An important part of Australia's green energy future 10 min read
Following an extensive consultation period, the Federal Government has introduced the Future Made in Australia (Guarantee of Origin) Bill (the GO Bill) to Parliament. As a key pillar of the Federal Government's policy designed to accelerate Australia's transition to net zero, the long-awaited Guarantee of Origin (GO) Scheme will revamp the mechanism by which generators certify renewable electricity production and provide a framework for verifying the emissions intensity of hydrogen, green metals and low-carbon liquid fuels.
The GO scheme aims to address two significant challenges which have emerged in the course of managing Australia's transition to net zero:
- Absent a certification scheme which tracks the production, delivery and consumption of a product like hydrogen or green metals, it is impossible to reliably assess the credibility of claims about that product's carbon intensity.
- The existing scheme for tradeable renewable energy certificates, which imposes mandatory obligations on liable entities (eg electricity retailers) to source a percentage of their load from renewable generation, was not designed to accommodate the now millions of certificates which are being surrendered annually by large corporates on a voluntary basis looking to showcase their green credentials.
In response to these challenges, the GO Bill establishes two certification frameworks:
- The Product Guarantee of Origin (PGO) certificate, used to track and verify emissions associated with hydrogen, with plans to expand the scheme to include other low-emissions products in Australia (including green metals).
- The Renewable Energy Guarantee of Origin (REGO) certificate, a tradeable renewable energy certificate to operate alongside, and then replace, the Large-scale Generation Certificate (LGC) framework under the Renewable Energy Target (RET) scheme.
In this Insight, we explain the key features of each certification framework, highlighting the changes from the current regime, and share our early observations on what these changes may mean for you and your business in the short and medium term.
Key takeaways
- Green fuel developers: for hydrogen and other green fuel developers looking to export to international offtakers, the GO scheme (and its efforts to harmonise the PGO certificate with overseas emissions-accounting frameworks) will be central to establishing the value of these commodities to foreign buyers.
- Private capital investors and financiers: in addition to its importance for developers, it is anticipated that the PGO certificate will be used to determine eligibility under a number of forthcoming government initiatives, most relevantly the $6.7 billion Hydrogen Production Tax Incentive. In all likelihood, the bankability of hydrogen projects will be dependent on these incentive schemes and as such it will be critical to understand how the regime for PGO certificates will operate.
- Large electricity buyers: the introduction of the REGO certificate will fundamentally alter the market for LGCs in Australia, with wider eligibility for renewable generators and increased granularity of information allowing for novel decarbonisation strategies using the REGO certificate.
- Green energy developers: the GO scheme opens an alternative revenue stream for developers of green energy projects after the expiry of the RET scheme. Underpinned by the time-stamping features, developers of hybrid projects can look to capitalise on more lucrative REGO certificates at different times of the day.
PGO certificates: a product-based emissions-accounting framework
An Australian framework to support claims for clean energy commodities which aligns with international schemes has been under development since 2021, when the government at the time first sought input on a national certification scheme for hydrogen production. In part, this framework was being driven by the emergence of the hydrogen market as a potential path to decarbonising Australia's electricity production. More recently, the Federal Government's 2024-25 Budget provided $32.2 million to expedite the development of the scheme but also to expand the program from hydrogen to green metals and low-carbon liquid fuels.
The core component of the GO Bill is a product-based emissions-accounting mechanism represented by the PGO certificate, a non-tradeable certificate used to verify the carbon intensity of a given commodity across the product's lifecycle (ie from the supply of raw materials through production, storage, transport and consumption).
A registered 'production profile holder' would be entitled to create PGO certificates for each 'whole functional unit' of a product within a 'batch' (for instance, for a batch of 500 kilograms of hydrogen, the relevant entity would be entitled to create 500 certificates). The certificates will be tracked through a public register administered by the Clean Energy Regulator (CER), providing domestic and international customers with greater certainty as to a commodity's green credentials.
A registered person will apply to the CER to register a production profile, delivery profile, and / or consumption profile in respect of the hydrogen being produced (or other specified low-emissions product, as the GO scheme expands). Once registered, these profiles combine to comprise the relevant inputs for the PGO certificate for that particular product.
The profiles are intended to streamline reporting requirements across a product's supply chain, with specific details added for each batch of that product.
- With respect to the registration of a production profile, the 'production profile holder' must own and operate the relevant facility. However, this is not the case for post-production profiles such as delivery and consumption (for instance, information related to the delivery of a batch of hydrogen could be reported by the subcontractor responsible for trucking the hydrogen or the producer of the hydrogen on the subcontractor's behalf). This avoids the requirement for all entities who are involved in a supply chain to register and participate in the GO scheme.
- At a high-level, the specification of distinct production pathways enables differentiation between products that may be chemically identical but are produced in different ways. For instance, the PGO certificates for a batch of hydrogen produced using electrolysis (where the registered person has surrendered REGO certificates to match the facility's load profile) will have a different emissions-intensity profile than for a batch of hydrogen which has been produced using steam-methane reformation.
Under the GO Bill, the Minister will be required to determine one or more 'production pathways' for a particular product, known as a methodology determination, which will inform the basis of these registered profiles. The methodology determination will, in turn, set out 'modules' for specific products, including 'minimum', 'optional' and 'conditional' modules which, when coupled with information about the product's delivery 'module' (ie, the method for storing and / or transporting a product), will determine its emissions intensity.
The Federal Government has indicated that the PGO certificate may be used to determine eligibility under a number of forthcoming government initiatives, most relevantly the $4 billion Hydrogen Headstart program and the $6.7 billion Hydrogen Production Tax Incentive (which has yet to pass parliament).
As the GO scheme is expanded to include green metals and low-carbon liquid fuels, we expect the PGO certificate will also be incorporated into the eligibility processes for any incentives for those commodities as well.
Similarly, state and territory programs (such as NSW’s Renewable Fuel Scheme) which need to identify and incentivise low emissions hydrogen are expected to use the PGO certificate as part of the delivery framework.
While the CER has limited enforcement powers with respect to greenwashing generally, it has indicated its willingness to take a supporting role by sharing data and referring potential greenwashing activity to other regulators such as the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC). We expect that the CER's oversight of the PGO certificate register will dovetail with the broader regulatory focus on false or misleading claims about the carbon intensity of specific products (see our recent Insight for further background on greenwashing and bluewashing risks).
We expect that PGO certificates will also be highly valued by end users and purchasers of products such as hydrogen, as users of these products are faced with increased pressure to reduce emissions across their supply chains.
While many countries are setting criteria to ensure imported products align with domestic emissions goals, there is not yet a settled universal approach. The European Commission’s delegated regulation on the production of renewable transport fuels, the United States’ Inflation Reduction Act, and the European Union’s Carbon Border Adjustment Mechanism are examples of the emerging range of policies that look to define emissions thresholds and accounting approaches for hydrogen and other products.
Amid growing international demand for renewable energy and low-emissions products, and informed by the Federal Government's collaboration with the International Partnership for Hydrogen and Fuel Cells in the Economy, the GO scheme provides optionality for registered persons to modify their 'production pathways' to align with the requirements of international carbon certification schemes.
REGO certificates: the introduction of a new tradeable certificate
Australia's RET scheme is due to sunset at the end of 2030, taking with it the LGCs created by eligible generators under that scheme. The proposed introduction of the REGO certificate opens the door for an ongoing renewable energy certificate framework.
While the REGO certificate marks a significant shift in the renewable energy marketplace, it gives rise to a number of questions about how the scheme will work and the ways in which the REGO certificate under the GO scheme is similar to, or different from, the LGC under the RET scheme.
How are REGO certificates similar to LGCs?
The RET scheme, introduced over 20 years ago, has proved to be a well-designed and effective certification framework that has significantly accelerated the growth of renewable electricity in Australia. The Government has leveraged the strengths of the RET scheme in the design of the REGO certificate, with differences that are intended to provide greater flexibility to the market and meet the needs of a growing secondary market (ie the voluntary surrender market) that was not foreseen at the time the RET scheme was introduced.
Although the GO scheme does not mandate the surrender of certificates by retailers and other liable entities (which was a hallmark of the RET scheme and created the supply and demand equation which provided value to the LGC), there are similarities between LGCs and REGO certificates. REGO certificates retain the basic design of an LGC in that a REGO certificate represents one megawatt-hour of eligible renewable electricity generation. The 'eligible amount' of electricity is calculated in accordance with the method prescribed by the rules from the amount of electricity generated or dispatched by the facility during the relevant time period (the default time period being an hour).
To create REGO certificates, an eligible person and eligible renewable electricity facility must each be registered with the CER, the regulator tasked with administering both the RET scheme and the GO scheme. The CER has a broad oversight and enforcement remit in relation to the GO scheme and will only register an applicant if it is satisfied that the person is fit and proper (a standard that is being implemented across the CER's schemes). Similar to LGCs, REGO certificates will be publicly available on an online register.
How are REGO certificates different to LGCs?
While the REGO certificate retains the basic design of an LGC, there are a number of key differences in the new framework which should be kept in mind.
While the eligible renewable energy sources generally mirror the current RET framework for the creation of LGCs, the eligibility criteria for REGO certificates is broader than the RET scheme. Namely:
- REGO certificates can be created in respect of offshore renewable generation outside Australia’s territorial waters and electricity generated for international export (for example, through future projects such as SunCable);
- small-scale systems, such as rooftop solar and household batteries, can generate REGO certificates using emerging market participation models such as virtual power plants and other innovative small-scale aggregation approaches;
- projects that were constructed prior to 1997 but were ineligible under the RET scheme to create LGCs (eg a number of Australia's hydro power stations) may be eligible to create REGO certificates. This eligibility criteria was included in the GO Bill despite some stakeholders expressing concern during the consultation period that including below baseline generation would unnecessarily complicate the current voluntary market for LGCs, negatively affect demand and cause a substantial drop in pricing for both LGCs and REGO certificates; and
- REGO certificates can be created by energy storage systems with a 'direct supply relationship' with an eligible renewable energy facility (for example a hybrid solar and battery energy storage system (BESS) facility). The Explanatory Memorandum states that rules will be made identifying what qualifies as a direct supply relationship, but in essence it involves a transfer of electricity between the energy storage system and the eligible renewable energy facility such that renewable electricity physically enters the energy storage system. Expanding the eligibility criteria in this way is intended to provide flexibility for hybrid facilities and avoid the complexity that exists in creating LGCs from hybrid facilities and costs in complying with the RET scheme.
Unlike LGCs (which can only be distinguished based on the calendar year of creation), a REGO certificate records the hour of the day in which the REGO certificate was generated (or some other period of time which may be specified in the legislative rules). This time-stamping requirement was included in the GO Bill despite comments from industry stakeholders during consultation that 'time-stamping' would create an unnecessary administrative burden on generators.
Time-stamping is intended to:
- allow temporal matching of electricity consumption and electricity generation that provides customers with the option to purchase certificates representing renewable electricity generated or dispatched at a specific time, allowing for more accurate 'energy accounting', price differentiation and novel decarbonisation strategies which have gained popularity overseas (eg, 24/7 renewable energy procurement); and
- align the Australian scheme with emerging international requirements for time-matched renewable energy generation.
In our view, this is a key benefit of the REGO certificate and is likely to be highly valued by offtakers.
REGO certificates can also include other optional information ('attributes') (for example, the 'age' of the renewable electricity facility or its location) to allow customers to purchase REGO certificates that reflect attributes they value and to make specific claims about renewable energy usage.
How will REGO certificates be valued?
In the absence of a mandatory obligation to surrender a certain number of REGO certificates under the GO scheme (which is one of the key drivers of demand for (and therefore the price of) LGCs under the RET framework) it is not immediately clear what the market for REGO certificates will be. This is especially true while the GO scheme and RET framework operate in parallel (until 2030), as each megawatt-hour of eligible electricity generation can only be used to create either an LGC or a REGO certificate, not both.
The Government's view, expressed in the Explanatory Memorandum for the GO Bill, is that the REGO certificate market will be driven by the demand of corporates to acquire green certificates in order to voluntarily surrender them in pursuit of sustainability goals and commitments. If the Government's view is correct, it means that the value of REGO certificates will be the premium businesses are willing to pay to demonstrate their environmental credentials.
While the voluntary surrender market is no doubt a robust and growing market, the value of REGO certificates remains to be seen, and could be driven by a range of factors, for example:
- we could see a relative decline in the value of REGO certificates compared to LGCs, given the absence of any mandatory surrender regime or, alternatively, a drop in LGC prices as the voluntary market moves to REGO certificates;
- relative to historic LGC prices, the price of REGO certificates could be affected by the increased supply of REGO certificate providers, given the broader range of eligible entities; and
- the time-stamping of REGO certificates is intended to enable price differentiation depending on the time of day that particular REGO certificate was created and could itself be a driver of value over and above the LGC.
What you can do to prepare
The GO Bill was referred by the Senate to the Environment and Communications Legislation Committee, with the Committee's report due by 31 October 2024. It is anticipated that the detailed legislative rules which will underpin the GO scheme will be refined through consultation in the first half of 2025, with the GO scheme slated to come into effect by the end of 2025.
There are a number of things which you can start doing now to prepare for the introduction of the GO scheme, including:
- reviewing your existing offtake / green product supply agreements, and particularly the terms which deal with an offtaker's right to elect for the relevant facility to register for and create alternative green products (such as REGO certificates) in lieu of LGCs. Specifically, you may want to consider:
- the risk allocation in terms of any costs of participation in the GO scheme; and
- for developers with multiple offtakers, which offtaker has the right to nominate new green products and how that process might work operationally where offtakers want a certain volume of REGO certificates and LGCs for a specific time period.
You should also give careful consideration to these issues in any existing or future negotiations for these offtake agreements;
- developing a 'compliance roadmap' for the introduction of the GO scheme to ensure your business is not caught out by the new reporting obligations and verification procedures, particularly if you are intending on developing (or supplying renewable electricity for the development of) hydrogen or other low-emissions products; and
- participating in the consultation on detailed legislative rules which will underpin the GO scheme, expected to be developed by the Federal Government over the first half of 2025. Specifically, hydrogen developers with international offtakers should monitor this consultation closely to ensure legislative rules are drafted with sufficient flexibility to allow for alignment with the relevant overseas carbon verification schemes.