Chapter 1Introduction
1.1On 22 June 2023, the Senate referred the Greenhouse and Energy Minimum Standards Amendment (Administrative Changes) Bill 2023 (the bill) to the Environment and Communications Legislation Committee (the committee) for inquiry and report by 27 July 2023. The committee was granted an extension of time to report to 3 August 2023.
1.2The bill seeks to amend the Greenhouse and Energy Minimum Standards Act 2012 (the GEMS Act) which establishes a national framework for regulating the energy efficiency of products such as dishwashers, fridges and freezers supplied or used within Australia and sets mandatory minimum efficiency requirements for these products.
1.3The purpose of the GEMS Act is to provide a streamlined, nationally consistent approach to the energy efficiency of appliances, while reducing energy use, power bills and greenhouse gas emissions.
1.4Modernising the GEMS Act through the bill, and other future reforms, would support the delivery of the National Energy Transformation Partnership and the National Energy Performance Strategy by helping Australia meet its international climate change commitments and reach Net Zero by 2050.
1.5The Greenhouse and Energy Minimum Standards Regulator (GEMS Regulator) is responsible for administering the GEMS Act. Determinations are made under the GEMS Act by the Energy minister with the consent of a quorum of States and Territories, set out what products are covered by energy efficiency regulations, and establish the requirements for products supplied in Australia.
1.6In response to the bill, the Energy Efficiency Council (EEC) stated that creating flexibility for compliance while preserving the rigour of efficiency standards would help to lower the regulatory compliance costs, which would benefit consumers:
This represents a triple win – consumers can access a greater range of energy efficient appliances; compliance costs are reduced for suppliers, and the benefits that accrue to the community through the GEMS regime are accessed at a lower overall cost.
1.7The bill proposes to implement several recommendations of the 2019 independent review (the Review) of the Act through improving regulator performance and reducing administrative burden.
1.8The Review, which is outlined below, identified opportunities to add flexibility to the scheme, reduce impacts on the regulated community and allow it to adapt to changing market conditions and technology improvements.
Conduct of the inquiry
1.9Details of the inquiry were advertised on the committee’s website, including a call for submissions by 6 July 2023. The committee wrote directly to various stakeholders to invite them to make submissions.
1.10The committee received three submissions, which are listed at Appendix 1 and are available on the committee’s website. The committee agreed to conduct the inquiry on the written evidence and did not hold a public hearing.
Acknowledgements
1.11The committee thanks the organisations that made submissions, especially in light of the short timeframe for this inquiry.
Reports of other committees
1.12The Senate Standing Committee for the Scrutiny of Bills reviewed the bill and noted the proposed amendment to allow the GEMS Regulator to declare, through legislative instrument, that certain classes of products and specified models are taken to comply with the requirements of a specified GEMS determination.
1.13As a general principle, the Scrutiny of Bills Committee holds the view that significant matters should be included in primary legislation unless there is a sound justification for the use of delegated legislation. The proposed amendment would allow the GEMS Regulator to determine that products have been deemed to comply with requirements.
1.14The GEMS Regulator’s declaration-making power is constrained by a related amendment which would ensure that the GEMS Regulator must not make a declaration unless satisfied that the declaration will promote the objects of the GEMS Act.
1.15The Scrutiny of Bills Committee requested advice from the minister to clarify whether the bill could be amended to allow for a review of the operation of declarations made under this proposed amendment.
1.16The Minister’s response was received by the Scrutiny of Bills Committee on 5July 2023 but had not been published at the time of reporting.
Financial impact statement
1.17The bill will not have a financial impact on the Australian Government budget.
Consultation
1.18Under the Intergovernmental Agreement for the GEMS Act scheme, the Energy and Climate Change Ministerial Council is responsible for approving proposed amendments to the legislation. The government has indicated that the bill’s proposed amendments were supported by state, territory and industry stakeholders.
1.19Public consultation on the draft amendments to the GEMS Act was open between 16 December 2021 and 14 January 2022. No submissions were received. DCCEEW submitted that the majority of the proposed amendments were included in the Regulator Performance Omnibus Bill 2022, which lapsed when Parliament was prorogued on 11 April 2022.
1.20Concerns raised by the lighting sector during consultation of potential regulations to cover Light Emitting Diode (LED) lamps and the phase out of incandescent and halogen lamps would be addressed by the grandfathering provisions in the bill.
Human rights compatibility
1.21The explanatory memorandum (EM) notes that the bill is compatible with human rights as it does not raise any human rights issues.
Background to the bill
1.22The GEMS Act established a national framework for regulating the energy efficiency of products which are supplied to, or used in, Australia. Seven separate state and territory legislative frameworks were replaced by the national framework, which permits the Australian Government to set mandatory minimum efficiency requirements.
1.23The GEMS Act came into effect on 1 October 2012, and is administered by the GEMS Regulator, who is based in the Commonwealth Department of Climate Change, Energy, the Environment and Water (DCCEEW).
1.24The GEMS Act underpins the Council of Australian Governments’ (COAG) Equipment Energy Efficiency (E3) program, which commenced in 1993 and is a cross-jurisdictional program to deliver a single, integrated program on energy efficiency standards and energy labelling for equipment and appliances. The E3 program includes the Australian Commonwealth, state and territory governments, and the New Zealand Government.
1.25The E3 energy efficiency standards specify the minimum level of energy performance that appliances must meet before they can be sold. Labelling provides energy efficiency information to support consumers to make informed purchasing decisions. The E3 program’s objectives are to reduce energy bills for households and business, drive energy efficiency in new appliances and equipment and decrease greenhouse gas emissions from appliance use.
1.26The GEMS Act currently regulates 24 products, with other products under review as part of the E3 program. It also sets Minimum Energy Performance Standards (MEPS) and Energy Rating Label (ERL) requirements.
1.27In its submission, DCCEEW set out that the GEMS scheme has produced significant economic benefits through its more than ten year existence:
In the first 10 years of its operation, the GEMS Act has saved Australian households and businesses between $12–18 billion. Between 2012 and 2021, GEMS initiatives have reduced emissions by an estimate of between 40 and 60 mega tonnes of CO2. Further to this, in 2021-22 labelling and standards are estimated to have saved Australian households and businesses between $1.3 and $2 billion in avoided energy costs.
1.28The Energy Efficiency Council (EEC) strongly supports the GEMS Act framework, and the intention of the bill, and stated that:
The GEMS regime is a perfect example of the benefits of well-designed regulation – both protecting consumers from the worst-performing appliances, and providing consistent, clear information to assist consumers in making decisions about the most suitable equipment for them.
1.29The bill seeks to introduce a first phase of amendments to the GEMS Act, following the Review, to modernise and improve the Act to keep up with changing technologies and energy demands. This bill proposes to streamline the implementation of the GEMS scheme and reduce ‘unnecessary burden on our regulated community’, making it easier for businesses and industry to comply with the Act.
1.30Future proposed amendments would expand the GEMS Act to ‘gather more information, set more minimum performance standards on a broader range of appliances and products to meet our climate and energy needs into the future’.
1.31The EEC supported an expansion to the GEMS scheme, with more products brought within its remit, and in particular recommended that the scheme be amended to allow for the rapid adoption of suitable international minimum energy performance standards. The EEC stated that this would help to reduce barriers to market entry for energy efficient products and harmonise trade requirements, which would benefit consumers and the community.
1.32The EEC noted recent additional funding for the GEMS scheme, and that:
There is currently a backlog of priority equipment for consideration for either creating new performance standards, or revising older standards, for equipment that will be important in Australia's energy transition.
Review report
1.33A statutory review of the GEMS Act was conducted by Ms Anna Collyer, a partner at Allens law firm, and reported in 2019. The Review produced a discussion paper and draft report, and received submissions. The findings of the Review were presented to the COAG Energy Council. A previous review was conducted in 2015, which found that the GEMS Act supported the delivery of economic and environmental benefits by increasing the energy efficiency of equipment, that the program is being delivered effectively, and there was a strong case for continued mandatory appliance standards and labelling.
1.34The scope of the 2019 Review included the extent to which the GEMS Act was achieving its purpose; improvements that could be made; and, any other matters. In addition to the terms of reference, the reviewer was required to consider the level of agility of the GEMS Act to respond to changing dynamics; the ability of the GEMS Act to provide compliance arrangements for new and bespoke products; administrative challenges; and, whether there is a role for guidance on the use of mandatory standards or other approaches.
1.35The Review found that, overall, the GEMS Act was functioning well:
The final report finds that the GEMS Act is achieving its purpose of providing a streamlined nationally-consistent approach to appliance energy efficiency while effectively reducing energy use, power bills and greenhouse gas emissions.
It also finds that, for the GEMS Act to continue to meet its objectives, and reduce costs of living for Australian households, its operation will need to adapt to changing market conditions and requirements.
1.36The Review set out the importance of broader energy policy for Australia including the goal of emissions reductions:
Australia is experiencing a major shift in its energy system. This is a result of new technologies and services and changing consumer demands. In response, governments are focused on building a secure, reliable and affordable new energy system that will also allow Australia to achieve its emissions reductions objectives.
1.37Potential ways to improve the GEMS Act to deliver additional benefits were identified as:
updating energy efficiency standards for products that are already regulated;
expanding to new high energy using products that are not currently regulated in Australia;
expediting development and implementation of regulations; and
improving the effectiveness of the energy rating label.
1.38The Review recommended that improvements be made to the GEMS scheme in three groups. The first group (‘Horizon 1’) of improvements did not require legislative change, and related to strategic direction, identifying improvements for industry users and consumers, compliance and management policy, and monitoring the E3 program for emerging trends.
1.39Horizon 2 reforms were identified as being medium-term improvements which would also not require legislative change. The improvements related to longer-term strategic direction, and taking the Horizon 1 reforms further.
1.40This group of recommendations included an improvement for customised products, to move the registration point to when a sale is confirmed rather than an offer to supply. It appears that the amendments brought forward by the bill will introduce some Horizon 2 recommendations.
1.41Horizon 3 reforms were longer-term recommendations for improvements, and included the development of a single entry point or central portal for all government product registration obligations, and that the then-COAG Energy Council investigate the potential of a systems approach to energy efficiency regulation. Future GEMS Act amendments may implement the recommendations set out in Horizon 3.
1.42The operation of the GEMS Act must be reviewed every ten years after the first review.
1.43As set out in the Review, the majority of products regulated through the GEMS Act are imported into Australia as part of a broad international market, with very few GEMS-regulated products manufactured in Australia. The Review recommended that Australia’s regulations and standards align with the standards of larger markets such as the United States of America and the European Union.
Key issues
Reducing unnecessary regulation for customised products
1.44Under the GEMS Act, products need to be registered prior to being supplied or offered for supply in Australia. This system works for large-volume consumer products which are regulated under the Act. The bill seeks to reduce the burden on suppliers of customised products where a supplier may make an offer to supply a product which does not result in a supply.
1.45Customised products such as commercial refrigeration or heating and cooling systems for large buildings may be designed for specific uses which do not eventuate. The customer may not proceed with the purchase for various reasons, and the product may never be manufactured. The Review recommended that registration for clearly defined customised products be allowed ‘at the point a sale is confirmed’, under a Horizon 2 recommendation.
1.46The Review set out that the obligation to register a regulated product comes into force at the point at which the product is first offered for supply, which is appropriate for large-volume product sales but may be burdensome for suppliers of customised products.
1.47If a sale does not go ahead, the supplier has been through an unnecessary regulatory process. The Review put forward the view that registration at the time of offer may not be relevant for bespoke products:
It can be argued registration at the time an offer is first made is not as relevant for customised products as it is for more standardised products, as the cooperative process of developing the specifications of a customised product between the customer and the supplier means that the customer is in a position to ensure that what they want in terms of energy efficiency is factored into the design process. On this basis, a different point of registration may be appropriate, such as when a sale is confirmed.
1.48The EM states that the change to registering customised products at the point of sale would streamline administration for suppliers:
…such changes would remove unnecessary regulatory burden at the point of an offer for supply for suppliers of low volume products designed to meet the customisation of a particular customer.
1.49The products would still be required to comply with existing requirements, in accordance with the recommendation of the Review.
1.50The bill seeks to clarify that the prohibition on not registering the model of a product if the relevant product class is covered by a GEMS determination does not apply to the offer to supply. The registration requirement to offer to supply would not be required if the product:
is or will be manufactured or modified by an identified customer to customised requirements; and
is covered by a GEMS determination as prescribed by the GEMS Regulator; and
meets any other requirements as prescribed by the GEMS Regulator.
1.51Under this amendment, the GEMS Regulator would be allowed to prescribe the relevant determinations or requirements for the purposes of the preceding new subsection through legislative instrument.
1.52The EM identifies that rapidly changing consumer behaviour and technological advances will require more dynamic and flexible regulation, and allowing the GEMS Regulator to use a legislative instrument to prescribe such matters will provide flexibility to respond to changes.
1.53Legislative instruments made under the GEMS Act are exempt from disallowance and sunsetting requirements under the Legislation Act 2003, as they facilitate the operation of the IGA and E3 program, which are intergovernmental schemes involving the Commonwealth, States and Territories and New Zealand (in the case of the E3 program).
1.54The Air-Conditioning & Refrigeration Equipment Manufacturers Association of Australia (AREMA) noted its support for this amendment.
Adding flexibility for suppliers to demonstrate compliance
1.55Part 2 of the bill seeks to provide greater flexibility for suppliers of GEMS products to demonstrate compliance with a GEMS determination.
1.56The EM sets out the following example of the existing constraints:
Sometimes, GEMS determinations may require suppliers to provide a copy of a test report showing compliance with a particular Australian or overseas standard to support their application for registration of a GEMS product model. Where the prescribed standard has been superseded, there may be unintended consequences, for example, if the GEMS determination still requires compliance with an older standard, thus requiring additional testing solely for the purpose of registering products in Australia. The costs associated with this flows on to consumers or in some situations, limits the supply of the newest energy efficient technologies to Australia.
1.57Other administrative burdens fall on the participating jurisdictions, as two-thirds are required to consent to minor amendments to standards included in a GEMS determination, where the minor amendments are unlikely to change the policy intent of the determination. The EM sets out that testing standards are frequently updated with minor changes, including correcting typographical errors or machinery changes to clarify a testing method.
1.58Part 2 of the bill seeks to provide flexibility to the GEMS Regulator to declare that particular classes or models of products are taken to comply with requirements (or aspects of requirements) of a specified GEMS determination in certain circumstances or if certain conditions are met. The EM explains that, currently, the GEMS Regulator can only exempt a product from determinations in full, rather than from certain requirements in a GEMS determination. Ad hoc exemptions can also be granted, which ‘creates significant additional administrative burden and may provide an unfair advantage to suppliers provided with an exemption’.
1.59Alternative methods for testing are provided for, where the GEMS Regulator could specify requirements for conducting tests using specified methods. The legislative instrument would refer to ‘meeting specified alternative requirements’ or using ‘specified alternative test methods’.
1.60The alternative methods would be ‘at least equivalent to Australian standards and are adopted in other markets’. The provision would remove the need for suppliers to conduct testing just for the Australian market where another standard had already been complied with. The EEC highlighted the benefits of aligning with international minimum energy performance standards, and recommended further amendments to speed up the adoption of international standards.
1.61Safeguards would apply in the form of a declaration applying only in specified circumstances or conditions and when deemed by the GEMS Regulator, which would not undermine the GEMS determination. Further provisions would limit the circumstances when these declarations can be made, including that a declaration must not be made unless the GEMS Regulator is satisfied that the declaration is likely to promote the objects of the GEMS Act, and that the requirements prescribed by the regulations are complied with.
1.62This flexibility would support ‘the adoption and promotion of the latest energy efficient technologies which may already be available in international markets and remove the risk of inadvertently restricting efficient products from entering the Australian market’.
1.63Declarations would be published on the Energy Rating departmental website and by updating the registration database.
1.64The AREMA stated that while it was broadly supportive of this amendment, it was concerned that there may be the potential for changes to be made that are broader than indicated. AREMA set out that it would support decisions being open to review or appeal if they led to a shift in regulatory intent.
Modernising and streamlining the GEMS Act
Enabling timely and more targeted exemptions
1.65Part 3 of the bill would improve the timeliness of exemptions when there is a transition to new requirements. The EM explains that exemptions are often applied for when a GEMS determination is about to come into force, as the suppliers may have identified an issue with meeting the new requirements. Exemptions can currently only be applied for when the determination is in force.
1.66The proposed amendments would provide certainty for suppliers during transitional periods.
1.67The flexibility provided through this amendment would allow the registration process to be streamlined. An example was provided to illustrate the exemptions being proposed:
An example of where exempting an aspect of a requirement may be appropriate is to allow an alternative or equivalent detergent to be used during testing of a dishwasher in accordance with the requirements outlined in the GEMS determination. Currently, the only exemption option available to the GEMS Regulator when the mandated test detergent is unavailable is to exempt the model from the relevant requirement in the GEMS determination. As a result, the manufacturer would be unable to display an Energy Rating Label and there would be a negative impact to consumer choice due to reduced information at the point of sale.
Product classes
1.68Part 4 of the bill provides greater flexibility in defining product classes to ensure effective descriptions of product classes are in GEMS determinations. In some instances, GEMS determinations align with international legislation and guidelines. In other instances, international legislation may be based on the end use of a product class rather than solely based on the technical specification of a product (as is the case in GEMS determinations). Where there is a difference, GEMS product classes may be defined in a way that aligns with international legislation which can create difficulties for exclusions or inclusions of products.
1.69The GEMS Regulator has identified certain subsets of models under GEMS determinations which are difficult to administer. The EM gave motors, which may be supplied within other equipment, as an example.
1.70Clarity on how a class of product may be specified in a GEMS determination is set out, and could include reference to the: function the products perform; the materials used; the size or capacity of the products; features or the ability for the product to operate in different modes; and, the intended end use of the product.
1.71This would bring the determinations into alignment with international regulations, which often use the end-use of a product as the product class. The labelling of products if supplied for a certain end use is set out in the bill.
1.72AREMA was supportive of the aim of this part of the bill, but recommended that language be used which would prevent potential misuse and new requirements ‘outside the natural scope of the GEMS Act’.
Requirements in GEMS determinations (other requirements)
1.73Part 5 of the bill would allow certain other requirements to be made under determinations which have requirements for labelling but do not set a minimum standard for energy use. Currently, GEMS determinations must specify GEMS level requirements and labelling requirements for each product class, as well as other requirements which are set out in the GEMS Act.
1.74This amendment would allow for products to avoid having GEMS level requirements in a determination when labelling requirements (with appropriate ‘other requirements’ supporting this) would achieve the same emissions reduction with a lower compliance cost.
1.75AREMA did not support the inclusion of this provision, and raised a concern over a potential lack of parliamentary approval:
AREMA has a concern that the GEMS Regulator can impose requirements related to human and environmental health unilaterally and without appropriate approval by Parliament. For example, this provision might allow, for example, the GEMs regulator to make requirements relating to high [Global Warming Potential] refrigerants, even though this is covered by the Ozone and Greenhouse Gas Management Act. Without further clarification, we do not support inclusion of this provision.
1.76The EM clarifies that requirements relating to human health or the environment would still need to be imposed:
The relevant requirements relating to the performance of products, or their impact on human health or the environment, would need to be imposed to support the effectiveness of the GEMS labelling requirements related to energy use or greenhouse gas emissions.
GEMS Regulator
1.77Part 6 of the bill seeks to amend the GEMS Regulator position so that an acting SES employee could occupy the role, and would modernise references to the regulator to align with best practice drafting standards. References in the existing Act to ‘he or she’ would be substituted with ‘the GEMS Regulator’.
Grandfathering of compliant products
1.78Part 7 of the bill seeks to extend the ‘grandfathering’ exemptions. Currently, products that cannot meet a new or revised GEMS determination may be grandfathered and continue to be supplied if the products were manufactured in or imported in Australia prior to the date that the determination came into force.
1.79The bill seeks to extend the grandfathering exemption where the following conditions are satisfied:
products imported into, or where the product’s last process of manufacture is performed in, Australia before the determination comes into force;
there is a limited grandfathering period specified in the determination for the product class;
all transitional GEMS labelling requirements are complied with;
the product currently complies with a pre-existing determination which was in force; or,
if there was no pre-existing determination, the supply of the product would not have contravened any law of the state or territory relating to energy use or greenhouse gases resulting from use.
1.80This amendment would allow for consistency with requirements to comply with determinations, where there are similar grandfathering arrangements. The EM set out that this would reduce the administrative burden on the regulator and industry and would not affect energy efficiency.
1.81Subject to the passage of the grandfathering exemption, a related amendment would specify that the prosecution bears an evidential burden in relation to the grandfathering exemption, in the event of prosecution for strict liability offences for the supply or offer to supply an unregistered model of product.
1.82In relation to civil penalties, the person applying for the order would bear an evidential burden in relation to the grandfathering exemption. The EM explains that:
Generally, for civil penalties, there is a presumption that the individual who intends to rely on the exception bears the evidential burden. However, in this case it is considered that the applicant would have particular knowledge of the evidentiary matter at hand. Therefore, it is more appropriate in these circumstances that the applicant bears the evidential burden and not the respondent.
1.83This part of the bill would also establish a grandfathering exemption for models of products used for commercial purposes and not registered in specified circumstances. This proposed amendment is in line with other, similar arrangements in the bill.
Extension of time to pay fees
1.84Part 8 of the bill would provide for the GEMS Regulator to extend the time to pay application fees if satisfied that there was a case of financial hardship or an emergency situation, and provide grounds for the GEMS Regulator to suspend a model’s registration if a payment for the registration was not made.
Other amendments
1.85Part 9 of the bill would make amendments to clarify that one of the objects of the Act is to facilitate the operation of the Intergovernmental Agreement for the Greenhouse and Energy Minimum Standards Legislative Scheme (IGA). The IGA is part of the E3 program.
1.86Legislative instruments made under the GEMS Act are exempt from disallowance and sunsetting requirements under the Legislation Act 2003, which means there is reduced parliamentary scrutiny. This is due to the operation of the E3 and IGA programs, which are multilateral.
Committee view
1.87The committee notes that the GEMS Act has operated effectively for more than a decade, and has reduced emissions by between 40 and 60 million tonnes of CO2, saving households and businesses $12–18 billion in energy costs.
1.88The GEMS Act has delivered economic and emissions savings for over a decade, but is in need of modernising in order to keep up with the dynamic nature of technologies and consumer behaviour. This bill will deliver the first phase of modernising amendments, and seeks to enact recommendations from the 2019 independent review.
1.89Reducing the administrative burden on suppliers of products, as well as the GEMS Regulator, will help to increase the efficiency of the GEMS scheme.
1.90The committee notes AREMA’s concerns in relation to any potential increase of regulation outside of the current arrangements and which are beyond the general scope of the GEMS scheme. The committee suggests that DCCEEW consult with AREMA, and other key stakeholders, prior to the bill being debated.
1.91The amendments proposed in the bill will not negatively impact the object of the Act, which is to increase the energy efficiency of products supplied to, or manufactured in, Australia and continue to decrease the emissions of energy-using GEMS products.
1.92The committee supports the passage of the bill.
1.93The committee recommends that the Greenhouse and Energy Minimum Standards Amendment (Administrative Changes) Bill 2023 be passed.
Senator Karen Grogan
Chair