Environment jointly announced the terms of reference for a separate review of the RET by a government-appointed panel.⁴ The panel will be supported by a secretariat in the Department of the Prime Minister and Cabinet.

As with the statutory requirements for the review under the REE Act, the terms of reference for this additional review include examination of the operation, costs and benefits of the RET Scheme, as embodied in the REE Act and associated legislation and regulations.

The terms of reference specifically require consideration of:

The economic, environmental and social impacts of the RET scheme, in particular the impacts on electricity prices, energy markets, the renewable energy sector, the manufacturing sector and Australian households;
The extent to which the formal objects of the Act are being met; and
The interaction of the RET scheme with other Commonwealth and State/Territory policies and regulations, including the Commonwealth Government's commitment to reduce business costs and cost of living pressures and cut red and green tape, and the Direct Action policies under development.

Considering the requirements for review set out in the REE Act and the broader content of the CCA's 2012 Review (both noted above), the costs / impacts of the RET scheme, consideration of whether the Act is meeting its objectives and the role of the RET in the broader policy context are all issues which would presumably be part of the CCA's statutory 2014 Review.

The terms of reference also seek advice on:

Whether the objective of the RET scheme, to deliver 41,000 GWh and small scale solar generation by 2020, is still appropriate;
The extent of the RET's impact on electricity prices, and the range of options available to reduce any impact while managing sovereign risk;
The operation of the small-scale and large-scale components of the RET and their interaction;
Implications of projected electricity demand for the 41,000 (GWh) target; and
Implementation arrangements for any proposed reforms to the RET, including how to manage transition issues, risks and any adjustment costs that may arise from policy changes to the RET.

Again, when reviewing the CCA's 2012 Review, these topics were generally covered in 2012 and it would be expected that they would be revisited by the CCA's 2014 Review. With respect to the last issue on transitional arrangements, clearly any recommendations from either the CCA or the government-appointed panel which proposed reforms to the RET (increases, decreases or otherwise), should sensibly consider any associated structural adjustment.

Finally, and inevitably outside the CCA's legislative responsibilities, the terms of reference seeks advice from the government's panel on its "election commitment to reinstate native forest wood waste as an eligible renewable energy source."

Next steps

Under the REE Act, the CCA is to deliver its 2014 Review by 31 December 2014.

The terms of reference for the non-statutory review provide that the panel is to provide a report to the Prime Minister, the Treasurer and the Ministers for Industry and the Environment by mid-2014.

Interestingly, the joint media release of the Ministers for Industry and the Environment also noted that the review will form part of the broader Energy White Paper process, which is expected to continue throughout 2014.

The REE Act requires the CCA to 'make provision for public consultation.' When considering the CCA's 2012 Review process, it released an Issues Paper in August 2012, received submissions in September, released a discussion paper in October, undertook consultation and feedback in November and then released its final report in December 2012. We would expect that a similar process would occur for this year's statutory review.

Correspondingly, the terms of reference require the panel to "undertake public consultations [and] seek submissions."

Given the prospect of two parallel reviews both with extensive consultation arrangements, our national and international Sustainability and Climate Change teams would be happy to provide further information on the RET, assist in submissions to the two reviews or provide advice on the broader Energy White Paper process.

Footnotes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Australia: Terms of reference announced for additional review of the Renewable Energy Target

Introduction

The RET

Current review arrangements

The 2012 Review

Terms of reference for the non-statutory 2014 Review

Next steps

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