The COP28 climate conference concluded on 13 December 2023, with parties finally agreeing on their response to the first Global Stocktake under the Paris Agreement. The decision – termed the ‘UAE Consensus’ – notes that despite significant collective progress toward aligning with the temperature goals of the Paris Agreement, global greenhouse gas emission trajectories are not on track. Recognising the findings of the Intergovernmental Panel on Climate Change’s most recent assessment report on the impacts of climate change and the need for rapid and sustained emissions reductions, the UAE Consensus calls on parties to transition away from fossil fuels toward net zero, encourages them to submit economy-wide Nationally Determined Contributions, articulate a new specific target to triple renewables and double energy efficiency by 2030, as well as aim to build momentum towards a new architecture for climate finance.

Importantly, the conference also saw parties agree on the operationalisation of the global loss and damage fund that will provide financial assistance to vulnerable nations suffering from climate change impacts, as well as the framework for the Global Goal of Adaptation. While these developments are significant, other workstreams on Paris Agreement implementation, including negotiations on Article 6 carbon markets, saw much less progress, with several issues deferred for further consideration in 2024.

For Australia, the outcomes of COP28 are important – parties’ commitment to tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030 signals a key opportunity for Australian governments and industry to work together to urgently scale up the renewable energy sector and improve energy efficiency measures. Meanwhile, the need to transition away from fossil fuels is urgent and unequivocal, and ensuring a just and equitable transition in the Australian context – both for workers and broader communities – will present unique challenges for government and industry.

We reflect on the key outcomes of the conference, and what they mean for Australian businesses, in our article on COP28, ’The UAE Consensus: key outcomes from COP28’.

The federal government announced in November that it will expand its Capacity Investment Scheme (CIS) to 32 GW of capacity by 2030.  The CIS currently covers Victoria, South Australia and New South Wales (via Commonwealth funding committed to the Long Term Energy Service Agreement (LTESA) auctions in NSW). This adds a further 23GW of variable (solar and wind) and 3GW of dispatchable (battery and pumped hydro) capacity will be underwritten, growing the 6GW of dispatchable capacity previously committed. The expanded CIS will be rolled out from 2024 to 2027. There will be regular competitive tenders held approximately every six months, starting in April/May 2024. 14 GW of the CIS will be rolled out through a guaranteed national tender, with the remaining 18 GW delivered through Renewable Energy Transformation Agreements. The announcement comes at a time when commentators have become increasingly worried about Australia falling behind with its ambitious energy transition goal of generating 82% of power from renewable energy by 2030.

For Victoria and South Australia, project bids for CIS Agreements will be open until 21 February 2024. This tender intends to allocate 800 MWh to South Australia; 800 MWh to Victoria and an additional 800 MWh allocated to either South Australia or Victoria based on the assessed merit of projects.

A new round of New South Wales project bids for LTESAs recently closed on 10 December 2023. The indicative tender size for Tender Round 4 is 3,000 gigawatt hours (GWh). In addition, New South Wales recently announced the winners of a previous round of bids, with the successful projects being the Liddell BESS, the Orana BESS, the Smithfield BESS and three virtual power plants.

In a year that has seen lacklustre progress in the development and financing of new renewables generation and storage projects, the expansion of the CIS signals a potential shift by opening a new revenue stream through government investment. Of interest is how banks will view projects that have won a tender in the CIS – particularly considering the current bankability challenges created by the lack of availability of long-term offtakes. Fully merchant projects remain difficult to bank, and the CIS offers a revenue option that could be attractive to lenders as debt could be sized on the basis of the pricing floor.

2023 started with the release of the Chubb Report; a review of the Australian Carbon Credit Unit scheme. The ACCU scheme’s stated aim is to mitigate Australia’s contribution to greenhouse gas induced climate change. An ACCU represents one tonne of emissions avoided or sequestered, meaning that each ACCU surrendered by a company reduces its net emissions by one tonne. The purpose of the Report was to consider the effectiveness of the Scheme in achieving this stated aim.

As we discussed in our article from the time, the Report’s panel concluded that Australia’s carbon crediting framework is sound. Further, it found that abatement resulting from projects registered under the Scheme has not been overstated. However, the panel did acknowledge that improvements should be made to the Scheme. Specifically, the panel recommended changes to improve transparency, clarify governance, facilitate positive project outcomes and co-benefits, and enhance confidence in the effectiveness and integrity of the Scheme.

The Australian Government has released an official response to Australia’s carbon crediting framework, where it states that it has accepted all of the Panel’s recommendations, in principle. In June 2023, the Australian Government issued an ACCU Implementation Plan to set out its timing and approach to implementing the recommendations in the Panel’s report. It followed this up in August 2023 with a public discussion paper that asked the public for their views on how to implement the recommendations made by the Panel, with submissions closing on 3 October 2023. We wrote about this discussion paper and the issues it raises in an article ,’ACCU Review Discussion Paper released for public consultation’.

Just this week, the Climate Change Authority released its 2023 statutory review of the ACCU scheme. The review builds on the findings of the Chubb Report and makes 15 recommendations, including in relation to enhancing scheme integrity, strengthening method review processes, and increasing scheme participation by supporting First Nations, rural, regional and remote communities. The Government is required to respond to the Authority’s review within six months and has indicated that it will progress existing work consistent with the Authority’s recommendations.

Following months of consultation, 1 July 2023 saw the commencement of reforms to the Safeguard Mechanism.

Under the reforms, the baselines for designated large facilities will decline on a trajectory aligned with achieving Australia’s updated emission reduction targets of 43% below 2005 levels by 2030 and net zero by 2050. This decline rate is set at 4.9% per year to 2030 for most facilities, with particular trade-exposed facilities eligible to apply for a discounted rate.

Other important features of the reforms include the introduction of ‘Safeguard Mechanism Credits’, which facilities may automatically generate for below-baseline performance. These units can be banked on an unlimited basis until 2030 and may be traded and surrendered for compliance purposes, along with ACCUs.

Although the reforms have commenced, there are a number of important elements of the scheme that are still under development, including the ‘international best practice benchmarks’ that the Government will apply for the purposes of setting a baseline for new facilities, and the emissions intensity values of production variables that will be used for baseline calculations.

You can read more about the Safeguard Mechanism reforms in our articles ‘Parliament approves the Safeguard Mechanism (Crediting) Amendment Bill 2023’ and ’Final Safeguard Mechanism design released’.

In May 2023, as part of its 2023-2024 Federal Budget, the Federal Government announced its $2 billion commitment to the Hydrogen Headstart Program. The program will provide financial support for large-scale hydrogen projects, with a focus on hydrogen produced from renewable energy and derived products such as ammonia. All funding provided under the program will take the form of a grant and will be supplied as production credits paid per unit of eligible hydrogen or hydrogen derivative production.

In July 2023 the Australian Renewable Energy Agency and the Department of Climate Change, Energy, Environment and Water conducted a design and consultation process for the program, which closed on 3 August 2023. After receiving 114 written submissions and hosting three in-person consultation forums in Sydney and Perth, ARENA published the Program Guidelines, which detail the competitive process that the Government will use to assess projects under the program.

ARENA opened applications for the program on 10 October 2023, with expressions of interest closing on 10 November 2023. On 21 December 2023 the Government announced the shortlisted applicants for the Hydrogen Headstart Program:

• bp Low Carbon Australia Pty Ltd (H2Kwinana)
• HIF Asia Pacific Pty Ltd (HIF Tasmania eFuel Facility)
• KEPCO Australia Pty Ltd (Port of Newcastle Green Hydrogen Project)
• Origin Energy Future Fuels Pty Ltd (Hunter Valley Hydrogen Hub)
• Stanwell Corporation Limited (Central Queensland Hydrogen Project)
• Murchison Hydrogen Renewables Pty Ltd as trustee for Murchison Hydrogen Renewables Project Trust (Murchison Hydrogen Renewables Project).

Each applicant has now been invited to submit a full application to the next stage of the Program.

The successful EOI stage applicants will be notified of the outcome in January 2024 and a full application will likely be due in June or July next year. We anticipate that a final decision will be made by October 2024, with at least two major hydrogen projects to receive access to a large funding boost in the 2026-27 financial year.

We discussed the implications for the energy and infrastructure market in Australia from this Budget, including the Hydrogen Headstart Program and the Budget’s implications for the critical minerals sector, in our article, ‘Budget support for Australia’s Decarbonisation Sectors’.

Staying with the Federal Budget, as we said in our review of the 2023 Federal Budget Papers, the Government has allocated $1.8 billion over 10 years for infrastructure priorities to support productivity and jobs, including $1.1 billion in 2032–33 to continue existing road maintenance and safety programs and $200 million for the Major Projects Business Case Fund to support the planning of land transport infrastructure projects.

The Government also allocated $1.3 billion over five years to support the decarbonisation of existing industries, develop new clean energy industries and support sovereign manufacturing capacity essential to the energy transition. The funded measures included $450.3 million over four years (and a further $149.7 million over 3 years from 2027–2028) to establish the Safeguard Transformation Stream to support decarbonisation investments at trade-exposed industrial facilities covered by the Safeguard Mechanism, and $400 million to establish the Industrial Transformation Stream to support the reduction of direct and indirect emissions at existing industrial facilities, or clean energy development, in regional Australia.

On 11 May 2023, the Australian Government made an order establishing an interim Net Zero Economy Agency to advise on the formation and commencement of a permanent Net Zero Authority.

The Agency aims to promote the orderly and positive economic transformation associated with decarbonisation and energy system change, including through the development of government strategies to support the net zero economic transformation for workers and regional communities and facilitating engagement between investors and regional industries and communities in the net zero transformation.

clarity on the role of climate change impacts in decision-making under certain provisions of the Environment Protection and Biodiversity Conservation Act 1999 (Cth), but prompted increasing calls for urgent EPBC Act reform. The Federal Court approved a settlement between the Commonwealth and sovereign bond holder Kathleen O’Donnell, which required the Australian Government to publish a statement on the systemic risk that climate change presents for Australia's economy and fiscal circumstances.

Meanwhile in Victoria, the rejection by the High Court of Victoria’s electric vehicle tax has critical implications for state electric vehicle policies (and State tax policies more broadly). We recap these key developments and what they mean for Australian and state climate and environmental policy in our article, 'Taking stock of a busy month in Australian climate litigation'.

In overseas legal news, in February 2023 environmental law charity ClientEarth announced that, as a shareholder in Shell, it had filed a derivative claim in the UK High Court against Shell’s Board. ClientEarth argues that Shell’s Board is in breach of its legal duties under UK company law to manage the climate risk facing the company. This was the first time a board has faced legal action for alleged breaches of their directors’ duties entailing potential personal liability. We considered the case and its implications in our article, ‘ClientEarth sues Shell’s UK Board over its climate risk strategy: Takeaways for Australian directors’. Ultimately, the claim was unsuccessful, on the basis that ClientEarth could not show that it had a prima facie case.

In a great moment for three letter acronyms, 2023 saw the announcement of a new Renewable Energy Zone in Queensland. The Queensland Government sought public feedback on its draft 2023 REZ roadmap, which outlined twelve potential zones across Southern, Central, North and Far North Queensland. That consultation process closed in late September 2023, with the Government now considering the responses it received to questions such as ‘Should there be a coordinated scheme in place to invest in local priorities to leave a positive legacy for REZ communities and how should this operate?’.

There are now REZs planned for regions across New South Wales, (Central-West Orana, New England, South-West Region, and the Hunter Valley), Victoria (in South West Victoria, Western Victoria, the Murray River region, Central North Victoria, Ovens Murray, and the Gippsland region), as well as areas identified as potential REZs in Tasmania and South Australia.

The Australian Government declared two new offshore wind zones in New South Wales in 2023: one in an area off the coast of the Hunter and Newcastle and the other off the coast of Illawarra. This follows the Government’s formal declaration of the first offshore wind zone in the Bass Strait of Gippsland, Victoria in late 2022 (which we discussed in detail here: 'Offshore Wind Feasibility Licences: The New Guideline').

The Hunter zone covers 1,854 square kilometres between the Central Coast and Port Stephens, sits 20 kilometres from the northern coast and over 35 kilometres from the southern coast, and has the potential to generate up to 5 gigawatts of wind energy. Proponents were able to submit applications for a feasibility licence between August and November.

The Illawarra zone opened for consultation on 14 August 2023, with a proposed area that extends from Wombarra in the north to Kiama in the south. It is to be at least 10km from the coast. The proposed offshore wind area is 1461 square kilometres with the potential to generate up to 4.2 gigawatts.

However, both zones have faced community opposition, with a community group in Illawarra objecting to the proposed offshore wind zone on the grounds that it will affect coastal views and harm marine life.

In November the New South Wales Department of Planning and Environment released its Draft Energy Policy Framework. The Draft Framework comprises a Draft Wind Energy Guideline, Transmission Guideline, Solar Energy Guideline, Benefit Sharing Guideline, and Private Agreement Guideline (together with supporting technical supplements and tools). The Government called for submissions on the Draft Framework, which closed in mid-December 2023.

While the Draft Framework aims to support the transition to renewable energy in New South Wales by improving the efficiency, transparency and consistency of planning approval pathways, it does propose certain specific limits, monetary figures, and controls that may have the potential to constrain projects.

We discussed the key takeaways from the Draft Framework in our article, ‘Draft NSW Energy Policy Framework’, but our key message is that proponents (and their technical advisers) of any renewable energy and transmission projects in New South Wales that propose to submit an Environmental Impact Statement in 2024 or beyond should review the Draft Framework (and of course can contact us to discuss its implications in more detail).a

The Queensland Government introduced the Energy (Renewable Transformation and Jobs) Bill 2023 (Qld) to its Parliament in late October 2023. It was then immediately referred to the Transport and Resources Committee for examination. The Bill, if it becomes law, will legislate Queensland’s three renewable energy targets – 50% of Queensland’s electricity to be from renewable sources by 2030, 70% by 2032 and 80% by 2035 – as well as establishing Renewable Energy Zones (which we covered above).

This Bill makes Queensland only the second State Government, after Victoria, to introduce specific legislation that sets renewable energy targets for the State.

After more than a year of consultations, in late June 2023, the International Sustainability Standards Board issued its first two International Financial Reporting Standards: ‘IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information’ and ‘IFRS S2 Climate-related Disclosures’.

IFRS S1 requires companies to disclose information about their sustainability-related risks and opportunities that is useful to investors when making decisions about providing resources to these companies. IFRS S2 requires disclosure of information specifically linked to climate-related risks and opportunities and is designed to be used in conjunction with IFRS S1.

Closer to home, the day after the ISSB Standards were launched, the Australian Government released its second round of consultation on the design of a framework for mandatory climate-related financial disclosures by Australian businesses, which is expected to take effect for the first tranche of reporting entities from 1 July 2024. The Australian framework will be formally established by the Australian Accounting Standards Board (who recently released exposure draft sustainability reporting standards for consultation) and is intended to align closely with the ISSB Standards and in particular, IFRS S2.

We discussed the ISSB Standards and what they mean for Australian businesses in our article available here: ‘ISSB launches global sustainability and climate disclosure standards’.

Meanwhile, in September 2023, the Task Force for Nature-related Financial Disclosures launched its final risk management and disclosure recommendations for organisations to report and act on evolving nature-related issues. The recommendations are intended for use by a range of stakeholders including companies looking to integrate nature-related risk assessment into their corporate strategy, governance, and decision-making processes; and investors and financial institutions to support more informed capital allocation decisions. Following the TNFD’s recommendations, a ground-breaking new legal opinion published in November 2023 found that directors who fail to consider such risks could be liable for breaching their duty of care and diligence under the Corporations Act 2001 (Cth).

We recapped key elements of the TNFD framework, and what the recommendations mean for Australian companies and their directors, in light of the new legal opinion on directors’ duties and nature-related risks, here: ‘Nature-related disclosures: what next for Australian companies?’.