Origin

| February 9, 2023

Submission on Australia’s Guarantee of Origin Scheme Policy Position Paper

The Smart Energy Council – the peak independent body for Australia’s renewable energy, renewable energy storage and renewable hydrogen industry – welcomes the opportunity to comment on the Department of Climate Change, Energy, Environment and Water (DCCEEW) discussion paper on Australia’s Guarantee of Origin scheme: Policy Position Paper.

This submission covers three elements relating to the Guarantee of Origin (GO) scheme:

  • The relationship between the Guarantee of Origin scheme and the Australian Government’s other climate change and energy policies;
  • Renewable hydrogen, ammonia and metals; and
  • Renewable energy.

 

Relationship between GO scheme and other energy and climate change polices

The Albanese Government has hit the ground running with a series of much-welcomed, new and expanded renewable energy and climate change policies and programs. These include:

  • A legislated 43% by 2030 emissions reduction target and a net zero by 2050 commitment, underpinned by a Climate Change Act 2022;
  • An ambition to achieve at least 82% renewables by 2030;
  • The new Capacity Investment Scheme to unlock investment in dispatchable, zero emissions energy;
  • Proposed reforms to the Safeguard Mechanism to strengthen this key policy measure;
  • The Independent Review of Australian Carbon Credit Units (ACCUs);
  • The $20 billion Rewiring the Nation program;
  • The $15 billion National Reconstruction Fund, the $1.9 billion Powering the Regions
    Fund and other government programs.

 

The GO scheme was initiated by the Morrison Government, which was not interested in climate action. The political and policy environment is now profoundly different but the Guarantee of Origin proposal has barely changed.

There is no reference in the DCCEEW discussion paper to the Climate Change Act 2022, to the ambition for at least 82% renewables by 2030, to proposed reforms to the Safeguard Mechanism, to the Chubb Review or to the Capacity Investment Scheme, the latter of which was agreed to by all Australian Governments after the release of this policy position paper.

The Australian Government should assess the merits of the Guarantee of Origin scheme in relation to the policy measures noted above. It is critical to assess whether the Guarantee of Origin scheme as proposed would help, or hinder, the delivery of the 82% renewables target. It may be less complex and more effective to simply modify and extend the existing Renewable Energy Target to 2040.

The Smart Energy Council is not opposed to a Guarantee of Origin scheme. Were the changes proposed by the Smart Energy Council in this submission accepted, it could provide a strong investment framework for rapid deployment of renewables, and could play a critical role in delivering a transparent, consistent trusted emissions accounting framework. The Smart Energy Council has been working closely with the Clean Energy Regulator on the integration of our world-leading Zero Carbon Certification Scheme with the GO scheme and has suggested a tri-partite trial that would fast-track the development of the GO Scheme.

Whilst the Smart Energy Council offers in-principle support for a GO scheme, we think the proposal must be assessed against these other Australian Government policy measures and structured to complement them.

A threshold question is whether the Australian Government should continue to develop, implement and manage a Guarantee of Origin scheme or whether such a scheme should beindustry-led and/or managed by a not-for-profit organisation.

 

Recommendation 1: That the Minister for Climate Change and Energy commission a brief
review of the Guarantee of Origin scheme to:

  • assess its role in the delivery of the Climate Change Act 2022, the 82% renewables by 2030 target and other Australian Government climate change and energy policies; and to
  • investigate the merits of a new Guarantee of Origin scheme against the merits of extending the existing Renewable Energy Target to 2040.

 

Guarantee of Origin scheme – Renewable Hydrogen

There is a clear and urgent need for a transparent, consistent and trusted emissions accounting framework to underpin the creation, use and export of renewable electricity, hydrogen, renewable ammonia and renewable metals.

The key test of a certification scheme is whether it will prevent ‘greenwashing’ and give households, businesses, investors and customers robust and easily understood information in relation to the green credentials of particular products.

The proposed Guarantee of Origin scheme as currently designed fails this test by providing an identical framework for renewable hydrogen and fossil fuel hydrogen. As noted above, the policy proposal is unchanged from the position adopted by the Morrison Government, notwithstanding the Albanese Government’s strong climate change and emissions reduction ambitions.

Fossil fuel hydrogen is inconsistent with the Climate Change Act and the 82% renewables by 2030 target.

Fossil fuel hydrogen, ammonia and metals must be removed from any Guarantee of Origin scheme.

All consumers, individual and corporate, want to be able to easily distinguish between products when it comes to tackling climate change. The want to know how it is made (is it made from renewable energy) and is it zero emissions (or equivalent). This was the original basis for the successful GreenPower scheme for electricity developed in the 1990s. Including inclusion hydrogen made from fossil fuels in the GO scheme opens the opportunities for greenwashing.

The Smart Energy Council position is that hydrogen or hydrogen related products made from fossil fuels (including those using Carbon Capture and Storage) should not be included in the GO scheme. It is equivalent to including electricity made from logging native forests in the Renewable Energy Target scheme.

As empirically demonstrated through research at ANU and through international research, hydrogen made from fossil fuel and using carbon capture and storage (even best case) would still result in a substantial increase in Australia’s greenhouse gas emissions. The Smart Energy Council agrees with former Prime Minister Malcolm Turnbull that carbon capture and storage is “a con” and must be excluded from the GO scheme.

The Smart Energy Council and Green Hydrogen Organisation have successfully developed and deloyed industry-led schemes. These schemes have been designed to keep the cost and regulatory burden minimised.

Whilst Governments have a role in setting and enforcing industry standards, it is hard to see why a costly scheme would be developed by the Australian Government when it is only voluntary. The Australian Government should design and develop a legislated scheme to drive the production, uptake and use of renewable hydrogen and derivatives in Australia, or modify and adapt an existing scheme, such as the Renewable Energy Target, which places obligations on fossil fuel companies to use renewable electricity or the Capacity Investment Scheme recently agreed by all jurisdictions.

The GO scheme and proposed renewable electricity certification does not quantify the regulatory burden and costs to industry. This makes it impossible to give our members clarity and direction on the specific design elements. For example, the costs of including emissions from transport or renewable hydrogen from gate to user could be very substantial and have not been provided, so we can’t advise whether this would be a cost or benefit. There is potential duplication with NSW’s Renewable Fuel Scheme and WA’s Renewable Hydrogen Target and GreenPower Renewable Gas Certificates which will add to the regulatory burden and costs to our members.

It will be virtually impossible for ordinary customers and consumers to know how many GO certificates have been surrendered and their corresponding emissions intensity for the product they are purchasing under the Federal Governments scheme as currently designed.

This problem is exacerbated by Policy position proposal 3: ‘There will be no minimum intensity requirements for Product GOs and participation will be voluntary for Product GOs and REGOs.’ Again, this is equivalent to saying that electricity made from fossil fuels or logging native forest can be included in the RET because it ‘will enable producers to opt-in if they see value in the scheme.’ That is not a tenable position.

The Smart Energy Council supports a minimum threshold of less than 1kgCO2 per kgH2 for participation in the scheme. This is consistent with the international Green Hydrogen Organisation standard and still well above the intensity of products certified under the Smart Energy Council’s Zero Carbon Certification Scheme.

The GO scheme as currently designed is unlikely to meet the needs of some international customers, such as customers in the EU. The proposed requirements around ‘additionality’ and other ‘eligibility’ requirements would not meet current Renewable Energy Directives in the EU. Again, it is questionable why government would legislate a cumbersome scheme capturing spatial and hourly matching information but then make it voluntary for participants.

Recommendation 2: That fossil fuel hydrogen, ammonia and metals be removed from any Guarantee of Origin scheme.

 

Renewable Energy and Additionality

The Smart Energy Council believes there is merit in establishing an enduring certificate mechanism for renewable electricity, particularly in terms of delivering a transparent, consistent and trusted accounting framework. As noted above, this needs to be assessed against the merits of extending the existing Renewable Energy Target to 2040, utilising the accounting framework of the existing RET, and assessing the relationship between the Guarantee of Origin scheme and other Australian Government climate change and energy policy measures.

While there are a range of positive elements in these proposals, the Smart Energy Council shares concerns expressed by Climate Action Network Australia (CANA) and a number of its member organisations about the proposal to introduce a new regime for Clean Energy Regulator certification of renewable energy, which will expand eligibility to old hydro and biomass projects built prior to 1997. These sorts of projects are currently ineligible under the Renewable Energy Target and should not become eligible for other emissions reduction programs – they offer no additionality.

Inclusion of old hydro and biomass projects would substantially increase the amount of Government certified renewable energy certificates in the Australian market from 2024 onwards, whilst making little or no difference to the actual amount of electricity being generated from renewable energy.

This proposal could also undermine the ability of the renewable energy industry to convert voluntary renewable energy and emission reduction commitments into long-term purchasing contracts. These long-term contracts represent a growing and increasingly important way of supporting the construction of new renewable energy projects that make a real difference to Australia’s carbon emissions.

The Smart Energy Council believes there is no public policy benefit to this change to include legacy hydro and biomass generation in certification delivers. It is likely to undermine efforts to reduce greenhouse gas emissions and stall growth of Australia’s renewable energy industry capability.

The result of this policy change would be a windfall gain to two government owned firms – Hydro Tasmania and Snowy Hydro – for projects that were built many decades ago. We estimate the windfall gain for old hydro and biomass projects, at today’s Large-scale Generation Certificate (LGC) prices is approximately $700 million.

Voluntary commitments by large corporations and a range of government agencies to increase the amount of renewable energy they consume have grown spectacularly over the last 3 years. These voluntary initiatives have become increasingly important in supporting the financing of new renewable energy projects in Australia.

According to Green Energy Markets’ current database of voluntary renewable energy commitments, by 2025 voluntary demand from organisations such as major private sector corporations, local government, universities, the Greenpower program and water corporations will account for close to 19,000GWh of renewable energy.

The way these voluntary commitments are currently met is through organisations purchasing LGCs, registered by the Clean Energy Regulator, which represent a megawatthour of electricity from a renewable energy project. These certificates are then voluntarily retired in the Clean Energy Regulator’s registry such that they can’t be used by anyone else and this information is publicly accessible by anyone. This provides assurance to stakeholders that organisations are honouring their commitments to purchase renewable energy.

The Smart Energy Council and others, such as RE100, expect further large-scale voluntary demand commitments will be made over the next few years that will lead to further ongoing growth in voluntary demand well beyond 19,000GWh. It is critical to recognise that supply from projects already in operation, under construction and contracted comfortably exceeds the combined demand from voluntary initiatives and the mandatory Renewable Energy Target obligation that applies to electricity retailers.

In addition to the 19,000GWh from organisations voluntary commitments, there is 33,000GWh under the mandated Renewable Energy Target obligation on electricity retailers. There is a further:

  • 2,900 GWh from the ACT Government,
  • 1,200GWh from the Victorian Government,
  • 900GWh from state Government public transport authorities

 

This provides for an aggregate demand of almost 57,000GWh relative to supply of 70,000GWh.

It is highly likely that further voluntary commitments will proceed and chip away at this excess supply. However, this simple supply-demand equation illustrates that voluntary demand needs to grow by a large amount before it begins to outstrip the current likely supply of LGCs such that new renewable energy projects are needed.

At present the only option for voluntary buyers to obtain government-certified renewable energy is via the acquisition of LGCs. The surrender of these LGCs in the public registry has become the de facto standard used by organisations to demonstrate they are satisfying their commitments to procure renewable energy and therefore ultimately reducing greenhouse gas emissions to mitigate climate change.

The proposal for new Renewable Energy Guarantee of Origin certificates (REGOs) to expand eligibility to include generation produced by hydro and biomass projects built several decades ago is misguided.

When the Renewable Energy Target was originally designed in the late 1990’s it was decided that a range of projects, which existed prior to the scheme’s announcement in 1997 should be excluded from receiving financial support via awarding of renewable energy certificates unless they increased their generation above historical averages. This was because the primary purpose of the scheme was to reduce greenhouse gas emissions and handing a financial benefit to projects already built and generating would hand the owners of these projects a financial windfall while doing nothing to reduce Australia’s greenhouse gas emissions.

The change in approach under the Guarantee of Origin scheme would mean that the supply of government certified renewable energy certificates will expand by around 14,000 GWh per annum but make no difference to the amount of actual renewable energy being generated in the country. As the 2012 Climate Change Authority review of the Renewable Energy Target made clear, the critical issue is additionality. This is even more so now given the wasted decade under previous governments. There is no gain to emissions reductions unless the mechanism rewards additional reductions, and so additional renewable energy generation – ONLY. Even the hydro since 2001 needs to be constrained to the measurable known additional operational contribution of MWh/GWh.

While this 14,000GWh will continue to be ineligible for use under the Mandatory Renewable Energy Target, it is likely to be heavily marketed to organisations with voluntary renewable energy commitments.

Snowy Hydro and Hydro Tasmania both have a track record of attempting to market their LGC ineligible generation to customers as a clean and green substitute for LGC-linked Greenpower (as recorded by an ACCC prosecution of Momentum Energy). If they were to pass off their REGOs as equivalent to LGCs, this 14,000GWh of additional supply would completely swamp what is already an oversupplied market. This would undermine the ability for voluntary demand to support ongoing growth in renewable energy projects, even if this demand were to grow significantly.

The Smart Energy Council is concerned that the commitment to at least 82% renewables by 2030 could be undermined by confusion in having two types of renewable energy certificates (LGCs / REGOs).

The inclusion of legacy renewable energy projects risks the credibility of the Renewable Energy Target; A policy which has arguably been the most successful and credible in the history of Federal Government climate change policy.

Recommendation 3: That old hydro and biomass projects built prior to 2001 be excluded from the Renewable Energy Guarantee of Origin scheme.

The Smart Energy Council would welcome the opportunity to discuss this submission further with DCCEEW and other Australian Government officials.

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