Statutes Amendment (National Energy Laws) (Emissions Reduction Objectives) Bill

Second Reading

The Hon. K.J. MAHER (Minister for Aboriginal Affairs, Attorney-General, Minister for Industrial Relations and Public Sector) (16:14): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation and explanation of clauses inserted in Hansard without my reading them.

Leave granted.

The government is delivering an important national reform to incorporate an emissions reduction component into the national energy objectives.

The Statutes Amendment (National Energy Laws) (Emissions Reduction Objectives) Bill 2023 reflects the commitment by all Australian governments to net zero greenhouse gas emissions by 2050 or earlier.

Introducing an emissions reduction component into the national energy objectives was one of the first actions agreed by governments under the new National Energy Transformation Partnership on 12 August 2022, a partnership which is a framework for national alignment and cooperative action by governments to support the smooth transformation of Australia's energy sector.

The three energy objectives are the National Electricity Objective, the National Gas Objective and the National Energy Retail Objective. These objectives are set out in the national energy laws made up of the National Electricity Law, the National Gas Law and the National Energy Retail Law.

Each of the three energy objectives seek to promote efficient investment in, and efficient operation and use of, electricity, gas and energy services for the long-term interests of consumers with respect to components including energy price, quality, reliability, security and safety.

As currently framed, the energy objectives do not refer to emissions reduction either directly or indirectly. Changing this will send a clear signal to wider industry, market participants, investors and the public, of governments' commitments to achieve a decarbonised, modern and reliable energy system that contributes to the achievement of Australia's emissions targets.

This Bill will integrate greenhouse gas emissions reduction and energy policy in the national energy laws.

The Bill's amendments will clarify that the Australian Energy Market Commission, the Australian Energy Market Operator, the Australian Energy Regulator, and other decision makers under the laws should explicitly consider the achievement of emissions reduction targets alongside the existing components, when they use their respective powers and functions.

For the year ending September 2022, electricity generation accounted for 32 per cent of national emissions, due to the significant share of coal and gas in electricity generation. Other stationary energy, from the direct combustion of fuels, accounted for around another 21 per cent of total emissions and fugitive emissions contributed another 10 per cent.

In the 2021 financial year, South Australia emitted 21.5 million tonnes of carbon dioxide equivalent representing a 42 per cent reduction in greenhouse gas emissions from the 2005 financial year. South Australia also met 100 per cent of its operational demand from renewable resources on 180 days in 2021.

Further reducing the emissions footprint of Australia's electricity and gas networks can play a substantial role in achieving net zero and interim emissions reduction targets by promoting a higher share of low or no emissions renewables and storage. This will also help achieve South Australia's emissions targets, its state emissions reduction plan under development, and its aspiration to achieve 100 per cent net renewables by 2030.

Reducing emissions from the energy sector also supports the decarbonisation of other high-emitting sectors, including transportation and energy-intensive industry.

As we transition towards a low emissions energy system, these changes are intended to ensure the transition is managed in the long-term interests of consumers – not just in respect of emissions reduction, but also price, quality, safety, reliability and security.

This Bill seeks to incorporate an emissions reduction component into the national energy objectives through amendments to the National Electricity Law, set out in the schedule to the National Electricity (South Australia) Act 1996, the National Gas Law, set out in the schedule to the National Gas (South Australia) Act 2008 and the National Energy Retail Law, set out in the schedule to the National Energy Retail Law (South Australia) Act 2011.

The Bill frames the emissions reduction objective by reference to the achievement of targets set by a participating jurisdiction, be it the Commonwealth, a state or a territory, for reducing or that are likely to reduce Australia's greenhouse gas emissions. These targets could include those with an explicit objective of emissions reductions or those that are likely to contribute to emissions reductions, such as a renewable energy target or an electric vehicles target. The intent of this wording is to allow energy market bodies the discretion to consider appropriate targets relevant to a matter under consideration.

The Bill requires the Australian Energy Market Commission to prepare, maintain and publish a 'targets statement' that lists the targets that must, at a minimum, beconsidered by decision-makers, comprising government or regulatory entities such as market bodies, in applying the emissions component of the national energy objectives.

If either the Ministerial Council on Energy or the Minister of a participating jurisdiction gives a written direction to the Australian Energy Market Commission to add or a remove a target from this statement, it must comply with this direction.

The intent of this 'target statement' is transparency for market participants and other stakeholders. It provides a publicly available and up-to-date list of government targets that, at a minimum, decision-makers must take into account when assessing which targets are relevant to each matter under consideration.

As with the existing components of the national energy objectives that include price, quality, safety, reliability and security of supply, the emission reduction component will sit within the existing 'economic efficiency' framework that underpins the current national energy objectives.

Under this framework, decision makers under the national energy laws, will be obliged to consider the emissions reduction component alongside the other components in making their decisions. In this way, the emissions reduction component is not intended to sit above, or be prioritised over, any other component within the objectives. This will ensure that the national energy objectives continue to promote the long-term interest of consumers through efficient investment, operation, and use of energy services.

The legislative premise of 'efficient' assumes that the long-term interest of energy consumers in the national energy laws will be maximised through efficient investment and efficient use and delivery of relevant energy services. This was formally expressed in the original second reading speech associated with the introduction of the National Electricity Law. This premise was reiterated later in the National Gas Law and the National Energy Retail Law and the amendments in this Bill are not intended to change this intent.

Processes affected by the Bill include the range of functions, powers and obligations assigned to the market bodies, all of which are already required to be undertaken regarding or with consideration of contributions to the achievement of the relevant energy objective. Examples of relevant functions include system planning and economic regulatory functions, rule change determinations, and self-initiated and statutory reviews and reports. The new emissions component is not intended to affect the Australian Energy Market Operator's operation of wholesale markets including its role in managing real time activities that includes dispatch and scheduling.

The Bill commences from assent, but the application of the amendments is delayed for two months, except in relation to the Australian Energy Market Commission so that it can undertake reviews and law changes that are considered critical to progress priority rule changes, and the Australian Energy Regulator and the Economic Regulation Authority in relation to revenue determinations and access arrangements listed in the Bill.

For all other processes the application of the amendments is delayed for two months to ensure market participants have sufficient lead time to prepare for the law changes. For the avoidance of doubt, processes which have progressed to a final decision before two months from assent will not be subject to the amended objectives. This includes decisions on Rate of Return Instruments.

To ensure the emissions component effectively operationalises the functions, powers and obligations assigned to the market bodies, a number of priority rule changes have been identified. To facilitate this, the Bill contains provisions for the Australian Energy Market Commission to take early actions on relevant rule change requests by Energy Ministers ahead of commencement of the Act.

The Bill also provides for the South Australian Minister to make the initial set of Rules relating to the national energy objectives. Noting the intent for Ministers to submit rule change requests to the AEMC, it is expected this power would be used for changes required for initial operationalisation of the amended objectives. Once the initial set of Rules has been made, or nine months from commencement of the Bill, the Minister will have no power to make any further Rules.

The transitional provisions in the Bill are set to maximise opportunities to capture the emissions reduction benefits of the reform to the objectives.

The default position for market body processes that have commenced but not been completed as of two months from assent is that the amended objectives will not apply. However, the Bill provides discretion to decision makers to apply the amended objectives to processes that have commenced, recognising that market bodies are in the best position to assess whether the amended objectives could be applied in a way that satisfies process and consultation requirements.

For multi-year processes such as Regulatory Investment Tests, gas access arrangements and electricity revenue determinations, the Bill specifies when each process is considered to have 'commenced' for the purposes of determining whether the amended objectives would apply.

However, for some revenue determinations and gas access arrangements identified by participating jurisdictions, the Bill contains a provision to direct the amended objectives to commence from assent. This is despite them having 'commenced' as defined in the Bill and gives no discretion to market bodies on this matter. This has been done to ensure emissions are considered immediately on commencement to reduce uncertainty and delays to critical investments that could support emission reductions.

The Bill requires that where a decision-maker proposes to exercise the discretion on whether to apply the amended objectives to processes that have 'commenced' before two months from assent, best endeavours must be made to ensure that administrative guidance be issued by the entity within 45 days from commencement of the Bill. For the case of the regulatory entity being the Australian Energy Regulator, the Bill requires guidance to be issued 45 days from commencement, but as for other decision makers, whether or not it proposes to exercise this discretion.

This guidance must explain how the amended objectives are likely be considered in making decisions related to these processes, to provide clarity and transparency for market participants. However, if the entity does not issue the guidance within 45 days, it does not limit their power to exercise discretion.

Introducing an emissions reduction component implies that the reduction of greenhouse gas emissions is a new category of market benefit to be assessed in market body decisions and processes where appropriate. To operationalise the emissions reduction component under an economic efficiency framework, a methodology for valuing emissions reduction for the purposes of regulatory decision-making is required.

Consequently, the Bill contains power to make regulations on matters relating to the achievement of emissions reductions targets in the amended objectives. Alongside the priority rule changes, governments are considering the appropriate approach to valuing emissions reduction to support implementation. The regulation making power could be used by Energy Ministers to provide direction on valuing emissions reduction.

Before a regulation or rule is made, the Bill also requires that where a decision maker issues guidance on valuing emissions, the guidance must be consistent with any direction from the Ministerial Council on Energy. There is also a provision requiring that proponents for potential new electricity network investment undertaking a Regulatory Investment Test follow the Australian Energy Regulator's guidance on valuing emissions reduction. This provision is to prevent inconsistent planning outcomes from proponents applying different approaches for valuing emissions reduction before more formal arrangements are in place.

I commend this Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of National Electricity Law

4—Amendment of section 7—National electricity objective

The national electricity objective is amended to include the achievement of targets set by a participating jurisdiction for reducing Australia's greenhouse gas emissions or that are likely to contribute to reducing Australia's greenhouse gas emissions.

5—Insertion of section 7AA

New section 7AA is proposed to be inserted:

7AA—Regulations may prescribe matters for national electricity objective

The section provides that the Regulations may prescribe a matter relating to the achievement of targets referred to in proposed section 7(c) of the Law.

6—Insertion of section 32A

New section 32A is proposed to be inserted:

32A—Targets statement for greenhouse gas emissions targets

The AEMC is required to prepare and maintain a targets statement setting out the targets set by participating jurisdictions referred to in section 7(c). Other provisions relate to the targets statement.

7—Insertion of section 90ED

New section 90ED is proposed to be inserted:

90ED—South Australian Minister may make initial Rules relating to national electricity objective

The South Australian Minister is authorised to make initial Rules relating to implementing the change to the national electricity objective. Other provisions relate to such Rules.

8—Amendment of Schedule 3—Savings and transitionals

Savings and transitional provisions are inserted into Schedule 3 for the purposes of the measure.

Part 3—Amendment of National Energy Retail Law

9—Amendment of section 13—National energy retail objective

The national energy retail objective is amended to include the achievement of targets set by a participating jurisdiction for reducing Australia's greenhouse gas emissions or that are likely to contribute to reducing Australia's greenhouse gas emissions.

10—Insertion of section 13AA

New section 13AA is proposed to be inserted:

13AA—National Regulations may prescribe matters for national energy retail objective

The section provides that the National Regulations may prescribe a matter relating to the achievement of targets referred to in proposed section 13(b) of the Law.

11—Insertion of section 224A

New section 224A is proposed to be inserted:

224A—Targets statement for greenhouse gas emissions targets

The AEMC is required to prepare and maintain a targets statement setting out the targets set by participating jurisdictions referred to in section 13(b). Other provisions relate to the targets statement.

12—Insertion of section 238AC

New section 238AC is proposed to be inserted:

238AC—South Australian Minister may make initial Rules relating to national energy retail objective

The South Australian Minister is authorised to make initial Rules relating to implementing the change to the national energy retail objective. Other provisions relate to such Rules.

13—Amendment of Schedule 1—Savings and transitionals

Savings and transitional provisions are inserted into Schedule 1 for the purposes of the measure.

Part 4—Amendment of National Gas Law

14—Amendment of section 23—National gas objective

The national gas objective is amended to include the achievement of targets set by a participating jurisdiction for reducing Australia's greenhouse gas emissions or that are likely to contribute to reducing Australia's greenhouse gas emissions.

15—Insertion of section 23A

New section 23A is proposed to be inserted:

23A—Regulations may prescribe matters for national gas objective

The section provides that the Regulations may prescribe a matter relating to the achievement of targets referred to in proposed section 23(b) of the Law

16—Insertion of section 72A

New section 72A is proposed to be inserted:

72A—Targets statement for greenhouse gas emissions targets

The AEMC is required to prepare and maintain a targets statement setting out the targets set by participating jurisdictions referred to in section 23(b). Other provisions relate to the targets statement

17—Insertion of section 294FC

New section 294FC is proposed to be inserted:

294FC—South Australian Minister to make initial Rules relating to national gas objective

The South Australian Minister is authorised to make initial Rules relating to implementing the change to the national gas objective. Other provisions relate to such Rules.

18—Amendment of Schedule 3—Savings and transitionals

Savings and transitional provisions are inserted into Schedule 3 for the purposes of the measure.

Debate adjourned on motion of Hon. N.J. Centofanti.

At 16:15 the council adjourned until Tuesday 12 September 2023 at 14:15.