The Carbon Pollution Reduction Scheme A Health Sector Perspective

The impact of the Carbon Pollution Reduction Scheme on the health sector.

On 10 March 2009, the Federal Government released the exposure draft legislation for Australia's proposed Carbon Pollution Reduction Scheme (Scheme). The Scheme is expected to commence on 1 July 2011. If this occurs, around 1000 Australian companies will be required to purchase and surrender carbon pollution permits equivalent to their greenhouse gas emissions each year. Some of the larger hospitals and medical facilities, which emit 25 kilotonnes or more of carbon dioxide equivalent (CO2-e) will be caught by the Scheme and may be required to purchase permits. For other health care providers, the Scheme is relevant as it may increase the cost of procuring certain services.

Each carbon pollution permit will allow the emission of one tonne of CO2-e of greenhouse gases accounted for under the Kyoto Protocol (namely, carbon dioxide, methane, nitrous oxide, sulphur hexafluoride, hydrofluorocarbons and perfluorocarbons). Permits are likely to sell for around $23 each at the commencement of the Scheme, with the Scheme imposing a transitional price cap of $40 per permit.

MEDICAL FACILITIES COVERED BY THE SCHEME

Hospitals, and other medical facilities, that emit 25 kilotonnes or more of CO2-e each year will be caught by the Scheme. The Scheme will adopt the 'operational control' test, as used under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act), so that liable entities under the Scheme will be those entities that have operational control of a facility that directly produces 25 kilotonnes or more of CO2-e each year. The Scheme only covers scope 1 emissions, that is, direct emissions by facilities into the atmosphere. This includes, for example, emissions produced by on-site generators. Entities will not be required to surrender permits for indirect (scope 2) emissions resulting from the facility's energy consumption (the entities that generate the electricity will be the entities required to surrender those permits).

'OPERATIONAL CONTROL' AND SCHEME EXCEPTIONS

A liable entity (being a controlling corporation¹ or another member of the corporation's group) has operational control over a facility if it has the authority to introduce and implement operating policies, health and safety policies, or environmental policies for that facility. There are exceptions under the Scheme to the 'operational control' rule. With the approval of the Scheme regulator, entities with 'financial control' over a covered facility may take on Scheme liability where all of the following criteria are met:

• Both the transferee and transferor agree to the transfer of liability under the Scheme.
• A single entity takes on Scheme obligations for a given facility.
• The entity taking on obligations under the Scheme agrees to accept responsibility for emissions reporting for that facility.
• The entity that is taking on obligations can demonstrate its capacity to obtain information to satisfy its reporting requirements under the NGER Act.

• The Scheme regulator is satisfied that the
• entity taking on Scheme obligations has the capacity to meet the liability.
• The entity taking on the liability is incorporated in Australia.
• The entity taking on Scheme obligations agrees to do so for a minimum of four years.

The exception carved out by the Scheme is in response to submissions received on the Green Paper by stakeholders who were concerned that the operational control approach places liability on an entity that does not derive financial benefit from a facility. With the approval of the Scheme regulator, a liable entity will have the ability to transfer Scheme obligations to a subsidiary within its group provided that the criteria listed above are met. Where an entity takes on liabilities for a medical facility under the Scheme, that entity will also be required to take on reporting obligations for that facility under the NGER Act.

MONITORING AND REPORTING OBLIGATIONS

Under the NGER Act, both scope 1 and scope 2 emissions count toward the facility threshold. In contrast, only scope 1 emissions are counted under the Scheme. This means large users of electricity, such as hospitals, may not be caught by the Scheme even though they are required to report under the NGER Act. Liable entities under the Scheme will be required to monitor and report their emissions in accordance with the same emissions estimation methodologies used under the NGER Act. The aim is to provide continuity for liable entities and ease the cost of compliance with the Scheme. Like the NGER framework, liable entities can choose which estimation methodology they will use in order to balance the costs of using higher methods against the benefits of improved emissions estimates.

The NGER Act requires the submission of emissions reports by 31 October each year following the end of the compliance period on 30 June. A single report submitted via the Online System for Comprehensive Activity Reporting (OSCAR) will satisfy an entity's obligations under both the NGER Act and the Scheme. These reporting requirements will add to the administrative burden for hospitals in NSW that are already required to submit Energy Savings Action Plans to the NSW Department of Energy, Utilities and Sustainability.

TIMETABLE FOR SCHEME COMMENCEMENT

April 2009 Senate inquiry into report Scheme

May 2009 Scheme legislation introduced to Federal Parliament

Mid 2011 Subject to Parliamentary approval, proposed commencement date of Scheme

Footnotes

1. A controlling corporation is a constitutional corporation that does not have a holding company in Australia.

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