House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Climate Change and Energy Efficiency, the Honourable Greg Combet Am MP

Amendments to the Australian National Registry of Emissions Units Act 2011

Outline of chapter

4.1 This chapter provides explanatory material on those amendments to be made to the Australian National Registry of Emissions Units Act 2011 consequential to the Clean Energy Bill 2011.

Context of amendments

4.2 Efficient electronic registries are essential for the implementation of and the tracking of emissions units which may be issued to and traded by a range of businesses and individuals.

4.3 The Australian National Registry of Emissions Units has been established as Australia's national registry for Kyoto units and will serve as a registry for Australian carbon credit units under the Carbon Credits (Carbon Farming Initiative) Act 2011. The Government proposes to modify the Registry so that it can be used to ensure accurate accounting of the issuance, holding, transfer, ownership, cancellation, surrender, and relinquishment of carbon units under the carbon pricing mechanism.

4.4 Effective security and anti-fraud measures are required to safeguard the integrity of the Registry. Misuse of the Registry could undermine public and stakeholder confidence and could result in financial losses to businesses that rely on a secure system to meet legislative and contractual obligations. The Government has proposed to amend the Act to provide safeguards against fraud and crime to ensure the integrity of the Registry, and the programs it supports.

4.5 Once the Clean Energy Bill 2011 commences, the Clean Energy Regulator will subsume the functions of the Carbon Credits Administrator and be responsible for maintaining the Registry. Combining carbon pricing mechanism, CFI and Kyoto Protocol functions in one registry will avoid duplication in account opening and operating procedures, and keep implementation and transaction costs down.

Summary of new law

4.6 Amendments will provide the Clean Energy Regulator with the power to make the following administrative decisions in relation to Registry accounts:

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defer giving effect to a transfer instruction;

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refuse to give effect to a transfer instruction;

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impose conditions restricting or limiting the operation of Registry accounts; and

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suspend Registry accounts.

4.7 To support the Carbon Farming Initiative from its scheduled commencement, these amendments will initially be applied to Australian carbon credit units, Kyoto units and prescribed international units. From commencement of the carbon pricing mechanism on 1 July 2012, the safeguards will be extended to carbon units.

4.8 These complement measures in the Carbon Credits (Carbon Farming Initiative) Act 2011, other measures in this bill, and the Clean Energy Bill 2011, which provide additional legislative safeguards against fraudulent activities.

4.9 A person will be able to voluntarily cancel carbon units and Australian carbon credit units held in their Registry account, to make an individual contribution towards reducing emissions.

4.10 The Regulator will be able to publish on its website, or in the Liable Entities Public Information Database, information about voluntarily cancelled carbon units and Australian carbon credit units.

Detailed explanation of new law

Amendments commencing on Royal Assent, or the day section 3 of the Australian National Registry of Emissions Units Act 2011 commences (whichever is the later)

Terminology for international emissions units

4.11 Amendments to the Australian National Registry of Emissions Units Act 2011 are needed to ensure the Registry can account for a range of possible market mechanisms in other countries to which Australia will link. To provide for future developments in international carbon markets, 'non-Kyoto international emissions units' will be categorised as 'prescribed international units' . [Schedule 4, item 8] This amendment will create a single category that will be able to encompass a broad range of international emissions units.

4.12 Amendments include bulk amendments to the Australian National Registry of Emissions Units Act 2011 to repeal references to 'non-Kyoto international emissions units' and substitute with references to 'prescribed international units' . [Schedule 4, items 1-7, 9, 10, 12-15, 17-18, 22, 26-29, 31-41, 43-46, 48-60]

Ownership of international emissions units

4.13 The Clean Energy Bill 2011 provides that the registered holder of a carbon unit is the legal owner of the unit. Amendments to the Australian National Registry of Emissions Units Act 2011 are required to ensure that international units, including those eligible to be surrendered for compliance under the carbon price mechanism, are not treated inconsistently with units issued under Australian law.

4.14 Regulations may provide that if there is an entry for a Kyoto unit or a prescribed international unit in a person's Registry account, then that person is the legal owner of the unit, subject to the requirements of the Act . [Schedule 4, item 24] [Schedule 4, item 30] The regulations would protect a bona fide purchaser of Kyoto or prescribed international units if they purchased the units for value and without knowledge of any defects in the registered holder's title to the affected units. Defects in title might arise, for example, if a Kyoto unit was transferred in error and sold on by an unintended recipient before the error is detected, or transferred fraudulently in cases such as where evidence of a transmission by operation of law is false, or there is unauthorised access to a Registry account.

4.15 The transmission of registered prescribed international units by force of law is of no force until the units are registered in the Registry . [Schedule 4, item 47]

4.16 A regulation making power will provide the flexibility to deal with different types of international units without conferring upon those units any characteristics that were not explicit in the treaties or arrangements that gave rise to them.

4.17 Regulations may make provision for, or in relation to, the registration, in the Registry, of equitable interests in Kyoto units and prescribed international units. Security interests in relation to Kyoto units and prescribed international units would be registered in the Personal Property Securities Register in accordance with the Personal Properties Securities Act 2009. [Schedule 4, item 25] [Schedule 4, item 42]

4.18 Similar amendments have been made for Australian carbon credit units issued under the Carbon Farming Initiative, discussed in chapter 5.

4.19 Further amendments will ensure the Administrator cannot correct the Registry to alter the registration of legal interest in Australian carbon credit units, or make a correction that is contrary to regulations specifying the ownership of Kyoto or prescribed international units . [Schedule 4, item 16] Amendments will also ensure that the Federal Court cannot issue an order that alters a registration of legal interests in Australian carbon credit units, or that is contrary to the regulations specifying the ownership of Kyoto units or prescribed international units . [Schedule 4, item 19] These amendments will reinforce the intention of the provisions in the CFI Act and the Australian National Registry of Emissions Units Act 2011 relating to legal ownership of Australian carbon credit units, Kyoto units and prescribed international units.

Defer giving effect to a transfer instruction

4.20 Amendments will enable the Carbon Credits Administrator to delay acting on an instruction to transfer Australian carbon credit units, Kyoto units, or prescribed international units to or from a Registry account for up to 48 hours, if the Administrator considers that the instruction is suspicious or fraudulent [Schedule 4, item 23, new section 28A]

4.21 The deferral period will provide the Administrator with time to make inquiries, perform set procedures or to take other appropriate action, as required, to ensure the integrity of the Registry and protect, mitigate or minimise abuse or criminal activity involving the Registry. For example, the Administrator could use this power in conjunction with the power to refuse to carry out an instruction to transfer units, or to suspend a Registry account.

4.22 As a decision by the Administrator to defer acting on an instruction would only have effect for up to 48 hours, such a decision would not be a reviewable decision.

Refuse to give effect to a transfer instruction

4.23 Amendments will allow the Administrator to refuse to carry out an instruction to transfer Australian carbon credit units, Kyoto units, or prescribed international units to or from a Registry account if the Administrator has reasonable grounds to suspect the instruction is suspicious or fraudulent . [Schedule 4, item 23, new section 28B] This will provide the Administrator with an opportunity to halt suspicious or fraudulent transactions before they are carried out to completion in order to ensure the integrity of the Registry and protect, mitigate or minimise abuse or criminal activity involving the Registry.

4.24 As this provision is intended to prevent fraudulent or criminal activity, the Administrator will not be required to notify the person who gave the instruction until after the refusal has been given effect.

4.25 To provide for procedural fairness, this notification will also inform the person of their right to request the Administrator to proceed with the transfer. If the person submits such a request, they must set out the reasons why the Administrator should carry out the transfer. If the Administrator requires further information in relation to the request, it may request that the person provide such information.

4.26 The Administrator must then decide whether to continue or revoke its initial refusal to complete the transfer. The Administrator must take steps to ensure its decision is made within seven days of receiving the request or, if further information was required, within seven days of receiving the information. The Administrator must notify the person of the outcome of its final decision as soon as practicable after making that decision.

4.27 A decision by the Administrator to refuse to give effect to a transfer instruction will be a reviewable decision . [Schedule 4, item 61] If a person is dissatisfied with such a decision, the person may apply, within a period of 28 days, to have the Administrator reconsider the decision. The Administrator must reconsider the decision within 90 days and either affirm, vary or revoke the decision. If the Administrator has affirmed or varied the decision, a person may make an application to the Administrative Appeals Tribunal to review the decision.

Suspending or restricting Registry accounts

4.28 Amendments will allow the Administrator to temporarily suspend the operation of a Registry account, without prior notice, if the Administrator suspects that Registry rules are being abused by an account holder or someone else, or identifies suspicious or fraudulent trading through an account . [Schedule 4, item 23, new section 28D] The Administrator could impose a suspension by halting all transfers to and from the account or preventing the issue of any Australian carbon credit units to that account. A suspension could not prevent an account holder from relinquishing Australian carbon credit units under section 175 of the Carbon Credits (Carbon Farming Initiative) Act 2011.

4.29 The suspension period will enable the Administrator to consult with the account holder to determine the facts in relation to the suspicious account activity and decide on an appropriate response. The Administrator might decide to unilaterally close the account, impose conditions restricting or limiting account transactions, or lift all blocks on the account.

4.30 The preventative nature of this provision means the Administrator will not be obligated to inform an account holder before suspending their account. This is because prior notification would allow suspicious transactions to continue before a suspension or restriction or took effect.

4.31 Further amendments will allow the Administrator to impose restrictions on Registry accounts . [Schedule 4, item 23, new section 28C] Conditions imposed on Registry accounts by the Administrator could be applied so as to restrict or halt the transfer of Australian carbon credit units, Kyoto units, or prescribed international units to or from accounts, or in some other way.

4.32 As soon as practicable after either suspending or restricting a Registry account, the Administrator must notify the person who gave the instruction of the limits imposed on their account. To provide for procedural fairness, the notice must also inform the person of their right to request that the Administrator restore the operations of their account by either revoking or varying its decision . [Schedule 4, item 23, new sections 28C and 28D]

4.33 A request by the person must set out the reasons why the Administrator should revoke or vary its initial decision to suspend or restrict the account. The Administrator may, upon receiving a request, require the person to provide additional supporting information.

4.34 The Administrator must then decide whether to continue, revoke or vary its initial decision to suspend or restrict the account. The Administrator must take steps to ensure its decision is made within seven days of receiving the request or, if further information was required, within seven days of receiving the information. The Administrator must inform the person of its final decision as soon as practicable after making that decision.

4.35 A decision by the Administrator not to revoke or vary the suspension of, or restrictions imposed on, a Registry account will be a reviewable decision . [Schedule 4, item 61] If a person is dissatisfied with any such decision, the person may apply to have the Administrator reconsider the decision. If the Administrator affirms or varies its decision, a person may make an application to the Administrative Appeals Tribunal to review the decision.

4.36 These amendments will also enable a Registry account holder to request that the Administrator suspend or restrict their Registry account . [Schedule 4, item 23, new sections 28C and 28D] This would enable account holders to halt the operation of their account if they noticed suspicious or unauthorised trades in their account or were concerned about potential account breaches.

Other amendments

4.37 Amendments to the Australian National Registry of Emissions Units Act 2011 are needed to reflect amendments to the Electronic Transactions Act 1999. [Schedule 4, item 11] As well, the Regulator may certify and supply a copy of or extract from the Registry. Amendments will ensure this provision is consistent with the Evidence Act 1995. [Schedule 4, items 20-21]

Amendments commencing on the same date as section 3 of the Clean Energy Act 2011

Clean Energy Regulator

4.38 The Clean Energy Regulator will take over the functions of the Administrator of the Carbon Farming Initiative on commencement of the Clean Energy Bill 2011.

4.39 Amendments include bulk amendments to the Australian National Registry of Emissions Units Act 2011 to repeal references to the Administrator and substitute with references to the Regulator . [Schedule 1, Part 1, items 5, 6, 7, 13, 15, 43, 44, 45, 46] ( note that item 46 does not amend occurrences of 'Administrator' or 'Administrator's' in bold italic font).

Amendments commencing on 1 July 2012

Establishing a registry for carbon units

4.40 Amendments to the Australian National Registry of Emissions Units Act 2011 are needed to enable the Registry to be used as the registry for carbon units issued under the carbon pricing mechanism . [Schedule 1, Part 2, item 237] Carbon unit is defined by reference to the Clean Energy Bill 2011 . [Schedule 1, Part 2, items 229-230]

4.41 Amendments are needed to enable existing provisions in the Act to be applied to carbon units, or provide for the treatment of carbon units in processes performed in relation to the Registry . [Schedule 1, Part 2, items 238, 240-242] For example, regulations may provide that the Regulator may not close a Registry account at the request of an account holder if there are carbon units in the account . [Schedule 1, Part 2, item 240] If the Regulator unilaterally closes an account, any carbon units in that account will be cancelled . [Schedule 1, Part 2, item 241]

4.42 Amendments are needed to ensure that Kyoto Protocol rules are applied in relation to the operation of the carbon pricing mechanism. Consistent with this, regulations may provide that, if there is an entry for a Kyoto unit in a specified Commonwealth Registry account, such as a retirement account, a cancellation account or a replacement account, the unit cannot be surrendered under the carbon pricing mechanism . [Schedule 1, Part 2, item 239]

4.43 Further amendments will ensure the Regulator cannot correct the Registry to alter the registration of legal interests in carbon units, and that the Federal Court cannot issue an order to alter the registration of legal interests in carbon units in the Registry . [Schedule 1, Part 2, item 242A] [Schedule 1, Part 2, item 242B] These amendments have been made to reinforce the intention of the provisions in the Clean Energy Bill 2011 relating to legal ownership of carbon units.

Applying safeguards to the carbon pricing mechanism and carbon units

4.44 Amendments are needed to extend the scope of the provisions for the Regulator to prevent suspicious or fraudulent trading on the Registry, in Schedule 4, to apply to the carbon pricing mechanism and any carbon units issued under it . [Schedule 4, item 23, new sections 28A-28D] For example, amendments will empower the Regulator to defer giving effect to an instruction to transfer carbon units for up to 48 hours, without prior notice . [Schedule 1, Part 2, items 244-245]

4.45 Amendments will also enable the Regulator to refuse to give effect to an instruction to transfer carbon units, without prior notice . [Schedule 1, Part 2, items 246-248]

4.46 Amendments will enable the Regulator to apply conditions restricting or limiting, or fully suspending, the operation of a Registry account for a specified period despite any other provision in the Clean Energy Bill 2011 . [Schedule 1, Part 2, items 249-252] Amendments will also ensure that a suspension imposed on a Registry account would not prevent an account holder from surrendering eligible emissions units if the account holder had a liability under the carbon pricing mechanism, or relinquishing carbon units under section 210 of the Clean Energy Bill 2011 . [Schedule 1, Part 2, item 251]

Voluntary cancellation of carbon units and Australian carbon credit units

4.47 Amendments provide that a person will be allowed to buy carbon units and surrender them voluntarily, regardless of whether they have obligations under the carbon pricing mechanism; however those units must not be issued in a fixed charge year or have a fixed charge . [Schedule 1, Part 2, item 256] Fixed charge year and fixed charge is defined by reference to the Clean Energy Bill 2011.

4.48 From 1 July 2012, amendments to the Australian National Registry of Emissions Units Act 2011 will provide for the voluntary cancellation of Australian carbon credit units . [Schedule 1, Part 2, item 256]

Publication of information about voluntarily cancelled carbon units and Australian carbon credit units

4.49 Amendments provide that the Regulator will publish on its website, information about voluntarily cancelled carbon units and Australian carbon credit units including the name of the person who cancelled the unit and the total number of units cancelled . [Schedule 1, Part 2, items 253-254]

4.50 In addition, if there is an entry for a person in the Liable Entities Public Information Database kept by the Regulator (under section 261 of the Clean Energy Bill 2011) and that person voluntarily cancels a carbon unit, a Australian carbon credit unit, a Kyoto unit or a prescribed international unit, the Regulator will enter the total number of each type of voluntarily cancelled units in the Information Database . [Schedule 1, Part 2, item 255]

4.51 From 1 July 2012, amendments to the Australian National Registry of Emissions Units Act 2011 will provide for the publication of information about voluntarily cancelled Australian carbon credit units . [Schedule 1, Part 2, item 256]

Disclosure of information held in the Registry

4.52 Section 26 of the Australian National Registry of Emissions Units Act 2011 places conditions on the use and disclosure of information obtained from the Registry. Amendments will provide these conditions will not apply if the information is relevant to the holding of carbon units in the Registry, or the exercise of rights attached to carbon units . [Schedule 1, Part 2, item 243]

Other amendments

4.53 For consistency, the same definitions are applied for some terms as in the Clean Energy Bill 2011 . [Schedule 1, Part 2, items 229-236, 252]