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Scheme compliance

​​Ensuring integrity of data through auditing framework

The National Greenhouse and Energy Reporting Audit Framework helps ensure the integrity of data reported to us under all the schemes we administer.

Audits provide confidence in reported National Greenhouse and Energy Reporting scheme data, and identify factors that help prioritise report assessment, compliance, intelligence, and client education activities. Audits also provide assurance to issue ACCUs under the Emissions Reduction Fund (see Emissions Reduction Fund) and award exemption certificates under the Renewable Energy Target for emissions-intensive trade-exposed facilities (see Renewable Energy Target).

During 2017–18 a total of 380 audits were completed under this framework. This included 67 audits that we initiated at our cost and selected using a risk-based approach. Participants in our schemes submitted the remaining audits, including audits of 141 Emissions Reduction Fund projects, 85 exemption certificate applications (Renewable Energy Target), 14 calculated baseline applications (safeguard mechanism) and 73 voluntary audits from National Greenhouse and Energy Reporting scheme reporters.

Of the audits conducted in 2017–18, a total of 92 per cent returned a clean opinion. This indicates the client is compliant with scheme requirements (although they may have a small number of non-material findings). Six per cent returned a qualified opinion. This indicates the client is largely compliant except for a small number of material matters that are not pervasive. The remaining two per cent either returned an adverse finding, where there was at least one material issue of significant non-compliance or the auditor was unable to form an opinion.

Checking registration and compliance of auditors

We register greenhouse and energy auditors, and monitor their performance. As at 30 June 2018, there were 105 registered auditors, down from 116 registered at 30 June 2017. This reduction was predominantly due to self-removal and auditors not remaining active—therefore not meeting ongoing registration requirements.

We assessed 34 auditors as part of the routine registration review program during 2017–18. The number of registered auditors remains sufficient to support and provide audits for our schemes and clients.

Compliance by registered auditors is an area of focus for us, given its importance to the integrity of the schemes we administer. In 2017–18, we conducted seven inspections of registered Category 2 auditors, selected based on their activity across our schemes. These provide us with in-depth insights into auditor performance. The inspection program has also assisted us to enhance our own procedures and improve guidance.

Where we identified non-compliance through inspections, we initiated compliance action. This compliance action ranged from specific improvements that auditors need to undertake, through to considering suspension or deregistration. In 2017–18, one auditor agreed to undertake an action plan to avoid suspension.

Enhancing the Audit Framework

In response to inspection findings and regulatory decisions, we began a program of enhancements to the Audit Framework. This program is now nearing completion, with the remainder of amendments to the National Greenhouse and Energy Reporting Regulations expected to be made during 2018–19.

Emissions Reduction Fund compliance activities

Monitoring compliance with scheme obligations

This year our compliance focus for the Emissions Reduction Fund was on identifying participants who had not met their reporting obligations, resulting in:

  • 89 projects revoked (85 voluntarily) by 40 participants—this was mainly due to non-viable projects, or inability to obtain eligible interest-holder consent, and
  • 14,779 ACCUs relinquished by four participants—the main reason was the loss of legal right by the project proponent or inability to obtain eligible interest-holder consent.

Using spatial analysis to verify capacity of projects

We use spatial analysis tools to assess applications for ACCUs for vegetation projects. This includes use of high-resolution geospatial imagery to check the capacity of projects to deliver carbon abatement. In 2017–18 we asked clients to re-appraise claims for ACCUs against a more detailed definition of what constitutes land with forest potential or forest cover in vegetation regeneration projects.

Agreeing to enforceable undertakings where necessary

Enforceable undertakings are written statements from a person or organisation that they will do or stop doing certain things in order to resolve breaches or improve compliance with the legislation.

During the year, we accepted one enforceable undertaking with a participant who failed to notify us within the legislated timeframe that they had ceased to be the project participant and who provided incorrect information when submitting a project crediting application. Following consultation with the participant, we agreed they would review their internal processes to our satisfaction.

Providing guidance on native title and vegetation project methods

During 2017–18 we developed new guidance documents to help improve compliance in the following areas:

  • Native title, legal right and eligible interest-holder consent—Our guidance is designed to improve our clients’ understanding of how legislation for Emissions Reduction Fund projects interacts with the Native Title Act 1993. This is applicable to all land-based Emissions Reduction Fund projects and is an important area of compliance. For projects on native title land, registered native title bodies corporate are eligible interest-holders. This means their consent is required before any ACCUs can be issued. The guidance sets out and encourages best practice in obtaining these consents. See details in the Feature New native title guidance to unlock carbon abatement with benefits for Indigenous bodies and others under the Emissions Reduction Fund.
  • Human-induced regeneration method and native forest managed regrowth method—Our interim guidance clarifies the operation of these methods and our expectations for eligibility and crediting requirements. This includes the use of high-resolution geospatial imagery to verify project compliance, and guidance on accurately identifying areas where carbon will be stored, focusing on existing forest cover and future forest potential.

Achieving full compliance with safeguard mechanism

This year we actively engaged with responsible emitters and held workshops to co-design and promote understanding of technical guidance and our agency’s administrative approaches toward safeguard mechanism compliance.

The safeguard mechanism requires all facilities that exceed their baselines in a financial year to take steps to manage their emissions by 1 March in the following year.

Most facilities that exceeded their baselines in 2016–17 took steps using one of the options described under Setting and managing baselines (see Emissions Reduction Fund).

However, 16 facilities were required to surrender a total of 448,097 ACCUs to manage their emissions below their baselines. All ACCUs were surrendered before 1 March 2018 and the safeguard mechanism therefore achieved 100 per cent compliance for the first compliance period.

National Greenhouse and Energy Reporting scheme compliance activities

This year our compliance focus was on enhancing data integrity and ensuring auditors comply with standards.

Encouraging scheme compliance

We engage with reporting corporations to seek feedback, discuss issues and provide ongoing education.

This year we engaged external expertise to review and refine our technical guidance for emissions and energy reporting in the oil and gas, coal mining, landfill and electricity generation sectors. As an example, the guidance promotes consistency in the use of criteria to measure fuel across facilities, which ensures that energy production and consumption is reported accurately, addressing a common issue identified in the data set.

Analysing the reported data helps us develop a picture of high risk areas that need the most focus. Our aim is to bring corporations back into voluntary compliance with the scheme, while taking stronger action to discourage non-compliance.

Large-scale Renewable Energy Target compliance activities

Identifying issues with certificate claims

We introduced a number of compliance monitoring mechanisms throughout the year to strengthen our ability to identify issues in claims for large-scale generation certificates and maximise scheme integrity. We also introduced improved processes to automatically profile metered electricity data and identify anomalies and excessive generation.

Depending on the renewable energy source, we also compared claims with third party data sources to further test whether power stations are reporting correctly and to identify discrepancies. We considered any issues identified by this process and took action where necessary, such as not validating certificates.

In 2017–18 we also ran a project to match Australian Energy Market Operator data against information provided by renewable power stations under the Large-scale Renewable Energy Target. Using this independent, third party data source provided assurance over a large proportion of certificates validated under the scheme during 2016.

In addition, we ran a pilot audit program during the year. This involved registered Greenhouse and Energy Auditors visiting power stations to check the completeness and accuracy of electricity generation returns and ensure the power stations were operating in accordance with their accreditation requirements. Following this successful pilot, we began a second audit program to focus on nominated persons with responsibilities for numerous power stations in the commercial and industrial solar sector, and ensure they are using sound business practices and record-keeping in administering their requirements under the Act.

Managing power station accreditations

We suspended the accreditation of 18 power stations during the reporting period. Power stations were suspended under a range of circumstances provided under the Act, including failure to submit an electricity generation return, not producing electricity from an eligible energy source and not using metering that allows us to determine the amount of electricity generated by the power station.

Small-scale Renewable Energy Scheme compliance activities

Monitoring certificate claims

This year our compliance focus area for the Small-scale Renewable Energy Scheme was enhanced monitoring of integrity of claims for small-scale renewable energy certificates. We focused on the installation of unapproved panels, misuse of accredited installer details and, in some cases, where no eligible system had been installed. The conduct and capability of our agents in line with our Fit and Proper Person posture was also a focal point for our compliance activities.19 This activity resulted in the suspensions of seven REC Registry accounts and two registered persons. We also accepted three enforceable undertakings, including an undertaking with one of the biggest registered agents and another with a prominent solar PV retailer.

Three targeted compliance monitoring programs were also undertaken. The first focused on the installation and distribution of unapproved solar PV panels and the second focused on accredited installers who had multiple adverse inspection result findings.

The third program, Project Sentinel, was undertaken to better understand agents’ businesses and establish our expectations of participants in the scheme. The program encouraged agents to take up the Solar Panel Validation and SRES Smart initiatives prior to full roll out.

  • Solar Panel Validation—We partnered with the solar industry to produce an easy way to check and confirm that solar panels are genuine and approved panels, meaning they are backed by Australian warranties, meet Australian standards for quality and performance and are eligible for small-scale technology certificates. This involves a mobile app to scan solar panel serial numbers, which are then checked against a database of verified numbers. From July 2018, the apps and validation services were available to all participants in the small-scale renewable energy scheme.
  • SRES Smart—This initiative will increase agents’ competency and capability to better protect themselves and the scheme before certificates are created.

During Project Sentinel we personally visited a total of 80 agents, who create 80 per cent of certificates, and industry feedback was positive. The program also found that some agents incorrectly rely on us as their primary compliance control.

Inspecting installed units

Each year, we inspect a statistically significant sample of solar panel systems to check conformance with the relevant Australian standards, including relevant state and territory electrical safety standards, and requirements under the Small-scale Renewable Energy Scheme.

To be eligible to create small-scale technology certificates, the small generation unit’s solar panels and inverter must be on the Clean Energy Council list of approved components, and the system must be installed by a Clean Energy Council accredited electrician.

In 2017–18 we received 3513 reports on solar PV system inspections. The proportion of systems assessed as unsafe was 2.2 per cent, which is higher than the 2.0 per cent in 2016–17 but still lower than the results for 2015–16 (3.8 per cent) and 2014–15 (4.6 per cent). One factor that contributed to the increase in unsafe systems was the detection of DC isolators that were still in use despite being the subject of a product recall in November 2017.

If an inspector finds an unsafe system, they are required to render it safe for the consumer, typically by turning it off. They then notify all interested parties of the extent and nature of the safety risk, including the relevant state and territory electrical safety regulator.

We have no direct powers to deal with electrical safety matters. Responsibility for electrical safety is a matter for state and territory electrical safety regulators. As part of our role, we provide reports to state and territory electrical safety regulators and the Clean Energy Council, and we publish inspection results on our website. We also share the results of the inspection program with peak industry bodies, electrical safety regulators, inspection service providers and industry more generally through our education and outreach activities. To date, the evidence and trends from the program data have contributed to improvements in the Clean Energy Council installer training and guidelines, changes to the Australian standards and improved consistency of inspections.

Investigations

We actively investigate breaches and potential breaches of the legislation we administer.

Our investigations work leverages off our compliance, detection and intelligence activities. Anomalies undergo a preliminary assessment and, where there appears to be a substantive non-compliance, experienced and qualified investigators, officers and lawyers work together to collect evidence and determine the most appropriate course of action. These actions can range from administrative responses (including warning letters, suspension of registration, and Fit and Proper Person processes), use of information gathering powers (including notices to produce and warrants), and enforcement responses (including referring matters to other agencies for prosecution or providing briefs to the Commonwealth Director of Public Prosecutions). Investigations form an integral part of our efforts to protect the integrity of the schemes we administer, the relevant industries and consumers.

Investigations are undertaken in accordance with our Compliance, Education and Enforcement Policy and the Australian Government Investigation Standards.

In 2017–18, a total of 106 incidents were received by our compliance and investigation sections, leading to 98 new investigations being opened:

  • 92 related to the Renewable Energy Target—allegations involve recording false information in the REC Registry or submitting false information or documents
  • four related to the National Greenhouse and Energy Reporting scheme—allegations involve liable entities failing to meet their reporting obligations, and
  • two related to the Emissions Reduction Fund—allegations involve the submission of documents containing false and misleading information.

During this same period, we closed 116 investigations. Closed investigations include matters that have been resolved by non-court action, including accepting enforceable undertakings or suspending registration (therefore removing non-compliant parties from participation in our schemes).

As at 30 June 2018 a total of 37 investigations remained open.

During the year we also referred one brief of evidence to the Commonwealth Director of Public Prosecution to consider criminal action. This case related to alleged fraudulent conduct by a Renewable Energy Target participant.

In addition, we continue to liaise with the external agencies such as the Australian Taxation Office, Australian Federal Police and the Australian Criminal Intelligence Commission, strengthening cross-agency connections, leveraging capabilities and experience to detect, disrupt and respond to non-compliance and fraud.​

Table 9: Total investigations in 2017–18
Outcome Renewable Energy Target National Greenhouse and Energy Reporting scheme Emissions Reduction Fund Total
Received 2017–18

92

4

2

98

Closed 2017–18

115

0

1

116

On hand as of
30 June 2018

32

4

1

37

Renewable Energy Target investigations have generally related to potential fraud in the Small-scale Renewable Energy Scheme. Potential fraud can include claims for solar PV systems that were never installed or over-claiming of certificates based on system size. We use sophisticated detection methods to determine whether systems have been installed and we pursue actions against those in the supply chain involved in any unlawful activity.

Emissions Reduction Fund investigations have focused on false claims and inappropriate application of signatures.

Table 10: Compliance and enforcement outcomes in 2017–18, by type and scheme
Outcome Renewable Energy Target National Greenhouse and Energy Reporting scheme Emissions Reduction Fund Total
Administrative action (including voluntary surrender of certificates/credits, suspension/closure of registry account)

17

0

0

17

Warning or advisory letter

39

0

0

39

Enforceable undertaking accepted

4

0

1

5

Enforceable undertaking completed

1

0

1

2

Successful prosecution (note: no prosecutions were finalised during this period)

0

0

0

0

Total

61

0

2

63

In 2017–18, we accepted the five enforceable undertakings as referred to above. Details of those enforceable undertakings are published on our website and summarised below.

Table 11: Enforceable undertakings in 2017–18
Entity Date accepted Allegation summary
EDL LFG (SA) Pty Ltd

29 June 2018

  • Failure to comply with the reporting requirements under section 76 of the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act).
  • Failure to meet project requirements under section 78(2) of the CFI Act.
  • Make incorrect statements in an application for Certificate of Entitlement made under section 13 of the CFI Act.
Emerging Energy Solutions Group Pty Ltd

1 December 2017

Green and Gold Solar Australia Pty Ltd

27 October 2017

  • Improperly create 3262 STCs in contravention of section 24A of the REE Act.
P&N NSW Pty Ltd

21 July 2017

  • Improperly create 1058 STCs in contravention of section 24 of the REE Act.
Peng Chen

11 July 2017

  • Provide false and misleading information in contravention of section 24B(1) of the REE Act.
​​

Footnotes

19. The Fit and Proper Person test is a key control to protect the integrity of the schemes we administer. Requirements generally consider a person’s past compliance with the law, whether they are insolvent, and whether they have necessary capabilities and competence to effectively fulfil their intended scheme role.

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