Australia: Emissions requirement under the National Energy Guarantee: Proposed design up for discussion

There are three key elements to the proposed emissions requirements in the National Energy Guarantee.

The design elements of the emissions requirement under the National Energy Guarantee (NEG) fall into two categories:

  • the setting of the emissions requirement for which the Commonwealth Government is responsible; and
  • the application of the emissions requirement for which the Energy Security Board (ESB) is responsible.

Setting the emissions requirement

The Commonwealth's design elements for the emissions requirement include:

  • setting the emissions reduction target for the National Electricity Market (NEM), including the level and form of the target;
  • the treatment of emissions intensive and trade-exposed activities; and
  • the eligibility of offsets to meet the requirement, and any limits on the use of eligible offsets.


The Government proposes that the emissions reduction target for the NEM is the same as the current national target being 26% below 2005 levels by 2030. The paper states that such a level recognises the competing factors such as providing affordable and reliable electricity supply. However, as it is intended that the NEG have no end date (unlike the Renewable Energy Target), emissions targets beyond 2030 will be required, and these will be considered in the context of five yearly reviews required under the Paris Agreement.

The proposed target will also apply consistently across all jurisdictions in the National Energy Market (NEM), meaning that retailers can meet their obligation from across the NEM, including from jurisdictions that have or propose state-based policies to encourage investment in low-emissions technology.


Not wanting to repeat the experience of the Renewable Energy Target (RET), the Government proposes to set the form of the requirement by reference to criteria that will enable it to self-adjust to changes, such as in demand. The option currently being considered is to express the target as a trajectory of annual average emissions per MWh levels for retailers in the NEM. These would be referred to as "electricity emission targets", with the trajectory being consistent with the 2030 target. The target would therefore remain the same irrespective of whether demand rises or falls during the period.

The initial electricity emission target will be set by reference to forecast future electricity demand in order that the desired level of emissions reduction for the sector can be achieved. The target will also be adjusted to account for exemptions provided for EITE-related activities (see below).

What is unclear is how and when the electricity emission targets will be adjusted to correct for updates to forecasts. The Government is reluctant to introduce uncertainty that would result from changes and proposes that the targets would not be adjusted to account for changes in electricity demand. Rather, any adjustment would occur as part of setting future electricity emission targets, which would occur every five years.

Setting electricity emission targets

The Government proposes to initially set the target trajectory for 10 years from 2021-2030, to align with the commencement of the Paris Agreement. The setting of future targets will also align with the five-yearly review cycle for national targets under that Agreement. Accordingly, targets will be set every five years for a five-year period. This, the Government contends, will ensure that the market has between five and 10 years of targets available to guide investment decisions. To provide further stability, the Government would lock in the target so any change in the trajectory could only apply with a minimum of five years' notice.

Emissions intensive trade exposed activities

The Government's proposal in relation to the treatment of EITE activities is unsurprising. To maintain consistency with the RET, all EITE activities will be exempt from the emissions requirement, with the process for eligibility consistent with the current RET scheme. This means that in order to achieve the desired level of emissions reduction, the electricity emission target will be adjusted upwards to account for the fact that EITE emissions will be exempt.


The Government is still considering whether to allow liable retailers to be able to use offsets external to the electricity sector as a flexible compliance option to meet the emissions requirement, and if so, what limits should be placed on that use. Further, while the Government signalled in-principle support for the use of "high-quality" international offsets in the 2017 Climate Change Policy Review, no final decision has been made and it is unlikely to be made while negotiations for the rules of the Paris Agreement are ongoing.

There appears to be an implicit assumption in both the Government and ESB's thinking around the use of offsets that:

  • there will be a liquid market of domestic offsets created under the Carbon Farming Initiative (CFI) available for purchase; and
  • international offsets will remain relatively cheap and freely available after 2020.

No liquid secondary market currently exists for ACCUs generated under the CFI and the absence of commitment to further funding for the Emissions Reduction Fund has already resulted in investment for domestic offset projects drying up. Further, more than 90 countries propose to rely on the use of international credits to meet in part their obligations under the Paris Agreement, and China, the largest exporter of offset credits, has just launched its own emissions trading scheme. In those circumstances, it is hard to see how international credits, whether "high quality" or not, will remain either cheap or in abundant supply by the time the emissions requirement is due to commence.

Application of the emissions requirement

The ESB's design elements for the emissions requirement concern the application of the requirement to the retailer. These include the calculation of the retailer's load, the form of contracting required, compliance options and reporting requirements.

For each year for which electricity emission targets are set, each retailer will be required to meet the target in respect of its own load in that compliance year. A retailer's performance against the target will be determined in tCO2-e per MWh with reference to its load and the emissions associated with tis contracted and uncontracted purchases in the compliance year (subject to any adjustment).

Calculation of load

A retailer's load will be the number of MWh recorded by AEMO as being purchased by that retailer on the wholesale spot market in the relevant compliance year either for its own use or to supply customers. Any electricity that is sold for EITE activities is deducted from the retailer's load.

More difficulty however arises in relation to the calculation of emissions per MWh, as this is influenced by the way in which the retailer contracts to purchase electricity. In general, however, the ESB proposes that:

  • emissions are to be determined by reference to contracts where the emissions per MWh are specified, otherwise it will be necessary to set a basis for determining the level of emissions;
  • deduct any electricity sold to other retailers or other intermediaries;
  • after accounting, determine the emissions associated with the retailer's remaining load by applying a default emissions factor;
  • adjust for any deferral of compliance, under-compliance or over-compliance; and
  • adjust for any voluntary "green" programs, sales to EITE activities or for eligible offsets.

Contracting emissions

Retailers will need to report contracts in order to demonstrate compliance with the emissions requirement. For example, retailers could report contracts which specify the generation source (and therefore enable the emissions per MWh to be directly determined), or contracts which specify the emissions per MWh. Although no contracts in the latter category presently exist in the market, the ESB thinks this could be a possible innovation. More difficulty however exists where contracts specify neither the generation source nor emissions per MWh, such as existing exchange traded and over the counter swaps. In respect of these contracts some form of deemed emissions would need to be assigned.


The ESB propose a number of flexible compliance options to minimise costs and to enable management of variables such as generator outages. Included among the proposed flexible options include:

  • retailers being able to carry forward all or a portion of any over-achievement to the next compliance year, similar to the RET;
  • retailers being able to defer a portion of their compliance obligation. To ensure that this does not undermine investment in the NEM or introduce increased market risks, this would be limited to around 20%; and
  • use of offsets (see above), however retailers would be required to use within NEM opportunities before relying on offsets to bring them into compliance.

Reporting and compliance

While the Australian Energy Regulator is the obvious entity to monitor compliance with the emissions requirement, given the complex and numerous contracts that retailers hold, some form of registry is proposed to monitor and verify compliance.

In addition to data sources currently available to marker regulators including dispatch and spot market settlement data, retailers would report information from their contracts into the registry in order to match their load with a power station's dispatch. The registry would track electricity output and match it to the emissions level reported under NGERS. The output of each power station and the emissions associated with it would be attributed to retailers based on reported contracts.


Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions