Purpose of the Bill

The purpose of the Future Made in Australia (Guarantee of Origin) Bill 2024 (GO Bill) and associated Bills is to provide a legislative framework for a voluntary scheme to certify products, such as hydrogen, and renewable electricity. This will enable producers and consumers to make credible claims about the emissions intensity of production and about the use of renewable electricity and those products in domestic and international markets.

Following the introduction of the Bill, the Assistant Minister for Climate Change and Energy, Josh Wilson said:

The GO scheme is an essential platform for unlocking crucial investment in Australia’s net zero industries as our nation seizes the massive opportunities in the clean energy transition as we realise our potential to be a renewable energy superpower.

It will create opportunities for Australian businesses to verify new clean products and to market their low-emissions credentials through an effective, trusted scheme.

Aligned with international standards, it will improve Australian competitiveness in new and emerging domestic and global markets, and will increase Australian exports and Australian jobs as part of the Future Made in Australia imperative.

Earlier, on 16 July 2024, Senator Jenny McAllister (then Assistant Minister for Climate Change and Energy) indicated that the Government intends the GO scheme to commence in the second half of 2025 and that it will be used to establish eligibility for tax credits under its planned Hydrogen Production Tax Incentive.

A central role for the GO scheme is also outlined in National Hydrogen Strategy 2024, released on 13 September 2024.

The GO Bill establishes key elements of the required framework (outlined below); however, substantial components of the scheme will be provided in legislative instruments made by the Minister, including rules made for the administration of the scheme and methodology determinations.

The GO Bill does this by:

• creating a PGO certificate that will denote attributes of products they represent such as emissions from production
• creating a new form of personal property – a REGO certificate – which can be traded and retired, and used to support claims about the use of renewable electricity
• empowering the Minister to make rules to support the administration of the scheme, methodology determinations and measurement standards
• requiring the establishment of a registration scheme and allowing the Clean Energy Regulator (CER; the Regulator) to approve and register persons, production profiles and renewable electricity facilities
• requiring the CER to maintain an online platform to register PGO and REGO certificates and facilitate trading in REGO certificates
• providing for the CER to administer and regulate the scheme
• providing for cost‑recovery charges to be payable in relation to activities carried out under the scheme
• providing for assurance, and compliance and enforcement of the regulatory framework to ensure confidence in the certification
• providing for a range of civil penalties to support compliance and enforcement under the regulatory framework
• providing for the review of the operation of the regulatory framework, including whether the scheme is meeting its objectives.

The design of the GO scheme is similar to other schemes administered by the Regulator, such as the Australian Carbon Credit Unit scheme, the Nature Repair market, and the renewable energy target (RET) scheme, which the GO scheme will replace from 2030.

Structure and summary of the Bills

Guarantee of Origin Bill

The GO Bill has 9 Parts. Table 1 summarises the functions of each Part of the Bill. Parts 1, 2 and 5 to 9 provide for the administration of the scheme whereas Parts 3 and 4 provide the substantive provisions for each certification scheme. These are considered in detail in the ‘Key issues and provisions’ section of this Digest.

Table 1 Overview of the GO Bill

Guarantee of Origin Charges Bill

The GO scheme will be an administratively complex voluntary scheme and is to be fully cost-recovered from scheme participants (Explanatory Memorandum, p. 2). The GO Bill allows for rules to prescribe fee-bearing activities for which costs may be recovered (clause 117). The Future Made in Australia (Guarantee of Origin Charges) Bill 2024 would provide for the imposition of cost recovery levies for services that benefit groups of scheme participants, such as monitoring compliance, investigations and enforcement. The provisions would also impose charges on different profiles and registered facilities under the GO scheme for a financial year. The amounts of charges and payment processes will be set by the regulations.

Guarantee of Origin Consequential Amendments Bill

The Future Made in Australia (Guarantee of Origin Consequential Amendments and Transitional Provisions) Bill 2024 would amend the National Greenhouse and Energy Reporting Act 2007 (NGER Act), the Clean Energy Regulator Act 2011 (CER Act), and the Renewable Energy (Electricity) Act 2000 (REE Act) to facilitate the operation of the GO scheme.

The Bill would:

• amend the NGER Act to allow the GO scheme to rely on the audit framework that the Regulator currently employs across other statutory schemes
• amend the CER Act to extend the Regulator’s functions to those conferred by the GO Act and GO Charges Act
• amend the REE Act to align liability rules for energy storage systems across the GO Act and the REE Act.

Background

Coalition and Labor governments have been providing support for the development of a domestic hydrogen industry since at least 2001. Formal consideration of a hydrogen certification scheme emerged as a key action item in Australia’s National Hydrogen Strategy, released in November 2019. The strategy states that ‘Australia wants to be a leader in developing an international scheme’ and that a ‘minimal certification scheme’ could ideally be quickly established to verify and track ‘production technology, scope 1 and scope 2 carbon emissions, and production location’ (p. 55).

Certification will be an important underpinning of the government’s declared ambition for Australia to become a renewable energy superpower. These ambitions include the export of green energy embodied in products, as outlined in the March 2024 Electricity and Energy Sector Plan discussion paper (p. 16):

The Australian Government has committed to transforming Australia into a renewable energy superpower. Cheap renewable energy will underpin new, internationally competitive, clean industries, which will help to secure Australia’s long‑term prosperity in a decarbonising world.

International partners will play a crucial role in Australia’s net zero transformation. Australia currently exports around 80% of its energy production, primarily as fossil fuels such as coal and gas. Over 97% of our exports are to partners now committed to net zero emissions. Over time, Australia has an opportunity to create new clean energy industries to service growing international demand for low and zero emissions products.

Through the global transition, Australia will see many new opportunities created, such as in:

• renewable hydrogen and its derivatives, including green chemicals

• green metals

• critical minerals refining and processing

• manufacturing of renewable generation and storage technologies.

Under the Albanese Government, the GO scheme for products (initially hydrogen) is included as part of the Future Made in Australia policy umbrella. GO scheme certification would be a prerequisite for the Hydrogen Production Tax incentives (HPTI) proposed under the Future Made in Australia. These incentives, as proposed in the HPTI consultation paper, would provide a tax credit of $2 per kilogram (kg) for renewable hydrogen, with an emissions intensity of less than 0.6 kg of carbon dioxide equivalent up to the production gate (p. 4). While the Product GO framework is initially being established for hydrogen, the Government intends for the scheme to expand to other products such as biofuels and green metals (Explanatory Memorandum, [para 182]).

International context

As part of global decarbonisation efforts, hydrogen is considered a potential low-emissions energy carrier and substitute for traditional fossil fuels in some applications. The Hydrogen Council’s Hydrogen Insights 2023 report indicates that there are 1,418 announced hydrogen projects globally (p. 6).

In its Breakthrough Agenda Report 2023, the International Energy Agency (IEA) notes the importance of international collaboration on standards and certification for the establishment of low-emissions hydrogen in the global economy (p. 58):

…international collaboration in the areas of standards and certification, demand creation, technology demonstration and finance [are] important for scaling up the production and use of low-carbon and renewable hydrogen….

Lack of an internationally recognised certification scheme has been raised by the International Renewable Energy Agency. Its Creating a global hydrogen market: Certification to enable trade report notes that (p. 11):

Currently, there is no hydrogen certification scheme suitable for international trade. Although mechanisms exist to certify hydrogen, the challenge is to have an internationally recognised scheme that avoids the duplication and inefficiencies of having multiple, competing and divergent schemes.

Despite the large number of project announcements, the IEA notes that progress has been slow and ‘renewable and low-carbon hydrogen’ remains below 1 % of global hydrogen production (p. 57). The IEA also reports modest progress on standards and certification, and summarises progress on hydrogen certification activities (pp. 61–62).

Australia has been collaborating internationally on the development of the Product GO scheme. This collaboration is important as comparable hydrogen certification schemes are reportedly being developed around the world, including in the USA, Canada, Japan, India and several EU countries (pp. 13–14).

Australia is a member of the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE), ‘an international inter-governmental partnership whose objective is to facilitate and accelerate the transition to clean and efficient energy and mobility systems using fuel cells and hydrogen (FCH) technologies’.

The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has collaborated internationally in the development of the proposed Product GO scheme, including through the IPHE framework.

As part of the consultation process, the Clean Energy Regulator ran a designing the Guarantee of Origin trial with a wide range of industry participants. The trial tested the IPHE accounting methods and found that the proposed Product GO scheme design should align with the IPHE methodology.

Australia is also one of 37 participants in the Declaration of Intent on Hydrogen at the 2023 UNFCCC Conference of Parties (COP28), reaffirming Australia’s commitment to, inter alia, work with other nations to:

seek accelerated development of technical solutions to enable mutual recognition of their certification schemes, including through cooperation of the Participants with and under the framework of the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) and the Hydrogen Technology Cooperation Programme (Hydrogen TCP).

The Explanatory Memorandum to the GO Bill sets out the Government’s belief that the Product GO scheme will provide ‘benefits to industry participants by unlocking additional policy opportunities and funding support and reducing trading barriers by aligning with global standards and enhancing the competitiveness of Australian exports’ (p. 6).

Product certification is also expected to be important for trade with nations that have, or are considering, carbon border adjustment mechanisms (CBAM). Under these mechanisms, importers in the importing jurisdiction are required to pay a fee (or penalty) based on the difference between the carbon price in the importing jurisdiction and cost of emissions generated by the production of the imported goods in the country of origin.

The EU has commenced its CBAM implementation timetable. The Carbon Border Adjustment Mechanism – research briefing (March 2024), states that ‘[i]n May 2023, the EU adopted Regulation 2023/956 establishing a Carbon Border Adjustment Mechanism’ (p.10). This mechanism will apply a carbon price to selected imported products, including hydrogen, equivalent to the price faced by domestic producers operating in those sectors under the EU ETS.

The UK government has announced that it will implement a CBAM by 2027, while Turkey, Indonesia, Vietnam and Thailand are also reported to be considering carbon prices to avoid the European CBAM.

Domestic policy context

This suite of Bills has been brought forward following extensive consultation over several years. These are also summarised in the Explanatory Memorandum to the GO Bill (pp. 10–11), in the Implementing a Guarantee of Origin Scheme impact analysis (pp. 166–70), and on the department’s website for the Guarantee of Origin scheme.

The then Department of Industry Science, Energy and Resources conducted a Hydrogen Certification Survey in May–June 2020 to test high-level design concepts.

The Morrison Government announced $275.5 million funding in the 2021–22 Budget to fund the development of 4 additional clean hydrogen hubs in regional Australia and to implement a clean hydrogen certification scheme.

A discussion paper, A Hydrogen Guarantee of Origin Scheme for Australia, released on 21 June 2021, proposed that such a scheme would ‘provide a consistent and accurate approach to track the key attributes associated with hydrogen production, in particular its carbon footprint. A GO scheme would provide much needed transparency to consumers around the environmental impact of the hydrogen being purchased and used’ (p. 9). The paper also suggested that the GO scheme would need a below-baseline renewable electricity and generation certification scheme to operate alongside the Large-scale Renewable Energy Target and continue after its sunset in 2030 (p. 22).

The Albanese Government provided $2.2 million in the 2022–23 October Budget to continue development of the GO scheme (p. 59). The Australia’s Guarantee of Origin Scheme consultation papers followed in December 2022, with the scheme design now in two components: a Guarantee of Origin scheme and Renewable Electricity Certification scheme. A further round of consultation on details of the scheme design, emissions accounting and renewable electricity certification was conducted in late 2023. The Albanese Government provided further funding for the scheme in the 2023–24 Budget of $38.2 million over 4 years from 2023–24 (and $6.5 million per year ongoing) (p. 70).

The existing RET scheme has two parts. The Large-scale Renewable Energy Target (LRET) incentivises the development of renewable energy power stations in Australia through a market for the creation and sale of large-scale generation certificates (LGCs). The Small-scale Renewable Energy Scheme (SRES) creates a financial incentive to install eligible small-scale renewable energy systems through the creation of small-scale technology certificates (STCs). These small-scale systems currently include solar photovoltaic (PV), wind turbines, hydro systems, solar water heaters, and air source heat pumps.

The 2022 Renewable Electricity Certification policy position paper notes that LGCs are the dominant form of certificates and that the voluntary trade is increasing (pp. 4–5):

The renewable electricity certificate market in Australia is dominated by the trade of large-scale generation certificates (LGCs), which are created by eligible renewable generators under the Renewable Energy Target (RET) scheme. While established to encourage additional renewable generation through obligations on retailers and other electricity acquirers, the LGC framework under the RET is increasingly being used voluntarily by many organisations. ...

The position paper also proposed that the REGO scheme have features excluded by the RET scheme’s design, such as creation of certificates for exported renewable energy and for generation from capacity that existed prior to 1997 (below-baseline generation) (pp. 5–6).

Policy position of non-government parties / independents

At the time of writing, there appears to be limited direct comment on the GO Bills. As noted in the Background section, development of the Product GO scheme commenced under the Morrison Coalition government. Independent members and cross-bench Senators have expressed strong interest in supporting the transition to a net-zero economy, including household electrification.

Key issues and provisions

Parts 3 and 4 of the GO Bill set out the substantive framework within which the two streams of the GO scheme will be given effect.

Part 3 Certification of products

Emissions captured in product GO certification

Product GO certification is based on emissions accounting across the production lifecycle. An emissions accounting approach requires a system boundary in order to determine which emissions are associated with production. As explained in the Guarantee of Origin - Emissions Accounting Approach paper (p. 5):

This system boundary in effect means that [the] following emissions will be covered by the GO scheme:

• Upstream emissions associated with the extraction, processing and transport of feedstocks,
• Direct emissions associated with the production of outputs from the product facility,
• Post-production emissions associated with transport and storage of the registered product to its delivery gate.
  
  

This boundary excludes emissions associated with capital expenditure, consumption of the registered product, end-of-life and waste processing.

A conceptual framework of this is shown in Figure 1.

Figure 1 System boundary for the GO scheme's accounting methodology

Source: DCCEEW, Emissions Accounting Approach: Attachment to the Scheme Design Paper, (Canberra: DCCEEW, 20 September 2023), 5.

Key elements of the regulatory framework

The GO Bill provides that the Minister may make a methodology determination which sets out details of one or more production pathways for a product (clause 29). The determination will include the functional unit for the product; minimum, optional and conditional modules; approaches and formulas for metering, measuring and calculating inputs, outputs, and losses relevant to production; and emissions sources and how these may be measured and reported. The determination may apply, adopt or incorporate instruments, such as industry standards, thus allowing alignment of the GO scheme with Australia’s international emissions and reporting obligations (subclause 29(8)). The Senate Standing Committee for the Scrutiny of Bills has raised concerns with the reliance on delegated legislation to detail elements of the GO scheme (pp. 16-18).

A registered participant will be able to apply to the Regulator to register a production profile, delivery profile, or consumption profile (clauses 30–41). The Explanatory Memorandum explains [para 182]:

The profile approach affords flexibility as the scheme expands to incorporate additional products such as biofuels and green metals, with various associated production pathways, without having to define each as a different type of facility. Using profiles in this way provides modularity and flexibility so that the one approach can be used to support reporting for the range of products that are planned to be introduced into the scheme over time.

The Government expects that this will enable producers to certify their products as low-emissions, and ‘respond to new export opportunities in clean energy, green metals, and future fuels products’ (Explanatory Memorandum, p. 7). However, given the data and inputs required to make the determinations, this will be a complex emissions accounting exercise and the development of such industries are still in their infancy.

The registered holder of a production profile will be able to create PGO certificates for a batch of a product (clauses 49–50) and may apply to the Regulator for the registration of these PGO certificates (up to 1 year after the last part of the batch left the production gate) (clause 56). The holder of a production profile may authorise another registered participant holding a delivery profile or consumption profile to add information to a PGO certificate, thus allowing the certificate to accurately reflect emissions across the entire production lifecycle (clauses 54–55, 57–59).

The GO Bill provides for an annual reconciliation check of PGO certificate activity, and allows the Regulator to correct or invalidate PGO certificates (clauses 60–67).

Part 4 Certification of renewable electricity generation

The provisions in Part 4 establish the framework for renewable electricity certification, a part of the scheme which reflects the foundations of the RET scheme. Following the introduction of the Bill, the Assistant Minister for Climate Change and Energy, Josh Wilson said:

The new renewable electricity guarantee of origin certification mechanism will build on the strengths of the current program, and continue to support new renewable investment.

However, the proposed REGO scheme is voluntary and would have additional functions. Some key provisions are outlined below.

Eligible renewable energy sources

The REGO scheme carries forward the same eligible renewable energy sources as are permitted in the REE Act (section 17), with ‘biomass from a native forest’ not an eligible renewable energy source (clause 69).

Overview of eligible generation or storage facilities and creation of certificates

The GO Bill provides for the registration of different types of facilities, with specific requirements to be prescribed in rules (clauses 74–81). The facility types are:

• accredited power stations[1]
• electricity generation systems that are not accredited power stations
• energy storage systems
• aggregated systems.

The Minister may make, by legislative instrument, a measurement standard which prescribes requirements relating to (clause 73):

• measuring electricity generated, stored, consumed, lost or dispatched from a facility or a component of a facility
• measuring an energy source for the facility or a component of the facility
• measuring an input (other than a source of energy) into the facility or a component of the facility.[2]

A registered person may create REGO certificates in respect of an eligible amount of electricity for a facility and a time period (clause 91). A REGO certificate will generally represent 1 MWh generated in a time period; however, provision is made for certificates to be created for residual amounts generated in a calendar month (clause 92), or for a certificate to represent a different amount (clause 96).

A registered person may apply to the Regulator to register REGO certificates (clause 104). REGO certificates may be transferred, and retired when, for example, the purchaser of the certificate makes a claim about the use of renewable electricity. The Regulator may also correct information relating to certificates (clauses 106–110).

The following sections discuss some key issues specific to different types of facility.

Small-scale renewable energy systems

The REGO scheme differs from the RET scheme in its treatment of small-scale renewable energy systems (SRES).

Under the RET scheme, a range of systems, including small generation units (SGU) (such as household solar PV systems), solar water heaters and air source heat pumps, are eligible for small-scale technology certificates (STCs). These systems become eligible for STCs upon installation and the value of their STCs can be provided up front. The number of STCs is based on (among other things) an estimate of how much renewable energy will be generated, over a deeming period.

The REGO scheme appears to support the participation of SGUs as part of aggregated systems (see below), but not other small-scale systems such as solar water heaters and air source heat pumps.

The GO Bill does not include deeming provisions, and rather provides that SGUs may not be able to participate as part of an aggregated system until 1 January 2031, when the maximum deeming periods cease (subclause 81(3)).

Aggregated systems

The participation of small generation units is supported by provisions for aggregated systems. Clause 70 defines aggregated systems as 2 or more generation systems, 2 or more energy storage systems, or at least one electricity generation system and at least one energy storage system. The Explanatory Memorandum explains [para 377–379]:

The purpose of registering an aggregated system is primarily intended to facilitate the collective registration of small-scale systems under one registration as an aggregated system. … It is intended that an aggregated system will allow small-scale systems, such as rooftop solar and household batteries to participate in the scheme using emerging market participation models, such as virtual power plants and other innovative small-scale aggregation approaches.

An example of a virtual power plant is many different rooftop solar generation systems (solar panels) registered together by one registered person. These could be dispersed systems of 100 solar panel systems on the rooftops of 100 different houses owned by 100 different people in a suburb. These may be taken collectively to be an aggregated system if the rules allow. …

The rules may prescribe limits on the capacity of generation systems or storage systems allowed to participate in an aggregated system (subclause 81(9)). Written agreements would have to be in place between the owners of different components of an aggregated system and the registered person, allowing that person to register the component and authorise that person to create REGO certificates (paragraph 81(4)(e)).

The Australian Energy Regulator’s (AER) Review of consumer protections for future energy services, published in November 2023, noted the increasing complexity of Australia’s energy landscape, and referred to aggregation services as an innovating business model and emerging new energy service. The AER considers the current consumer protections provided by the Australian Consumer Law and National Customer Energy Framework as inadequate for new energy services and recommends a range of reforms (pp. 1–3).

REGO certificates: time periods and ‘residual amounts’ of generation

The Explanatory Memorandum explains that ‘allowing renewable electricity generation of different power ratings to participate is key to the core objective of certifying all renewable electricity in Australia’ [para 504]. Therefore, rules made in relation to clause 91 would set out formulas or methods by which the amount of electricity generated or dispatched by a facility in a time period would be calculated and would allow REGO certificates to be created in respect of a one-hour time period, or other time periods (likely to be a calendar month, a calendar year or a day) (Explanatory Memorandum, [para 496]. This will ‘enable certificate price differentiation by certificate purchasers, allow for more accurate energy and carbon accounting, and assist organisations wanting to pursue 24/7 renewable electricity procurement and decarbonisation strategies’ [para 500] as well as afford ‘flexibility for registered persons’ depending on the characteristics of the registered facility [para 505].

The GO Bill makes provision for REGO certificates to be created for residual amounts of renewable electricity generation in a calendar month (clause 92). The Explanatory Memorandum explains [para 512]:

A residual amount is calculated from the total eligible amount of electricity and is made up of residual fractions. Residual amounts are only intended to apply to facilities that have been creating certificates over one hour time periods.

Energy storage systems

Energy storage systems cannot participate in the RET scheme, but would be able to participate in the REGO scheme, independently or as part of an aggregated system.

Among other things, clause 75 would require that a person seeking to register an energy storage system as a facility provide information about whether the facility is an energy storage system that has a direct supply relationship with an electricity generation system. A direct supply relationship exists if the electricity is transferred to the energy storage system directly from the electricity generation system (clause 71). The Explanatory Memorandum explains that when the conditions of direct supply are met [para 382]:

The eligible registered person for an energy storage system would not need to retire renewable electricity generation certificates in respect of electricity directly transferred to the energy storage system to demonstrate the energy storage system is producing renewable electricity.

However, in the case of standalone storage systems, where a direct supply relationship does not exist, subclause 104(6) would ensure that REGO certificates are not registered by the Regulator for a relevant amount of electricity sent out from an energy storage facility unless an amount of REGO certificates or LGCs have been retired or surrendered (calculated according to the rules). The Explanatory Memorandum notes that because the amount of energy dispatched would always be less than the energy stored due to system losses, this would mean that the ‘formula or method as prescribed by the rules would ensure that the number of certificates retired or surrendered is greater than the number of certificates created’ [para 600].

Below baseline generation

The GO Bill proposes to allow creation of REGO certificates for renewable electricity generation from facilities that generated electricity before 1 January 1997, referred to as below baseline generation. The GO Bill would require that facilities generating before this date must have a legacy baseline. This would be either a renewable power baseline for the facility that is greater than zero, established under the REE Act (clause 72), or, for a facility that was not accredited under the REE Act, a new baseline determined by the Regulator (clause 83).

Clause 93 provides that a certificate is a below-baseline certificate if it is created by a facility with a legacy baseline, is created before the RET sunsets on 31 December 2030, and is not additional to the baseline amount of generation for that facility. Clause 94 would require that the certificate must state whether it is a below‑baseline certificate.

Both the Clean Energy Council (CEC) (p. 2) and Fortescue Future Industries (p. 3) have raised concerns that allowing access to below baseline generation may place downward pressure on the LGC price and negatively impact the investment case for new projects. The CEC notes that, although demand in the voluntary market for certificates is expected to grow, ‘this growth is unlikely to be rapid enough or large enough to soak up the additional 14 TWh of certificates that become available in 2025’.

Clause 108 would allow rules to place conditions on the retirement of below-baseline certificates. The Renewable Electricity Guarantee of Origin Approach Paper, discusses restrictions on the surrender of below-baseline certificates (p. 9). For example, the rules could restrict use of below-baseline certificates to emissions intensive trade exposed industries or Product GO creation. Such measures are intended to ‘minimise market distortions’.