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Determinations/Other as made
This determination covers a broad range of electricity and fuel efficiency activities including lighting upgrades, heating, ventilation and cooling system upgrades, boiler upgrades, and variable speed drive installation.
Administered by: Climate Change, Energy, the Environment and Water
Registered 26 Mar 2015
Tabling HistoryDate
Tabled Senate11-May-2015
Tabled HR12-May-2015

EXPLANATORY STATEMENT

Carbon Credits (Carbon Farming Initiative) Act 2011

Carbon Credits (Carbon Farming Initiative—Industrial Electricity and Fuel Efficiency) Methodology Determination 2015

 

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 Parliament agreed to the Carbon Farming Initiative Amendment Bill 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 the Act 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 avoidance or sequestration) from eligible projects and rules for monitoring, record-keeping and reporting. These methodologies will 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 determination 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 a 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, www.environment.gov.au/emissions-reduction-fund.

 

 

 

Background: Industrial Electricity and Fuel Efficiency Determination

Industrial operations generate direct (scope 1) greenhouse gas emissions from fuel combustion in equipment such as boilers, furnaces and generators as well as indirect (scope 2) greenhouse gas emissions from electrically powered equipment such as motors and heating elements. A broad range of opportunities exist to reduce these emissions.

The Carbon Credits (Carbon Farming Initiative—Industrial Electricity and Fuel Efficiency) Methodology Determination 2015 (the Determination) provides a high-level, activity-neutral framework within which proponents can develop project-appropriate approaches to calculating abatement from industrial energy (i.e. electricity and fuel) efficiency activities. This approach provides flexibility for project proponents to determine what activities are most appropriate for each site.

Projects established under the Determination may include replacement or modification of boilers or heating, ventilation and air conditioning (HVAC) systems, improving control systems and processes, waste heat capture and re-use, improving the efficiency of crushing or grinding equipment on mining sites, replacing low efficiency motors, fans and pumps with high efficiency versions, installing variable speed drives (VSDs), improving compressed air processes, and fuel switching.

Project proponents who may use the Determination include owners or operators of (usually large-scale) energy intensive equipment. Well-designed projects undertaken under the Determination could potentially lower their energy costs and improve productivity, while lowering emissions.

The Determination follows commonly accepted energy efficiency measurement approaches. In simple terms, the level of abatement delivered by a project is determined by comparing the emission levels that would have occurred if there had been no equipment upgrade or replacement (i.e. baseline emissions), and the emissions produced by the upgraded or replaced equipment (i.e. project emissions). Importantly, the level of emissions before the upgrade or replacement is adjusted to reflect the conditions (e.g. production or temperature) experienced after the upgrade or replacement. This is achieved using a baseline emissions model, which estimates what emissions would have been in the absence of project activities based on variables which correlate strongly with emissions. Using a baseline emissions model enables a meaningful comparison of baseline and project emissions levels and provides for proponents to be credited appropriately for abatement delivered by project activities, irrespective of whether production increases or decreases.

Figure 1: Calculation of abatement under the Determination  

Figure 1: In simplified terms, this Determination calculates abatement by comparing modelled baseline emissions levels with either measured operating emissions (in sub-method 1) or modelled operating emissions (in sub-method 2).

The Determination provides for estimating emissions reductions for discrete implementations, where a project may be made up of one or more implementations. An implementation represents one or more specific energy efficiency activities at a site, such as reducing leaks in a compressed air system, or installing a variable speed drive on an existing motor.

The Determination includes two sub-methods: 

·         Sub-method 1 provides for calculating the emissions abated by an implementation—the total amount of abatement delivered by the implementation over a reporting period—by comparing project emissions calculated from measurements of fuel and/or electricity to baseline emissions from a baseline emissions model; and

·         Sub-method 2 provides for calculating the emissions abated by an implementation by comparing project emissions from an operating emissions model to baseline emissions from a baseline emissions model.

The Determination is based on a similar abatement calculation method under the New South Wales Energy Savings Scheme[1]. In line with advice from stakeholders, the Department has sought to maintain consistency with the New South Wales method. However, there are a number of differences between the New South Wales method and the Determination due to differences in overall scheme design and coverage. For example, the Determination covers fuels as well as electricity because the purpose of the ERF is to reduce emissions from a range of sources, while at the time the New South Wales method was introduced, the aim of the Energy Savings Scheme was to reduce electricity consumption in New South Wales.

Another area of difference from the New South Wales method is that the Determination does not provide for crediting of projects that involve the installation of new equipment where there was no pre-existing equipment at the site for which a baseline emissions model can be developed. Similarly, as projects must operate within the effective range of their baseline emissions models, the Determination does not provide for projects involving major increases in the output of existing equipment relative to the baseline period.

 

Application of the Determination

The Determination sets out the detailed rules for implementing and monitoring offsets projects that reduce emissions of greenhouse gases associated with the consumption of electricity and/or fossil fuels in the industrial sector.

Proponents are encouraged to read the Determination in combination with any applicable regulations, rules, and guidance documents.

The Determination reflects the requirements of the Act’s offsets integrity standards and helps to ensure that emissions reductions are real and additional to business as usual. The offsets integrity standards require that an eligible project should result in carbon abatement that is unlikely to occur in the ordinary course of events and is eligible carbon abatement under the Act. In summary, the offsets integrity standards also require that:

·         amounts are measurable and capable of being verified;

·         the methods used are supported by clear and convincing evidence;

·         material emissions which are a direct consequence of the project are deducted; and

·         estimates, assumptions or projections used in the Determination should be conservative.

Project proponents wishing to implement projects under the Determination must make an application to the Regulator under section 22 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 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.

The government program requirement is provided for in the Carbon Credits (Carbon Farming Initiative) Rule 2015. Subsection 27(4A) of the Act provides that a methodology determination may specify requirements in lieu of the Act’s newness requirement or the regulatory additionality requirement. The draft Determination does not specify any requirements in lieu, and the newness and regulatory additionality requirements in the Act apply to industrial electricity and fuel efficiency projects.

This Determination is based on applying statistical concepts to sets of measurements of parameters related to emissions. The statistical concepts include regression analysis and analysis of standard errors of the measurement samples to assess the baseline and operational period emissions. The statistical concepts also are used to establish that the estimate of emissions abatement is sufficiently reliable. This Determination will suit those proposed implementations where measurements in the baseline and operational periods are likely to be good estimators of the emissions in those periods, and where the abatement is a significant percentage of the baseline emissions.

 

Public consultation

The Determination has been developed by the Department of the Environment in collaboration with a technical working group of experts from the energy efficiency sector and the Regulator. The technical working group reviewed several draft versions of this methodology.

The methodology also benefited from a public consultation period that ran from 14 November 2014 to 12 December 2014. Six submissions were received under the public consultation process. Details of the non-confidential submissions are provided on the Department’s website: www.environment.gov.au.

 

Determination details

Details of the Determination are at Attachment A. Numbered sections in this explanatory statement align with the relevant sections of the Determination. The definition of terms highlighted in bold italics can be found in the Determination.

For the purpose of subsections 106(4), (4A) and (4B) of the Act, in making this Determination the Minister has had regard to, and agrees with, the advice of the Emissions Reduction Assurance Committee that the Determination complies with the offsets integrity standards and that the proposed Determination should be made. The Minister is satisfied that the carbon abatement used in ascertaining the carbon dioxide equivalent net abatement amount for a project is eligible carbon abatement from the project. The Minister also had regard to whether any adverse environmental, economic or social impacts are likely to arise from the carrying out of the kind of project to which the Determination applies and other relevant considerations.

Subitem 393A(2) of Schedule 1 of the Carbon Farming Initiative Amendment Act 2014 operated in relation to this Determination to deem the request to the Interim ERAC to be the relevant request to the statutory ERAC under subsection 106(10) of the Act. Subitem 393A(3) then allowed the ERAC to consider the consultation on the exposure draft which occurred before 13 December 2014 and not re-open consultation under section 123D of the Act.

A Statement of Compatibility prepared in accordance with the Human Rights (Parliamentary Scrutiny) Act 2011 is at Attachment B.

 

 

Attachment A

 

Details of the Methodology Determination

Part 1              Preliminary

1          Name

Section 1 sets out the full name of the Determination, which is the Carbon Credits (Carbon Farming Initiative—Industrial Electricity and Fuel Efficiency) Methodology Determination 2015.

 

2          Commencement

Section 2 provides that the Determination commences on the day after it is registered on the Federal Register of Legislative Instruments.

 

3          Authority

Section 3 provides that the Determination is made under subsection 106(1) of the Act.

 

4          Duration

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

Section 4 specifies that the Determination will cease to be in force on the day before it would otherwise be repealed under subsection 50(1) of the Legislative Instruments Act 2003, i.e. the day before the first 1 April or 1 October following the tenth anniversary of registration of the Determination on the Federal Register of Legislative Instruments.

However, the Determination will cease to be in force earlier if it is revoked in accordance with section 123 of the Act or section 42 of the Legislative Instruments Act 2003.

If the Determination expires in accordance with section 122 or is revoked in accordance with section 123 during a crediting period for a project to which the Determination applies, it 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 (see subsection 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 this Determination.  

 

5          Definitions

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

Generally, where terms are not defined in the 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 Determination in the singular number include the plural and words in the plural number include the singular.

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

Baseline emissions model means a model that estimates what emissions would have been in the absence of the implementation. Baseline emissions models are developed using regression analysis; a statistical technique to establish the relationship between one or more independent variables and a dependent variable. Baseline emissions models use emissions as the dependent variable and factors that cause or explain changes in emissions as independent variables (such as production or temperature). Data for the dependent variable and independent variables are collected during the baseline measurement period and then used to develop the baseline emissions model. The baseline measurement period occurs prior to when the implementation commences. 

Co-metered equipment, for an implementation, means equipment for which the consumption of fuel and electricity is measured jointly, using the same measuring equipment, with the consumption of fuel or electricity by any:

·         implementation equipment for the implementation; or

·         interactive equipment for the implementation.

The inclusion of co-metered equipment in baseline and operating relevant energy enables proponents to measure the energy consumption of implementation equipment without installing additional submetering. For example, if only one pump is replaced as part of an implementation and there is a meter for the whole pumping system, the other pumps measured by this meter would be co-metered equipment. 

Eligible measurement time interval, for an implementation, defines the requirements for a measurement time interval to be eligible for inclusion in the calculation of the net abatement amount in Part 4 of the Determination. Eligible measurement time intervals for the implementation in a reporting period for the project are those in which:

(a)    site constants are at their normal values;

(b)   for all independent variables—the measured value of the independent variable in the measurement time interval is an amount that is:

i)        at least 95 per cent of the minimum value of the effective range for the variable; and

ii)      no more that 105 per cent of the maximum value of the effective range for the variable;

(c)    normal operating conditions exist for all implementation equipment;

(d)   the value of the dependent variable for the measurement time interval worked out using the baseline emissions model reasonably reflects the emissions from the consumption of baseline relevant energy that would have occurred in the measurement time interval if the implementation had not been undertaken; and

(e)    the value of the dependent variable for the measurement time interval worked out using the operating emissions model for the reporting period reasonably reflects the emissions from the consumption of operating relevant energy that would occur in the measurement time interval after the implementation has been undertaken.

Paragraphs (a) to (e) in the definition of eligible measurement time interval describe situations in which emissions models no longer accurately estimate emissions levels. For example, paragraph (a) is necessary to prevent emissions models being used to calculate abatement where factors that can affect emissions levels, but that are not expected to vary—and are therefore not included in emissions models—do in fact vary. Paragraph (b) ensures emissions models are only used to calculate abatement over the range of independent variable values on which the model was built, i.e. the range over which the model can be relied upon to accurately estimate emissions levels. Paragraph (b) allows for some movement outside this range to prevent unavoidable and largely insignificant fluctuations in independent variable values stopping a proponent from being credited for abatement in a measurement time interval. Paragraph (c) is necessary because emissions models are unlikely to accurately estimate emissions where the underlying equipment is not operating normally. Paragraphs (d) and (e) are aimed at preventing emissions models from being used where they, for any other reason, may be inaccurately estimating emissions levels.         

Proponents should note that measurement time intervals in a reporting period that do not qualify as eligible measurement time intervals cannot be used to calculate abatement.

Eligible renewable electricity means renewable electricity generated from implementation equipment installed as part of the implementation, but does not include renewable energy generated by equipment that under the legislative rules (if any) made for subparagraph 27(4A)(c)(ii) of the Act, must not be included in an eligible offsets project. This exclusion covers renewable electricity generation that receives support from other government programs that offer a sufficient incentive for renewable electricity investments to proceed without ERF funding.

This definition is used in the calculation of measured emissions in section 46.

Energy-consuming equipment defines the type of equipment that can be involved in one or more activities within an implementation. Energy‑consuming equipment means equipment that:

·         consumes electricity; or 

·         consumes fuel to produce:

o   electricity;

o   useful physical work; or

o   cooling, heat or steam for use

The definition of energy‑consuming equipment specifies that where such equipment consumes fuel, it must do so to produce electricity; useful physical work; or cooling, heating or steam for use. Useful physical work in this context covers cases where energy is used to create work, such as running a diesel engine to create shaft power, pumping water to a higher location, or compressing gases. This term is intended to cover forms of energy consumption that do not directly relate to production of electricity, cooling, heat or steam, but that have a productive or business use at a site. Cooling, heating or steam for use does not cover activities such as gas flaring or fuel incineration that dissipate heat into the atmosphere without putting the heat to a productive use.

Implementation means an activity or group of activities referred to in subsection 11(2) of the Determination that are undertaken at a location. The activities that can form an implementation include modifying, removing, or replacing existing energy-consuming equipment, as well as the installation of on-site electricity generating units that offset more emissions intensive sources of electricity.

The installation of new equipment, where the installation is not to replace, modify or augment existing equipment, or does not involve the installation of electricity producing equipment that offsets another existing source of electricity, is not an eligible activity. The purpose of this exclusion is to make it clear that the methodology does not provide for calculating emissions reductions from installing new equipment in circumstances where there is no baseline data, such as ‘greenfield’ plants or substantial plant expansions.

Implementation equipment, for an implementation, means the equipment that is the subject of the activities that constitute the implementation.

Interactive effects describe changes in emissions from energy use in a reporting period that are the direct result of an implementation, and are not accounted for in the difference between:

·        total modelled baseline emissions and total measured emissions (for sub-method 1); or

·        total modelled baseline emissions and total modelled operating emissions (for sub-method 2).

Interactive effects are changes in emissions relating to the consumption of fuel or electricity by interactive equipment that the project proponent has chosen to account for as an interactive effect. An example of an effect that could be treated as an interactive effect is provided in section 21. Where a proponent has chosen not to include changes in electricity or fuel consumption by interactive equipment in baseline relevant energy the proponent would need to treat the effect as an interactive effect. In contrast, if a proponent chose to include the electricity or fuel consumption in baseline relevant energy they would not be required to treat the effect as an interactive effect.

The separate concepts of baseline relevant energy and interactive effects provide flexibility as to how onsite flow-on emissions effects in other systems may be accounted for, within the limits set around the two concepts. Section 6 provides an example that accounts for both interactive equipment and interactive effects.

Interactive equipment, for an implementation, is equipment for which electricity or fuel consumption is, or is likely to be, dependent on the amount of fuel or electricity consumed by the implementation equipment for the implementation, where this dependence is a result of the transfer of heat, steam, cooling, or useful physical work between the equipment and the implementation equipment.

‘Or is likely to be’ is included in the definition of interactive equipment to account for the fact that implementation equipment may not be installed in the baseline measurement period. This would be the case where the activity involves replacing inefficient equipment with new more efficient equipment. 

While this concept appears to be similar to interactive effects, it defines the equipment that may interact with implementation equipment rather than the change in emissions (or associated change in fuel or electricity consumption) that may occur in relation to interactive equipment. Where practicable, project proponents may choose to include such changes in baseline relevant energy rather than account for them as interactive effects, because the sub‑methods in Part 4 include a threshold for the value of interactive effects. Section 6 provides examples of interactive equipment, which forms part of baseline relevant energy.

NGA Factors document means the document entitled ‘National Greenhouse Account Factors’, published on the Department of the Environment’s website, www.environment.gov.au, and as in force from time to time. Factors published in this document will be updated from time to time to allow for more accurate estimates of emissions that maintain consistency with Australia’s National Greenhouse Accounts.

Operating emissions model refers to a model that estimates emissions for an implementation during a reporting period. Like baseline emissions models, operating emissions models are developed using regression analysis and describe the relationship between a dependent variable (emissions) and one or more independent variables (such as production or temperature). The independent variables in the operating emissions model may be the same as those used in the baseline emissions model, or they may be different. Data for the dependent variable and independent variables used to develop the operating emissions model are collected during the operating measurement period.

Site, of an implementation, means the physical locations of the implementation equipment, interactive equipment and co-metered equipment for the implementation.

Site constants are parameters that, if varied, would change the consumption of baseline relevant energy or operating relevant energy. A key difference between independent variables and site constants is that, under normal operating conditions, site constants do not vary over time, or their variation is small enough to have no observable effect on baseline relevant energy or operating relevant energy. Examples of site constants may be floor space, the rated power of an installed motor, or the storage capacity of a refrigeration unit.  

An example of a change in a site constant that has no observable effect could be the pressure of a compressed air distribution system. If the pressure is measured using a meter that operates in accordance with the monitoring requirements and has a measurement tolerance within ±2 per cent, variations within this tolerance could be considered to have no observable effect on baseline or operating relevant energy.

Distinguishing between independent variables and site constants allows site constants to be excluded from emissions models. This is appropriate, as a static value cannot cause variation in emissions in the regression modelling. Excluding site constants reduces the complexity of emissions models while still allowing for any changes in site constants to be taken into account by excluding from the abatement calculations time periods in which they are not at their normal value (see the definition of eligible measurement time interval in section 5).

 

6          Meaning of baseline relevant energy  

Baseline Relevant Energy establishes for an implementation what is often called the measurement boundary or project boundary. Baseline relevant energy defines fuel and electricity consumption by existing implementation equipment (i.e. the equipment that is the subject of an activity listed in section 11).

The definition also covers fuel and electricity consumed by other equipment (interactive equipment) that will be affected by the activities on the implementation equipment, provided the proponent has not chosen to treat the change in emissions from the change in fuel or electricity used by the interactive equipment as an interactive effect. Interactive equipment  might include, for example, a boiler which will use less energy as a result of an implementation that involves installing a heat recovery system on a neighbouring piece of equipment that is used to preheat the boiler feed water. In this scenario fuel or electricity used to power the boiler will be included in baseline relevant energy for the implementation. Section 21 discusses the approach to be taken when such an interaction is treated as an interactive effect.

In addition, baseline relevant energy may include consumption of fuel and electricity by equipment that is metered together (co-metered) with implementation equipment and interactive equipment. For example, in a grinding optimisation project, existing metering may cover electric power supply to all crushing and grinding circuits. All of these circuits would be included in baseline relevant energy if the implementation equipment was not separately sub-metered.

Note that if interactive equipment were at another physical location, the proponent would need access to data relating to other location (such as fuel/electricity, independent variable and site constant data) in order to be able to perform the abatement calculations required by the method.

The concepts of interactive equipment, implementation equipment and co-metered equipment can be integrated into a single example. In a large gas-fired boiler optimisation project, the boiler would be the implementation equipment. Co-metered equipment might include ovens or furnaces captured by the same gas meter as the boilers. At the same time, enhanced heat recovery on the boiler may be able to export heat to a dryer that is used to produce a different product line at the same site and therefore does not fit neatly into the baseline emissions model at the site. The reduction in gas consumption by the dryer could be accounted for as an interactive effect and the dryer would be considered interactive equipment.

Subsection 6(2) covers instances where an implementation relates to electricity produced on site and consumed by implementation equipment, existing interactive equipment or existing co-metered equipment. In these cases baseline relevant energy includes either the electricity consumption by the equipment or the consumption of fuel to produce the electricity consumed by the equipment, but not both. This is to avoid double counting of emissions, as the off-grid emissions factor for the electricity consumption takes into account the fuel used in generation.

The concept of baseline relevant energy enables project activities to involve equipment that does not directly consume electricity or combust fuel (see paragraph 11(2)(e). For example, since consumption of electricity by the motor in a compressed air system will be baseline relevant energy, fixing leaks in the system that will reduce electricity consumption by the motor can be counted as an activity of the project.

 

7          Meaning of operating relevant energy

Operating Relevant Energy establishes for an implementation what is often called the measurement boundary or project boundary once the implementation has been completed and is operating. Operating relevant energy includes fuel and electricity consumption included in baseline relevant energy and by the implementation equipment installed as part of the project (i.e. the equipment that is the subject of an activity listed in section 11).

The definition of operating relevant energy covers instances where an implementation relates to electricity produced on site and consumed by implementation equipment, existing interactive equipment or existing co-metered equipment. In these cases operating relevant energy includes either the electricity consumption by the equipment or the consumption of fuel to produce the electricity, but not both. As with baseline relevant energy, this is to avoid double counting of emissions, as the off-grid emissions factor for the electricity consumption takes into account the fuel used in generation.

If an implementation involves installing electricity generation equipment to displace use of grid electricity by equipment at the site, any exported electricity is not included in baseline relevant energy or operating relevant energy. This is because equipment that consumes exported electricity is not implementation equipment, interactive equipment or co-metered equipment. The effect of this is that the method cannot be used to credit emissions reductions associated with the displacement of grid electricity by lower emissions electricity exported from equipment at the site. Under such implementations, proponents may use subsection 7(2) to choose to treat electricity consumed by equipment at the site as operating relevant energy instead of fuel consumed by the generation equipment. This enables proponents to be credited for substituting on-site use of grid electricity for lower emissions electricity produced by generation equipment installed for the implementation. It also ensures that operating emissions do not include emissions associated with combusting fuel to produce exported electricity.

 

8          Meaning of effective range for an independent variable

Baseline and operating emissions models must be based on actual measurements of independent variables, such as measurements of production levels or a measure of ambient air temperature. Because independent variables vary, proponents will record a range of values for each variable when taking measurements to build an emissions model. This range of measurements represents the effective range of the independent variable.

Section 8 ensures that the effective range of an independent variable is based on the maximum and minimum measured values for the variable used to develop all emissions models for the implementation. Since implementations under sub-method 1 only have a baseline emissions model the effective range of an independent variable under sub-method 1 is based on the range of values used to develop that model. Implementations under sub-method 2 have both a baseline emissions model and an operating emission model. Consequently, where an independent variable is used to develop both a baseline emissions model and an operating emission model for an implementation, its effective range is based on the range of values used to develop both models. To ensure that the model can only be used where it is valid, the effective range is determined after any values determined to be outliers have been removed.

The concept of effective range is used in the definition of an eligible measurement time interval, which describes those measurement time intervals during the reporting period that can be used to calculate abatement from the implementation.

By limiting crediting to those periods where measured values of independent variables fall within the effective ranges of those independent variables, the determination ensures that emission models are not applied to conditions that extend beyond the range of conditions on which the models were based.  

If a proponent changes from sub-method 1 to sub-method 2, and an independent variable used in the baseline model is used to develop the operating model for sub-method 1, then the effective range established for the independent variable under sub-method 1 may need to be adjusted to take account of the variable being used in two models.

 

 9         Meaning of normal value for a site constant

A site constant for a baseline emission model is taken to be at its normal value if it is the same value observed or measured during the baseline measurement period. Similarly, a site constant for an operating emission model is taken to be at its normal value if it is the same value observed or measured during the operating measurement period.

Section 9 provides for measurements of site constants to depart from the value observed or measured during the baseline or operating measurement period by an amount that has no observable effect on relevant energy. This is explained in detail under the definition of site constant in this Explanatory Statement.

 

10        References to factors and parameters from external sources

Section 10 refers to factors or parameters used in calculations that are derived from external sources. Several parameters are derived from the National Greenhouse and Energy Reporting Regulations 2008 (the NGER Regulations) or the NGER (Measurement) Determination made under subsection 10(3) of the National Greenhouse & Energy Reporting Act 2007 (NGER Act).

The effect of subsection 10(1) is that if those legislative instruments are amended during a project’s reporting period, then the project proponent will be required to use the factor or parameter prescribed in the instrument that is in force at the end of the reporting period.

Paragraph 10(2)(a) provides that subsection 10(1) does not apply if the Determination sets out other requirements. To avoid any doubt, section 10(1) does not apply to the determination of the electricity emissions factor. This is because the Determination specifies in subsection 46(6) the approach to be taken to determine that factor. Among other things, subsection 46(6) sets out that the electricity emissions factor is the factor in force on the day the project is declared to be an eligible offsets project.

Paragraph 10(2)(b) provides that subsection 10(1) does not apply where it is not possible to retrospectively apply a factor or parameter in an instrument that is in force at the end of the reporting period. An example of circumstances where this may occur is where the monitoring approach defined in an external source is amended to require additional or different monitoring practices after the reporting period has commenced. In this circumstance it is not possible to retrospectively undertake monitoring activities in accordance with the new requirement.

Where the Determination refers to an external document that is a legislative instrument (such as the NGER (Measurement) Determination) then the reference is to the version of the instrument in force from time to time unless the reference specifies otherwise (see section 10 of the Acts Interpretation Act 1901 and section 13 of the Legislative Instruments Act 2003).

In circumstances where paragraph 10(2)(b) applies, 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. Section 53 sets out reporting requirements to be followed when paragraph 10(2)(b) applies.

 

Part 2              Industrial electricity and fuel efficiency project

11        Industrial electricity and fuel efficiency project

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 11 provides that the Determination applies to an offsets project that involves one or more implementations consisting of one or more of the activities set out in section 11(2). These activities are:

(a)   modifying, removing or replacing existing energy‑consuming equipment;

(b)   installing energy‑consuming equipment as part of replacing, modifying or augmenting existing energy‑consuming equipment;

(c)   changing the way existing energy‑consuming equipment is controlled or operated;

(d)  changing the energy sources or mix of energy sources used by existing energy‑consuming equipment;

(e)   modifying, installing, removing or replacing equipment that affects the energy consumption of existing energy‑consuming equipment; and

(f)    installing equipment that generates electricity at a location where existing energy-consuming equipment consumes electricity obtained from an electricity grid and the electricity generated by the installed equipment will be used in substitution for the electricity obtained from an electricity grid.

 

The activity described in item (b) above would commonly involve upgrading equipment by installing additional components, such as upgrading the cooling system on a diesel generator at a mine site.

The activity described in item (e) could include making control system improvements that adjust the energy consumption of existing energy-consuming equipment to better match loads. Item (e) could also involve upgrading equipment that uses fuel or electricity indirectly. This might include the installation of ventilation fans to reduce cooling requirements in the roof of a factory building. In this case the emissions abated could be measured as a reduction in the fuel and electricity consumed by the building’s cooling system. Note that in the circumstances described in item (e) there is existing equipment that can provide baseline data for electricity and fuel consumption. Item (e) excludes activities for which such data is unavailable, such as where new equipment is installed to produce an entirely new product line as part of a factory expansion.

The final activity described in the above list covers implementations that install equipment that generates electricity to displace on site use of grid electricity. This includes Combined Heat and Power (CHP) systems which generate electricity onsite and capture and allow for the use of the associated waste heat. Proponents should note that the Determination does not allow for adjustments to be made to operating relevant energy where CHP-associated heat or cooling is exported from the site.

Section 11 limits project activities to those where existing fuel or electricity consumption or energy sources can be used to establish baseline emissions levels. The effect of this is that the Determination does not cover ‘greenfield’ sites where installed equipment does not replace existing equipment or services that performed the same function. Major site expansions involving the installation of new equipment are also excluded from the Determination. This exclusion occurs in two ways. Firstly, because activities must relate to existing equipment and secondly because major expansions would result in site constants being different to their normal value and/or independent variables for the baseline emissions model being outside their effective range. Time intervals where independent variables are outside their effective range, or where site constants that are not at their normal value, are not eligible measurement time intervals and are consequently excluded from the abatement calculations.

In addition, paragraph 11(3)(a) excludes activities relating to equipment that generates electricity, if at the time of registering the project with the Regulator, the generating equipment at a location is capable of generating 30 megawatts of electricity or more and the location of the equipment has the capacity to export electricity to an electricity grid for which the NGA Factors document includes an emissions factor. The 30 megawatt threshold is based on the manufacturers’ nameplates and applies to single generating units, or groups of generating units connected to the grid at a common connection point. This exclusion is designed to cover generators whose primary activity is electricity generation. As the exclusion is based on the capacity to export it also applies to grid-connected backup generators.

The exclusion is included as the calculations in the Determination do not account for changes to generation mix of the grid which could arise from efficiency improvements to large generators. Implementations involving generation activities below the 30 megawatt threshold that meet the activity requirements in subsection 11(2) are not excluded if the implementation equipment exports electricity to the grid or directly to local customers.

Paragraphs 11(3)(b) and (c) ensure that activities that involve vehicles, including aircraft, that can be covered by either the Carbon Credits (Carbon Farming Initiative—Land and Sea Transport) Methodology Determination 2015 or the Carbon Credits (Carbon Farming Initiative—Aviation) Methodology Determination 2015 are not covered by this Determination.

Proponents should note that vehicles would not qualify as interactive equipment under this Determination because it is not envisaged that there could be a transfer of heat, steam, cooling, or useful physical work from implementation equipment to vehicles.

Section 11 also requires that each implementation could reasonably be expected to result in eligible carbon abatement.

The Determination defines this kind of project as an industrial electricity and fuel efficiency project.  
Part 3              Project requirements

Division 1                   Operation of this Part

12        Operation 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 paragraph 27(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 Determination specifies requirements that must be met in order for a project to be an eligible offsets project. These requirements are set out in sections 13 to 27.

 

Division 2       General requirements

13        Information 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 13 of the Determination sets out information that must be included in the application for the declaration, which is as follows: 

 

·         for each implementation that has been identified at the time of making the application:

o   a detailed description of the types of implementation equipment; and

o   an explanation of how the implementation could reasonably be expected to result in eligible carbon abatement;

·         if there are, or will be, activities included in the project that are likely to constitute implementations that are not  identified at the time of making the application—a description of:

o   the types of activities;

o   the types of equipment that will be subject to the activities; and

o   an explanation of how the activities when constituted as implementations could reasonably be expected to result in eligible carbon abatement.

The descriptions required by paragraph 13(1)(b) (the second dot point above) may be done by class, where appropriate, including by reference to classes of similar activities or similar equipment.

Section 13 provides for proponents to include information about implementations that have been identified at the time of making the applications as well as implementations that will be identified after making the application.  Identified implementations are those for which the proponent has identified the implementation equipment, the activities that will be performed on the implementation equipment, and the location of the equipment.  For example, this would be the case where a proponent was seeking to replace a boiler at their factory.

Providing for applications to include implementations that have not yet been identified is intended to allow proponents to make an application where they know, for example, the type of activity they intend to perform (e.g. replacing fans at industrial facilities) but do not know the location of proposed implementations.  For instance, this would be the case where a fan supplier knows that they intend to offer discounted fan replacements to a number of industrial facilities, but the locations of those replacements will depend on which of their customers take up the offer.

An example of a class of implementations is the replacement of pumps in water pumping stations by a water utility. In this case the pump replacement activity is consistent and the pumping stations are likely to have similar pumping equipment installed.

While this section requires proponents to explain how the activities for an implementation can be expected to result in eligible abatement, this explanation applies to the combination of activities undertaken (i.e. when the activities are constituted as implementations). This means that some activities as part of an implementation may increase emissions. For example, if additional draught fans are installed as part of a furnace optimisation implementation, there could be an increase in electricity consumption emissions from the fans that could be more than offset by the improved combustion control compared to a natural draught system.

 

14        Heat etc. For use at a site of implementation not to be substituted

If the implementation equipment, interactive equipment or co-metered equipment produces heat, steam, cooling or other useful physical work for use at the site, the project proponent must not substitute that heat, steam, cooling or other useful physical work with heat, steam, cooling or other useful physical work imported from another site. This requirement ensures that operating emissions are not reduced simply by substituting on-site generated heat, steam, cooling or other useful physical work with imported heat, steam, cooling or other useful physical work. Substitution of this type would represent emissions leakage.   

 

Division 3       Making choices for the project

The Determination requires proponents to make choices about: the sub-method to be used; what constitutes baseline relevant energy and operating relevant energy; the duration and timing of the baseline measurement period and the operating measurement period; the length of measurement time intervals used in the implementation; what constitutes interactive effects; the independent variables for the baseline emissions model and, in the case of sub-method 2, the independent variables for the operating emissions model; and what constitutes site constants.

 

15        Sub-methods

Section 15 provides that a project proponent must choose one sub-method to work out emissions abated under each implementation.

The section also requires that the sub-method used for an implementation should be the same for all reporting periods for a project. There is an exception to this rule where a proponent may switch to the alternative sub-method once, and then must use that sub-method for all subsequent reporting periods. 

 

16        Baseline relevant energy

Section 16 requires that, for each implementation, the project proponent must identify fuel and electricity use that constitutes baseline relevant energy, as defined in section 6. Baseline relevant energy represents the fuel or electricity used by the existing energy-consuming equipment at the site that will be the subject of a modification, removal, replacement or another activity listed in section 11(2). It also covers fuel and electricity consumed by any interactive equipment that will be affected by the implementation as well as any co-metered equipment. Measurements of baseline relevant energy taken during the baseline measurement period are used to work out the dependent variable when developing baseline emissions models. The baseline emissions model is then, in turn, used to predict what emissions would have been in each reporting period in the absence of the implementation. 

 

17        Baseline measurement period

In order to develop a baseline emissions model, project proponents must choose a period over which to measure baseline relevant energy and the independent variables that relate to the baseline emissions model. This baseline measurement period must be a period that:

·        accounts for the typical range of operating conditions for the equipment covered by baseline relevant energy for the implementation; and

·        reasonably represents operating conditions for the equipment where, having undertaken the implementation, it is likely that the fuel or electricity consumption by the equipment would increase.

 

The second requirement aims to ensure that periods throughout the year where newly installed equipment is likely to result in an increase in emissions relative to the baseline scenario are captured. For example, if the baseline equipment provides a cooling function in summer only, but the operating equipment provides both a cooling function in summer and a heating function in winter, the baseline measurement period must cover both summer and winter.

Baseline measurement periods must start no earlier than 24 months before the date the implementation commences, and must end before the implementation commences.

 

18        Operating relevant energy

Section 18 requires that, for each implementation, the project proponent must identify operating relevant energy, as defined in section 5. Operating relevant energy describes the fuel and electricity consumption of energy-consuming equipment covered by baseline relevant energy (to the extent that is has not been removed as part of the implementation) as well as any energy-consuming equipment installed as part of the implementation.

Under sub-method 1, operating relevant energy is used to work out total measured emissions for an implementation in each reporting period. Under this sub-method, the project proponent directly measures over each full reporting period consumption of fuel or electricity that is operating relevant energy, and then applies an emissions factor to determine the emissions associated with that use.

Under sub-method 2, operating relevant energy is used to work out a dependent variable that is used to develop an operating emissions model for the implementation. Under this sub-method, operating relevant energy is directly measured only during the operating measurement period. Operating emissions are then estimated over each reporting period by applying measured values of independent variables to the operating emissions model. 

 

 

19        Operating measurement period 

This section requires project proponents to identify for each implementation using sub-method 2 a measurement period (an operating measurement period). It is over this period that operating relevant energy and independent variables are measured for the purposes of developing an operating emissions model for the implementation.

Like the baseline measurement period, the operating measurement period must:

·         account for the typical range of operating conditions for the equipment covered by the operating relevant energy for the implementation; and

·         reasonably represent operating conditions for the equipment where, having undertaken the implementation, it is likely that the fuel or electricity consumption by the equipment would increase.

 

The start date for the operating measurement period must start after the implementation has been completed[2]. There is no requirement that the operating measurement period start immediately after the implementation has been completed. In many cases it may be appropriate to allow for a period of system optimisation or bedding in processes between the completion of the implementation and the start of the operating measurement period.

 

20        Measurement time intervals

Section 20 establishes that a single measurement time interval (for example, one hour, one day or one month) must be chosen and used for all parameters in an implementation when calculating abatement. Measurement time intervals of the same length must be used for every parameter in the implementation throughout the baseline measurement period, operating measurement period and reporting period.

For example, under sub-method 2, a proponent may choose to measure one of its two independent variables for a baseline emissions model over a 24 hour period. He or she would then need to measure the other independent variable, as well as baseline and operating relevant energy, over a 24 hour period as well. Furthermore, the measurements for both variables must be taken over the same 24 hour period.  In other words, the proponent may not choose to measure the value of one variable over the period 6:00 to 6:00 am and the other variable over the period 9:00 am to 9:00 am.

The section provides that the start of the first measurement time interval in a period—such as a baseline measurement period, operating measurement period, or reporting period—is taken to be the start of the time period.

The second and all subsequent measurement time intervals are required to start immediately after the end of the previous measurement time interval. This requirement ensures that measurements over time periods are taken throughout the measurement period. For example, if measurements are taken daily over a three month period the section requires measurement over around 90 measurement time intervals.

 

 

21        Interactive effects 

Under this section, project proponents are required to identify any interactive effects (see section 5) that relate to an implementation. Project proponents can choose to account for certain project-induced changes in emissions from equipment either through including the fuel or electricity used by the equipment in baseline relevant energy, or by treating it as an interactive effect.

If a change in emissions is identified as an interactive effect for an implementation in the baseline measurement period, it must be treated as an interactive effect in all operating measurement periods and reporting periods for the implementation. This requirement means that project proponents cannot account for a change in emissions as an interactive effect in the first reporting period and then account for the change through baseline and operating relevant energy in a subsequent reporting period, or vice versa.   

An example of an interactive effect is where a proponent upgrades a furnace control system to more efficiently maintain the required furnace temperature and improve combustion efficiency. This can result in a lower flue gas temperature and reduced flue gas heat recovery, requiring additional fuel use by equipment supplied with waste heat from the furnace, such as a boiler. This increase in boiler fuel combustion emissions could be treated as an interactive effect, or the fuel combusted by the boiler could be included in baseline relevant energy.

As the calculations for relevant energy are less stringently defined and are subject to additional uncertainty, sections 36 and 40 apply a limit to the amount of emissions that can be captured by interactive effects. The threshold is applied based on the sum of the absolute values of all interactive effects for an implementation of a project. If this sum exceeds 10 per cent of the difference between baseline emissions levels and operating emission levels (either measured or modelled) over the reporting period the emissions abated by the implementation is set to zero where abatement is positive, or left unadjusted for interactive effects where abatement is negative (i.e. an increase in emissions). This means that project proponents should carefully consider the scope of relevant energy and interactive effects to avoid exceeding the interactive effects threshold.

Typically a proponent may choose to account for an effect as an interactive effect if a small change in emissions occurs in equipment that is separated from the implementation equipment and operates very differently, so that including the effect in relevant energy might reduce the predictive power of an emissions model. In the above example, if waste heat from a furnace is used for boiler pre-heating, it is apparent that a model covering furnace performance might not be readily applicable to the operation of a boiler.

Approaches to determine an interactive effect may involve the calculation of baseline and operating energy consumption relating to the effect, the direct calculation of a change in consumption relating to the effect, or a combination of both. For example, a heat transfer calculation will typically calculate the energy flow directly. As an interactive effect is a change in emissions, the value of the interactive effect will be negative if an interactive effect corresponds to a reduction in emissions.

Subsection 21(3) sets out that for each interactive effect, the project proponent must choose an approach for estimating the interactive effect that:

·        uses data from the records of the site of the interactive effect;

·        is consistent with an estimation approach that applies to the change in emissions from consumption of fuel or electricity under another methodology determination or, if there is no methodology determination that deals with that change, is consistent with one of the following approaches:

o   an estimation approach that applies to changes of that kind under another emissions reduction scheme that has been approved by a government (including a foreign government);

o   a generally accepted energy efficiency measurement and verification practice that applies to changes of that kind; or

o   a generally accepted engineering methodology, model or formula that applies to changes of that kind;

·        is consistent with relevant measuring and estimation requirements that apply to changes in consumption of fuel or electricity under the NGER (Measurement) Determination;

·        results in an estimate that is measurable, capable of being verified and conservative; and

·        is credible and robust.

‘Government’ in subparagraph 21(3)(b)(i) refers to both national level and sub-national level governments.  For the purposes of 21(3), an energy efficiency measurement and verification process may be considered ‘generally accepted’ if it is in accordance with a widely recognised protocol such as the International Performance Measurement and Verification Protocol, relevant Australian Standards, ISO standards, or guidelines published by professional bodies such as the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE).

An engineering methodology, model or formula that applies to a change in emissions may be considered to be ‘generally accepted’ if it is published in engineering textbooks or handbooks, applicable to the situation, of appropriate detail for the magnitude of the change in emissions, and if any exclusions from the calculation that would increase emissions from the implementation are consistent with section 32. Note that an engineering calculation may involve derivation of new mathematical relationships applicable to a specific situation.

Proponents should note that to be generally accepted an engineering approach must also be applied correctly to the situation. For example, if tabulated enthalpy values are used in calculations they should be selected from the appropriate table (eg. superheated vapour for the appropriate temperature and pressure). Transient or dynamic effects should be taken into account where required to comply with section 32. Approval of an approach by a professional engineer with qualifications and five or more years of experience in the engineering sub-discipline (eg. mechanical, electrical or chemical) that is applicable to an implementation may be considered general acceptance.[3]

Subsection 21(5) provides that when estimating the interactive effect using an approach consistent with subsection 21(2), the project proponent must work out emissions factors for fuels and electricity, and energy content factors for fuels using the approaches set out in Section 46.

 

 

22        Independent variables

Section 22 establishes that project proponents must choose one or more independent variables for the purposes of developing a baseline emissions model for an implementation.

Under sub-method 2, project proponents are also required to choose one or more independent variables for the purposes of developing an operating emissions model for the implementation.

Section 5 establishes that a parameter can be an independent variable if it causes or explains changes in emissions from the consumption of baseline or operating relevant energy. Statistical relationships quantified by a regression model are said to explain variation in the dependent variable (in this case, emissions). Regression models do not determine causation. Section 5 uses the word ‘causes’ because in some situations a known physical relationship between a variable and emissions levels may exist, in which case changes in the level of the variable could be said to cause changes in the level of emissions. Section 22 requires the project proponent to include the following variables as independent variables, unless they are treated as site constants or have no observable effect on the consumption of baseline relevant energy (for a baseline emissions model) or operating relevant energy (for an operating emissions model):

·        the service levels provided by, equipment at the site of the implementation;

·        the quality of inputs to equipment at the site of the implementation;

·        the types of inputs to equipment at the site of the implementation;

·        the quality of outputs from equipment at the site of the implementation; and

·        the types of outputs from equipment at the site of the implementation.

These variables are only independent variables if, among other things, they are independent from any other independent variable for the model. This principle applies equally to independent variables that are a function of a variable, such as x1 squared.

 

23        Site constants

For each implementation, the project proponent must identify any relevant site constants (as defined in section 5). If a parameter is treated as a site constant during the baseline measurement period, it must also be treated as a site constant during each operating measurement period and each reporting period for the implementation.

Similarly, site constants identified for an operating measurement period must remain as site constants for each reporting period and any future operating measurement periods for the implementation. This requirement ensures that if a proponent updates an operating emission model (see section 24), they must use for the new model the site constants that were used for the replaced operating emissions model. 

 

Division 4       Developing emissions models

24        Emissions models

Section 24 provides that project proponents must a develop baseline emission model for each implementation, as well as an operating emission model in the case of sub-method 2.

Emissions models must be regression models in the form set out in sections 44 and 45.

The section also specifies that project proponents may establish a new operating emissions model in subsequent reporting periods. If a new model is developed, the project proponent must select a new operating measurement period (section 19) and may select new independent variables (section 22). 

 

25        General requirements

Section 25 establishes that emissions models must be developed using regression analysis, with the value of total measured emissions for the implementation, as determined in section 46, used as the dependent variable.

It also specifies that measured values used to develop the models must be taken in measurement time intervals in which no values of independent variables are outliers, as identified using standard statistical tests and approaches.

The modelled relationship between the dependent variable and the independent variables for the model must not be disproportionately affected by a small number of high leverage data points—worked out using standard statistical tests and approaches. This requirement seeks to ensure that the data used to develop models does not include extreme values that have few neighbouring data points. High leverage points are single points that substantially affect the value of a regression model such that the model loses predictive power.

Where proponents use a statistical test or approach to identify or remove one or more high leverage data points or outliers, they must continue to use that statistical test or approach for future measurement periods. This will prevent proponents applying different statistical tests or approaches in different periods to adjust the level of abatement.

 

26        Using NGER methods to work out factors

Section 26 establishes how the energy content factors and emissions factors for fuel combustion emissions must be worked out using methods in the NGER Measurement Determination. Subsection 26(2) specifies that if a project proponent works out a parameter for an implementation in accordance with an NGER method, the project proponent must use the method to work out the parameter for the purposes of:

·        the baseline emission model for the implementation (to work out total measured emissions from the consumption of baseline relevant energy used in the regression analysis), and

·        for sub-method 1—working out total measured emissions from the consumption of operating relevant energy; or

·        for sub-method 2—the operating emissions model for the implementation for the reporting period (to work out total measured emissions from the consumption of operating relevant energy used in the regression analysis).

For the purposes of subsection 26(2), the project proponent may choose to use an NGER method in accordance with the monitoring requirements or be required to use one as a consequence of failing to monitor a parameter as required (see Division 3 of Part 5). This means that the regression analysis used in an emissions model may need to be revised if a different method is used or if the factors or parameters in the NGER method have been amended.

Subsection 26(3) provides that if it is not possible to use the version of the NGER method as in force at the end of the reporting period in the emissions calculations, the project proponent must use the most recent version of the NGER method that it is possible to use. This section applies despite paragraph 9(2)(b).

Subsection 26(3) would be relevant where an approach to sampling fuel under an NGER method is changed before the start of a reporting period. In this case, under sub-method 1, the proponent would use the new version of the NGER method to determine measured emissions from operating relevant energy during the reporting period. However, if they are unable to redo the baseline measurement period fuel sampling so as to comply with the updated NGER method, they may continue to use their original baseline emissions model, which was developed using an emissions factor calculated in accordance with the previous version of the NGER method.

Subsection 26(5) provides an approach for situations where, in using a version of an NGER method, more than one factor would apply in the baseline measurement period (for a baseline emissions model) or an operating measurement period (for an operating emissions model). This is intended to cover higher order methods where sampling produces different parameters in each measurement time interval. In these situations, the factor to be used for the period for the purposes of developing baseline emissions models or operating emissions models is the emissions-weighted average of all the factors that would have applied during the period.

Determining the emissions-weighted average for a parameter involves first calculating the emissions for each measurement time interval in the measurement period, then determining the proportion of emissions (the weighting) for each measurement time interval. Consider a simplified two time interval example involving diesel consumption, with a sampled energy content factor of 38.1 gigajoules per kilolitre in the first time interval and 39.2 in the second interval. If a period involves the emission of 10 kilotonnes of CO2-e from diesel consumption with 3 kilotonnes in time interval 1 and 7 kilotonnes in time interval 2, the weighted average is given by:

ECdiesel = (0.3 × 38.1) + (0.7 × 39.2) = 38.9 gigajoules per kilolitre.

In this example the effect of the weighting is that the weighted average is closer to the value in the emissions intensive second time interval than to the arithmetic average of 38.65, which resembles the 38.6 gigajoules per kilolitre average in Schedule 1 of the NGER Measurement Determination.

 

27        Minimum statistical requirements

Emissions models must meet rigorous statistical requirements including that the t-statistic for each independent variable coefficient must be greater than the value for the two tailed t‑distribution at the 95 per cent confidence level for the number of degrees of freedom in the regression; and that the adjusted coefficient of determination (adjusted R2) be greater than 0.75. These and the other requirements in section 25 and 27 are aimed at ensuring that emissions models are robust, and are consistent with standard energy efficiency measurement and verification practices.

The number of degrees of freedom means the number of data points (measurement time intervals) in the regression minus the number of independent variables in the regression minus one. The more degrees of freedom in the model, the lower the value of the critical student t-statisitic.

Section 27 also requires that the relative precision of the emissions level predicted by the emissions model (in the baseline and operating measurement periods) at the 95 per cent level must be within plus or minus 100 per cent. As an example, if the relative precision of the emissions level predicted by an emissions model during the baseline measurement period at the 95 per cent level is calculated as 100 plus or minus 12, the model would be taken to satisfy the requirement under subsection 27(f).

 

Part 4  Net abatement amount

Division 1       Preliminary

28        Operation of this Part

Paragraph 106(1)(c) of the Act provides that a methodology determination must specify how to calculate the carbon dioxide equivalent (CO2-e) net abatement amount for the project in a reporting period. The net abatement amount for a project in a reporting period sets the number of ACCUs that can be issued to the project proponent, with each ACCU representing one tonne of abatement delivered by the project.

 

29        Overview of gases accounted for in abatement calculations

Section 29 provides a summary of the greenhouse gas sources that are assessed in the Determination in order to determine the net abatement amount. The emissions sources which need to be taken into account when calculating abatement for the project are set out in Table 1.

Table 1. Overview of gases accounted for in the abatement calculations

Greenhouse gases and emissions sources

Item

Relevant emissions calculation

Emissions source

Greenhouse gas

1

Baseline emissions for an implementation

Fuel consumption emissions

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

2

Baseline emissions for an implementation

Electricity consumption emissions

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

3

Operating emissions or measured emissions for an implementation

Fuel consumption emissions

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

4

Operating emissions or measured emissions for an implementation

Electricity consumption emissions

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

5

Emissions from interactive effects

Fuel consumption emissions

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

6

Emissions from interactive effects

Electricity consumption emissions

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

The Determination covers emissions from electricity use, whether that electricity is produced on-site or at another site, and emissions from fuel combusted on-site. It does not cover scope 3 emissions associated with the extraction and processing of fossil fuels or the manufacture, transportation, installation and disposal or decommissioning of equipment. It is an ERF scheme-wide policy to exclude scope 3 emissions from baseline and project emissions sources. This Determination also does not cover industrial process emissions, flaring of fugitive gases, or reductions in emissions from hydrofluorocarbon refrigerant gases.

 

30        When an implementation may be included in calculating the net abatement amount

Section 30 requires that an implementation must have been completed before the proponent can include the abatement calculations to determine the carbon dioxide equivalent net abatement amount for a reporting period. Subsection 30(2) provides that if the project proponent calculates abatement for an implementation for a reporting period but chooses not to calculate abatement for the implementation in any subsequent reporting period, the project proponent must exclude this implementation from the calculation of net abatement for all subsequent reporting periods.

Section 30 has the effect of ensuring that where an implementation produces negative abatement in a reporting period, proponents must include this negative amount in the abatement calculations in order to claim positive abatement in subsequent reporting periods. This provision applies when it would have been practicable for the project proponent to calculate abatement. It is intended to avoid leakage from proponents only reporting those periods with positive abatement and excluding negative ones. However, proponents may choose to exclude implementations that will not deliver abatement credits for the remainder of the crediting period.

 

31        When an implementation must not be included in calculating the net abatement amount

Section 31 sets out the circumstances in which an implementation or class of implementations must not be included in calculations of the net abatement amount for a project for a reporting period. An implementation is excluded where:

·        the project proponent has undertaken an activity at the site of the implementation that was not included in the description of any implementation in the project application under section 22 of the Act; and

·        the activity could reasonably be expected to have an effect, which is not minor or trivial, on the abatement calculated for the implementation in the reporting period.

 

Section 31 will have the effect of ensuring that the observed difference between baseline and operating emissions levels is caused by the identified activities that make up the implementation, as opposed to other activities undertaken at the site.

For implementations under sub-method 1, the effect of section 31 is that where project proponents undertake other activities after the baseline measurement period, they will need to either:

·        exclude the implementation from the calculation of the net abatement amount (as abatement from the other activities will be reflected in the calculation); or

·        switch to using sub-method 2, if this is permitted for the implementation under section 15, and if it is possible for the proponent to develop an operating emissions model for the implementation using an operating measurement period that occurs before the other activities begin to effect operating relevant energy.

For implementations under sub-method 2, the effect of section 31 is that, project proponents may undertake other activities at the site after they have completed their operating measurement period, provided those other activities do not affect the level of measured independent variables relative to what they would have been had the other activities not been undertaken. Project proponents would not however be able to update their operating emissions model after such other activities have been undertaken at the site as this would result in the abatement from the other activities being counted in the net abatement amount.  

 

32        Certain consumption that may be excluded in calculating the emissions abated by an implementation

Section 32 sets out the changes in fuel or electricity consumption that the proponent may exclude from the calculations when working out the emissions abated by an implementation in a reporting period. The section provides that changes in energy consumption may be excluded if measuring the change would be impractical or disproportionally costly.

In addition, proponents may only exclude these changes in fuel or electricity consumption where not accounting for the total of the changes would be reasonably likely to result in a difference of 5 per cent or less in the emissions abated by the implementation for the reporting period.

This five per cent limit applies to the sum of all changes in fuel or electricity consumption, so that this cannot be used to exclude consumption by all minor items of energy using equipment when calculating abatement.

Where, under section 32, fuel or electricity consumption is excluded from operating relevant energy, it must also be excluded from baseline relevant energy and vice versa. This rule will prevent abatement being inflated through the exclusion of fuel or electricity from operating relevant energy but not baseline relevant energy.     

The cost and practicality of measuring energy use should be evaluated considering the amount of energy consumption, the costs of installing measuring and monitoring systems and the costs of emissions associated with the equipment. These relative costs may vary depending on the emissions factors that apply, operating conditions (such as high temperature or corrosive environments), location, and energy costs. Including energy consumption in the calculations would not normally be considered impractical or disproportionately costly if the equipment can be readily measured by including some co-metered equipment in baseline or operating relevant energy.

An example where the measurement of energy consumption might be impractical or disproportionally costly is where as part of improvements to a 10 megawatt boiler, a 25 kilowatt forced draught fan with variable speed drive is installed. In this instance the cost of installing additional metering and monitoring for electricity consumption as well as gas consumption may be disproportionately costly and is unlikely to affect emissions abatement by more than 5 per cent.

 

33        Negative final carbon dioxide equivalent net abatement amount taken to be zero

Section 33 sets out how any negative net abatement amounts remaining at the end of the crediting period for the project are to be treated. The section establishes that if the sum of the carbon dioxide equivalent net abatement amount for the final reporting period in the crediting period is negative, net abatement amount for the final reporting period is set to zero.

The intent of this is to ensure that proponents are not faced with a liability to the Commonwealth in the event that the project results in negative abatement as a result of project activities. This is separate from any contractual obligations the proponent or another party may have with the Commonwealth.

 

Division 2       Method for calculating net abatement amount

34        Carbon dioxide equivalent net abatement amount

Section 34 defines the net abatement amount for a project for a reporting period in equation 1 as the sum of abatement for all individual implementations included in the project, plus any negative abatement amount from the previous reporting period. Accordingly, proponents may undertake a number of implementations under the Determination and aggregate the abatement as a single project. 

The Determination allows proponents to select reporting periods and develop their own emissions models. Given the range of possible projects supported by the Determination, allowing for negative abatement to be treated as a zero emissions level in each reporting period could have enabled proponents to take advantage of periods of negative abatement to increase their net abatement calculated over all reporting periods. This Determination carries over negative abatement in each reporting period so as to mitigate against this Determination -specific leakage risk.

Section 34 includes the highest level equation in the Determination. The sections that follow in Divisions 3 and 4 focus on the calculations that are required under each individual sub-method. Divisions 5 to 8 relate to issues that are common across all sub-methods. 

The Determination includes a number of rules that, in certain circumstances, take the emissions abated by an implementation in a reporting period to zero. These are as follows:

·         Where there is positive abatement but interactive effects exceed the ten per cent threshold, the emissions abated by the implementation are taken to be zero. See subsections 36(5) and 40(5); and

·         Where there is positive abatement, interactive effects are below the ten per cent threshold, and the accuracy factor for the implementation exceeds ±200 per cent, the emissions abated by the implementation are taken to be zero. See subsections 36(4) and 40(4).

A further situation in which an implementation will be unable to deliver abatement is where any of the emissions modelling requirements established in sections 25, 26 and 27 cannot be met. 

The Determination also establishes that any measurement time intervals in a reporting period that do not qualify as eligible measurement time intervals cannot be used in the calculation of abatement. Measurement time intervals are not eligible measurement time intervals if:

·         site constants are not their normal value;

·         the measured values of any independent variables are less than 95 per cent of the minimum value of their effective range of more than 105 per cent of the maximum value of their effective range;

·         implementation equipment is not operating normally; or

·         the modelled emissions from a baseline or operating emissions model do not reasonably reflect actual emissions.

 

Division 3       Implementation using measured emissions—sub-method 1

35        Summary

Sub-method 1 provides for calculating the net abatement amount for an implementation by comparing operating emissions calculated from measurements of fuel and/or electricity to baseline emissions from a baseline emissions model.

 

 

36        Emissions abated

Section 36 sets out how to calculate the emissions abated by an implementation for a reporting period using sub-method 1 under several different circumstances, depending on (1) whether the difference between baseline and measured (operating) emissions is positive or negative, and (2) whether a measure of the overall size of the interactive effects is above or below a threshold.

The measure of the overall size of the interactive effects for the implementation (EIA,h) is the sum of the absolute values of all the interactive effects. That is, it is calculated by adding together the sizes of the effects and ignoring whether they are positive or negative. This contrasts with the net interactive effects (EIN,h) which takes account of whether the individual effects are positive or negative, so that they can balance each other, and the total can be either positive or negative.

Subsection 36(2) provides that where the difference between baseline and measured emissions is positive, the equations in subsection 36(4) are to be used if interactive effects are below the threshold, and subsection 36(5) applies if interactive effects exceed the threshold.

Subsection 36(3) provides that where the difference between baseline and measured emissions is negative, the equations in subsection 36(6) are to be used if interactive effects are below the threshold, and the equations in subsection 36(7) are to be used if interactive effects exceed the threshold.

 

Difference between baseline and measured emissions is positive

Subsection 36(4) sets out how to calculate abatement for an implementation for a reporting period when the difference between baseline and measured emissions is positive and the sum of the absolute value of interactive effects is less than or equal to 10 per cent of that difference, which is the threshold for interactive effects. In this case, the abatement for the implementation is worked out by adding net interactive effects to the difference between modelled baseline emissions and total measured emissions. The value obtained is multiplied by an accuracy factor.

Subsection 36(5) sets the emissions abated for the implementation for the reporting period to zero where interactive effects exceed the threshold. In setting abatement to zero, subsection 36(5) implements a rule that limits the proportion of total interactive effects in emissions abated, given these effects may be calculated by a less prescriptive method than abatement calculated from relevant energy consumption. This aligns with the proposed offsets integrity standards by applying conservative assumptions.

 

Difference between baseline and measured emissions is negative

Where the difference between baseline and measured emissions is negative, subsection 36(6) sets out how to calculate abatement for an implementation for a reporting period when the sum of the absolute value of interactive effects is less than or equal to 10 per cent of the absolute value of that difference, which is the threshold for interactive effects. In this case, the abatement for the implementation is worked out by adding net interactive effects to the difference between modelled baseline emissions and total measured emissions. 

Subsection 36(7) provides that if the difference between baseline and measured emissions is negative and the interactive effects exceed the threshold, the abatement for the implementation is worked out as the difference between modelled baseline emissions and total measured emissions.  

 

37        Modelled baseline emissions 

Section 37 establishes that total baseline emissions for an implementation for a reporting period is worked out using equation 12 as the sum of the product of modelled baseline emissions for the implementation for each measurement time interval in the reporting period and an improvement factor (calculated in section 50). The output of this calculation is used in the calculation of emission abated in section 36.

 

38        Measured emissions

Section 38 sets out how to calculate the total measured emissions from the consumption of relevant energy for an implementation for a reporting period. This involves adding together the measured emissions for each eligible measurement time interval in the reporting period. Measured emissions for fuel and electricity consumption for each eligible measurement time interval are worked out using equation 31 and 33 respectively, in section 46.

Total measured emissions are subtracted from modelled baseline emissions in section 36 to determine the level of abatement, taking into account an accuracy factor that reflects the precision of the measurement and calculation approaches used.

 

Division 4       Implementation using operating emissions model—sub-method 2

39        Summary

Sub-method 2 provides for calculating the net abatement amount for an implementation by comparing operating emissions from an operating emissions model to baseline emissions from a baseline emissions model.

 

40        Emissions abated

Section 40 sets out how to calculate the emissions abated by an implementation for a reporting period using sub-method 2 under several different circumstances, depending on (1) whether the difference between modelled baseline emissions and modelled operating emissions is positive or negative, and (2) whether a measure of the overall size of the interactive effects is above or below a threshold. These operate in the same way as in section 36.

The measure of the overall size of the interactive effects for the implementation (EIA,h) is the sum of the absolute values of all the interactive effects. That is, it is calculated by adding together the sizes of the effects and ignoring whether they are positive or negative. This contrasts with the net interactive effects (EIN,h) which takes account of whether the individual effects are positive or negative, so that they can balance each other, and the total can be either positive or negative.

Subsection 40(2) provides that where the difference between modelled baseline emissions and modelled operating emissions is positive, the equations in subsection 40(4) are to be used if interactive effects are below the threshold, and subsection 40(5) applies if interactive effects exceed the threshold.

Subsection 40(3) provides that where the difference between modelled baseline emissions and modelled operating emissions is negative, the equations in subsection 40(6) are to be used if interactive effects are below the threshold, and the equations in subsection 40(7) are to be used if interactive effects exceed the threshold.

 

Difference between baseline and operating emissions is positive

Subsection 40(4) sets out how to calculate abatement for an implementation for a reporting period when the difference between baseline and operating emissions is positive and the sum of the absolute value of interactive effects is less than or equal to 10 per cent of that difference, which is the threshold for interactive effects. In this case, the abatement for the implementation is worked out by adding net interactive effects to the difference between modelled baseline emissions and modelled operating emissions. The value obtained is multiplied by an accuracy factor and a decay factor.

Subsection 40(5) sets the emissions abated for the implementation for the reporting period to zero where interactive effects exceed the threshold. In setting abatement to zero, subsection 40(5) implements a rule that limits the proportion of total interactive effects in emissions abated, given these effects may be calculated by a less prescriptive method than abatement calculated from relevant energy consumption. This aligns with the proposed offsets integrity standards by applying conservative assumptions.

 

Difference between baseline and operating emissions is negative

Where the difference between baseline and operating emissions is negative, subsection 40(6) sets out how to calculate abatement for an implementation for a reporting period when the sum of the absolute value of interactive effects is less than or equal to 10 per cent of the absolute value of that difference, which is the threshold for negative interactive effects. In this case, the abatement for the implementation is worked out by adding net interactive effects to the difference between modelled operating emissions and modelled baseline emissions. 

Subsection 40(7) provides that if the difference between baseline and operating emissions is negative and interactive effects exceed the threshold, the abatement for the implementation is worked out as the difference between modelled operating emissions and modelled baseline emissions

 

41        Modelled baseline emissions 

In line with the approach for sub-method 1, section 41 establishes that total baseline emissions for an implementation for a reporting period are worked out using equation 24 by summing the product of modelled baseline emissions for the implementation for each eligible measurement time interval in the reporting period and an improvement factor (calculated in section 50). This figure is used in the calculation of emission abated in section 40.

 

42        Modelled operating emissions

Total modelled operating emissions for an implementation for a reporting period are worked out using equation 25 by summing the modelled operating emissions for the implementation across each measurement time interval in the reporting period. This figure is used in the calculation of emission abated in section 40.

Division 5       Interactive effects

43        Interactive effects

Section 42 sets out the calculation of the sum of the absolute values of the interactive effects for use in calculating the net abatement amount for an implementation in the reporting period. Subsection 43(1) provides that the sum of the absolute values of the interactive effects for an implementation in the reporting period is worked out using equation 26 as the absolute value of the sum of all the interactive effects. This calculation is used in sections 36 and 40 to implement the limit on interactive effects for sub-methods 1 and 2 respectively.

Subsection 43(2) provides that the net interactive effects for an implementation in the reporting period is worked out using equation 27 as the sum of all the interactive effects for the reporting period. This calculation is used in sections 36 and 40 to calculate net abatement for sub-methods 1 and 2 respectively.

 

Division 6       Emissions models

44        Baseline emissions model

Section 44 sets out the form of the baseline emissions model that is established by statistical regression analysis, and outlines how it is to be used to work out baseline emissions for a measurement time interval. The baseline emissions model with the form in equation 28 predicts what emissions would have been had the old technology or practices remained in place during the reporting period. Baseline emissions are worked out by substituting the measured values of the independent variables from each eligible measurement time interval into the baseline emissions model. The resulting estimates are referred to as modelled baseline emissions and are used in sections 36 and 40 for sub-methods 1 and 2 respectively.

 

45        Operating emissions model

Section 45 sets out the form of the operating emissions model in equation 29 and outlines how it is to be used to work out operating emissions for a measurement time interval. This is achieved by entering the values of the independent variables measured in the each eligible measurement time interval into the operating emissions model for the implementation.

 

Division 7       Measured emissions

46        Measured emissions

Section 46 provides that total measured emissions for an implementation for a time interval is the sum of emissions from combustion of fuel that is relevant energy and emissions from consumption of electricity that is relevant energy. Section 46(1) outlines the circumstances in which section 46 is to be used to work out measured emissions. These circumstances are: when calculating emissions from baseline relevant energy to develop a baseline emissions model; or when calculating emissions from operating relevant energy to determine measured emissions under sub-method 1; or to develop an operating emissions model under sub-method 2.

Equation 30 in subsection 46(2) outlines the summation of fuel combustion emissions and electricity consumption emissions. Equation 31 in subsection 46(3) provides that fuel combustion emissions are worked out as the sum of emissions across all fuels included in relevant energy. Subsection 46(4) outlines the way that fuel combustion emissions are worked out for each fuel type using equation 32 as the product of the quantity of fuel combusted and energy content and emissions factors, with a unit conversion factor.

Subsection 46(6) provides that electricity consumption emissions are worked out in equation 33 using an emissions factor applied to the difference between electricity consumption from relevant energy and eligible renewable electricity consumption from relevant energy.

Subsection 46(6) also provides that if the electricity under the project is obtained from a grid that is covered by the National Greenhouse Accounts (NGA) Factors document for the purposes of the ERF, then the emissions factor to be used is the grid factor specified in that document. 

If the electricity is obtained from a grid that is not covered by the NGA Factors document, or is obtained from a source other than an electricity grid, and if the supplier of the electricity is able to provide an emissions factor that reflects the emissions intensity of the electricity, then that emission factor must be used to calculate emissions under the project. Subsection 46(7) further clarifies that the emissions factor must be worked out on a sent out basis and using a measurement or estimation approach that is consistent with the NGER (Measurement) Determination.

In subsection 46(7), ‘on a sent out basis’ refers to the electricity supplied to a grid, market or the end user of the electricity, as opposed to the electricity as measured at the point of receipt by the project proponent. Sent out electricity excludes the electricity used by the generator itself, often referred to as auxiliary loads. This requirement will ensure that the calculation of the emissions factor takes into account transmission losses but not the electricity used by the generator itself.

Where the electricity is obtained from a grid that is not covered by the NGA Factors document, or is obtained from a source other than an electricity grid, and the supplier is not able to provide an emissions factor, then the emission factor used to calculate emissions under the project must be the off-grid electricity factor included in the NGA Factors document.

Regardless of whether the emissions factor is a grid, off-grid or supplier-provided factor, it will apply unchanged from the date of project declaration.

 

Division 8—General equations       

47        Relative precision—emissions model

Section 47 sets out how to work out the relative precision of the emissions level predicted by the baseline emissions model for implementation h for the baseline measurement period; and an operating emissions model for implementation h for the operating measurement period for the model. The relative precision calculated in section 47 is used to test the emissions model against the criterion in paragraph 27(e).

Subsection 47(2) provides that the relative precision of the emissions level predicted by the emissions model for implementation h for the period is worked out using equation 34. It is the product of the “critical tabulated Student’s t value” for the appropriate number of degrees of freedom at the 95 per cent confidence level multiplied by the standard error of the emissions model and divided by the modelled emissions level for implementation h in the period. This is a standard statistical calculation, incorporating an adjustment for the number of measurement time intervals in the measurement period. An example of the critical tabulated value of the student’s t statistic value is that with 30 degrees of freedom at the 95 per cent confidence level the t statistic is 2.042 for a two-tailed distribution.

 

48        Relative precisionimplementation

Section 48 provides, in subsection 48(1), that the relative precision of the emissions abated by implementation h in the reporting period is worked out using equation 35, which is analogous to equation 34 for emissions abatement rather than the emissions level. The relative precision calculated in section 48 is used in section 49 to determine the accuracy factor for the implementation in a reporting period.

Subsection 48(2) provides that the relative precision of emissions abated under sub-method 1 is worked out using equation 36 as the root sum of squares of the baseline model standard error and measurement uncertainties, adjusted for the number of measurement time intervals in the reporting period. Subsection 48(3) sets out how measurement uncertainties are to be calculated under sub-method 1. Subsection 48(4) then provides that the relative precision of emissions abated under sub-method 2 is worked out using equation 37 as the root sum of squares of the standard errors of the baseline and operating emission models, adjusted for the number of measurement time intervals in the reporting period. Subsection 48(5) sets out how measurement uncertainties are to be calculated under sub-method 2.

In this section the parameter SEinstr,h  refers to the standard error of the measurement uncertainty of the emissions attributable to the accuracy class of the instruments used to measure the values of parameters for implementation h for the reporting period. This parameter is worked out using standard approaches for assessing the impacts of instrument accuracies on the standard error of emissions calculated and is included to account for measurement bias. This parameter may be taken to be zero if the same instruments and the same instrument configurations are used to measure the values of parameters for all of the components of the abatement calculations. This is because all the parameters in the abatement calculation are biased in the same way, so that the difference between the baseline and operating emissions effectively eliminates the bias. For example, if the measurement bias increases both baseline and operating emissions by one kilotonne, then the difference between baseline emissions of 101 kilotonnes operating emissions of 91 kilotonnes is 10, the same as the difference of 10 kilotonnes if the bias were removed.

Subsections 48(6) and 48(7) present equations 38 and 39 for the emissions abated by an implementation under sub-methods 1 and 2 respectively.

 

 

 

 

 

 

 

 

 

 

49        Accuracy factor

Accuracy factors are used to reduce the number of credits issued for a given abatement estimate for which there is a lower level of confidence due to measurement and modelling uncertainty. This is a conservative approach in line with the offsets integrity standards and the NSW Energy Savings Scheme. The accuracy factor (AF) for an implementation is worked out using the following table.

Table 2. Accuracy factors for an implementation in a reporting period

Accuracy factors

Item

Relative precision of the emissions abated by implementation (h) in the reporting period at 95% confidence level

Accuracy factor

1

less than 25%

1

2

25% to 49%

0.9

3

50% to 74%

0.8

4

75% to 99%

0.6

5

100% to 149%

0.4

6

150% to 200%

0.2

7

greater than 200%

0

 

The accuracy factor is based on the relative precision of the abatement estimate (worked out using equation 35 in section (48). Equations 36 and 37 set out calculations to determine the standard error of the emissions abated by an implementation for sub-methods 1 and 2 respectively, which is used to determine the relative precision. Equations 38 and 39 set out calculations to determine the emissions abated by an implementation which are used to determine standard error.

Subsection 49(2) includes rounding rules to deal with relative precision values that fall between items in the above table. 

 

50        Improvement factors

Section 50 establishes values for the improvement factor that is used in sections 37 and 41 when calculating modelled baseline emissions. The improvement factor applies a yearly decay rate of 0.3per cent to modelled baseline emissions to reflect the average rate of business-as-usual improvements in energy efficiency over time. The improvement factors established in section 50 are set out in the following table. 

Table 3. Improvement factors that apply to baseline emissions levels

Improvement factors

Item

Crediting period year

Improvement factor

1

1

1.00

2

2

0.997

3

3

0.994

4

4

0.991

5

5

0.988

6

6

0.985

7

7

0.982

51        Decay factor

Decay factors or persistence models are used to account for the increasing uncertainty that modelled net abatement determined using an operating model will be realised in each successive reporting period, and to account for gradual reductions in the effectiveness of the equipment or process used for an implementation. The decay factor provides an incentive to measure operating emissions for the entire reporting period (i.e., to use sub-method 1).

Section 51 provides that proponents may use the decay factors outlined in subsection 51(4) or the persistence model tool for a reporting period. Subsection 51(2) and (3) establish that the proponent may change this selection only once during the crediting period, unless it is not possible to use the persistence model for any reporting period.

Section 5 establishes that a persistence model is a tool for determining the decrease in efficiency of a class of equipment over time, taking into account variables such as equipment type and location. A persistence model may provide a more precise decay factor than the default decay factors specified in subsection 51(5). Proponents may only use a persistence model published by the Department.  

The decay factor for a reporting period in which an operating emissions model is used is worked out by weighting decay coefficients specified in the below table by the percentage of measurement time intervals that fall within each decay coefficient year (also specified in the below table). For example, if under an implementation there are 100 measurement time intervals in a reporting period, with 50 measurement time intervals falling within decay coefficient year 1 (see below table) and the other 50 falling within decay coefficient year 2 (see below table), the decay coefficient to be used in the calculation of abatement under sub-method 2 (i.e., the ‘decay coefficient for a reporting period’) would be 0.9. This calculation is set out in equation 40 in subsection 51(4).

 

Table 3. Decay coefficient for a year of operation of an operating emissions model

Decay coefficient year

Decay coefficient

1

1.00

2

0.80

3

0.64

4

0.51

5

0.41

6

0.33

7

0.26

Part 5              Reporting, record-keeping and monitoring requirements

Division 1       Offsets report requirements

52        Operation of this Division

The effect of paragraph 106(3)(a) of the Act is that a methodology determination may set out requirements to be included in each offsets report.

Under Parts 17 and 21 of the Act, a failure to comply with these requirements may constitute a breach of a civil penalty provision, and a financial penalty may be payable.

The reporting, record-keeping and monitoring requirements specified in Part 5 of the Determination are in addition to any requirements specified in the Act, Regulations and legislative rules.

 

53        General requirements

Further to requirements under the Act or subordinate legislation, section 53 sets out specific additional information that must be included in an offsets report for an industrial electricity and fuel efficiency project. This information includes details of each implementation undertaken, including whether the activities specified for the implementation in the application were completed. Reports must also cover interactive effects and any fuel and electricity consumption excluded from the calculations, with evidence as to how the exclusion complied with the requirements of section 32.

Information is required to be provided in an offsets report where the information has not been previously provided to the Regulator, or where the information provided to the Regulator has changed.

 

54        Determination of certain factors and parameters

Section 54 provides that if, in the circumstances described in paragraph 10(2)(b), a factor or parameter is defined or calculated for a reporting period by reference to a defined instrument or writing that is not the factor or parameter in force at the end of the reporting period, the offsets report must include specified information for the factor or parameter. This information includes the versions of the instrument or writing used, the name of the parameter, the start and end dates of each use, and the reasons why it was not possible to define or calculate the factor or parameter using the instrument or writing as in force at the end of the reporting period.

Subsection 54(2) specifies that if the circumstances described in subsection 26(3) apply, and a parameter is not worked out for a reporting period using the version of a NGER method as in force at the end of the reporting period, the offsets report about the project for the reporting period must include the versions of the NGER method used for the parameter, the start and end dates of each use, the reasons why it was not possible to use the version of the NGER method as in force at the end of the reporting period.

Subsection 54(3) specifies offsets report requirements that apply if a parameter used to work out the carbon dioxide equivalent net abatement amount for the project for a reporting period is determined under section 64. In these cases the offsets report about the project for the reporting period must include the name of the parameter, the start and end dates of the non‑monitored period for the parameter, the value of the parameter, how that value was calculated, and the reasons why the project proponent failed to monitor the parameter in accordance with the monitoring requirements.

 

55        Division of a project into smaller projects

Section 55 provides that for subsection 77A(2) of the Act, the smallest part into which an industrial electricity and fuel efficiency project may be divided for the for the purposes of giving the Regulator an offsets report is a part made up of a single implementation.

 

 

Division 2       Record-keeping requirements

56        Operation of this Division

In accordance with section 106(3)(c) of the Act, this Division sets out the record-keeping requirements for an industrial electricity and fuel efficiency project that is an eligible offsets project.

 

57        Record-keeping requirements

Subsection 57(1) provides that project proponents must keep records of the technical specifications of the implementation equipment and the completion of the project activities for the implementation. Completion of activities involves installing or modifying the equipment and commissioning the equipment so that it returns to normal operation.

Subsection 57(2) provides that as well as keeping any other relevant records, the project proponent must keep schematic or diagrammatic records of the site of each implementation that identifies the location of all implementation equipment, interactive equipment and co-metered equipment for the implementation; as well as equipment that measures the fuel or electricity consumption of that equipment, and the supply of energy to that equipment.

Subsection 57(3) provides that if as part of an implementation, existing energy-consuming equipment is re-used or is disposed of, the project proponent must keep records about:

·        how the equipment was re-used or disposed; and

·        the person (if any) to whom the equipment was provided.

This provision will enable monitoring of any increases in energy consumption emissions due to the reuse or disposal of equipment for potential future review of this Determination. Any future resulting changes would not affect existing industrial electricity and fuel efficiency projects.

 

 


 

Division 3       Monitoring requirements

58        Operation of this Division

In accordance with section 106(3)(d) of the Act, this Division sets out requirements to monitor an industrial electricity and fuel efficiency project that is an eligible offsets project.

 

59        Monitoring requirements—general

Subsection 59(1) provides that project proponents must monitor baseline relevant energy for an implementation separately to other energy use at the site of the implementation during the baseline measurement period. Similarly, subsection 59(2) requires operating relevant energy for an implementation to be monitored separately to other energy use at the site of the implementation during the reporting period for sub‑method 1. Under sub-method 2, operating relevant energy for an implementation to be monitored separately for the operating measurement period for each operating emissions model.    

Subsection 59(3) provides that the equipment that monitors baseline or operating relevant energy must also be monitored, including the verification of data, evidence of bias or drift, and the integrity of any anti‑tampering measures applied to the equipment.

 

60        Monitoring requirements— sub‑method 1

Section 60 sets out the parameters that must be measured during the baseline measurement period and the reporting period under sub-method 1 for each implementation. Subsection 60(2) provides that during the baseline measurement period proponents must measure or monitor the consumption of baseline relevant energy, independent variables for the baseline emissions model, site constants and interactive effects for the implementation.

Subsection 60(3) sets out the analogous requirement that during the baseline measurement period proponents must measure or monitor the consumption of operating relevant energy, independent variables for the baseline emissions model, site constants for the implementation and      interactive effects for the implementation.

 

61        Monitoring requirements— sub‑method 2

Section 61 sets out the parameters that must be measured during the baseline measurement period, operating measurement period and reporting period under sub-method 2 for each implementation. Subsection 61(2) provides that during the baseline measurement period proponents must measure or monitor the consumption of baseline relevant energy, independent variables for the baseline emissions model, site constants and interactive effects for the implementation.

Subsection 61(3) sets out the analogous requirement that during the operating measurement period proponents must measure or monitor the consumption of operating relevant energy, independent variables for the operating emissions model, site constants for the implementation and interactive effects for the implementation.

During the reporting period, subsection 61(4) provides that proponents must measure and monitor independent variables for the baseline emissions model, independent variables for the operating emissions model, site constants and interactive effects for the implementation.

 

62        Requirement to monitor certain parameters

Section 62 sets out the parameters that project proponents for an industrial electricity and fuel efficiency project must monitor, and provides instructions on how each parameter should be measured in the table in subsection 62(1). For example, quantities of electricity or fuel are worked out as the average of all measurements in a measurement time interval multiplied by the time period covered by the interval. For example, an average daily measurement of power in Watts (kilojoules per second) is multiplied by the number of seconds in a day interval to determine the daily energy consumption.

Subsection 62(2) provides that the quantity of electricity consumed and fuel combusted must be measured using an approach that is consistent with the NGER (Measurement) Determination, the National Measurement Act 1960. If these are not practicable, proponents may use an approach consistent with relevant Australian, international or industry standards.

Subsection (3) provides that if a parameter is measured in accordance with industry practice, the same practice must be used consistently to prevent alterations from changing the abatement amount.

Subsection 62(4) provides that the project proponent may measure independent variables and site constants directly or by using a proxy method that enables the value of the parameter to be reliably calculated. An example of a proxy method is measuring the temperature and pressure of steam flow to calculate energy flow using the flow rate and tabulated enthalpy values for steam at these temperatures and pressures. As with industry practices, once a proxy value or method is chosen it must be used consistently to prevent alterations from changing the abatement amount.

For the purposes of this Determination, the ‘fuel combusted’ represents the amount of fuel supplied to the energy consuming equipment for combustion purposes, with all the fuel supplied considered to be combusted irrespective of the level of combustion efficiency.

 

63        Monitoring equipment

Subsection 63(1) provides that the measuring equipment used for subsection 63(1) must be calibrated by an accredited technician, and installed and operated in accordance with the manufacturer’s specifications for the equipment. Subsection 63(2) provides that if, during a measurement time interval, the equipment requires re-calibration, but has not been re-calibrated, or does not operate normally, for the purpose of working out the carbon dioxide equivalent net abatement amount for the project for a reporting period the project proponent must either:

·        exclude the values of all parameters from the time interval from the regression analysis used for any relevant emissions model and not treat the measurement time interval as an eligible measurement time interval; or

·        when calculating measured emissions under sub-method 1, determine the value of the parameter under section 64.

In subsection 63(2), the equipment would not be operating normally if, for examples, it is operating inconsistently with the manufacturer’s specifications for the equipment or giving measurements that do not reflect the actual value of the parameter monitored.

 

 

64        Consequences of not meeting requirement to monitor certain parameters

Section 64 sets out a table that specifies what proponents are required to do to determine the value of the parameter for the purpose of working out the carbon dioxide net equivalent for the reporting period. This section applies if, during a particular period (the non‑monitored period) in a reporting period, an industrial electricity and fuel efficiency project proponent fails to monitor a parameter as required by the monitoring requirements.

Subsection 64(2) confirms that this section does not prevent the Regulator from taking action under the Act, or regulations or rules made under the Act, in relation to the project proponent’s failure to monitor a parameter as required by the monitoring requirements.

 


 

Attachment A

Text Box: Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Carbon Credits (Carbon Farming Initiative—Industrial Electricity and Fuel Efficiency) Methodology Determination 2015
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The Carbon Credits (Carbon Farming Initiative—Industrial Electricity and Fuel Efficiency) Methodology Determination 2015 (the Determination) sets out the detailed rules for implementing and monitoring offsets projects that would reduce energy consumption emissions of greenhouse gases associated with the consumption of electricity and fuels.
Project proponents wishing to implement the Determination must make an application to the
Clean Energy Regulator (the Regulator) and meet the eligibility requirements set out under
the Determination. Offsets projects that are approved by the Regulator can generate Australian Carbon Credit Units, representing emissions reductions from the project.
Project proponents can receive funding from the Emissions Reduction Fund 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.
Human rights implications
This Legislative Instrument does not engage any of the applicable rights or freedoms.
Conclusion
This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Greg Hunt, Minister for the Environment

 



[1] New South Wales Energy Savings Scheme Rule of 2009, Project Impact

Assessment with Measurement and Verification Method (clause 7A), accessible in 2015 at http://www.ess.nsw.gov.au/files/3b4bc901-796f-40cd-bace-a35000e9d4f5/ESSRule2of2014.pdf.

 

[2] The Determination specifies in section 5 that an implementation is completed when the equipment relating to the implementation has begun operating under normal conditions.

[3] Certified Professional Engineers (CPEng) accredited by Engineers Australia, or Registered Professional Engineers (RPEng) accredited by Professionals Australia working in the appropriate field would be considered to have the requisite experience.