National Greenhouse and Energy Reporting Scheme amendments

By Meg Lee and Luke Denham

The Federal Government’s Department of Climate Change, Energy, the Environment and Water (DCCEEW) (the Department) has released a consultation paper and exposure draft for the proposed amendments to the National Greenhouse and Energy Reporting Scheme (Scheme).

These publications follow the Treasury’s release last year of the second Consultation Paper on Climate-Related Financial Disclosures (see our article, Mandatory climate-related financial disclosure: Australian Government releases second consultation paper here), setting out the proposed design of Australia's mandatory climate reporting regime.

Existing NGER Scheme

The Scheme underpins the operation of the Safeguard Mechanism by monitoring corporate greenhouse gas emissions, energy production, and consumption. It mandates reporting of emissions from various sources, including fuel combustion, industrial processes, and waste disposal, under the following legislation:

• National Greenhouse and Energy Reporting Act 2007 (Act);
• National Greenhouse and Reporting Regulations 2008 (Regulations); and
• National Greenhouse and Energy Reporting (Measurement) Determination 2008 (Measurement Determination).

Under the Scheme, ‘Scope 1’ emissions directly result from a reporting entity's activities, while ‘Scope 2’ emissions are indirect and attributable to electricity consumption.

Controlling corporations (or reporting entities) must register under the Scheme if their emissions, or production or consumption of energy, exceed certain thresholds determined under the Act. The Measurement Determination sets out which methods (out of a total of four methods) may be used in calculating those metrics for a given activity.

Summary of proposed amendments

The proposed amendments will update and add to the Measurement Determination by:

• phasing out Method 1 for fugitive emissions from open-cut coal mines operated by Safeguard Mechanism facilities;
• requiring Safeguard Mechanism facilities to publish the methods they use to estimate fugitive methane emissions from coal mining, oil, and natural gas sources;
• enabling market-based estimates of Scope 1 emissions from combustion of ‘drop-in renewable liquid fuels’;
• amending the provisions for estimating Scope 2 emissions from consumption of electricity;
• amending the provisions for estimating natural gas fugitive emissions; and
• making other amendments to improve clarity and enhance reporting.

The four most substantial amendments are detailed below.

Coal mine fugitive emissions

Division 3.2.3 of the Measurement Determination sets out the three available methods for estimating ‘fugitive’ greenhouse gas emissions, including methane, from the extraction of coal from open-cut mines.

The proposed amendments seek to amend Division 3.2.3 by phasing out Method ‘1’ and requiring the following facilities to instead use Methods ‘2’ and ‘3’, which are considered to be more accurate:

• from 1 July 2025, all facilities covered by the Safeguard Mechanism (facilities that emit more than 100,000 tonnes of CO2 per year) that reported extracting more than 10 million tonnes of run-of-mine coal during FY2023; and
• from 1 July 2026, all remaining facilities covered by the Safeguard Mechanism.

This proposed change to Division 3.2.3 is a priority for the Government, as Safeguard Mechanism facilities represent the majority of facilities using Method 1 and their contribution to fugitive methane emissions is significant. Method 1 will continue to be available to non-Safeguard Mechanism facilities.

The Department has requested feedback on the above timeframes and coverage.

Transitioning to Methods 2 and 3 may pose challenges for some facilities, including to access necessary equipment and meet regulatory processes within the proposed timeframes. To support an orderly transition, the Government proposes to provide the Clean Energy Regulator (CER) with risk-based discretionary powers to extend the transition period in relation to a particular facility.

Scope 2 emissions from electricity consumption

In 2023, an optional ‘market-based method’ for calculating emissions associated with the consumption of electricity (‘Scope 2’ emissions) was introduced to allow NGER reporting entities to make unique claims on the zero-emissions intensity linked to some renewable electricity.

The market-based method assigns an emissions factor of zero to an entity’s investment in renewable electricity. A ‘residual mix factor’ (RMF) is then used to calculate emissions from any remaining electricity consumption, adjusted for any renewable generation associated with ‘Large-scale Generation Certificates’ or LGCs (tradable certificates representing the amount of renewable energy generated by eligible large-scale renewable energy power stations).

The proposed amendments separate the existing national-based RMF by state and territory to provide a more representative estimate of emissions using the market-based method.

The Department has requested feedback on further refinements to support the mandatory introduction of the market-based Scope 2 method.

Reporting Scope 1 emissions from drop-in renewable fuels

The Government proposes to amend Part 2.6 of the Measurement Determination by implementing a market-based approach for determining Scope 1 emissions associated with the consumption of drop-in renewable fuels, such as renewable aviation kerosene (RAK) and renewable diesel (RD).

RAK and RD are bio-derived fuels with similar properties to their fossil fuel equivalents.

Currently, scope 1 emissions are reported by reporters based on the combustion of fuel they physically consume. The claim to their consumption of drop-in renewable fuels (which are commingled with their fossil fuel equivalents in shared infrastructure), and the associated emissions benefit, is spread across all users of the infrastructure.

The proposed approach will allow reporting entities to make a full and exclusive claim to the emissions benefit from their drop-in renewable fuel purchases, even if distributed through shared infrastructure.

To give greater visibility over the use of the blended fuel provisions, the Government has also proposed to amend the Regulations to specify new reportable items, to include that a reporter has used the blended fuel provisions and the quantity of each type of fuel in the blend that has been used.

Emissions from waste

The proposed amendments to reporting requirements and methodology for estimating emissions from waste aim to enhance the accuracy and consistency of reporting emissions from waste, particularly methane emissions from landfills.

The amendments include:

• requiring landfills reporting Scope 1 emissions of more than 100 kt CO2-equivalent per year to estimate gross emissions from ‘non-legacy waste’ (waste deposited at a landfill on or after 1 July 2016), based on methane emissions that would be emitted if not captured; and
• updating sections 5.4B, 5.4C, and 5.4D of the Measurement Determination to ensure emission estimates of methane released from landfills align accurately with the collection efficiency limit under section 5.15C.