National Greenhouse and Energy Reporting Amendment Bill 2009
The inquiry
1.1
On 19 March 2009, the Senate referred the provisions of the National
Greenhouse and Energy Reporting Amendment Bill 2009 to the Senate Standing
Committee on Finance and Public Administration (the committee) for inquiry and
report by 7 May 2009.
1.2
The committee received 5 public submissions, and one item of
correspondence. A list of organisations that made public submissions can be
found at Appendix 1. The committee did not hold any hearings for this inquiry.
Submissions may be accessed through the committee's website at https://www.aph.gov.au/senate/committee/fapa_ctte/index.htm.
Purpose of the bill
1.3
The purpose of the bill is to amend the National Greenhouse and
Energy Reporting Act 2007 (the act) 'to better reflect the original policy
intent of the act, and to better facilitate its administration'.[1]
The bill incorporates two schedules, the first being amendments relating to
audits and the second being an amendment relating to the publishing of
information.
1.4
The act established a national framework for reporting greenhouse gas
emissions, certain abatement actions, as well as energy consumption and
production by corporations, from the 2008–09 financial year.[2]
1.5
The act was amended through the National Greenhouse and Energy Amendment
Bill 2008. The amendments sought to improve the administration of the act, and
to 'slightly expand the number of matters which may be published by the
Greenhouse and Energy Data Officer (GEDO), in order to improve public access to
information on corporate use of energy and greenhouse has emissions'.[3]
The National Greenhouse and Energy Reporting Amendment Bill 2009 (the bill) is
thus the second bill introduced with the intention of amending the act.
1.6
The bill is aimed at improving the operation of the act, and
incorporates some stakeholder feedback received by the Government since the
introduction of the act. The Hon Greg Combet, MP, Parliamentary Secretary for
Climate Change commented:
In some cases, the amendments better reflect the original
policy intent behind the act. In other cases, the bill responds to issues
raised by stakeholders in consultations. In particular, the bill focuses on the
audit framework to be established under the act and for the Carbon Pollution
Reduction Scheme, and responds to feedback from consultation on this framework.[4]
1.7
The key amendments include replacing the potentially confusing term
'external audit', establishing a register of auditors, tightening privacy
conditions surrounding audit information, while mandating the publishing of
greenhouse and energy audits, granting ministerial control of the audit
guidelines, and eliminating the need to publish corporate level energy
production data.
Changes to terminology
1.8
The bill makes several changes to the terminology used to describe the
auditing framework under the act. The key change is the removal of the term
'external audit' in favour of the more accurate 'greenhouse and energy audit',
and the term 'external auditor' in favour of 'registered greenhouse and energy
auditor'. This removes the potential for confusion mentioned by some
stakeholders in the consultation process over the definition of 'external
audit'.[5]
1.9
The term 'registered greenhouse and energy auditor' references the
establishment of a register of auditors, which is discussed below. Under the
framework established by the amendment bill, audits will be conducted by teams
of auditors, with an audit team leader and audit team members. The explanatory
memorandum states that the use of audit teams will allow for cross-disciplinary
expertise in the conduct of audits.[6]
Establishment of register of
auditors
1.10
One of the key amendments is the establishment of a register of greenhouse
and energy auditors under the new section 75A. This register, which is separate
from the National Greenhouse and Energy Register, would list auditors who had
been assessed by the GEDO as fulfilling requirements such as 'qualifications,
knowledge, expertise, competence, independence and other matters'.[7]
The exact details of these requirements and the administrative detail of the
register are left to subsequent legislative instruments for which the GEDO
would be responsible.
1.11
As audit team leaders would have to be drawn from this register, this
amendment seeks to ensure that the quality of auditors will be maintained to
reflect existing domestic and international best practice.[8]
1.12
A further amendment in the bill would make any decision by the GEDO to
refuse to register an auditor reviewable by the Administrative Appeals
Tribunal.
Publishing of audit results
1.13
Item 7 of the bill adds 'the results of a greenhouse and energy audit
carried out in relation to the corporation' to the list of information which must
be entered on to the National Greenhouse and Energy Register (the register).
The GEDO has the discretion to make information on the register publicly
available, though the explanatory memorandum notes that such an action 'would
have to take a variety of issues into account including the possibility of
publishing inaccurate information and the potential impacts on audited
companies'.[9]
The second reading speech states that 'Stakeholders...have indicated a
significant interest in the public having access to audit outcomes. This will
assist the public to ascertain the reliability of a corporation's published
greenhouse and energy information'.[10]
Secrecy provisions
1.14
In order to protect commercially sensitive information, the bill
contains an amendment to the act that extends secrecy provisions to audit team
leaders and members. It makes the disclosure of greenhouse and energy
information or audit information obtained through the audit process an offence
for these individuals, punishable by imprisonment for two years.
Elimination of need to publish
energy production information
1.15
The bill removes the need for the GEDO to publish corporate level totals
of energy production. According to the second reading speech, this has been
done to:
...eliminate confusion between economy-wide energy production
statistics produced by the Government and corporate-level energy production
totals ...the amendment will remove the obligation for the regulator to publish
information that is aggregated in such a way as to be unusable and potentially
misleading.[11]
1.16
The second reading speech also notes that the proposed amendment will
not remove the need for corporations to report energy production to the GEDO,
or affect the publication of greenhouse gas emissions or energy consumption
data.
Ability to audit individuals
outside the company
1.17
The bill grants the GEDO authority to audit entities that report under
section 20 of the existing act. This section operates where information that
would ordinarily be reported under the NGER act is held by a third-party. The
amendment is thus aimed at ensuring audit provisions can be extended to a third
party where necessary.
Ministerial control of requirement
for audit
1.18
The bill gives the Minister the power to determine the requirements for
carrying out greenhouse and energy audits, and in preparing the reports. The
requirements will be set out by legislative instrument, and will also allow
scope for different types of audit. In the current act, the GEDO is to
determine guidelines for audits, also by legislative instrument.
Issues raised in submissions
1.19
The five submissions received over the course of this inquiry were
generally supportive of the proposed amendments. However, there were some minor
criticisms and suggestions for further amendment provided to the committee.
Terminology used in the act
1.20
Two organisations which submitted to the inquiry voiced concerns over
the terminology used in association with the audit process. CPA Australia,
while supporting the change from 'external auditor' to 'audit team leader', took
issue with the use of the term 'audit' as it is used in the act and the
proposed amendments. CPA Australia stated:
...we believe that the use of the term 'audit' within the
legislation, which we understand the Department of Climate Change (DCC)
proposes to use to refer to both 'assurance engagements' and 'agreed-upon-procedures'
engagements, is problematic. It has potential to create conflicts for members
of the professional accounting bodies who are obliged by professional
requirements to conduct an 'audit' in accordance with audit and assurance
standards issued by the Australian Auditing and Assurance Standards Board (AUASB).
Also, use of the term 'audit' has the potential to create confusion in the
marketplace about the type of engagement being undertaken, and the work being
preformed by the auditor.[12]
1.21
CPA Australia also commented that the definition of 'greenhouse and
energy audit' may not be sufficient to address the assurance requirements of
the Carbon Pollution Reduction Scheme (CPRS). The submission also included
other examples of terms that CPA Australia considered lacking in clarity. Both
CPA Australia and PricewaterhouseCoopers commented that the use of the term
'results' in the amendment to subsection 16(4)(b) was not specific enough and
grounds for concern.[13]
1.22
To avoid problems arising as a result of this, CPA Australia suggested
the adoption of more specific language and definitions within the act,
particularly in relation to audits.
1.23
The Department of Climate Change (the department) addressed the issue of
terminology and stated:
The Office of Parliamentary Counsel advised that the common
meaning of the term 'audit' is consistent with its use in the Act. The
Department has undertaken extensive consultation on this issue in response to
stakeholder confusion about the purpose of audits under the Act. The Bill
includes the words 'greenhouse and energy' in front of the term 'audit' to be
clear that these audits are for the purposes of the Act. The draft auditing
standard will be released in May/June for public consultation.[14]
Independence requirements
1.24
Three of the submissions commented on the independence criterion for
greenhouse and energy auditors registering with the GEDO, as specified in
proposed section 75A. To be registered, an individual would need to 'meet such
requirements as to qualifications, knowledge, expertise, competence,
independence and other matters as are set out in the regulations for the
purposes of this paragraph or in legislative instrument made under the
regulations in accordance with subsection (4)'.[15]
1.25
Both PricewaterhouseCoopers and CPA Australia made the point that
independence is relative to the corporation being audited, and suggested that
independence should be verified at the beginning of each audit, rather than
upon registration. PricewaterhouseCoopers suggested the removal of the
independence criterion for registration, stating:
Independence considerations should not be applicable at
registration. The ethical principles binding auditor independence should be
adhered to but auditor independence will need to be determined at the
engagement.[16]
1.26
In response to this concern, the department stated that:
The treatment of independence under the Act and Bill is based
on the independence requirements of the Corporations Act 2001 and the Australian
Securities and Investments Commission Act 2001. The location of
independence requirements will be decided as part of developing the subordinate
legislation. Consultation on these requirements will occur in May/June 2009.[17]
Appealing deregistration
1.27
The bill includes an amendment that makes a decision by the GEDO not to
register an individual in the greenhouse and energy auditor registry reviewable
by the Administrative Appeals Tribunal (AAT). This amendment attracted no
criticism in any submission, but both CPA Australia and the National Australia
Bank suggested that an auditor who is deregistered by the GEDO from the
registry should also be able to apply to the AAT for a review of the decision.
Publication of audit
results/reports
1.28
The proposed amendments would require the 'results of a greenhouse and
energy audit carried out in relation to the corporation' to be published on the
National Greenhouse and Energy Register. CPA Australia voiced a concern in its
submission that the term 'results' is too ambiguous, and that 'potentially, the
'results' could include only the opinion paragraph of the assurance report; the
entire assurance report; or more detailed information'.[18]
1.29
National Australia Bank (NAB) was supportive of the requirement to
publish audit results publicly, stating 'disclosure of outcomes of audits to
the public in the form of an audit statement will improve transparency around
the reliability and consistency of published greenhouse and energy data'.
However, NAB went on to state:
NAB notes that it is typical, following an audit of financial
or CR reports, for the auditor to provide an assurance statement and a detailed
report to management regarding areas of best practice and recommendations for
improvement. NAB does not believe that it is appropriate for the Act to require
the detailed report to management or to the GEDO to be published. As the
intended 'audience' of the report is management or the GEDO, the report is a
highly technical and detailed document. For this reason, NAB considers that it
may be difficult for the public to read such a report and as such, its
publication may create a risk of misinterpretation.[19]
1.30
In response to these concerns, the department made the following comment:
In making this information publicly available, the Government
recognises the importance of establishing clear criteria for disclosure. The
amendment does not mean that the GEDO must publish all outcomes of audits.
Rather, the GEDO may make audit outcomes available to the general public. This
will be subject to regulations being made. Development of regulations will take
a variety of issues into account (including commercially sensitive
information).[20]
1.31
The department also stated that this would be the subject of further
consultation.
Operational vs. financial control
of operations
1.32
In their submission to the inquiry, Leighton Holdings raised concerns
that the definition of operational control given under the act would make
contract mining corporations liable for reporting on emissions directly
associated with a resource (such as fugitive emissions) in addition to operator
liabilities such as emissions produced during extraction and haulage of a
resource. In Leighton Holdings opinion, this would place an unfair burden on
contract miners that should be borne by the financial operators (owners) of a
mine:
The problem relates to the definition of ‘operational
control’ in the NGER Act which does not apply logically or fairly to the mining
sector, where a third of work is undertaken by contractors. The definition has
the potential to draw service providers into the trading scheme and make them
liable for emissions not of their own making, such as fugitive emissions from
coal, with limited potential for recovering the costs of carbon permits and
additional administration. Obligations to reduce emissions should properly rest
with those best able to do so and those benefiting most from the mining
industry – the mine owners.[21]
1.33
As a result of this, Leighton Holdings suggested amendments to the
definition of operational control. The department responded to this concern,
stating:
The Department is currently engaged in discussions with
stakeholders on this issue with the aim of identifying the best possible
solution and incorporating it into later amendments. This issue also relates directly
to the proposed CPRS. Further amendments on this issue therefore will also need
to be considered in light of the CPRS legislation being finalised.[22]
1.34
The Committee agrees that the Bill needs to be amended to provide
flexibility and certainty for the mining industry. Whilst the committee
recognises that it would be preferable to have the bill amended prior to
passage, the committee accepts that the Department is undertaking continued
consultation with industry stakeholders on this issue, with views to making
further amendments in light of the finalisation of mining industry treatment in
the proposed CPRS legislation.
Conclusion
1.35
The committee commends the process of consultation that has been
undertaken by the department in the drafting of this legislation. The committee
notes that much of the detail of the legislation will depend on the development
of regulations and legislative instruments referenced in the amendments. The
committee encourages the department to ensure that adequate consultation continues
in the formulation of these regulations and legislative instruments.
1.36
The National Greenhouse and Energy Reporting Act 2007 provides
the backbone for Australia's efforts to control greenhouse gas emissions by
establishing a robust reporting and accounting mechanism. The National
Greenhouse and Energy Reporting Amendment Bill 2009 will make several key
improvements to the existing act. It addresses concerns raised in consultation
with stakeholders by providing a more comprehensive and clear audit framework.
It will also ensure that commercially sensitive information is protected. For
these reasons, the committee supports the passage of the bill.
Recommendation 1
1.37
The committee recommends that the Senate pass the bill.
Senator Helen Polley
Chair
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