It is possible that the amount of greenhouse gases emitted and the amount of energy used in a major construction project will be required to be reported under the National Greenhouse and Energy Reporting Scheme (NGERS) established under the National Greenhouse and Energy Reporting Act 2007 (Act) and National Greenhouse and Energy Reporting Regulations 2008 (Regulations).
Overview of the NGERS
The Act requires a controlling corporation which has operational control over a facility that meets certain thresholds to register with the Greenhouse and Energy Data Officer (GEDO) and report on emissions and energy data associated with that facility. There are two types of threshold which trigger the registration and reporting requirements, namely: (i) a facility based threshold (for the 2008/2009 financial year, the facility threshold is 25,000 tonnes of CO2-e emissions or 100 terrajoules of energy production or use); and (ii) a corporation based threshold. .
Application of NGERS to construction projects
The three key questions which will need to be answered to ascertain if a construction project is covered by the NGERS, and if so, who is liable for registration and reporting are:
- does the project comprise a “facility”?
- who has operational control of the project? and
- who is the controlling corporation of the entity with operational control?
Each of these issues is considered below.
1. What is a “facility”?
A “facility” can comprise an activity or a series of activities. For an activity or series of activities to form a “facility”, the activities must: (i) produce greenhouse gas emissions or produce or consume energy; (ii) be part of the production process; (iii) occur at a single site and; (iv) the activities must be attributable to a single industry sector.
As you can see, construction activities may well comprise a “facility”.
2. Who has operational control?
A corporation has ‘operational control’ over a facility if the corporation has the authority to introduce and implement operating policies, health and safety policies and environmental policies. If more than one corporation could satisfy these requirements at any one time, then the corporation that has the greatest authority to introduce and implement operating policies and environmental policies (not health and safety policies) is taken to have operational control.
The application of these tests to individual arrangements will depend on the particular contractual arrangements. This is acknowledged in the Guidelines which state: If a third party is contracted to manage or operate a facility on behalf of the owner, it is expected that authority to introduce policies will be shared between the owner or operator according to conditions specified in the contract between the parties…”.
If there are no contractual arrangements in place, then the test will need to be considered having regard to the practical day-to-day operation of the facility. There is also the ability to apply to the GEDO for a declaration as to which entity has operational control.
Proposed amendments to the Act provide that if there are two or more persons who could be said to have operational control over a facility then those persons must jointly nominate one of them to be the person with operational control in relation to the particular facility. There is a penalty for non-compliance (a maximum fine of around $110,000). If no nomination is made, then both of the persons will have liability to comply with the requirements of the Act (and if relevant, any liability under the Carbon Pollution Reduction Scheme).
Amendments to the Act are also proposed to introduce the concept of a ‘Reporting Transfer Certificate’ to enable the voluntary transfer of reporting obligations to a member of a different corporate group that has financial control of the facility.
3. Who is the controlling corporation?
The Act’s intent is that obligations should attach to the company which is at the top of the corporate tree within Australia. As the Act is currently drafted, if a joint venture has operational control and does not nominate a responsible entity, the controlling corporation of every participant of the joint venture will have reporting obligations under the Act. However the proposed amendments to the Act (discussed above) will, if enacted, delete reference to joint ventures and partnerships.
What should you do?
So as to avoid disputes over which entity has responsibility under the NGERS, you should ensure that your contract is clearly drafted to impose obligations on the relevant party. As the corporation with operational control of the facility is also responsible for including emissions from and energy used and produced by the activities of contractors and subcontractors and incorporating this data in its own report, it would be prudent to include appropriate provisions within any sub-contracts.