The concept of 'operational control' under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER) is causing headaches for businesses, particularly when there are third party managers or operators of facilities, and when contractors and subcontractors are present at a facility. It is important to ensure that contractual documentation addresses each party's responsibility for complying with NGER reporting requirements.
THE CONCEPT OF OPERATIONAL CONTROL
A company (being a controlling corporation1 or another member of the corporation's group) must register and report under NGER if it has operational control over a facility that:
- Emits 25 kilotonnes or more of greenhouse gases each year; or
- Produces or consumes 100 terajoules or more of energy each year.
A company will have operational control over a facility if it has the authority to introduce and implement operating policies, health and safety policies, or environmental policies for a facility. Under NGER, only one company can exercise operational control over a facility at any time. If a company is unsure whether it has operational control over a facility, the company with the greatest authority to introduce and implement operating, health and safety or environmental policies will have operational control of that facility.
A facilities manager or operator will usually have the greatest authority to implement these types of policies. However, this is not always the case and it will be necessary to look at the contractual arrangement to determine which party retains authority. If a manager has contractual power to implement policies at a facility without input from the owner, the manager is likely to have the greatest authority and, therefore, operational control. If there is uncertainty as to which contracting party has operational control, the parties can apply to the Greenhouse and Energy Data Officer (GEDO) who is empowered to make a declaration on which entity has the greatest authority. The entity which is declared to have operational control is then obliged to register and report all greenhouse gas emissions and energy data for that facility. This includes the greenhouse gas emissions and energy used and produced by contractors and subcontractors at the facility.
FACILITIES AND OVERALL CONTROL
NGER defines a 'facility' as an activity or series of activities (including ancillary activities) that involve the production of greenhouse gas emissions, the production of energy or the consumption of energy that form a single undertaking or enterprise. Also, an activity or series of activities may be declared a facility by the GEDO.
An activity or series of activities will form part of a single undertaking or enterprise if it produces one or more products or services at a single site which are attributable to a single industry sector. In order to determine whether an activity or a series of activities is a facility for the purposes of NGER, the concept of 'overall control' was introduced by the National Greenhouse Energy Reporting Regulations 2008 (Regulations). The concept is consistent with that of 'operational control'. A company has overall control of an activity or series of activities if the company has the authority to introduce and implement operating, health and safety or environmental policies for the activity or series of activities.
The concept of overall control is used to identify the company that has control of activities or a series of activities in order to determine whether those activities are part of a single facility. For example, both the primary production process and other activities occurring at a particular site but that are separate processes, will be considered part of a single facility if they are under the overall control of the same company. In contrast, operational control is a concept used to identify which controlling corporation (or member of the controlling corporation's group) has control of the facility in question.
A company may also be required to attribute to a site some activities that occur away from that site. Ancillary activities that fall within the definition of a facility may include, for example, emissions from the transportation of goods to and from the site. The Regulations also set out specific provisions for the transport sector and gas and electricity services that can be reported as a single facility.
REPORTING BY BUSINESS UNIT
To simplify reporting, those entities that report on more than one facility each year can report by business unit (provided the facilities are located within one state or territory). A business unit is defined as a unit that is recognised by the company as having administrative responsibility for facilities of the company.
A company reporting on more than one facility can report the aggregated amounts for all facilities by the corporate member that has operational control of the facilities or by the business unit that has administrative responsibility for the facilities. The report may include the information by corporate member or by business unit, but not both. The business unit approach is particularly useful where administrative reporting pathways already exist. Relying on established reporting pathways enables a company to comply with their reporting obligations with the least disruption to business and without the added expense of implementing a different business structure for one type of their legal reporting obligations.
The National Greenhouse and Energy Reporting (Amendment) Bill 2008 anticipates the introduction of the term 'business unit' into NGER in March 2009. This amendment will enable the GEDO to publish totals for greenhouse gas emissions, energy consumption and energy production according to a registered corporation's business unit in addition to the GEDO's existing ability to publish information according to the registered corporation's group.
IMPLICATIONS FOR BUSINESS
The operational control test can lead to uncertainty about which contracting party has the greatest authority to introduce and implement operating, health and safety or environmental policies. In most cases it will be necessary to look at the contractual arrangement to determine which party retains authority. The party with operational control of a facility is responsible for reporting all greenhouse gas emissions and energy data for that facility.
This extends to the greenhouse gas emissions and energy used and produced by contractors and subcontractors at the facility. DLA Phillips Fox can review your existing contracts in order to determine who has operational control. For future contracts, we can assist your business by preparing documentation that properly apportions responsibility for NGER reporting. In another development in the climate change arena, the Carbon Pollution Reduction Scheme White Paper is due out today.
1. A controlling corporation is a constitutional corporation that does not have a holding company in Australia.
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