The National Greenhouse and Energy Reporting Act 2007, which was passed late last year, provides a framework for the reporting scheme, but left a considerable amount of detail to be determined by the regulations. The policy paper released by the Minister for Climate Change and Water, Penny Wong last week, is a big step towards filling in those blanks.

It provides, among other things, definitions of key terms such as “facilities” and “emissions” and further clarifies the reporting obligations at the different levels within corporate groups.

While the policy paper concerns emissions reporting, rather than emissions trading, the paper is important for both with the government stating that the reporting scheme will “underpin” the forthcoming National Emissions Trading Scheme.

One area of ambiguity that the policy paper seeks to clarify is the position of greenhouse gas emission “offsets” under the Act, which a company can choose report onalong with its overall emissions. What constitutes a credible offset is a continuing source of contention, particularly considering that there is currently no Australian standard for carbon credits.

The policy paper confirms that at this point only greenhouse-friendly carbon credits under the government’s pre-existing Greenhouse Friendly initiative will at this point meet the Act’s definition, as these are the only credits currently approved by the government. However, it envisages that other offsets could be included once an Australian standard for carbon credits is developed, which is due to happen by the end of this year.

Another issue that could cause some controversy is the inclusion of a “materiality threshold” for facilities, which will relieve corporations of the obligation to report on emissions from very small facilities. For instance, this threshold may arguably contravene the principal of “completeness” set out in the Greenhouse Gas Protocol’s “Corporate Standard” for greenhouse gas accounting and reporting, which states that emissions from all sources and activities should be accounted for to ensure meaningful and comprehensive data is compiled.

However Baker & McKenzie partner Paul Curnow argues that the inclusion of the threshold helps minimise the administrative burdens for businesses.

“I think you have to have a balance between completeness in terms of emissions reporting on the one hand and what that means in terms of administrative costs and burdens for business. The history of [materiality thresholds] came out of this idea of streamlining reporting and reducing the administrative burden on companies. I do think that has to be kept in mind,” he said.

“These are actually very low materiality thresholds. In fact I think a lot of people are worried that they’re too low. If you have a lot of different activities at a facility and you’ve got to go down to this level of materiality, and report on a disaggregate basis — it’s quite a lot of work there.”

In fact Curnow believes that until now, many businesses haven’t properly considered just how much work the reporting scheme, and for some, the emissions trading scheme, will entail.

“If you have a pretty diverse business with a whole range of activities, in particular, lots of activities at one facility, then the administrative burden in terms of reporting, and the way you have to disaggregate your reporting across these different activities, is going to be quite high,” he said.

“I think what people are just coming to grips with now is the reality of setting up these systems. I think people have underestimated the how much this is going to cost them and how much time it’s going to take.”

While companies don’t have to report their emissions under the Act until August 2009, they need to have systems in place to accurately measure their emissions from 1 July this year, and it’s Curnow’s view that many companies aren’t on track to meet this.

However he believes Australian businesses will benefit from being able to adopt systems developed by the EU, who have taken the lead on both emissions reporting and trading.

“The reality is that we’re behind Europe by at least two or three years, but I guess fortunately that means there are a lot of software systems and processes in place that we can borrow when we’re putting this in place. Also, the costs involved are primarily upfront costs. I think once you’ve got those systems in place, the ongoing cost of compliance won’t be as high,” Curnow said.

The Federal Government is calling for submissions on the policy paper until 27 February 2008.