What's next for the NEG?

Speaking at a press conference yesterday, Prime Minister Malcolm Turnbull has announced that the introduction of the much anticipated Commonwealth Bill containing the emissions reduction target for the National Energy Guarantee (NEG) has been put on hold.

As originally proposed, key elements of the NEG which were to be within the remit of Commonwealth legislation included:

1. what the emissions reduction target will be and how/when it will be reviewed;
2. exemptions for emissions-intensive trade-exposed (EITE) activities; and
3. the use of Australian Carbon Credits Units (ACCUs) to offset liable entities’ emissions reduction obligations.

While the future of the NEG now appears uncertain, Prime Minister Turnbull appears to have ruled out the possibility of putting the emissions reduction target in regulations, rather than Commonwealth legislation as was originally proposed. 

Crucially, the ambition level for the emissions guarantee remains a contested feature of the NEG between all factions of politics.  The Commonwealth Government was targeting a 26% reduction on 2005 levels by 2030, with a review in 2024.  However, at the Clean Energy Summit in Sydney earlier this month, Shadow Minister for Climate Change and Energy, the Hon Mark Butler MP, reaffirmed that the Labor Party will strongly oppose the Coalition’s target and push for a 45% reduction on 2005 levels by 2030.

The Prime Minister’s decision to hold back the draft Commonwealth NEG legislation indefinitely, follows the full Coalition party room’s adoption of the NEG as its official energy policy just last week.

On 10 August 2018, the State, Territory and Federal Energy Ministers which make up the COAG Energy Council (Energy Council) met to consider the final design of the NEG and its implementation through the State-based National Electricity Law (NEL).

The Energy Council agreed to progress the design of the NEG and draft legislation to amend the NEL was released for consultation the following day: National Electricity (South Australia) (National Energy Guarantee) Amendment Bill 2018 (NEL Bill).

The NEL applies in each State and Territory comprising the national electricity market (NEM).  Accordingly, in order for the amendments to the NEL to go through, all of the NEM jurisdictions would need to support the NEG.  However, without any certainty around the Commonwealth Government’s position in relation to key issues such as the emissions reduction target, it remains unclear whether the State and Territory Energy Ministers will sign off on the NEL Bill.

The NEL Bill, as publicly released, sets out:

1. who will be liable under the reliability and emissions reduction requirements; and
2. how those mechanisms will work, including the compliance and penalty framework.

The NEL Bill also flags where additional provisions relating to the implementation of the NEG will be set out in the National Electricity Rules (NER), which sit under the NEL.

The most significant design features of the proposed emissions reduction and reliability requirements in the NEL Bill are identified in the table below.

Emissions reduction requirement

Commences at same time as Commonwealth legislation.

Reliability requirement

Commences on assent of the NEL Bill.

At the State/Territory level, the Energy Security Board (ESB) is currently seeking feedback on the draft NEL Bill and submissions will remain open until 12 September 2018.

In addition, the ESB has released a policy paper setting out additional options for activating the reliability requirement under the NEL (Reliability Options Paper), including whether:

• there should be an additional trigger at T-5 to give liable entities more time to respond to a forecast gap; and
• the T-3 trigger should be removed so that liable entities are responsible for monitoring AEMO’s forecasts and managing their contract positions accordingly.

Submissions on the Reliability Options Paper will remain open until 5 September 2018.

Following the consultation periods on the draft NEL Bill and the Reliability Options Paper, the final proposed legislation to amend the NEL is to be the subject of a further Energy Council meeting in September or October this year.  All things going to plan, the Energy Council is expected to seek to implement the NEL Bill before the end of 2018.

The draft rule changes proposed for the NER are to be presented to the Energy Council at its April 2019 meeting.  If agreed, the NER rule changes will to be implemented later in 2019.

At this stage, until the Commonwealth Government seeks to advance the NEG legislation at the Commonwealth level, it remains unclear how the State-level processes that have already commenced will play out.  However, it remains likely that consultation on the NEL Bill and the Reliability Options Paper will be allowed to progress.

Please contact a member of our Energy Team if you would like more information or assistance preparing a submission.