LMS Energy Pty Ltd and Clean Energy Regulator
[2014] AATA 709
•30 September 2014
[2014] AATA 709
Division GENERAL ADMINISTRATIVE DIVISION File Numbers
2013/4397 and 2014/0802
Re
LMS Energy Pty Ltd
APPLICANT
And
Clean Energy Regulator
RESPONDENT
DECISION
Tribunal Deputy President K Bean
Date 30 September 2014 Place Adelaide The decisions under review are affirmed.
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Deputy President K Bean
CATCHWORDS
STATUTES - Interpretation - Carbon Credits (Carbon Farming Initiative) Act and Regulations 2011 - Calculation required under subsection 18(3) and regulation 2.5 - Decisions under review affirmed.
LEGISLATION
Carbon Credits (Carbon Farming Initiative) Act 2011, ss 18, 27, 53
Carbon Credits (Carbon Farming Initiative) Regulations 2011, regs 1.7, 2.3, 2.5, 6.2, 6.3, 6.4
Carbon Farming (Capture and Combustion of Methane in Landfill Gas from Legacy Waste) Methodology Determination 2012
Acts Interpretation Act 1901Legislative Instruments Act 2003
SECONDARY MATERIALS
Clean Energy (Consequential Amendments) Bill 2011 (Cth) Revised Explanatory Memorandum
Carbon Credits (Carbon Farming Initiative) Amendment Regulation 2012 (No. 1) Explanatory Statement
REASONS FOR DECISION
Deputy President K Bean
30 September 2014
The applicant, LMS Energy Pty Ltd (LMS), is the proponent for seven landfill gas projects. The purpose of those projects is to extract methane from waste, thus preventing the gas from permeating into the atmosphere and contributing to climate change. From a commercial perspective, the projects also enable LMS to claim carbon credits for the emissions avoided by the projects, which can then be sold or traded.
All seven projects were accredited as approved abatement activities under the New South Wales Government’s Greenhouse Gas Reduction Scheme (GGAS). That scheme closed on 30 June 2012. However, each project has since been declared an eligible offsets project pursuant to s 27 of the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (the CFI Act), as part of LMS’s transition to the Commonwealth scheme.
Each of the seven projects constitutes an “emissions avoidance offsets project” within the meaning of s 53 of the CFI Act. It is not in dispute that each project also attracts carbon credits under the CFI scheme, and the unit entitlement to be specified in the certificate of entitlement for each project is to be calculated in accordance with s 18 of the CFI Act. However, as LMS had already obtained some carbon credits under the GGAS scheme for each of the projects, an issue has arisen as to how many additional carbon credits it should be granted under the CFI Act, in respect of previously unclaimed abatement.
In particular, an issue has arisen as to the construction of subs 18(3) of the CFI Act and reg 2.5 of the Carbon Credits (Carbon Farming Initiative) Regulations 2011 (the CFI Regulations) for the purpose of calculating the number of unit entitlements for each project. Both parties accept that the purpose of subs 18(3) is to prevent “double counting” of abatement—however, they disagree on the mechanism by which any double counting is to be avoided.
By its reviewable decisions of 9 August 2013[1] and 7 February 2014,[2] the respondent (the Regulator) affirmed earlier decisions to issue certificates of entitlement specifying the number of Australian Carbon Credit Units (ACCUs) issued in respect of each of LMS’s projects as set out below:
[1] Relating to the Wyong, Birkdale, Hallam and Wollert Landfill Gas Projects: the subject of application 2013/4397.
[2] Relating to the Remount, Rochedale and Wyndham Landfill Gas Projects: the subject of application 2014/0802.
Landfill Gas Project Reporting Period Specified unit entitlement
(number of ACCUs issued)
Wyong 1 May 2011 to 31 December 2012 48,033 Birkdale 1 January 2011 to 31 December 2012 41,920 Hallam 1 July 2011 to 31 December 2012 215,313 Wollert 1 May 2011 to 31 December 2012 108,429 Remount 1 March 2011 to 30 June 2013 44,007 Rochedale 1 March 2012 to 30 June 2013 112,718 Wyndham 1 April 2012 to 30 June 2013 50,828
However, LMS contends that it is entitled to a number of additional ACCUs in respect of each of the projects, on the basis of what it contends is the correct construction of subs 18(3) and reg 2.5, as summarised in the following table:
Landfill Gas Project Number of additional ACCUs claimed Total number of ACCUs claimed by LMS Wyong 8,042 56,075 Birkdale 7,725 49,645 Hallam 82,853 298,166 Wollert 50,966 159,395 Remount 4,361 48,368 Rochedale 13,152 125,870 Wyndham 1,080 51,908
I understand that in financial terms, the difference between what the Regulator has determined to be LMS’s entitlement and what LMS says its entitlement should be equates to approximately $3.5 million.
For abundant clarity, LMS accepts that if the Regulator’s approach to the construction question which has arisen was correct, then its entitlements have been correctly calculated. In other words, apart from the construction question, there is no other issue in dispute between the parties.
Before considering the issue which has arisen more directly, I propose to first set out the relevant statutory framework and summarise the parties’ main contentions.
STATUTORY FRAMEWORK
The relevant provisions
Section 15 of the CFI Act relevantly provides as follows:
Issue of certificate
(2) If the Regulator is satisfied that:
(a) the applicant is a recognised offsets entity; and
(b) the applicant was, immediately before the end of the period:
(i) the project proponent for the project; and
(ii)identified in the relevant section 27 declaration as the project proponent for the project; and
(c) the reporting period is included in a crediting period for the project;
...
the Regulator must issue a certificate of entitlement in respect of the project for the period.
Note: For recognised offsets entity, see section 64.
(3)A certificate of entitlement must state that a specified number is the unit entitlement in respect of the certificate.
Note: For unit entitlement, see section 16, 17 or 18.
Section 18 provides:
18 Unit entitlement—emissions avoidance offsets project
Scope
(1)This section applies to an eligible offsets project if the project is an emissions avoidance offsets project.
Note: For emissions avoidance offsets project, see section 53.
Unit entitlement
(2)The number to be specified in a certificate of entitlement in respect of the project for a reporting period as the unit entitlement in respect of the certificate is the total number of tonnes in the amount that, under the applicable methodology determination for the reporting period, is the carbon dioxide equivalent net abatement amount for the project in relation to the reporting period.
Prescribed non‑CFI offsets scheme
(3)If the project area for the project is or was, or the project areas for the project are or were, wholly or partly covered by a prescribed non‑CFI offsets scheme, the number of tonnes referred to in subsection (2) is to be reduced by the number ascertained in accordance with the regulations.
It is not in dispute that the “applicable methodology determination” for the purposes of subs 18(2) is the Carbon Farming (Capture and Combustion of Methane in Landfill Gas from Legacy Waste) Methodology Determination 2012 (CFI Methodology). It is also not disputed that GGAS is a “prescribed non-CFI offsets scheme” for the purposes of subs 18(3), as specified in reg 1.7(b) of the CFI Regulations.
For the purposes of subs 18(3), reg 2.5 of the CFI Regulations provides as follows:
2.5 Emissions avoidance offsets project
(1) For subsection 18(3) of the Act, the number is the total number of tonnes of carbon dioxide equivalent net abatement, generated by the project during the reporting period, for which either or both of the following apply:
(a)carbon offset credits have been issued or registered for the abatement under a prescribed non‑CFI offsets scheme;
(b)the abatement has been accounted for under a prescribed non‑CFI offsets scheme.
(2)If the number mentioned in subregulation (1) is not a whole number, the number is to be rounded to the nearest whole number (with a number ending in .5 being rounded down).
(3) For the purposes of subregulation (2), zero is taken to be a whole number.
Extrinsic Materials
The Revised Explanatory Memorandum to the Clean Energy (Consequential Amendments) Bill 2011, which inserted subs 18(3) into the CFI Act, relevantly stated that:
The regulations will require the project proponent to report any abatement credited or otherwise accounted for under a prescribed non-CFI offsets scheme since the commencement of CFI coverage. The project proponent’s unit entitlement will be reduced by reference to any amount so reported.[3]
[3] Clean Energy (Consequential Amendments) Bill 2011, Revised Explanatory Memorandum, [5.10].
The Explanatory Statement to the Carbon Credits (Carbon Farming Initiative) Amendment Regulation 2012 (No. 1), which introduced inter alia reg 2.5, also relevantly stated as follows:
38.To help projects transition from prescribed non-CFI offsets schemes, the CFI Act allows for crediting of abatement from 1 July 2010, so long as the abatement has not already been credited, registered or accounted for under another scheme. Avoiding double counting of abatement is important for the integrity and credibility of the CFI.
39.These regulations in this Division ensure there is no double counting of abatement that has already been credited, registered or accounted for under such schemes, for example GGAS. The Commonwealth Government may in the future prescribe other offset schemes including those established as a condition of state government approvals.
…
41. The regulations to avoid double counting will not allow:
· abatement that has been issued, registered, generated or credited, but remains unsold, to be swapped for ACCUs;
...
49.For emissions avoidance offsets projects, the unit entitlement for a reporting period is reduced by the number of units issued under another scheme for that reporting period.
THE PARTIES’ CONTENTIONS
I will first summarise the parties’ main contentions, before proceeding to describe in more detail and address their contentions below, under the heading “Consideration”.
By way of background to the parties’ contentions, it is worth noting that the methodology used to calculate the number of NSW Greenhouse Gas Abatement Certificates (NGACs) under the GGAS differs from the methodology for calculating the number of unit entitlements, or Australian Carbon Credit Units (ACCUs), generated under the CFI Act. Generally speaking, the same amount of methane destroyed will result in a lower number of ACCUs than NGACs. However, the value of ACCUs, if they were to be traded on the market, is currently higher than the value of NGACs. This becomes relevant to the parties’ contentions about the correct approach to the calculation required by subs 18(3) and reg 2.5.
The applicant’s contentions
LMS contends that the “total number of tonnes of carbon dioxide equivalent net abatement” contemplated by reg 2.5 is to be determined by translating the number of NGACs issued under the GGAS into an equivalent number of ACCUs, in order to recognise the different methods of calculation employed by each scheme. In effect, this would require calculating the abatement generated under the GGAS by using the CFI Methodology. In this regard, counsel for LMS, Mr Henry SC, submitted that where a statutory formula contemplates deducting one number from a second to get a third number, all of those numbers must be in equivalent units.
LMS also submits that a consistent interpretation of the term “net abatement”, as it appears in subs 18(2), reg 2.5 and the CFI Methodology, is required by the Acts Interpretation Act 1901 and the Legislative Instruments Act 2003. Thus, because “net abatement” is defined in the CFI Methodology to provide in effect that a total abatement amount is discounted by appropriate factors to arrive at a net abatement amount, that definition should be applied wherever the term “net abatement” appears in the CFI Act or CFI Regulations.
LMS further submits that its construction creates an incentive to carry on offsets projects, consistently with one of the objects of the CFI Act.[4] The difference in methodologies, it says, leads to a situation where each NGAC is the equivalent of 0.68 ACCUs[5]. Therefore, a “one for one” deduction on transition leads to a situation whereby each NGAC credited leads to deduction of one ACCU. LMS says that this results in what could be described as an over acquittal of abatement or “reverse double counting”. However, on LMS’s construction, the Regulator would credit one tonne of carbon dioxide equivalent abatement represented by one NGAC with 0.68 ACCUs, and then subtract 0.68 ACCUs. LMS says this approach ensures that “the number of ACCUs deducted represents the exact same abatement the NGACs represent”, such that the abatement represented by NGACs is not equated with ACCUs, and double counting does not occur.[6]
[4] The objects of the CFI Act include implementing certain obligations that Australia has under the Climate Change Convention and the Kyoto Protocol; creating incentives for people to carry on certain offsets projects; and increasing carbon abatement in a manner that is consistent with the protection of Australia’s natural environment and improves resilience to the effects of climate change: s 3.
[5] I understand the Regulator does not dispute that this is a reasonable approximation of what results from the difference between the two methodologies.
[6] Applicant’s written submissions, p 6.
The respondent’s contentions
The Regulator contends that the legislation requires the deduction of NGACs from LMS’s ACCU entitlement on a one-for-one basis to avoid double counting of abatement. This is because, in the present case, one NGAC represents one tonne of carbon dioxide equivalent net abatement under the GGAS methodology. Thus, the Regulator submits, in broad terms the exercise involves determining how many tonnes of abatement are represented by the unit entitlement issued by the relevant non-CFI scheme.
The Regulator describes the concept of “double counting” in this context as “obtaining a benefit for abatement under the CFI Act in circumstances where a benefit was obtained under a prescribed non-CFI offsets scheme for the same abatement”,[7] or in other words, being issued with both NGACs and ACCUs in respect of the same abatement during the relevant reporting period.
[7] Respondent’s written submissions, p 7.
The Regulator’s approach requires calculating the abatement generated under the GGAS using the methodology applicable to that scheme. The Regulator says the intention of this approach is that “no judgement is made on the conservativeness/accuracy or otherwise of any other scheme’s methodology or crediting calculations”.[8] The Regulator’s approach was further explained in its letter to LMS dated 12 April 2013 as follows:
...
Under the CFI Act the express prescription of a methodology in section 18(2) and the absence of a prescriptive methodology in section 18(3) and regulation 2.5 implies that the methodology used for the purposes of section 18(2) is not to be applied for the purposes of section 18(3) and regulation 2.5. Explicit references in regulation 2.5 to matters concerning the prescribed scheme ... strengthens my view that it is the amount of net abatement under that scheme that applies to calculating net abatement under section 18(3).
Calculating net abatement under both sections 18(2) and 18(3) using the CFI methodology could allow a project proponent to take advantage of the same abatement twice. Double counting is inconsistent with the purpose of section 18 of the CFI Act.[9]
[8] Exhibit 1A, T5/252.
[9] Exhibit 1A, T9/263-264.
Counsel for the Regulator, Mr Horan, submitted that subs 18(3) and reg 2.5 do not refer to or contemplate the application of the CFI Methodology, in contrast to other provisions in the CFI Act and CFI Regulations which expressly provide as such. He further submitted that the consequence of the applicant’s construction would be that a project proponent:
would have obtained carbon offset credits for the abatement under the prescribed non-CFI offsets scheme, but in so far as the CFI methodology determination would have resulted in a lower number of ACCUs in respect of that abatement, would be entitled to the issue of ACCUs in respect of the same abatement.[10]
In other words, this would be contrary to the object of subs 18(3) and reg 2.5, to avoid double counting of abatement.
[10] Respondent’s written submissions, p 8.
The Regulator also disputes LMS’s submission that its approach unfairly penalises LMS and/or provides a disincentive for LMS to carry on certain offsets projects, on the basis that:
·Subsection 18(3) and reg 2.5 apply to projects which have transitioned from a non-CFI scheme and which have already generated credits from that scheme in the relevant reporting period for which the proponent is claiming ACCUs. Therefore, the projects are pre-existing and relate to abatement activity which has already occurred;
·Participation in the CFI scheme is voluntary; and
·The Regulator’s construction is not inconsistent with creating incentives for people to carry on projects, because LMS still stands to benefit from the transition to the CFI scheme as a result of the higher market price for ACCUs than NGACs.
CONSIDERATION
As I have alluded to above, in support of the construction of subs 18(3) and reg 2.5 advanced by LMS, Mr Henry submitted that the reference in the regulation to the phrase “carbon dioxide equivalent net abatement” was highly significant. He submitted that in accordance with the applicable principles of statutory construction, this phrase should be construed consistently as between the CFI Act and the CFI Regulations and it was clear that the use of this phrase in subs 18(2) referred to the amount calculated under the CFI Methodology. He pointed out that the CFI Methodology is a legislative instrument[11] and contended that the reference to “carbon dioxide equivalent net abatement” in reg 2.5 must be a reference to the amount determined under the CFI Methodology. Mr Henry also contended that the relevant GGAS legislation used the term “CO2 equivalent” but not “net”, and accordingly the use of the word “net” must refer to an amount arrived under the CFI Methodology.
[11] See s 106 of the CFI Act.
However, Mr Horan contended that one of the main objectives of reg 2.5 was to make clear that it was necessary to ascertain the number of tonnes of carbon dioxide equivalent abatement which had been recognised/credited under a non-CFI offsets scheme in order to determine the appropriate deduction. He contended that the use of the word “net” in this context was merely intended to indicate that the carbon dioxide equivalent abatement to be taken into account was the abatement net of emissions from the abatement activity itself.
I also note that in his submissions in reply, Mr Henry conceded that there was “some force” in the point that “net abatement” is a concept which is common to non-CFI schemes, and that the GGAS scheme also calculated abatement by reference to the overall abatement, net of emissions from the abatement activity itself.
In these circumstances, I do not consider the inclusion of the word “net” in reg 2.5(1) to point strongly toward a conclusion that the abatement referred to is abatement calculated by reference to the CFI Methodology. As Mr Horan also pointed out, I note in addition that if the intention of reg 2.5 was to refer to the abatement amount calculated by reference to the CFI Methodology, that could readily have been made clear, as it has been elsewhere in the Act and Regulations, for example, by reference to the concept of “notional CFI credits”.[12]
[12] See reg 2.3 of the CFI Regulations.
Mr Henry also submitted that the construction contended for by LMS was practical and sensible, and would avoid “double counting”. He said the effect of the construction would be that the amount of the deduction pursuant to subs 18(3) would be calculated by reference to the abatement which had been used to generate NGACs. This, in turn, would have the effect that a tonne of carbon dioxide equivalent abatement would not simultaneously give rise to the creation of ACCUs and NGACs, as LMS could only claim ACCUs for tonnage not converted to NGACs. As alluded to above, he also contended that where a statutory formula contemplates deducting one number from another to get a third, there was an assumption that the statute was referring to equivalent units.
Mr Henry also referred to the Revised Explanatory Memorandum which accompanied the Clean Energy (Consequential Amendments) Bill 2011, and in particular the following paragraph:
5.10The amendments ensure that there is no double counting of abatement generated by a project while covered by both the CFI and a prescribed non-CFI offsets scheme. If a project was or is covered by a prescribed non-CFI offsets scheme, the unit entitlement in relation to the project will be reduced by the number ascertained in accordance with the regulations. The regulations will require the project proponent to report any abatement credited or otherwise accounted for under a prescribed non-CFI offsets scheme since the commencement of CFI coverage. The project proponent’s unit entitlement will be reduced by reference to any amount so reported.
He submitted that this did not suggest a simplistic approach and the formulation “by reference to any amount so reported” supported LMS’s construction.
Mr Henry further submitted that the construction urged by the Regulator, if adopted, would result in unfair “reverse” double counting and remove the incentive for proponents to complete offsets projects. He explained that because of differences in the way abatement is counted under the two schemes, each NGAC is worth about 0.68 of an ACCU. Therefore, for every 100 tonnes of abatement under the GGAS scheme, 68 ACCUs would result. On the approach urged by the Regulator therefore, if LMS planned to carry out 100 tonnes of abatement and made an election to create 68 NGACs once it had achieved that amount of abatement, there would be no incentive for it to complete the project under the CFI regime, because even if it did complete 100 tonnes of abatement, when that abatement was subject to s 18 as construed by the Regulator, it would only result in 68 ACCUs, from which 68 NGACs would be deducted, resulting in a nil entitlement.
Mr Henry submitted that it would be much fairer if the entire abatement was translated into ACCUs, with the result that the 68 NGACs would become approximately 46 ACCUs, and LMS would still have an entitlement to an additional 22 ACCUs on completion of the project. Mr Henry pointed out that one of the purposes of the CFI scheme was to create incentives for carbon abatement activities, but he said the Regulator’s construction did not advance that objective.
Mr Henry also contended that it was not accurate to describe LMS’s approach as involving “double counting”, since under LMS’s approach, each tonne of abatement would be counted once and allocated to either one scheme or the other. He nevertheless acknowledged that the LMS approach would result in the issuing of more carbon credits overall.
However, Mr Horan directed my attention to the Explanatory Statement which accompanied the amendments that introduced reg 2.5, in particular the statement at [49]:
For emissions avoidance offsets projects, the unit entitlement for a reporting period is reduced by the number of units issued under another scheme for that reporting period.
As I have already alluded to, Mr Horan also directed my attention to other regulations which refer to notional calculations under the CFI Act, such as reg 2.3. He submitted that if the construction urged by LMS had been what was intended, then reg 2.5 would have been worded differently, and could readily have included some reference to “notional CFI credits”, being a concept utilised elsewhere in the CFI Regulations.
As to the potential relevance of reg 2.3, Mr Henry pointed out that this related to sequestration, rather than abatement, and therefore did not shed light on reg 2.5. Mr Henry also referred to the contents of regs 6.2, 6.3 and 6.4, relating to the information required to be provided by proponents for offsets reports. He submitted that much of the information required would be redundant if all that was required was a simple deduction of the number of NGACs issued from the total ACCUs which a project would otherwise attract.
However, Mr Horan submitted that regs 6.3 and 2.5 “fit together”, particularly having regard to reg 6.3(3), which provides as follows:
The offsets report must set out the total number of tonnes of carbon dioxide equivalent net abatement generated by the project during the reporting period, for which either or both of the following apply:
(a)carbon offset credits have been issued or registered for the abatement under the prescribe non-CFI offset scheme;
(b)the abatement has been accounted for under the prescribed non-CFI offset scheme.
Mr Horan also directed my attention to reg 6.4, which relevantly provides as follows:
6.4 Documentation for offsets reports
…
(3)If a project is, or has been, covered wholly or partly by a prescribed non-CFI offsets scheme, the offsets report must also be accompanied by:
(a)any document the project proponent has, or had been given, relating to credits issued or registered under the scheme, or abatement accounted for under the scheme; and
(b)the documentary evidence mentioned in subregulation (4).
(4)For paragraph (3)(b), the project proponent must give written authorisation that information in relation to the matters in subregulation (5) may be sought from:
(a)the administrator of the prescribed non-CFI scheme; or
(b)if the scheme is no longer in operation and it was a scheme which had Commonwealth, State or Territory government agency oversight—that agency.
(5) For subregulation (4), the matters are:
(a)the carbon dioxide equivalent net abatement amount generated by the project under the prescribed non-CFI scheme; and
(b)if carbon offsets credits have been issued or registered for abatement under the scheme—details of the circumstances in which the carbon offsets credits were issued or registered; and
(c)if abatement was accounted for under the scheme—details of the circumstances in which the abatement was accounted for.
Mr Horan contended that the information required is clearly the information needed by the Regulator to accurately determine the carbon credits issued under a non-CFI scheme and how they relate to the abatement sought to be credited under the CFI scheme. In particular, he submitted that the terms of reg 6.4(5)(a) including the use of the phrase “carbon dioxide equivalent net abatement amount generated by the project under the prescribed non-CFI scheme”, was a telling textual indicator in favour of the Regulator’s construction.
On the incentive question, Mr Horan was critical of the example referred to by Mr Henry. He said this involved attempting to ascertain how much total abatement had already been credited/accounted for under the GGAS scheme and then applying the CFI Methodology to the balance. However, he said this was inconsistent with subs 18(2), as the first step was always to apply the CFI Methodology to the entire abatement amount and only once this had been done was it appropriate to then deduct the amount referred to in subs 18(3).
Mr Horan accepted that the CFI scheme had the object of creating incentives and that one of the objects of s 18 was to avoid double counting. However, as to Mr Henry’s point relating to a proponent not having an incentive to complete a project, he pointed out that the difficulty postulated by Mr Henry would only arise if a proponent did not claim all of the abatement they were entitled to on a monthly basis. In other words, it would only apply to abatement which a proponent had “stored” and sought to seek credits for later under the CFI scheme. Further, he also pointed out that it was a voluntary choice whether to transition to the CFI scheme, and LMS was only in the situation described by Mr Henry to the extent that it had stored up abatement activities which were not claimed under the GGAS scheme, having chosen to transition to the CFI scheme and seek to claim stored up credits under that scheme. Mr Horan pointed out that in these circumstances, the construction urged by the Regulator could not create a disincentive for LMS to continue with any particular project, as the conduct in question was past conduct.
In the Regulator’s written submissions, it was also contended:
The construction of reg 2.5 for which LMS contends would enable a project proponent to obtain a benefit in relation to abatement under a prescribed non-CFI offsets scheme with more generous rules than those under the CFI Act, while effectively minimising the deduction resulting from that abatement upon transition to the CFI. The consequence would be that the proponent would have obtained carbon offset credits for the abatement under the prescribed non-CFI offsets scheme, but in so far as the CFI methodology determination would have resulted in a lower number of ACCUs in respect of that abatement, would be entitled to the issue of ACCUs in respect of the same abatement under s 18 of the CFI Act. This would be directly contrary to the object of s 18(3) and reg 2.5 to prevent double counting.[13]
[13] Respondent’s written submissions, p 8.
Having carefully considered the arguments of both parties, on balance, I have concluded that I prefer Mr Horan’s arguments on these issues. In particular, I accept that the extrinsic materials, especially the Explanatory Statement at [49], tend to support a construction whereby the amount of the reduction is “the number of units issued under another scheme”. I also accept that the concept of “notional CFI credits” is employed elsewhere in the CFI Regulations, and could readily have been deployed in this context as well, if the intention had been to “convert” non-CFI credits into CFI credits before the relevant deduction was made.
I also accept Mr Horan’s argument that much of the information required by the relevant regulations would appear to be directed toward ensuring that the Regulator is informed of the amount of credits issued under another scheme, and how those credits have been generated, so as to allow a deduction to be made having regard to the number of credits issued under a non-CFI scheme for each tonne of net abatement already credited under that scheme. The fact that this information is sought, in my view, tends to support the construction advanced by the Regulator.
I accept the proposition advanced by LMS, that the construction put forward by the Regulator has the effect that, in respect of a particular past abatement activity undertaken by LMS, where it has already been granted some NGACs for that abatement and later sought ACCUs for the balance of the abatement, the Regulator’s construction results in it being penalised in a sense for having obtained NGACs for part of the abatement. That result follows from the fact that each NGAC is treated as being equivalent to an ACCU, even though in fact it equates to only about 0.68 ACCUs. It would clearly be far more advantageous to LMS to be able to “translate” the entire abatement activity into ACCUs, and only deduct the number of ACCUs which would have been generated by the abatement for which NGACs have been issued. This would result in a deduction of approximately 0.68 of an ACCU for every NGAC issued, resulting in more ACCUs being allocated in respect of the abatement activity.
However, bearing in mind that the CFI Act and CFI Regulations apply with respect to all prescribed non-CFI schemes, not just the GGAS, I also accept the Regulator’s submission that this approach could result in some anomalous outcomes. For example, as the Regulator has pointed out, this would open the way for a proponent to be allocated carbon credits under a much more generous scheme than the CFI, and minimise the deductions incurred upon transition into the CFI. For example, a proponent could theoretically obtain, say, double the number of credits that would have been issued under the CFI, but then minimise the deduction upon transition, resulting in a much higher number of carbon credits overall than would have been allocated if all of the abatement had been claimed under the CFI. Calculating the reduction by reference to the number of tonnes of net abatement credited under the non-CFI scheme tends to guard against what could be regarded as this anomalous or perverse outcome.
I also accept the Regulator’s argument that the construction advanced on its behalf cannot properly be regarded as a disincentive to proponents to carry out offsets projects. As Mr Horan has pointed out, LMS is in its current situation only because it did not seek credits for all of its abatement activities under the GGAS scheme, as it could have done. Instead, it has sought to transition to the Commonwealth scheme, and to have past abatement activities credited under that scheme. I accept the Regulator’s submission that the concept of incentive is not meaningful in this context, as the construction question only arises with respect to past activities in circumstances where a proponent has voluntarily elected to transition to the Commonwealth scheme.
In addition, as I have indicated above, I accept on balance that the extrinsic materials and textual indicators I have been referred to, including the terms of reg 6.4(5)(a), tend to favour the Regulator’s construction. There is no doubt, and no dispute, that the “mischief” to which the relevant provision and regulation is directed is the avoidance of double counting. However, I am persuaded that the mechanism intended to be adopted by the legislature to avoid double counting is one by which regard is had to the total number of tonnes of carbon dioxide equivalent net abatement credited under the non-CFI scheme, with that number being deducted from the number of ACCUs which would otherwise have been issued under the CFI scheme, without any “conversion” of the non-CFI scheme credits into ACCUs before that deduction is made.
CONCLUSION
For these reasons, I have concluded that the Regulator’s approach to the construction issue in question was correct, and I have decided to affirm the decisions under review.
DECISION
The decisions under review are affirmed.
I certify that the preceding 49 (forty-nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President K Bean ......... [Sgd] .......................................
Associate
Dated 30 September 2014
Date of hearing 5 May 2014 Counsel for the Applicant Mr S Henry SC Counsel for the Respondent Mr C Horan Solicitors for the Respondent Australian Government Solicitor
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