Oct 2015

Information Session REVIEW OF THE OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS MANAGEMENT PROGRAMME

Patrick McInerney, Nataša Jovanović International Ozone Protection and Synthetic Greenhouse Gas Management Section

Clyde Quieros Domestic Ozone Protection and Synthetic Greenhouse Gas Management Section

Representatives

ODS & SGGs - why are these gases controlled? ODS damage the Earth’s protective ozone layer. Leads to higher levels of ultraviolet radiation reaching the earth’s surface Damages human, plant and aquatic health and productivity

Synthetic greenhouse gases contribute to global warming – the trapping of heat in the atmosphere. Very high global warming potential.

How are ODS & SGGs managed globally?

Governments across the globe developed and joined the Montreal Protocol on Substances that Deplete the Ozone Layer (the Montreal Protocol).

◦ The Montreal Protocol aims to restore the ozone layer to pre-1980 levels by phasing out ozone depleting substances

The United Nations Framework Convention on Climate Change and its Kyoto Protocol were developed to reduce the emissions of all greenhouse gases, including synthetic greenhouse gases.

◦ The Kyoto Protocol commits parties to binding obligations to reduce greenhouse gas emissions.

How do countries implement their obligations?

Control of the import, export and manufacture of these gases through some form of licensing system

Quota systems for gas phase out or phase down

Some countries have adopted “End Use” controls - The storage, use and disposal of gases is restricted to those that can manage these gases in a manner that minimises emissions.

Reporting obligations to keep track of everything

How does Australia implement its obligations?

Australia is a party to both the Montreal Protocol and the Kyoto Protocol

Legislation – The OPSGGM Acts and supporting Regulations

Administrative policy – the Department of the Environment administers the legislation

Co-operation with other Departments and state governments

Collaboration with industry to develop effective and efficient policies

Why have a review? The OPSGGM Programme was established in 1989

◦ Last reviewed in 2001-2003 ◦ Saw the inclusion of end-use licensing under the Federal legislation

Australia is generally considered a technology taker - Global technological changes are accelerating

Government policy is evolving ◦ 5% below 2000 levels by 2020 ◦ 26-28% below 2005 levels by 2030

Domestic Government support for a HFC phase-down + movements towards agreement at Montreal Protocol

Objectives of the review Identify further emission reduction opportunities

Can it support the domestic and international policy movements?

Check if the legislation is effective and efficient ◦ Is it meeting its objectives in the most efficient and

effective way? ◦ International Obligations ◦ Cost Recovery

The story so far Review was announced in May 2014 by the Minister for the Environment

Initial public consultation and submissions from May to July 2014

Further consultation with an industry representative technical working group, individual stakeholders, and Commonwealth agencies

Development of a Technical Analysis report by the Department of the Environment

Independent Environmental impact analysis and cost benefit analysis

Summary of initial public submissions

The submissions received and analysis of those submissions suggested four themes/categories:

1. Gases and equipment regulated

2. Standards, Safety and training

3. Compliance and Enforcement

4. Administrative efficiency

1. Gases and equipment regulated

Increase scope of coverage – more gases

Decrease/maintain current scope of coverage – de-regulate methyl bromide, no new refrigerant substances, continued Aluminium exemption

Introduce energy efficiency requirements – links to GEMS

Introduce a HFC phase down

Increased product stewardship requirements (reclamation, recycling and destruction)

Introduce responsibilities for equipment owners to maintain and servicing equipment

Introduce maintenance requirements for technicians (log book)

2. Standards, Training and Safety

Improved standards for technicians, including improved training

Improved gas quality standards

National standards for energy efficiency and equipment maintenance

Introduce a refrigerant labelling system

3. Compliance and Enforcement

Broaden compliance and enforcement powers

Increased education

Increased enforcement ◦ Lack of visible activity

4. Administrative Efficiency Streamline licensing – “tick and flick” renewals

Streamline Reporting – less/more frequently

Align with States & Territories and other Commonwealth legislation - eliminate duplication

Scope of the Review Submissions showed some support for the OPSGGM Programme to regulate the refrigeration and airconditioning industry

The Commonwealth’s ability to legislate the refrigeration and air conditioning industry is subject to constitutional limitations

This is outside of the scope of the review

What step are we up to? The Options paper

The Options Paper summarises the analysis done to date ◦ Identified opportunities to achieve the objectives of the review

Provides four preliminary Options Packages to achieve the objectives of the review

◦ These range from minimum changes to high level reform. ◦ They are to aid discussion and are not recommendations.

Feedback from this consultation will inform a Final Report (Regulation Impact Statement) on the Review to be provided to Government for consideration in early 2016.

Two key concepts

Net Benefits Any policy will generally need to prove that the action will result in a Net Benefit to society

The Office of Best Practice Regulation requires rigorous policy analysis to justify any additional regulatory intervention by the Australian Government

◦ All other possible avenues of resolving the policy issue must be explored and prove why regulatory intervention is the best way to achieve the desired policy outcome.

Two key concepts Regulatory Burden Measurement Framework

Provides an estimate of regulatory costs or savings for business, community organisations and individuals using an activity-based costing methodology.

◦ Based on a standardised methodology developed by the Office of Best Practice Regulation

◦ Can sometimes seem counterintuitive in terms of results

Any costs incurred by the final measures adopted will need to be offset.

This costing looks at costs and savings separately to net benefits. ◦ A programme/policy is costed overall to create a overall regulatory burden

cost – this is encouraged to be decreased – is not allowed to increase

What has the review found? Emission Reduction

◦ Several opportunities for further emission reduction

Efficiency & Effectiveness ◦ Legislative gaps resulting in some gases being excluded ◦ Some components of the current Programme are complex, resulting in

unnecessary administrative burden for business and individuals. ◦ Perception of weak compliance and enforcement activity ◦ Not currently achieving cost recovery.

Option 1 – Minimum reform Ensure regulation of gases included & likely to be included in International agreements

Measures to ensure cost recovery for the licensing scheme and the National Halon Bank

Net Impact: Would ensure Australia meets all current international obligations and full cost recovery.

Preliminary Regulatory Burden Estimate: ≈$0

Option 2 – Low to mid range reform

HCFC banned except for equipment servicing post 2020

Licensing and end use minor amendments – streamlining and efficiency

Streamlining of approvals of Destruction Facilities

Improve effectiveness of emission reduction aspects of end use regulations

Increased communication/education for compliance

Net Impact: Would ensure Australia meets all current international obligations, maximise current emission reduction measures, improve efficiency for all users, improve compliance and enforcement and ensure full cost recovery.

Preliminary Regulatory Burden Estimate: Saving of ≈$2.6 million

Option 3 – Mid to high range reform

Adds a phase down of HFCs

Restructure import licensing into two streams: goods are regulated with or without a licence. Amalgamation of equipment licence and Section 40 exemption.

Commonwealth compliance and enforcement powers increased. Publication of actions taken.

Net Impact: Would ensure Australia meets all current international obligations, maximise current emission reduction measures, improve efficiency for all users, improve compliance and enforcement and ensure full cost recovery.

Preliminary Regulatory Burden Estimate: Saving of ≈$2.65 million

Option 4 - Maximum reform HFC equipment ban Maintenance and leak testing requirements for equipment

Divestment of National Halon Bank to:

(a) halon users themselves, or (b) privatise enterprise through tender process.

Streamlined compliance and enforcement information sharing between Commonwealth agencies

Net Impact: Would ensure Australia meets all current international obligations, maximise current emission reduction measures, improve efficiency for all users, improve compliance and enforcement and ensure full cost recovery.

Preliminary Regulatory Burden Estimate: Cost of ≈$482 million

Key measures 1. Emission Reduction

- Phase down of HFC’s - complementary equipment bans - maintenance and leak testing of equipment.

2. Efficiency and Effectiveness - Improvements to HCFC phase-out provisions

- Licensing - Import, export & manufacture

- End use

- Approvals of Destruction Facilities

- Compliance and Enforcement

- Cost recovery

- Licence fees and levies

- National Halon Bank

Emission Reduction

HFC phase down Australia could implement a HFC phase-down similar to the HCFC phase out in advance of an international agreement under the Montreal Protocol.

◦ Industry consultation indicates a strong preference for a regulated HFC phase-down.

◦ Provides long term certainty and is technically and commercially viable.

Australia could either adopt the 2015 North American Amendment Proposal or design an accelerated phase down, and is well positioned to do so.

◦ North American used as comparison as considered most ambitious

HFC Phase-down (cont.)

2015 North American Amendment Proposal Accelerated Alternative Proposal using a lower baseline

2019 – 90% 2024 – 65% 2030 – 30% 2036 – 15%

2017 – 100% 2018 – 90% 2020 – 86% 2022 – 78% 2024 – 68% 2026 – 58% 2028 – 49% 2030 – 35% 2032 – 29% 2034 – 24% 2036 – 17% (noting that this is the same consumption limit in Mt CO2-e as the 2015 North American Amendment proposal)

Table 2.

Considerations include: Baseline, phase down schedule, Quota allocation

Complementary equipment bans could support the phase down of bulk gases (estimated additional regulatory burden of >$11 million)

Emission Reduction Maintenance and leak testing of equipment

Two measures for equipment maintenance have been suggested:

- early detection and repair of leaks and

- regular maintenance

Note – high preliminary regulatory burden estimate of >$470 million ◦ RBM costing based on following key assumptions:

◦ There are 1.8 million pieces of equipment owned by 1.8 million commercial entities (in reality owner numbers will be lower but the cost impact is insignificant as the costs are centred on equipment numbers not owner numbers). • It is assumed that 50% of equipment owners already undertake equipment maintenance across all categories of equipment. It is assumed that 50% of equipment owners would need to implement a maintenance regime

◦ Charge size >5 t CO2-e must be undertaken every 6 months ◦ Charge size >50 t CO2-e must be undertaken annually ◦ Charge size of >500 t CO2-e must be undertaken every 6 months.

Efficiency & Effectiveness Regulation of additional ODS

Montreal Protocol - The OPSGGM Programme covers all the controlled substances listed under the Montreal Protocol. However, decisions by the Parties to the Montreal Protocol indicate that Parties should report on new ODS species being produced or sold in their territories, even where they are not controlled.

UNFCCC and Kyoto Protocol - Australia’s obligations under the Kyoto Protocol’s seconde commitment period , if ratified and once entered into force, will include three SGGs not currently covered by the OPSGGM Programme - HFC-41-10mee, PFC C10F18 and nitrogen trifluoride.

Efficiency & Effectiveness Improvements to HCFC phase-out provisions

While Australia’s phase out of HCFCs is progressing well, there are additional obligations under the Montreal Protocol to ensure imports are only for selected uses.

Possible measures to meet these obligations include: ◦ additional bans on the import and manufacture of equipment containing

HCFCs ◦ banning the use of HCFC imported from 2020 for a purpose other than

servicing HCFC RAC equipment.

Efficiency & Effectiveness Licensing scheme

Increase exemption thresholds for low volume equipment importers

Streamline licence approvals, renewals, licence validity periods and/or amalgamate all licences & exemptions into two categories – licence or no licence

Streamline reporting – including Levy payment threshold

Streamline administration of specific controls ◦ Licence conditions ◦ Halon for essential uses, Methyl Bromide for laboratory and analytical ◦ HCFC Quota flexibility ◦ Destruction facility approval

Bans on disposable cylinders

Inter-agency data sharing

Internal decision review mechanism

Include definitions of key terms

Minor Amendments ◦ Change the physical licence card to a ‘membership card’ and retain licence

conditions online ◦ Streamline administration

◦ Conditional renewal ◦ Lengthen the validity period

Restructure permits into a simple ODS/SGG licence

Improve effectiveness and efficiency of emission reduction aspects

Focus on education to encourage better practices – automotive sector and automotive end of life.

Administration of the scheme by industry led, voluntary basis

Efficiency & Effectiveness End-use controls

Efficiency & Effectiveness

Compliance and Enforcement ◦ Increase education - Encourage industry self regulation ◦ Publication of compliance actions undertaken ◦ Streamlining of compliance information sharing ◦ Strengthen Commonwealth powers

◦ ability to audit individual end use licence holders, ◦ provisions to allow for Notice to Produce, ◦ provisions to penalise breaking or destroying goods to prevent seizure ◦ expansion of the infringement notices scheme ◦ provision to penalise false representations for fire protection permits ◦ provisions to include requesting reasonable assistance from the

owner/occupier during a search ◦ provisions that address the adequacy of existing gas sampling

provisions ◦ forfeiture and penalty for distribution of goods containing a scheduled

substance

Efficiency & Effectiveness Cost recovery – Licence fees, levies & the National Halon Bank

General Cost recovery options: increases to licence fees and levies

The National Halon Bank options: 1. remains a Commonwealth managed facility – cost recovery by

i. increasing the management fee ii. raising the price of halon supplies held by the National Halon Bank iii. raising fees and levies. OR

2. Divest the halon stock to users for their own ongoing management OR 3. Privatise the National Halon Bank to one or more halon suppliers through a

formal tender process

Measures not considered feasible

Increase compliance and enforcement powers of industry licensing bodies

Currently licensing bodies undertake some compliance and enforcement activities however decision making and liability rests with the Commonwealth.

Reasoning Increases the administrative burden on licensing bodies in undertaking additional compliance and enforcement work

Increases the risk to the Commonwealth in delegating responsibility for the appropriate undertaking of compliance and enforcement activities

Increases compliance costs to industry

Decreases confidence in the regulatory system

Abolish or transfer end-use licensing to state/territory governments or industry

Reasoning: Costs for removal of end use licensing exceed benefits in both the refrigeration and air conditioning and fire protection sectors.

Economies of scale favour the current (Commonwealth) scheme - operating parallel systems in each state and territory would be less efficient than a single national system.

These findings are generally supported through industry consultation which has strongly emphasised an industry desire for more regulation

◦ providing certainty and commonality within the industry

Next steps Written submissions are due by COB Monday 16 November 2015

◦ Feedback sought on the measures discussed, Options Packages and all attachments – these provide the analysis and assumptions underpinning it.

◦ Give us the good and the bad! ◦ Note re confidentiality – preference is for non-confidential submissions to

allow transparent decision making.

Submissions will inform further analysis and development of a Final Report (Regulation Impact Statement) for submission to Government in early 2016

◦ This report will provide recommendations on the best way to achieve the objectives of the review

Questions

Any questions on the Review, the Options Paper, or attachments to help make a submission, please get in touch: ozone@environment.gov.au Thank You