Statement setting out a concise description of the characteristics of Emission Reduction Units
Australian National Registry of Emissions Units Act 2011
Date of publication: September 2015
This is a statement setting out a concise description of the characteristics of Emission Reduction Units (ERUs). This statement is published, and will be kept up-to-date, under section 61 of the
Australian National Registry of Emissions Units Act 2011 (ANREU Act 2011). It is not a Product Disclosure Statement within the meaning of Part 7.9 of the
Corporations Act 20011.
This statement is general in nature and does not apply to any particular situation, transaction or organisation. It is not legal or financial advice. You should seek your own legal or financial advice with particular reference to your own circumstances and requirements. This statement does not provide specific information or advice concerning, among other things, the detailed characteristics of ERUs, the costs associated with them, their legal status, their taxation treatment and the potential benefits and risks of dealing in them.
Neither the Commonwealth of Australia or the Clean Energy Regulator, nor any of their officers or related bodies, make any representation as to the future nature, characteristics or performance of ERUs. Nor can they provide any specific advice concerning ERUs. You may obtain professional advice from a person who holds an Australian Financial Services Licence (AFS licence) that authorises them to provide advice in relation to ERUs or is exempt from the requirement to hold an AFS licence for this purpose. You can visit the
ASIC website to search the register of AFS licensees, or visit the
Money Smart website for more information on obtaining professional financial advice.
Please note that any financial product which is related to or associated with an ERU, such as a derivative or a managed investment scheme, may require a Product Disclosure Statement to be provided by the person offering or recommending that financial product.
Section 4 of the
ANREU Act 2011 provides that an ERU is ‘an emission reduction unit issued in accordance with the relevant provisions of the Kyoto rules. It is immaterial whether the unit was issued in or outside Australia’.
Under the Kyoto rules, an ERU is a tradable unit representing one tonne of carbon dioxide-equivalent (tCO2-e) of emissions abatement or sequestration. ERUs are issued for projects registered under the Joint Implementation (JI) mechanism, which operates in countries that are Annex I Parties to the UNFCCC and Kyoto Protocol (developed country Parties)2.
Developed country parties may use ERUs to meet their emissions reduction or limitation commitments.
Each ERU has a serial number made up of a number of different elements which, when combined, create a unique identifier for the ERU. The number identifies the fact that the unit is an ERU, the Kyoto Party that issued the ERU, the Kyoto commitment period for which the ERU was issued, and the JI project number.
JI allows a developed country Party (and entities approved by a developed country Party) to invest in emission reduction or removal projects (JI projects) hosted in another developed country Party and, in return, to receive ERUs corresponding to the volume of sequestered (that is, stored) or abated (that is, reduced) carbon dioxide-equivalent (CO2-e) achieved by JI projects.
ERUs are issued to the relevant JI project participant by the developed country Party that is the host of the JI project. Each Party has different national policies about the type of JI projects that they will host and the procedures for issuing ERUs.
In general, following verification of achieved emission reductions, a host country will direct its national emissions registry (in Australia, this registry is the
Australian National Registry of Emissions Units (Registry)) to convert either assigned amount units (AAUs) or removal units (RMUs), held in the Registry, to ERUs equivalent to the amount of abatement or sequestration generated by the JI project. ERUs are transferred to the participants in a JI project when the host country converts an AAU or RMU to an ERU. This ensures that emissions abatement or sequestration achieved through the JI project is only counted against one Party’s target.
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An ERU is represented as an electronic entry in the Registry account in which the ERU is held3. The entry for an ERU consists of its unique serial number4. A Registry account can only be opened by a person after the Regulator has considered whether they are a ‘fit and proper person’5.
The Regulator may correct the Registry if the Regulator becomes aware of any defect in the registered holder’s title to an ERU, for example, if the Regulator becomes aware that the ERU had been entered in the registered holder’s account in error or as a result of fraudulent conduct.
In accordance with the Kyoto rules only ERUs converted from AAU’s can be carried over. ERUs converted from RMUs must be cancelled at the end of the commitment period in relation to which they were issued.
However the Governments policy intent is that ERUs converted from AAUs that were issued for the first commitment period will not be carried over to the second commitment period if they are held in private registry accounts. These ERUs will be cancelled at the end of the final period of accounting (10AM 19th November 2015 AEST).
More information is available on the Department of Environments website where the
draft regulations for carry over are published.
An ERU held in a Registry account is personal property for the purposes of Chapter 5 of the
Corporations Act 2001, the
Bankruptcy Act 1966, the law relating to wills, intestacy and deceased estates, the
Personal Property Securities Act 2009 and the
Proceeds of Crime Act 20026.
ANREU Act 2011 does not prevent the creation or enforcement of, or any dealings with, equitable interests in ERUs7. It may be possible for the holder of an ERU in the Registry to grant security over (for example, to mortgage) the ERU or hold the ERU on behalf of others under a trust or other beneficial ownership arrangement. More information on taking security over ERUs is available on the Australian Government’s
Personal Property Securities Register website.
Under Australian law, ERUs can be traded. You should obtain your own professional advice about the trading of ERUs having regard to your own situation.
An ERU is a ‘financial product’ under the
Corporations Act 2001 and the
Australian Securities and Investments Commission Act 20018. This means that people who provide financial services in relation to ERUs and related financial products and services may require an AFS licence which authorises them to provide those services.
Buying and selling ERUs on behalf of another person will also be a ‘designated service’ for the purposes of the
Anti-Money Laundering and Counter-Terrorism Financing Act 20069. This means that the service provider will have to report suspicious matters or transactions above a specified limit. Except in special cases, the service provider will also have to verify their customer’s identity prior to trading in ERUs.
The value of ERUs is determined by the current and future markets for them and may go up or down. The value will be influenced by a wide range of factors including, but not limited to, availability and type of JI projects and changes to the international climate change framework and Australian legislation. Neither the Commonwealth of Australia or the Clean Energy Regulator, nor any of their officers or related bodies, make any representation or provide any guarantee concerning the future value of ERUs.
An ERU is transferable (for instance, where it has been traded):
Potential restrictions apply to transferring ERUs between accounts. The Regulator:
ERUs are valid for the commitment period in relation to which they were issued.
You should obtain your own professional advice about the tax treatment of ERUs having regard to your own situation. Generally, the following applies to ERUs:
1 Generally speaking, Subdivision 4.1A of Part 7.9 of the Corporations Regulations 2001 provides that provisions in Part 7.9 of the Corporations Act 2001 dealing with the need to give a Product Disclosure Statement do not apply in relation to eligible international emissions units, including ERUs. Part 19 of Schedule 10A to the Corporations Regulations 2001 modifies Part 7.9 of the Corporations Act 2001 so that a person who would otherwise be required to give a Product Disclosure Statement in relation to an eligible international emissions unit is instead required to direct its clients to this statement.
2 On 30 December 1992 Australia ratified the UNFCCC. It is an Annex 1 Party. Australia ratified the Kyoto Protocol on 3 December 2007, adopting a Quantified Emissions Limitation or Reduction Obligation (QELRO) limiting Australia’s emissions growth over the first commitment period to 108 per cent of 1990 levels. In 2012, the Protocol was amended to establish a second commitment period from 2013 to 2020. Australia submitted a second commitment period QELRO of 99.5 per cent, consistent with the Government’s unconditional target to reduce emissions by five per cent below 2000 levels by 2020. Under the Kyoto rules Parties can ‘carry-over’ a limited number of units, including ERUs (other than ERUs converted from removal units (RMUs)), from the first commitment period into the second commitment period.
3 Section 30, ANREU Act 2011.
4 Regulation 13(2)(c), Australian National Registry of Emissions Units Regulations 2011 (ANREU Regulations).
5 Section 19, ANREU Act 2011.
6 Section 45, ANREU Act 2011; regulation 48, ANREU Regulations 2011.
7 Section 46, ANREU Act 2011.
8 Section 764A(1)(kb), Corporations Act 2001; section 12BAA(7)(la), Australian Securities and Investments Commission Act 2001.
9 Item 33(bb) of the table in section 6(2), Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
10 Section 34, ANREU Act 2011; regulation 36, ANREU Regulations 2011.
11 Section 36, ANREU Act 2011; regulation 40, ANREU Regulations 2011.
12 Section 35, ANREU Act 2011; regulation 39, ANREU Regulations 2011.
13 Regulations 39(5), 40(2)(a), ANREU Regulations 2011.
14 Section 41, ANREU Act 2011; regulation 41, ANREU Regulations 2011.
15 Sections 28A-28D, ANREU Act 2011.
16 Section 38.590, A New Tax System (Goods and Services Tax) Act 1999.
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