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Review by the Chair and CEO

Photo of Chloe MunroChair, Clean Energy Regulator

In 2015–16, we took advantage of a year without significant change to the climate change laws that we administer to focus on operational improvements across all our schemes. We upgraded our capabilities on a range of fronts: through better-integrated systems and data holdings; new investment in regulatory officer training; and streamlined processes to reduce client burden while appropriately managing risk.

Building momentum

After the first successful Emissions Reduction Fund auction last year, we refined our processes to accommodate growing numbers of scheme participants, without compromising scheme integrity. Momentum built through the second and third auctions held in November 2015 and April 2016. We awarded a further 202 Carbon Abatement Contracts, at a lower average price per tonne of abatement on each occasion. In total we have now contracted to purchase 143 million tonnes of carbon abatement from 348 projects. Worth more than $1.7 billion, deliveries against these contracts will make a substantial contribution to Australia's emissions reduction targets over the coming years.

Over 600 projects are now registered to participate in the Emissions Reduction Fund, drawn from a wide range of sectors including land management and agriculture, transport, commercial and industrial enterprises, and local government. As the number of active projects continues to grow, the balance of our workload will shift from project registration to report assessment and crediting and contract management. To date, we have issued over 26 million Australian carbon credit units (ACCUs). This number, and the number of transactions we will process each year, is set to escalate rapidly.

Safeguarding emissions levels

During the year we worked consultatively with the Department of the Environment and with our clients to prepare for the commencement of the safeguard mechanism on 1 July 2016. The safeguard seeks to ensure that emissions reductions purchased under the Emissions Reduction Fund are not offset by significant increases in emissions above business-as-usual levels elsewhere in the economy.

Aided by these consultations, we laid considerable groundwork for the year ahead, including the identification of proposed reported emissions baselines, preparation of extensive guidance material for calculated baselines, and engagement with auditors about safeguard-related changes to their reports.

We drew on our existing data holdings and processes to minimise any additional mandatory reporting requirements. By building on the systems and compliance approach already in place, we were able to complete this preparatory work smoothly and within a tight timeframe. As the reporting year drew to a close, we were confident that each component of the mechanism will be in operation by the required date.

Demonstrating value

Data collection and reporting sit at the heart of all our schemes. We manage several major datasets that allow Australia to account for greenhouse gas emissions and energy production and consumption. This in turn contributes to evidence-based policy advice and allows Australian, state and territory government agencies to make informed regulatory decisions. Our data-rich flagship publications play an important role in communicating the facts about how our schemes operate and support Australia's international commitments.

We continue to raise the profile of the National Greenhouse and Energy Reporting scheme as a globally respected approach to emissions and energy reporting. Our annual data publication in February 2016 provided an effective platform to demonstrate the scheme's public, corporate and administrative value. For the first time we included additional data on grid-connected power generators, as part of our work preparing for the introduction of the safeguard mechanism.

In April 2016, we also launched an innovative, interactive map of Emissions Reduction Fund projects to provide easy access to the information we publish about the sources of carbon abatement under that scheme. The map has become a regularly visited page on our website. We upgraded other popular online resources this year including monthly updates to the postcode data extracted from the small-scale renewable energy scheme. Our cycle of regular publications contributes to a high level of transparency in our schemes and reduces the resources taken up by ad hoc enquiries.

Encouraging investment

We published our first Renewable Energy Target annual statement in May 2016 as part of the 2015 Renewable Energy Target Administrative Report. The statement assesses progress toward the large-scale target of 33 000 gigawatt hours by 2020. Our overall finding was that progress in 2015 was adequate under the circumstances and that the target is achievable. Looking forward, we commented that for progress to be satisfactory in 2016, around 3 000 megawatts of new capacity will need to be committed.

At the mid-year point, it is evident that the pace has not picked up sufficiently and more innovative ways to finance new projects are required. In the meantime, the surplus of certificates in the market will diminish. We have advised all liable entities to take steps now to secure sufficient large-scale generation certificates to meet their future Renewable Energy Target obligations.

Ensuring compliance

The Renewable Energy Target also encourages investment in small-scale systems, such as household solar panels and solar water heaters. In this mass-market scheme, we tackle a range of risks including fraudulent activity. For example, one of our investigations in 2015 prompted the replacement of non-genuine solar panels on around 180 rooftops in Queensland and New South Wales, at the agent's expense. In another example, our inspection program identified a recurring issue with direct current isolation switches. We informed state and territory regulators, the Clean Energy Council and other relevant bodies. The matter was referred to Standards Australia and the relevant standard is being amended to address the issue.

More broadly, in putting our risk appetite into practice, we take a proactive and light touch approach to facilitate voluntary compliance. We have enhanced our analytics capability to identify clients who may be at higher risk of non-compliance and engage with them accordingly.

Thanks to this approach, I am pleased to report that we once again achieved high rates of compliance across our schemes. A total of 98 per cent of reporters met their obligations under the National Greenhouse and Energy Reporting scheme, and 99.7 per cent of the total annual liability under the Renewable Energy Target was acquitted on time.

Continuing improvement

While we are proud of our achievements this year, we have a strong drive to keep finding better ways to work, in particular through collaboration and innovation.

Many of our processes are cyclical and we refresh our systems and processes each time, based on experience, to reduce the burden on our clients. For example, we have had great success with automated forms that eliminate manual data entry. Such initiatives also free up our own resources to focus on risk management, absorb increasing volumes of activity across our schemes and meet our objectives as an expert, trusted and efficient regulator.

This year, for the first time, we have assessed our performance against the new Regulator Performance Framework indicators. The framework addresses the government's regulatory reform agenda to reduce unnecessary or inefficient regulation. We embrace it and believe we have a good story to tell. We have always been thoughtful about how to achieve optimal compliance with the laws we administer without imposing unnecessary costs on our clients. We welcomed the opportunity to collaborate with other regulators and develop measures to demonstrate our track record as a regulator and highlight areas for improvement. We will publish our Regulator Performance Framework Self-Assessment Report later in 2016.

We also took advantage of the relative stability in our operating environment during 2015–16 to consolidate our organisational structure for more effective business alignment, to make best use of our capabilities across all our schemes, and to embed the way we work collaboratively across the organisation.

Looking forward

We finished the reporting year strongly, thanks to the efforts of our dedicated and professional staff and the valued insight and direction of the Members of the Regulator.

Heading into 2016–17 we will maintain our momentum and add value across all our schemes through investment in our people. Our priorities for the year will include bedding down the safeguard mechanism, digitising more business processes and contributing to whole-of-government service delivery initiatives.

At the same time, we will prepare to step up for the next stage in accelerating carbon abatement for Australia. We anticipate a sharper focus on review and policy development from 2017, which will set the longer-term direction for our schemes and redefine our role in achieving Australia's 2030 emissions reduction target.

With our deep expertise in the operation of market mechanisms to achieve emissions reductions and promote renewable energy, and our strong client relationships and secure systems, we are well equipped to inform and adapt to future developments. We look forward to the opportunity.

Signature of Chloe Munro

Chloe Munro
Chair, Clean Energy Regulator

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