Chapter 1Introduction
1.1On 12 September 2024, the Senate referred the provisions of the Future Made in Australia (Guarantee of Origin) Bill 2024 (the bill); Future Made in Australia (Guarantee of Origin Charges) Bill 2024 (Charges bill); and Future Made in Australia (Guarantee of Origin Consequential Amendments and Transitional Provisions) Bill 2024 (Amendment bill) (collectively the bills) to the Senate Environment and Communications Legislation Committee (the committee) for inquiry and report by 31 October 2024.
Purpose of the bills
1.2The bills are part of the Future Made in Australia (FMIA) policy, and aim to introduce the Guarantee of Origin Scheme (GO scheme). The bills seek to establish and administer two certification streams:
the Product Guarantee of Origin (PGO); and
the Renewable Electricity Guarantee of Origin (REGO).
1.3The GO scheme is described in the bill’s Explanatory Memorandum (EM) as ‘a foundational policy underpinning the Australian Government’s policies and priority actions necessary to achieving its climate change commitments’. The GO scheme seeks to provide a framework to enable Australian producers of low-emissions products to make claims that are ‘objective and credible’ about their product’s embodied emissions.
1.4Under the PGO certificate stream, digital certificates would be issued to allow producers, exporters and consumers to prove where a product was made. These certificates would also verify the emissions intensity associated with the product’s production, transport and storage. Other Australian Government initiatives, including the proposed Hydrogen Production Tax Incentive, will use these certificates to verify emissions intensity.
1.5It is expected that PGO certificates will be expanded beyond the initial hydrogen focus to products including low carbon liquid fuels and green metals.
1.6The REGO certificates would provide information on when, where and how renewable energy was produced, and are designed to operate alongside the Renewable Energy Target (RET, outlined below), which is due to sunset in 2030, before replacing its certification element. The REGO certificates aim to draw on the RET’s certification framework and expand its scope and flexibility as the market evolves.
1.7Further, the REGO certificate stream would enable certification of electricity dispatched from storage assets and electricity for international export. It would also allow for ‘below-baseline generation’ certification of generation from renewable energy facilities regardless of their age. The certificates would be able to be bought and sold, with certificate demand and value to be market-driven by voluntary purchases.
1.8In his second reading speech, Mr Josh Wilson MP, Assistant Minister for Climate Change and Energy, explained that a nationally consistent certification mechanism would offer business and investors regulatory certainty, and that these bills would accelerate emissions reductions by enabling growth in renewable energy projects:
Under this voluntary scheme, the foundational certification will enable Australian producers to demonstrate the emissions intensity credentials of low-emission commodities.
Over the last decade, demand from competitive businesses across the economy for renewable electricity certificates has grown, supporting investment in new renewable energy projects.
1.9The Department of Climate Change, Energy, the Environment and Water (DCCEEW) stated that the GO scheme would provide a consistent and transparent emissions accounting framework:
At present, the market does not provide consumers with enough information to tell the difference between Australian made carbon-intensive products, and low-emission equivalents. This lack of information hinders consumers from being able to make choices between products based on their emission impacts, and producers being able to attain “green premiums” for the low emissions products they make.
The GO scheme will address the problem by empowering producers with the ability to market the low-emissions credentials of their products. It will also support consumers who purchase low-emission products with a publicly accessible record of those low-emissions credentials.
1.10The Charges and Amendment bills seek to amend various relevant Acts to align them with the main bill.
1.11The GO scheme would be administered by the Clean Energy Regulator (CER, or the Regulator).
1.12The key provisions of the bills are discussed in the following chapter.
Background to the bills
Future Made in Australia policy
1.13The FMIA policy was announced as part of the 2024‑25Budget, and provides $22.7 billion over the next ten years to ‘foster and encourage significant private sector investment into priority industries’ to boost Australia’s economic prosperity and support decarbonisation.
1.14The policy includes ‘broader investments in the Australian Government’s growth agenda, including critical technologies, defence priorities, skills in priority sectors, a competitive business environment and reforms to better attract and deploy investment’.
1.15The National Interest Framework was developed as part of the FMIA policy and is structured around two streams including, relevantly, the Net Zero Transformation Stream. This stream includes:
…industries that will make a significant contribution to the net zero transition and are expected to have an enduring comparative advantage, and public investment is needed for the sector to make a significant contribution to emissions reduction at an efficient cost.
1.16The National Interest Framework aims to complement existing Australian Government investment processes and policy frameworks, and provide rigour to government decisions on significant public investments in industry.
1.17The Treasury’s supporting paper for the FMIA policy explains that there ‘is a strong case for including hydrogen as a priority industry under the Net Zero Transformation Stream’. It also notes that hydrogen production is a highly energy intensive process and ‘can take advantage of our abundant renewable resources’, ‘can make a major contribution to decarbonisation’ by supporting other areas of the economy, and aligns with the needs of international trading partners.
1.18DCCEEW outlined the relationship between the GO scheme and FMIA policy:
The GO scheme supports the Government’s Future Made in Australia plan to attract and enable investment, leveraging economic and industrial benefits of the global move to net zero. The scheme is critical for encouraging investment in industries that can make a significant contribution to Australia’s net-zero target and where Australia has an opportunity to build an enduring competitive advantage.
National Hydrogen Strategy
1.19The Australian Government released the National Hydrogen Strategy (the Strategy) in September 2024. The Strategy ‘provides the framework for Australia to become a global hydrogen leader’ through four objectives: supply; demand; community benefit; and trade, investment and partnerships. The Strategy sets out that hydrogen is a critical component of the global energy transition, with the global hydrogen market forecast to reach US$1.4 trillion in 2050, including US$280 billion of interregional trade.
1.20The International Energy Agency (IEA) reported that 20 per cent of all announced global hydrogen projects are in Australia. Australia has a pipeline of more than 100 projects announced since 2019. The pipeline is larger than for any other single country. It is valued at $225 billion or more. The Strategy notes that most projects ‘remain at the feasibility or engineering stage’.
1.21Under the Strategy, Australia’s focus on the large-scale export of hydrogen and domestic manufacturing industries would bring down the cost of producing renewable hydrogen. The Strategy notes that its primary focus is on the development of renewable hydrogen, and that the previous strategy from 2019 defined ‘clean hydrogen’ as having been produced via electrolysis with renewable energy, or via a fossil fuel pathway with carbon capture greater than 90 per cent.
1.22Australian hydrogen could be ‘exported as an energy carrier to countries less able to generate renewable electricity’, and could be exported through low‑emissions products that have been manufactured locally. These products include using hydrogen as a chemical, or as heat input to the production of green metals, ammonia and low carbon liquid fuels.
1.23The green Hydrogen Production Tax Incentive program, and expanded green Hydrogen Headstart program, will be funded through an $8 billion allocation over ten years from the FMIA policy.
Renewable Energy Target
1.24The RET is an Australian Government scheme which aims to reduce greenhouse gas emissions in the electricity sector, and increase the generation of renewable electricity. The RET was introduced in 2009, with a target of 20 per cent renewable energy by 2020, and is due to sunset in December 2030.
1.25The RET has two elements: the Large-scale Renewable Energy Target (LRET), and the Small-scale Renewable Energy Scheme (SRES). The LRET incentivises investment in renewable energy power stations including wind and solar farms, and hydro-electric power stations, with an aim to deliver 33,000 gigawatt hours of extra renewable electricity each year. LRET power stations can create large-scale generation certificates (LGCs) for eligible renewable energy, and can sell them to liable entities, such as electricity retailers, which have mandatory obligations. These entities must purchase a certain percentage of electricity from renewable sources each year, and buy LGCs and surrender them to the CER.
1.26Alternatively LGCs can be sold to other companies who wish to increase their use of renewable energy for voluntary purposes.
1.27Under the SRES, households and businesses are incentivised to install small‑scale renewable energy systems such as rooftop solar panels, solar water heaters, heat pumps, and small-scale wind or hydro systems. Small-scale technology certificates (STCs) are created for system owners when an eligible system is installed, and can be sold to liable entities, or assigned to the company installing the system in exchange for a lowered purchase price. Liable entities must surrender STCs to the CER each year, which creates demand for them.
1.28As discussed above, the GO scheme is intended to allow a transition of renewable energy certification as the RET is wound up. The bill EM states that the REGO certificate stream would enable domestic and international markets to have confidence in claims of renewable electricity use, and would allow a transition from the RET:
Strong demand for renewable electricity certificates exists in Australia due to the mandatory obligations under the Renewable Energy Target…and voluntary corporate environmental, social and governance commitments. Large-scale generation certificates…created under the RET have been used to meet mandatory target obligations and evidence of meeting voluntary claims of use of renewable electricity generated from large-scale sources such as power stations. However, from 1 January 2031 certificates for renewable electricity cannot be created under the RET.
1.29The RET is administered by the CER in line with the relevant legislation.
1.30DCCEEW officials explained the key differences between the RET and the proposed GO scheme regarding the information that would be contained in the respective certificates:
The big difference between the RET and the [REGO] scheme is that the [REGO] scheme replicates the RET's power station accreditation and certificate creation provisions, modernises and updates them, and introduces a whole lot of new provisions so that people who are voluntarily participating in the scheme—people who are voluntarily consuming these certificates—can get a whole lot of information about what the source of the generation was when the generation occurred, which grid it's connected to and so forth, which you can't currently get under the RET.
1.31Further, the GO scheme would expand certification to certain renewable electricity providers which do not receive LGCs (below-baseline certificates are discussed in the following two chapters), and to energy storage. It would be a voluntary scheme.
Development of the GO scheme
1.32The GO scheme was developed by DCCEEW, in consultation with domestic stakeholders. DCCEEW drew on earlier consultation from 2020 and 2021, and ongoing work through the International Partnership for Hydrogen and Fuel Cells in the Economy.
1.33In May 2020, a survey invited targeted stakeholders to provide their views on the high-level aspects of a hydrogen certification scheme. A preliminary scheme design paper was then released in June 2021. Public consultation on that paper was conducted, with 80 submissions received. Following the design trials (discussed below), policy position papers were released for response. A third formal round of consultation was undertaken in September to October 2023 which included surveys, discussion papers and webinars on aspects of the scheme.
1.34Five design principles were established as part of DCCEEW’s consultation work to guide the proposals put forward. The principles are:
1. Trustworthy – The scheme has high integrity and the information provided is trusted.
2. Transparent – The scheme clearly articulates relevant emissions information to scheme and market participants.
3. Practical – The scheme is practical for scheme participants, being commercially effective to interact with and minimising regulatory burden.
4. Consistent – The scheme is able to be recognised by domestic and international schemes and markets.
5. Flexible – The scheme can evolve with changing consumer needs, technology, and international market developments.
1.35Inquiry participants’ views on participation in the consultation program are set out in Chapter 3.
Design trials for hydrogen industry stakeholders
1.36As part of the consultation process for the GO scheme, the CER ran trials in partnership with DCCEEW in 2022-23. The trials were run as workshops, and included operators of Australia’s most progressed hydrogen projects.
1.37Various GO scheme elements were tested during the trials, including metering approaches, reporting frameworks and emission intensity calculation methods. According to the CER, the trials helped to confirm that the scheme would assist the commercialisation of the hydrogen industry.
1.38A key finding from phase one of the trials was that ‘effective commercialisation would be aided by a high integrity, government-backed GO scheme’, which could:
demonstrate emissions credentials to hydrogen buyers;
provide market certainty; and
underpin commercial arrangements.
1.39Phase two key findings were that:
ammonia production and carrier projects indicated strong support for a GO scheme;
the inclusion of transport and storage increases the complexity and reporting requirements of product GO certificates; and
some hydrogen carriers have reusable components, such as a carrying agent that can be recycled and returned. This adds complexity to the emissions accounting for certain carriers.
Financial impact statement
1.40The Australian Government has provided funding for the development and consultation of the GO scheme over the last few budgets.
1.41The 2022-23 Budget provided $2.2 million to DCCEEW to develop and consult on the design of the GO scheme and to draft legislation. A further $19.7million was provided to the CER over the 2021-22 and 2022-23 Budgets to undertake industry trials and build the initial ICT system.
1.42The 2023-24 Budget provided $38.2 million over four years from 2023-24 (and $6.8 million per year ongoing) for the implementation and operation of the GO scheme. A further $32.2 million was provided in the 2024-25 Budget ‘to fast-track the initial phase of the GO scheme and enable a faster expansion of the scheme’.
1.43According to the EM, the bill is not expected to have an additional financial impact for the Commonwealth, with ongoing costs to the CER for the administration of the scheme to be recovered through the fees recovered through the bill’s provisions, as well as levies collected through the GO Charges bill.
1.44The bill’s EM explains that full cost recovery is expected by 2030-31, with costs to be partially recovered from commencement. Initial costs that are unable to be recovered, relating to policy design and ICT systems, have been offset by redirecting funds from the Strategic International Partnership Investment Stream program.
Human rights compatibility
1.45The respective EMs to the bill, Charges bill and Amendment bill state that the bills are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. The full statements regarding compatibility with human rights can be found attached to the explanatory memorandums for the bills.
1.46At the time of writing, the Parliamentary Joint Committee on Human Rights had made no comment on the bills.
Scrutiny of Bills Committee examination
1.47The Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) reviewed the bills noting that while it is appropriate to include many technical and highly detailed matters in delegated legislation, the explanatory materials do not specify why they are to be included in delegated legislation. The Scrutiny of Bills Committee gave the example of the Regulator’s proposed power in yet to be released proposed rules to cancel or suspend the registration of a renewable energy facility, without the EM explaining the justification for this matter being in rules and not the primary legislation.
1.48The Scrutiny of Bills Committee noted that cancellation or suspension of registration could affect rights and interests. This was also noted in relation to the Charges and Amendment bills.
1.49The Scrutiny of Bills Committee also raised concerns as one of the matters to be included in the bill would allow for the rules to prescribe circumstances in which the components that make up a renewable energy facility are not applicable. The Scrutiny of Bills Committee set out that provisions which enable delegated legislation ‘to modify the operation of primary legislation are akin to Henry VIII clauses, which authorise delegated legislation to make substantive amendments to primary legislation (generally the relevant parent statute)’.
1.50The Scrutiny of Bills Committee recommended that the explanatory memorandums to the bill and Amendment bill be updated to include information that addresses that committee’s concerns.
Conduct of the inquiry
1.51In accordance with its usual practice, the committee advertised the inquiry on its website and wrote to relevant organisations inviting submissions by 26September 2024.
1.52The committee published 31 submissions from organisations and individuals, which are listed in Appendix 1 and available on the committee's website.
1.53A public hearing was held on 15 October 2024 in Canberra. A list of witnesses who gave evidence at the hearing is available in Appendix 2.
Structure of the report
1.54Chapter 1 outlines the context for the package of bills, and conduct of the inquiry.
1.55Chapter 2 sets out the key provisions of the three bills in the package.
1.56Chapter 3 discusses views of inquiry participants on the key issues of the three bills and the broader perspectives on the proposed scheme. It also contains the committee views and recommendation.
Acknowledgements
1.57The committee thanks the organisations and individuals who made submissions to this inquiry.