by Michelle Bennett, Naomi Bergman, Julia Clemente, Rosannah Healy, Magda Kucharska, Leighton O'Brien, Jodi Reinmuth, Liam Slabber, Tom St John, Emily Turnbull, Alyce Young
Staying ahead: regulatory enforcement in a dynamic landscape
Critical to the energy transition is having a robust and well-regulated industry that supports the rise of green energy; addresses reliability and capacity challenges to maintain a stable and secure system; and ensures energy consumers are protected. At this pivotal moment, both regulators and energy market participants are working to keep up with a complex and rapidly evolving regulatory landscape.
Regulators, such as the Australian Energy Regulator (the AER), Clean Energy Regulator (the CER) and Essential Services Commission (the ESC), are expanding their roles and resources, adopting a more active enforcement approach. Federal and state governments are also focused on strengthening environmental regulations, with agencies' investigatory and regulatory powers expanding, and enforcement and compliance being key focuses.
In response to an increasing number of sustainability-related matters, regulators such as the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (the ACCC) have put forward an ambitious enforcement agenda against greenwashing.
In light of these growing demands for transparency and adherence to new compliance standards, large electricity buyers should be vigilant about monitoring price volatility, keep abreast of any supply disruptions or impending enforcement actions, and follow strong offsetting practices by prioritising emissions reductions using offsets only for residual emissions.
Private capital investors need to stay ahead by tracking any emerging trends in enforcement, especially those concerning social licence requirements for transmission projects, while strictly adhering to strong offsetting principles.
Developers should strive towards establishing strong compliance frameworks in line with CER requirements, all whilst being mindful of increased scrutiny over green claims following good offsetting practices and maintaining robust environmental management systems, which will ensure seamless compliance with environmental laws as well as approvals.
What's the challenge?
Australia's energy transition goals bring a range of challenges, including the need to maintain compliance amid complex regulatory regimes, protect vulnerable customers and the environment, combat greenwashing and address social licence concerns, while also preserving the stability of the network.
The AER has taken an increasingly active approach to enforcing the laws governing the National Energy Market (the NEM), as evidenced by recent enforcement actions in the wholesale and retail markets. In recent years, the AER has progressively utilised its expanded suite of compliance and enforcement tools to monitor compliance with the National Energy Law (the NEL), including:
- conducting in-depth investigations, including through compulsory notices requiring extensive information and documents
- compulsory examination of witnesses
- issuing infringement notices
- commencing court proceedings seeking financial penalties and other relief for breach of the energy regulations.
The AER's remit under the NEL has also expanded to include monitoring and reporting on 'electricity contract markets'. This includes hedging contracts traded on the ASX, bespoke agreements negotiated between two parties to manage price volatility in the wholesale market, and agreements related to the supply, purchase, transmission or distribution of electricity.
Both the AER and the ESC have clearly articulated that protecting vulnerable customers is a compliance and enforcement priority. This includes ensuring all eligible customers have access to retailer hardship protections and payment plans that reflect their capacity to pay. Since 2023, retailers regulated by the AER have been required to comply fully with its mandatory Better Bills Guideline, which specifies how retailers must prepare and issue bills to small customers.
Regulators in the retail market have identified several other areas of consumer risk, including overcharging, estimated readings, billing delays, failure to notify customers of price and tariff changes, and non-compliance with 'better offer' notification obligations. To empower energy consumers to assess and compare energy offers effectively, both the AER and the ESC are focused on ensuring retailers meet their obligations to provide clear, timely and accurate information for decision-making.
Since 2022, greenwashing has been an enforcement priority for ASIC and the ACCC, which are both very active regulators in the greenwashing space—meaning Australia is considered one of the highest-risk jurisdictions globally to engage in greenwashing. ASIC has initiated three court-based enforcement actions and issued 17 infringement notices against alleged greenwashing; while the ACCC has started six court-based enforcement actions, issued 17 infringement notices and accepted one enforceable undertaking regarding alleged greenwashing.
Both regulators have issued guidance on their approach to greenwashing, including ASIC's Info Sheet 271, 'How to avoid greenwashing when offering or promoting sustainability-related products', released in June 2022, and the ACCC guide, 'Making environmental claims: A guide for business', released on 12 December 2023.
ASIC has emphasised the importance of combating greenwashing to maintaining trust in sustainable finance-related products and services, highlighting its role in preventing market trust erosion and potential capital misallocation amid the energy transition. Similarly, the ACCC has emphasised the importance of ensuring that consumers and businesses can make informed decisions when purchasing goods and services being promoted as having environmental benefits.
Further regulatory guidance is anticipated, including the ACCC planning to release additional guidance for businesses and consumers on emissions and offset claims, as well as the use of trust marks. Additionally, ASIC is preparing further guidance on climate disclosure standards, as indicated by the Australian Sustainable Finance Institute.
As companies continue to adapt to the energy transition, setting targets for reducing greenhouse gas emissions or achieving specific qualities within the supply chain has become increasingly common. Ensuring that internal policies align with these commitments or targets is critical, not only to mitigate the risk of greenwashing or bluewashing, but also to maintain a social licence and positive corporate reputation.
With the proliferation of sustainability-related representations and disclosures in the market, there has been a rise in assertive and well-resourced civil litigations and activist campaigns regarding alleged greenwashing. The integrity of using carbon offsets to support representations related to net-zero targets and emissions reductions schemes has been a key focus area.
The landscape in this area is shifting, following a recent Independent Review of the Australian Carbon Credit Unit Scheme, which led to the Federal Government accepting 16 recommendations for reform.
What's happening now?
The AER is looking to strengthen the Retail Compliance Procedures and Guidelines, which establish the self-reporting framework for electricity retailers in the NEM (excluding Victoria, which is overseen by the Essential Services Commission).
The draft Guidelines, which have been published for consultation, introduce new reporting requirements for regulated entities concerning seven additional obligations under the National Electricity Retail Rules. These obligations encompass recent provisions and historic Tier 1 civil penalty provisions, and now include breaches relating to a regulated entity's obligations regarding energisation and re-energisation, presentation of standing offers and family violence protections.
Moreover, the AER proposes a new requirement for regulated entities to submit 'material breach reports', providing the regulator with information as soon as reasonably practicable after identifying breaches that have a 'material adverse effect on consumers or the NEM' (excluding provisions where breaches are already immediately reportable under the Guidelines).
The AER's compliance and enforcement priorities indicate that wholesale market participants should anticipate heightened scrutiny regarding compliance with reporting obligations aimed at ensuring power system security. The AER is particularly focused on generators’ obligations related to offers, bidding and compliance with Australian Energy Market Operator (AEMO) dispatch instructions, critical for maintaining power system security and achieving efficient outcomes in the wholesale electricity market, especially during events that impact the market.
The AER has publicly stated its intent to investigate behaviours contributing to major market events, such as the submission of false or misleading offers, bids or rebids. Therefore, it is imperative that generators provide accurate and timely information about their capabilities and availability to AEMO, and consistently adhere to the regulator's guidance on best practices, particularly during periods of price volatility caused by external market factors. This includes their provision of system services such as Frequency Control Ancillary Services and in response to AEMO’s assessments of projected system adequacy.
The recent increase in regulatory enforcement in Australia has wide-ranging implications for market participants: from managing net emissions at large facilities, to trading carbon credits and verifying carbon-neutral marketing claims. Initially established as a specialist regulator focused on carbon measurement and offset projects, the CER now plays a leading role in decision-making and enforcement within Australia's expanding carbon regulatory landscape.
The CER's compliance and enforcement priorities for the coming year demonstrate a strong focus on ensuring transparency in emissions reporting and green certificate markets. This includes implementing new legislative schemes relating to emissions reporting and carbon markets, which encompasses a suite of anti-avoidance measures recently added to the National Greenhouse and Energy Reporting Act 2007 (Cth). Additionally, there are expanded consequences under the Safeguard Mechanism for Australia's greenhouse gas emitters that fail to comply with their declining emissions caps.
Given the CER's broad remit across emissions reporting, green energy certificates and carbon accounting, these developments will have wide-ranging implications for stakeholders in the energy, resources and carbon market sectors and beyond, including the growth in the market for carbon abatement technologies and offsets, and the heightened importance of accurate and verifiable reporting on emissions and the production of green certificates.
Federal and state governments are strengthening the powers of environmental regulators and increasing penalties associated with breaches of environmental laws. In NSW, for example, significant reforms to environment protection legislation have recently commenced, resulting in expanded investigatory and enforcement powers being granted to the NSW Environment Protection Authority, as well as a substantial increase in maximum penalties for environmental offences.
Additionally, the Federal Government is proposing to establish an independent federal environmental regulator, Environment Protection Australia (the Federal EPA), which will be responsible for administering and enforcing a range of federal environmental laws. The Federal EPA will wield significant compliance and enforcement powers, including issuing 'stop-work' orders, initiating criminal proceedings (with maximum penalties up to $780 million available for intentional breaches of environmental laws), and auditing projects to ensure compliance with approval conditions.
This has direct implications for generation and transmission projects, which are typically subject to multiple environmental approvals at both the federal and state level and numerous environmental conditions that must be complied with in undertaking these projects. Project developers should expect greater scrutiny of projects' compliance with environmental approvals and laws going forward, and be aware of the significantly increased penalties in some jurisdictions.
What's next?
- Customers in the NEM can expect regulators to respond vigilantly to address the continued volatility in electricity prices and the risk of supply disruptions during the energy transition.
- The ongoing expansion of competition in the market for green products means large electricity buyers should closely monitor the expanding role of the CER, including its readiness to engage in enforcement action.
- In the greenwashing space, we anticipate that nature-related claims, targets and commitments, similarly to their climate counterparts, will increasingly come under regulatory scrutiny.
- Given the current scrutiny of the use and integrity of carbon offsets and offsetting strategies, large electricity buyers should adhere to good practice offsetting principles. This involves prioritising emissions reductions wherever possible and seeking to rely on carbon offsets only to offset residual emissions.
- Investors should monitor trends in enforcement actions by key regulators, particularly in the wholesale markets, through industry organisations and forums. Specifically, the regulator's focus on ensuring compliance with social licence requirements will be of interest to private investors involved in large-scale transmission buildouts necessary to facilitate the energy transition.
- In the greenwashing space, we anticipate that nature-related claims, targets and commitments, similarly to their climate counterparts, will increasingly come under regulatory scrutiny.
- Given the current scrutiny of the use and integrity of carbon offsets and offsetting strategies, private capital investors should adhere to good practice offsetting principles. This involves prioritising emissions reductions wherever possible and seeking to rely on carbon offsets only to offset residual emissions.
- Developers participating in schemes administered by the CER should be aware of its expanding enforcement responsibilities. While much remains to be seen, developers seeking to mitigate possible exposure to CER enforcement actions should establish compliance frameworks. These frameworks ensure that information submitted to the CER is accurate (not false or misleading) and based upon an up-to-date emissions accounting methodology aligned with applicable legislation.
- In the greenwashing space, we anticipate that nature-related claims, targets and commitments, similarly to their climate counterparts, will increasingly come under regulatory scrutiny.
- Given the current scrutiny of the use and integrity of carbon offsets and offsetting strategies, developers should adhere to good practice offsetting principles. This involves prioritising emissions reductions wherever possible and seeking to rely on carbon offsets only to offset residual emissions.
- Developers should be aware of the heightened compliance focus of environmental regulators and expanded enforcement powers and penalties available, and ensure robust environmental management systems are in place to ensure compliance with applicable environmental approvals and laws.