OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS LEGISLATION AMENDMENT BILL 2003 Explanatory Memorandum

2002-2003

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS LEGISLATION AMENDMENT BILL 2003

EXPLANATORY MEMORANDUM

(Circulated by authority of the
Minister for the Environment and Heritage,
the Honourable Dr David Kemp, MP)

OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS LEGISLATION AMENDMENT BILL 2003

OUTLINE

This bill introduces new controls on substances that have detrimental environmental impacts upon the global atmosphere – ozone-depleting substances and synthetic greenhouse gases used as alternatives to ozone depleting substances. These controls are introduced for the purposes of and incidental to, the implementation of Australia’s obligations to minimise the consumption and emission of these substances under the Vienna Convention for the Protection of the Ozone Layer, the Montreal Protocol on Substances that Deplete the Ozone Layer, and the United Nations Framework Convention on Climate Change.

The bill will amend the Ozone Protection Act 1989 to: –

• introduce a licensing system for the import, export and manufacture of synthetic greenhouse gases (SGGs) used as alternatives to ozone depleting substances (ODS), accompanied by a licence application fee, activity levy and reporting obligations;

• introduce a licensing system for refrigeration and air-conditioning equipment imported into Australia containing the ozone depleting substance hydrochlorofluorocarbon (HCFC) or the synthetic greenhouse gas hydrofluorocarbon (HFC), accompanied by a licence application fee, activity levy and reporting obligations;

• extend the existing licensing system for the import, export and manufacture of ODS to a new ODS, bromochloromethane, including the associated licence application fee and reporting obligations;

• provide for national consistency in end-use regulation of ODS and their SGG alternatives through a power to create regulations for this purpose, replacing State and Territory ODS and SGG end-use regulations that vary in both scope and nature;

• extend the scope and purpose of the Ozone Protection Special Account to include all costs and revenue associated with the amended Act and management of Australia’s National Halon Bank;

• introduce application fees for an exemption to import or manufacture certain products containing or manufactured with ODS; and

• undertake a series of minor technical amendments to clarify the definition of “Protocol” for the purposes of the Act, and clarify the status of ODS and SGG imported for destruction.

Financial impact statement

The net effect of these amendments on the Commonwealth’s fiscal bottom line is zero.

The additional expenditure associated with implementation of these amendments will be fully recovered from additional revenue generated through the proposed: new fees for exemptions for the import and manufacture of certain products; new fees for the import, export or manufacture of synthetic greenhouse gases; and increased licence application fees and activity levies for licences under the existing Act.

The additional revenue raised through these cost recovery arrangements is estimated at $1.3m in 2003-04 and $1.0m in 2004-05.

Regulation Impact Statement and Cost Recovery Impact Statement

(see overpage)

Regulation Impact Statement
Introduction

In April 2000 a Task Force consisting of representatives from Environment Australia, the Australian Greenhouse Office, the Attorney General’s Department and PricewaterhouseCoopers was formed to review the impact, appropriateness, effectiveness and efficiency of the Commonwealth’s ozone protection legislation including the:

The legislation gives effect to Australia’s obligations under the Montreal Protocol on Substances that Deplete the Ozone Layer 1987 (Montreal Protocol), provides the underpinning for Australia to exceed the Protocol’s requirements where practical and institutes a series of complementary controls over the market. The Review Taskforce examined the legislation in its current form and considered whether the legislation might be altered or replaced to yield improved results.

The legislation’s controls currently include total prohibitions on the import, export and manufacture of substances with the highest potential to damage the stratospheric ozone layer. They also include limits and quotas on the import, export and manufacture of less damaging substances, which progressively reduce their availability over time.

• Ozone depleting substances (ODS) consist primarily of certain members of the halocarbon family of chemicals. They are used in Australia for operating refrigeration and air conditioning equipment, manufacturing certain types of foam and fumigating to kill pests and diseases in soil, stored grain and quarantined primary products. Other important uses include cleaning electronic equipment, calibrating scientific equipment and operating fixed and portable fire extinguishing systems and aerosol products. When released into the atmosphere, ODS contribute to depletion of the stratospheric ozone layer which protects humans, animals and the broader eco-system from the damaging effects of UV-B radiation.

The review met a policy commitment made by the Commonwealth Government in 1995 to review changes to the legislation made in that year which brought two additional ODS under regulation - hydrochlorofluorocarbons (HCFCs) and methyl bromide. It was conforms with National Competition Policy requirements for all Commonwealth legislation be assessed to determine whether it impedes market competition, whether these impediments can be justified in terms of costs and benefits to the Australian community, and whether more effective measures are available to achieve the same regulatory objectives.

A review of the impact, appropriateness, effectiveness and efficiency of the Commonwealth’s ozone protection legislation, including the Ozone Protection Act 1989, indicates that the legislation has made a strong positive contribution to the Australian community by preventing a substantial depletion of the ozone layer of the stratosphere and supporting both national and international resolve to address ozone-related issues.

Preferred data sets for the review indicate a net benefit from the legislation over the period 1989-2060 of $6.4 billion, consisting of benefits of $7.4 billion and costs of $1.0 billion (all in discounted 1996 prices). The period 1989-2060 covers the time from when the legislation was first introduced to the time when the longer term environmental impacts associated with ODS are expected to cease. The data indicates that the overall benefits of the legislation have exceeded the legislation’s overall costs by a ratio of more than 7 to 1 and that Australia’s decisive actions to meet and exceed its international obligations has delivered substantial gains to the general Australian population. A high net benefit can be attributed to Australia’s particular susceptibility to the damaging effects of ozone depletion and to the consequent gains that emerge from a pro-active approach to environmental regulation.

Quantifiable benefits arise through the legislation preventing emissions of ODS into the atmosphere by Australia and other countries, lower emissions avoiding a sharp increase in UV-B radiation levels and that avoidance leading to fewer cases of skin cancers and cataracts in humans and to less damage to cereal crops, fisheries and the longevity of certain building materials. Quantifiable costs arise through the legislation inducing industry and consumers to shift to alternatives to ODS which, in the short term, may be more expensive to purchase, develop or assimilate.

Most of the net quantifiable benefit has been generated by controls over ODS whose manufacture and import have now reached the point of complete phase-out. These include chlorofluorocarbons (CFCs), halons and methyl chloroform. A clear net benefit is also evident for legislative controls over methyl bromide that is progressing towards a full phase-out for agricultural purposes in 2005. An overall net benefit emerges for current legislative controls over HCFCs when the potential implications of removing these controls are considered. The legislation establishes a phase-out schedule for HCFCs agreed with industry in 1995 that exceeds the minimum requirements of the Montreal Protocol and will be substantially complete by 2020.

A National Approach

The need for national consistency in ozone protection emerged as an important theme in the review. Inconsistencies in regulation across States and Territories provide a confused picture to stakeholders, undermine compliance and enforcement efforts and may disadvantage companies and individuals seeking to operate businesses across jurisdictional boundaries.

One issue that impacts on much of the industry currently phasing-out the use of ODS is the uptake of alternatives which are synthetic greenhouse gases (primarily hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs)) - substances covered under the Kyoto Protocol on Climate Change. Industry stakeholders believe that the ozone protection legislation should be extended to incorporate these substances. Improved monitoring will facilitate a move away from ODS and support policy making in relation to greenhouse gas issues as well as meeting Australia’s international commitments under the United Nations Framework Convention on Climate Change (UNFCCC).

• The Ozone Protection Reserve be extended to include all appropriations, revenue and expenditure associated with ozone protection, including that associated with the National Halon Bank;

• Environment Australia develop longer-term budgets for its ozone protection activities;

• Licence and activity fees under the legislation be increased and rationalised to reflect reasonable increases in the costs of Environment Australia’s ozone protection activities;

• Commonwealth powers in relation to the management of ODS end-use be elaborated and exercised;

• The Commonwealth act to ensure national consistency in ozone protection regulation across all States and Territories, in relation to supply and end-use; and

• The synthetic greenhouse gases used by traditional Montreal Protocol industries as alternatives to ODS be managed in manner consistent with arrangements currently in place for ODS.

Australia has ratified the Vienna Convention for the Protection of the Ozone Layer 1985 and the Montreal Protocol on Substances that Deplete the Ozone Layer 1987. It has also ratified each of the amendments to the Protocol designed to extend international ozone protection measures, including those initiated in London (1990), Copenhagen (1992), Vienna (1995) and Montreal (1997).

In 1999, the 11^th Meeting of the Parties to the Montreal Protocol initiated the Beijing Amendment. If ratified and implemented by Australia, the Amendment will:

• introduce an internationally binding cap on domestic manufacture of hydrochlorofluorocarbons (HCFCs);

• ban Australian imports of HCFCs from, and exports of HCFCs to, non-Parties to the Copenhagen Amendment to the Montreal Protocol covering these substances;

• ban the import, export and domestic manufacture of bromochloromethane (BCM);^[1] and

• require mandatory reporting by Australia to the Montreal Protocol Secretariat on volumes of methyl bromide used for quarantine and pre-shipment (QPS) purposes.^[2]

Implementing the Recommendations Arising from the Review and the Beijing Amendment

Five regulation impact statements covering the possible options for addressing the recommendations arising from the Review and the Beijing Amendment to the Montreal Protocol are presented in this document. Together they represent a comprehensive reassessment of the Commonwealth’s ozone protection programme, enhancing Australia’s ability to manage ozone depleting substances and their synthetic greenhouse gas alternatives. The five components of this RIS are:

1. Implementation of the Beijing Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer;

3. Product Stewardship Arrangements for Ozone Depleting Substances in Pre-Charged Air-Conditioning Systems;

4. Controls on the Import, Export and Manufacture of Synthetic Greenhouse Gases; and

5. Uniform End Use Controls for Ozone Depleting Substances and their Synthetic Greenhouse Gas Alternatives and Product Stewardship Arrangements for Synthetic Greenhouse Gases in Pre-Charged Air-Conditioning Systems.

Existing Regulatory Arrangements

Commonwealth Ozone Protection Legislation

• prohibits the import, export or manufacture of chlorofluorocarbons, halons, carbon tetrachloride, methyl chloroform and hydrobromofluorocarbons without an essential-uses or used-substances licence;

• establishes a system of controlled-substances licences and reporting requirements for the import, export or manufacture of hydrochlorofluorocarbons and methyl bromide consistent with Australia's obligations under the Montreal Protocol;

• establishes an Ozone Protection Reserve to allow revenue from the licensing system to be directed towards the cost of its administration, and industry awareness programmes for the phase out of hydrochlorofluorocarbons and methyl bromide; and

• introduces administrative fees for licences issued under the Act, with the fees set under the Ozone Protection Regulations 1995 No. 389.

• provides for the payment of fees in respect of the importation of hydrochlorofluorocarbons and methyl bromide under controlled-substances licences, with the fees set under the Ozone Protection (Licence Fees - Imports) Regulations 1995 No. 390.

• provides for the payment of fees in respect of the manufacture of hydrochlorofluorocarbons and methyl bromide under licences granted under the Ozone Protection Act.

State & Territory Ozone Protection Legislation

State and Territory Governments have enacted a range of legislation and regulations to provide for the management of ODS (and in the instance of West Australia, SGG and other refrigerants). Legislated requirements generally extend to the sale, purchase, handling, use, storage, recovery, labeling, recycling and destruction or disposal of ODS.

Whilst prohibitions on venting ODS to the atmosphere are universal (either explicitly or implied), the coverage of ODS by State and Territory legislation is not uniform. Some jurisdictions regulate all substances scheduled under the Montreal Protocol whilst others only regulate substances banned under protocol such as chlorofluorocarbons (CFCs) and halons leaving hydrochlorofluorocarbons (HCFCs) unregulated. The range of compliance requirements and the different degrees of coverage afforded by State and Territory legislation was an issue raised by traditional Montreal Protocol industries during the review of the Commonwealth’s ozone protection legislation.

Implementation of the Beijing Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer

Australia has been a leading supporter of international efforts to protect the ozone layer of the atmosphere since the early 1980s when initial moves were made through the United Nations to limit the global consumption of ozone depleting substances (ODS). When vented into the atmosphere ODS damage the ozone layer protecting humans, animals, plants and building materials from the harmful effects of UV-B radiation.

Australia has a well-established record of leadership in international fora for ozone protection. It was instrumental in the development phases of the Protocol and, since the late 1980s, has played a leading role in the formulation and implementation of its provisions. In recognition of Australia’s central role, it was recently appointed Vice-Chair of the Protocol’s Implementation Committee. Australia is also a member of other important decision-making bodies within the Protocol framework including the Executive Committee to the Multilateral Fund, the Scientific Assessment Panel and the Methyl Bromide Technical Options Committee. An active role in these areas allows Australia a degree of influence over the nature and direction of global ozone protection issues.

The maintenance of a global alliance of nations to protect the ozone layer represents the single most effective measure for preventing depletion of the ozone layer over Australia. This occurs for the simple reason that Australia accounts for less than 1 percent of global emissions of ODS. Even if Australia were to dramatically reduce domestic emissions of ODS, its efforts could do little to offset the effects of any global erosion in support for ozone protection measures. In 1999, the 11^th Meeting of the Parties to the Protocol initiated the Beijing Amendment. If ratified and implemented by Australia, the Amendment will result in:

• the introduction of an internationally binding cap on domestic manufacture of hydrochlorofluorocarbons (HCFCs);

• a ban on Australian imports of HCFCs from, and exports of HCFCs to, non-Parties to the Copenhagen Amendment to the Protocol covering these substances;

• a ban on the import, export and domestic manufacture of bromochloromethane (BCM);^[3] and

• mandatory reporting by Australia to the Protocol Secretariat on volumes of methyl bromide used for quarantine and pre-shipment (QPS) purposes.^[4]

Not all aspects of the Amendment will alter the current or expected structure of the Australian market or the manner in which the Commonwealth’s Ozone Protection Act 1989 (OPA) is administered by Environment Australia (EA). The OPA is the principal piece of Australian legislation designed to limit the availability of ODS through domestic manufacture or imports.

HCFCs and BCM are not manufactured domestically.^[5] Neither substance is imported from countries not party to the Protocol due, in part, to the licensing provisions of the OPA which require imports come from countries that are Party to the Protocol. While Australia currently re-exports HCFCs, trade is limited to countries that have ratified the Copenhagen Amendment. Australia has not recently exported BCM. Finally, Australia already reports its use of methyl bromide for QPS purposes. The adoption of the Amendment will not alter the current practices of industry in supplying consumption data to Government or the activities of Environment Australia in collating and forwarding this material to the Protocol’s Secretariat.

Australia’s adoption of the Beijing Amendment - through both ratification and the introduction of corresponding changes to the OPA - may alter the current situation in two respects.

First, it limits future sales of HCFCs which Australian companies may wish to make to nations that have not ratified the Copenhagen Amendment.^[6] The most important of these lie in the Pacific Island region and include Papua New Guinea, Niue, Tonga, Kiribati and the Cook Islands. At present, these nations rely heavily on chlorofluorocarbons (CFCs) to meet their refrigeration and air conditioning requirements. However, as the global availability of CFCs declines in line with Protocol restrictions on their production and export, these nations will look to alternative substances to meet their requirements including ozone depleting HCFCs and non-ozone depleting hydrofluorocarbons (HFCs) and hydrocarbons (HCs). A ban on Australia supplying HCFCs may allow China, India and other countries to fill a potential Australian export market.

Second, constraints will be placed on the use of BCM. Australia imports relatively small quantities of this substance, mainly for use as an agent in chemical synthesis.^[7] Since 1998, the total annual volume of imported BCM has averaged less than 1 kilogram and demand has been intermittent.

If adopted by Australia, the Beijing Amendment will preclude access to this source of supply from the date of ratification, although continuing to allow access to any stored reserves or to holders of an essential uses licence.^[8] The stakeholders most affected by an import ban are research organizations such as universities and a small number of pharmaceutical companies. These organizations use the substance as a reactive agent in the synthesis of chlorocarbene, reactive anions and other small to intermediate-sized molecules for eventual use in the production of higher value pharmaceuticals, diagnostic kits, agricultural chemicals (fungicides, insecticides and herbicides), lubricants, inks, paints and other coatings. Australia’s adoption of the Beijing Amendment would require that these organisations either cease to conduct their experimentation or shift to alternative substances and/or processes.The Problem

Ozone depletion creates increased amounts of damaging ultraviolet solar radiation at the earth’s surface. This radiation damages agricultural systems, fisheries, and causes skin cancer and cataracts. BCM has only recently been identified as an ozone depleting substance and without international action, its use and emission to the atmosphere may greatly increase and further damage the stratospheric ozone layer, increasing surface levels of damaging ultraviolet radiation.

If Australia does not ratify the Beijing Amendment, two problems are likely to emerge:

The first and most important is that Australia may be perceived by large global consumers of ODS and other Parties to the Protocol as retreating from international ozone protection measures. In turn, other countries may downgrade their own efforts and increasing amounts of ODS would be released into the atmosphere where they damage the ozone layer over Australia. Preventative action at a global level offers greater prospect for protecting Australia from the adverse effects of increased UV-B radiation than any unilateral action which Australia might contemplate, given that the volumes of ODS used globally far exceed Australia’s consumption levels.^[9]

The second is that Australia will continue to release small quantities of BCM into the atmosphere where it damages the ozone layer. Although BCM is used in small quantities within Australia, its ozone depleting potential is more than twice as high as an equivalent volume of HCFC-22 (which is the most widely ODS used domestically).

Government action is required to address these problems, as the thinning of the ozone layer is a global problem that requires global responses. International and domestic action to prevent the thinning of the ozone layer is most appropriately undertaken by the Commonwealth government.

The objective of ratifying the Beijing Amendment is to protect Australia from the damaging effects of ultraviolet radiation.

As the ozone layer protects the Earth from ultraviolet radiation, protecting Australia from this radiation may most effectively be achieved by implementing mechanisms that minimise the use of substances that are known to deplete the ozone layer. Currently, minimising the use of ozone depleting substances is approached in two ways:

1. through the implementation of domestic policies that minimise the domestic emission of ozone depleting substances; and

2. by encouraging all countries to minimise emissions of ODS through participation in Protocol forums.

The second of these approaches requires Australia to ratify all amendments to the Protocol to send a clear message to all countries that the adoption and implementation of measures under the Protocol and its amendments is vital for the long term recovery of the ozone layer. This is linked to the first approach as by re-affirming its own commitment to the Protocol, Australia’s ratification and implementation sends a signal to all Parties to continue their support. It is also sending a message to non-parties to consider joining international moves for ozone protection. Further, Australia’s treaty process requires that before Australia can ratify any treaty, its provisions must first be implemented domestically. Australia’s ability to encourage other countries to ratify and implement all Amendments to the Protocol is therefore dependent upon its own efforts in implementing the Amendment.

Protection of the ozone layer is in Australia’s interests through reduced health care costs, reduced damage to Australian agriculture and fisheries, reduced damage to natural ecosystems and protection of global biodiversity as well as prevention of damage to the agriculture, health and economies of Australia’s trading partners.

Australia may help minimise the damage caused by ultraviolet radiation in several ways. These include:

(a) maintaining the status quo. Many of the requirements of the Beijing Amendment have already been implemented by the Commonwealth either legislatively or administratively. For example, under the Beijing Amendment Australia would be required to report annually on its quarantine and pre-shipment uses of methyl bromide to the Ozone Secretariat in Nairobi. This is already done by Environment Australia’s Ozone Protection Section, through information provided by applicants for methyl bromide licences. Secondly, the current operation of the OPA serves to limit the exports of HCFCs to countries that have not ratified the Copenhagen Amendment to the Montreal Protocol.

This option presents the lowest cost to Government as it involves no extra administration and does not require extra legislation or ratification if international treaties. This option meets the stated objective through the strength of Australia’s current ozone protection arrangements, but does not further these. The low cost to the government makes this a viable option that should be assessed.

(b) creating a voluntary agreement between Government and industry to achieve the same effects on the market as ratification of the Beijing Amendment. The advantage of this option is flexibility and avoiding the administrative burden on government of affecting change through legislative processes. This approach will require extended consultation with industry to reach agreement. The agreement would therefore place the implementation and administration cost of the voluntary agreement upon industry, which would then be passed on to consumers.

As voluntary agreements have no symbolic value in international fora. Australia would be seen as resiling from its leadership internationally of ozone protection issues, and would not be able to credibly encourage other countries to ratify. In the long term, Australia would lose access to any essential uses of BCM that may be identified in the future. A voluntary agreement would impose all the negative requirements of the Beijing Amendment without generating the associated desirable benefits. This option is therefore not considered viable

(c) accelerating Australia’s phase-out of imported HCFCs and methyl bromide and not taking further action as required by the Beijing Amendment. This measure would signal to other countries Australia’s continuing resolve to address the ozone problem, and minimise the release of ODS to the atmosphere to prevent the thinning of the stratospheric ozone layer. The advantage of this proposal is that the amounts of methyl bromide and HCFC imported in Australia far exceed the amount of BCM imported. If we were to make an assessment based purely on Australia’s impact on the stratospheric ozone layer, reduction of HCFCs and methyl bromide would have a far more positive environmental impact than reducing BCM.

However, this option suffers from a number of major shortcomings such as:• Australia only accounting for approximately 0.8 percent of world HCFC consumption and 2.0 of world methyl bromide consumption. Its actions will therefore have a minimal impact of global usage of these ODS and the consequent rate of depletion in the ozone layer over Australia;

• No contribution to help reduce the global consumption of BCM would be made. As this chemical is currently being used in amounts in excess of 10 000 metric tonnes per annum globally, Australian support for measures to control this chemical would be most useful.

• Unilateral action by a small global consumer of ODS such as Australia lacks the symbolic value of action through the Protocol which provides an established focus for ozone protection policy makers in other countries;

• Australia has already agreed to phase-out of HCFCs at a rate that substantially exceeds minimum Protocol requirements and has been in place since the mid-1990s. To alter that schedule would disrupt long term planning and investment by industry; and

• Australia has already agreed to a progressive phase-out of most uses of methyl bromide (predominantly, as a pre-plant soil disinfestation treatment in the horticultural sector) by 2005. Work in developing and applying alternatives to methyl bromide is progressing well in preparation for 2005. However, accelerating this phase-out would be likely to severely and unreasonably impact on the ability of some Australian horticultural sectors to operate. The use of methyl bromide as a fumigant treatment for imports and exports (quarantine and pre-shipment, or "QPS" uses) is currently exempt from the phase-out; removing this exemption without time for preparation and a reasonable transition to alternatives would impact on the viability of a number of significant agricultural export industries, such as grains and rice exporters.

(d) giving domestic effect to the provisions of the Beijing Amendment through the use of legislative amendments to the OPA without ratification. The advantages of this approach are that the implementation and administration costs to government will be slightly lower, and domestic access to a potent ODS restricted, which will minimise Australian emissions of the ODS. The negatives of this approach is that in the ling term, industry would be denied access to BCM entirely, and Australia would be seen as resiling from its leadership position in ozone protection.

This option also will only go a small way towards meeting the stated objective of preventing depletion of the ozone layer as Australia imports very small amounts of BCM. Actions taken other than ratification are unlikely to provide any encouragement to other countries to follow Australia’s lead. This option, similar to option two, will impose all the obligations of the Beijing Amendment upon domestic industry without assisting to bring about the global benefits of action internationally. This action will lead to an imperceptible reduction in ozone depletion through reduced Australian emission of BCM.

As this option does not meet the stated objective of preventing damage to Australian interests from ultraviolet radiation, it is considered not viable.

(e) ratifying the Beijing Amendment and implementing the appropriate legislative amendments. This will send a strong message to all countries that Australia still sees ozone protection as a serious global issue that requires a global response. Australia will retain access to overseas sources of BCM where its use is seen as essential. Further Australia will encourage other countries to ratify the Copenhagen Amendment before being able to access HCFC exported from Australia.

The negatives of this approach are that costs are highest for the government, as it will require the regulation of another chemical, implementation of legislation and ratification of the international treaty. Industry may lose some export partners in the short term before possible trading partners ratify the Copenhagen Amendment, and are therefore permitted to trade.

This precursory discussion of options therefore leaves two viable options. These are:

Ratification and implementation of the Beijing Amendment will affect Australia in two distinct areas, firstly through preventing the re-export of HCFCs to countries that have not ratified the Copenhagen Amendment and secondly through restricting the import, export and manufacture of a potent ozone depleting substance – BCM.

In accordance with the requirements of the Office of Regulation Review, the costs and benefits of each if these aspects is assessed.

Option 2 will result in reduced opportunities for Australian re-export of HCFCs to countries that have not ratified the Copenhagen amendment. These restrictions will prevent short term exports of HCFCs to countries that have not ratified the Copenhagen Amendment to the Montreal Protocol, however as these countries ratify that Amendment, the market for re-export of HCFCs will broaden.

In line with Commonwealth Government requirements for the preparation of a Regulatory Impact Statement (RIS), the analysis of costs and benefits must be considered for each key stakeholder group - business, Government, consumers and the community.^[10]

The costs to business of a prohibition on re-exporting HCFCs to countries that have not ratified the Copenhagen Amendment to the Protocol may take three main forms:

• directing future re-exports of HCFCs to other countries who are parties to the Protocol; and

• shifting to supply the markets with non-ozone depleting substitutes for HCFCs.

In all three cases, the future profitability of export sales by Australian companies is likely to decline. In the first case, these losses would be highest as all future export sales are forfeited. In the second, a lower level of profit on future exports would arise as exports of substitutes such as HFCs attract lower prices and may be sold in lower volumes as the replacement equipment which uses them incorporates more advanced technologies. In the third case, additional market development expenses may need to be incurred to secure new markets in which the unit price and profit received for HCFCs may also be lower.

Licensed importers of HCFCs have indicated that a ban on future exports of these substances to countries not Party to the Protocol will have no substantive adverse effect on their operations. These companies do not currently export to these countries and do not expect to establish significant commercial links for the sale of HCFCs in the foreseeable future. All relevant licence holders are larger companies and ratification of the Amendment will have no small business implications.

The direct costs to Government of a prohibition on re-exporting HCFCs to countries who have not ratified the Copenhagen Amendment to the Protocol are those of administering the processes of ratification and legislative change and of enforcing new legislative arrangements.

The costs of the ratification process and altering legislation are once-off and involve drafting relevant sections of the Ozone Protection Act Amendment Bill 2002, informing industry of the changes being proposed and ushering reforms through the Commonwealth Parliament. These are expected to be small and industry is generally aware of the changes being proposed. Enforcement costs are also expected to be relatively small given the limited number of HCFC exporters involved, and the fact that all licence holders are made aware of their obligations not to export to certain countries via conditions upon their licences.^[11] An independent flagging system by customs prevents unlicensed exports of HCFCs. This licensing system is already in place and will not require additional funds to maintain.

Some indirect costs may occur if Australia’s adoption of the Beijing Amendment is viewed by recipient countries as imposing an unwelcome requirement. In the event that Australian sources of HCFCs were no longer available in the future, these countries could face the higher cost options of:

• modifying and replacing refrigeration and air conditioning equipment which is HCFC dependent;

Should this occur, recipient countries might view Australian adoption as an unfriendly or unhelpful act, with possible diplomatic ramifications. The likelihood of this is considered remote.

The only countries to which Australia has significant export links and which have not ratified the Copenhagen Amendment are Pacific Island nations. Australian companies familiar with the CFC and HCFC requirements of Pacific Island nations have indicated that Australia’s adoption of the Beijing Amendment will have little impact on these countries. Most Pacific Island nations who have not ratified the Copenhagen Amendment are still reliant on CFCs. It is probable that any long term transition away from these substances will involve a shift to HFCs or HCs rather than the intermediate consumption of HCFCs. Were HCFCs to be used, these nations could readily access supplies from China or India which are not subject to export prohibitions under the Protocol, in the event that Australian sources of supply were unavailable.

Offsetting at least part of any negative effect is the likelihood that Australia’s adoption of the Beijing Amendment will help to galvanise international action on ozone protection and generate global environmental benefits which will flow to all countries including those in the Pacific Island region.

The benefits to Government take the form of enhancing Australia’s image in future international negotiations concerning ozone protection and, potentially, other environmental issues. Australia’s adoption of the Beijing Amendment will cement Australia’s reputation of support for international cooperation in support of environmental protection and its acknowledged role as a leader in influencing the attitudes of other countries towards ozone related environmental issues.

Any gains through future ozone protection negotiations will be relatively small, given that the Beijing Amendments have emerged after more than 10 years of international reform and address shortcomings at the periphery rather than the core of the Protocol. Similarly, the degree to which Australia’s credentials in relation to ozone protection might be used to enhance its position in international negotiations on issues such as global warming and climate change is difficult to determine but is not expected to be great given the unique nature of each environmental issue. Consumers

There are no significant costs or benefits to Australian consumers of a prohibition on re-exporting HCFCs to countries who have not ratified the Copenhagen Amendment to the Protocol.

A ban on re-exporting does not influence the volume of HCFCs available to domestic consumers as part of industry limits established under the OPA. Re-exporters of HCFCs would receive relatively small amounts of revenue and profit from selling these substances in some point in the future to non-parties to the Protocol and any loss of income or scale-related operating efficiencies is unlikely to have a significant impact on their ability to service the Australian market at competitive prices.

There are no costs to the Australian community from a prohibition on re-exporting HCFCs to countries that have not ratified the Copenhagen Amendment to the Protocol. Although any diplomatic and other action by non-parties may give rise to some community concerns, these are unlikely to result in a tangible reduction in community welfare.

The benefits to the community stem from Australia’s actions helping to promote and ensure compliance with the Protocol at an international level. To the degree that Australia’s adoption results in a take-up of the Beijing Amendment by other countries and encourages higher levels of general acceptance of the Protocol’s framework around the world, a positive environmental outcome for Australia can be expected. A smaller and less important benefit can also be expected if Australia’s actions prove instrumental in accelerating ozone protection reforms in certain Pacific Island nations which rely on Australia for supply at some point in the future but are unlikely to formally adopt the Copenhagen Amendment and Beijing Amendment.

These benefits take the form of lower levels of depletion of the ozone layer of the atmosphere and consequent gains through a lower incidence of skin cancers and cataracts in humans, less damage to human immune systems, reduced pressures on the health care system and improved quality of life, higher industrial productivity and an extended duration for working lives, improved agricultural and forestry productivity, enhanced productivity and sustainability of Australia’s marine and other natural resources, a lower incidence of diseases among animals and a longer product life for UV-B sensitive building materials including plastics and paints.^[12]

It is not possible to quantify these benefits due to the difficulty in gauging Australia’s influence over other countries with reasonable accuracy. Nevertheless, such benefits are tangible and could be significant. The global benefits of international action by parties to the Protocol are well documented in a recent Canadian study which point to global gains from the Protocol in the period 1987-2060 of more than US$459 billion in 1996 prices, consisting of US$238 billion from reduced damage to fisheries, US$191 billion from reduced damaged to agriculture and US$30 billion from reduced damage to building materials. These estimates exclude dollar values for human health related benefits which the report acknowledged as highly significant.

In a recent study of Australia’s share of the global benefits of the Protocol for the period 1989-2060, a Commonwealth Task Force estimated gains to Australia of AUS$7.4 billion in 1996 prices.^[13] This consisted of $4.6 billion in reduced damage to fisheries and agriculture, $2.3 billion in reduced damage to human health and $0.5 billion in reduced damage to building materials. Taken together, the Canadian and Task Force studies point to substantial advantages to Australia from maintaining high levels of international commitment to ozone protection measures.

Table 1
Summary of Impact by Stakeholder Group
- Adoption of Beijing Amendments Relating to HCFCs

There are no significant costs or benefits to business from Australia adopting the Beijing Amendment in relation to BCM, given that this substance is not manufactured in Australia or re-exported and wholesaling occurs in such small quantities - 1kg over the past three years - that existing importers are not significantly effected by a loss of custom. In the event that BCM is banned, it is possible that the same wholesalers would achieve offsetting sales in substitute products due to the high concentration of suppliers of chemicals to research and other institutions.

The costs to Government of a ban on imports of BCM are those of administering the processes of ratification and legislative change. These costs are essentially once-off and involve drafting relevant sections of the Ozone Protection Act Amendment Bill 2002, informing industry of the changes being proposed and ushering reforms through the Commonwealth Parliament. The costs of monitoring and enforcing new legislative provisions are expected to be minimal given the ability of the Australian Customs Service to monitor import levels and the relatively small number of current and potential Australian wholesalers and users of BCM.

The benefits to Government take the form of enhancing Australia’s image in future international negotiations concerning ozone protection and, potentially, other environmental issues.

Any gains in future ozone protection negotiations are expected to be small, given that the Beijing Amendment address shortcomings at the periphery rather than the core of the Protocol. Although BCM has a high ozone depleting potential, it is used in relatively small quantities within Australia and around the world and still remains to be controlled after more than 10 years of international reform. The degree to which Australia’s credentials in relation to ozone protection might be used to enhance its position in international negotiations on issues such as global warming and climate change is difficult to determine but is not expected to be great given the unique nature of each environmental issue.

The costs to consumers take the form of the added expense of either purchasing an alternative substance, shifting to a new process for chemical synthesis or producing BCM domestically after receiving an essential uses exemption from EA.

For research organizations, available evidence suggests that a mix of all three costs may arise, although none at a prohibitive level. These organizations have indicated that, for the most part, alternative substances can be found or alternative processes used. On the relatively few occasions that BCM must be adopted, the substance can be produced internally within these organizations at reasonable expense. Before in-house production can occur an essential use licence would need to be obtained involving a licence fee of $3,000, the costs of completing an application and an average time delay of eight weeks. For pharmaceutical companies, a similar set of costs would arise. However, available data also suggests that these costs are not prohibitive.

There are no benefits to consumers from the Option, although a ban on BCM will remove from use a substance with a high degree of toxicity and may therefore lead to some improvement in occupational health and safety among end-users.

There are no costs to the community from adoption of the Beijing Amendment in relation to BCM. Although researchers in the areas of pharmaceuticals, diagnostic kits, agricultural chemicals, lubricants, inks paints and other coatings may face minor constraints, available evidence suggests that these are not large enough to materially effect the range, quality or price of the products they make availability to the community.

The benefits to the community are the same as those described in relation to a prohibition on re-exports of HCFCs discussed above and hinge on Australia’s actions signaling to other countries the importance of international cooperation if effective levels of ozone protection are to be achieved. They include lower levels of depletion of the ozone layer of the atmosphere and consequent gains through a lower incidence of skin cancers and cataracts in humans, less damage to human immune systems, reduced pressures on the health care system and improved quality of life, higher industrial productivity and an extended duration for working lives, improved agricultural and forestry productivity, enhanced productivity and sustainability of Australia’s marine and other natural resources, a lower incidence of diseases among animals and a longer product life for UV-B sensitive building materials including plastics and paints.

These benefits cannot be readily quantified for reasons similar those discussed in relation to HCFCs above including the difficulty in predicting the response of other countries to Australia’s actions. Nevertheless, tangible gains can be expected. The recent Report of the Task Force on Ozone Protection Legislation estimated gains to Australia over the period 1989-2060 of more than $7 billion from Australia’s support for the Protocol for all relevant ODS over the period 1989-2060, which include the effect of Australia’s actions galvanising support for ozone protection measures internationally.^[14]

Table 2:Summary of Impact by Stakeholder Group - Adoption of Amendments Relating to BCM

The Australian Fluorocarbon Council (AFC), which represents the interests of all HCFC licence holders, has indicated that it is not opposed to Australia ratifying the Beijing Amendment.

The major distributors of BCM - Merck Pty Ltd, Sigma Aldrich and Selby Biolab - have all indicated that they will not be significantly disadvantaged by ratification.

The University of Melbourne, whose views are taken to represent the position of other research organizations around Australia, has indicated that while ratification would remove a minor but occasionally very important weapon from the chemist’s armoury, alternatives are available to cover most contingencies. When no alternatives can found, scope for these organizations to apply for an essential uses licence, represents an acceptable avenue for dealing with the restrictions which ratification would impose.

The Australian Pharmaceutical Manufacturers Association (APMA), representing the interests of most domestic pharmaceutical companies, registered no objection to ratification.

Ecologically sustainable development (ESD) has been defined for Australia as "using, conserving and enhancing the communities resources so that ecological processes so that ecological processes, on which life depends are maintained and the total quality of life, now and in the future, can be increased".

The proposed amendments to the Ozone Protection Act and subsequent ratification of the Beijing Amendment supports the Commonwealth Government's commitment to ESD. The Commonwealth's National Strategy for Ecologically Sustainable Development describes three core objectives of ESD. These are:

1. to enhance individual and community well being and welfare by following a path of economic development that safeguards the welfare of future generations;

3. to protect biological diversity and maintain essential ecological processes and life support systems.

Legislative changes to the existing Ozone Protection Act and ratification of the Beijing Amendment, will provide the greatest scope for meeting these objectives. Protection of the stratospheric ozone layer is essential guarding the welfare of future generations and for providing equity between both current and future generations as ozone depletion will initially have the greatest impact on the southern hemisphere.

Ozone protection is also critical in protecting biodiversity and maintaining essential ecological processes. Increased UV radiation due to ozone depletion has the potential to seriously disrupt natural ecosystems. Creating a strong national regulatory system in association of ratification of all amendments is the most effective way of Australia being able to ensure an effective global response to this global problem.

The option for Australia to ratify the Beijing Amendment is aimed principally at reinforcing international resolve in support of the Montreal Protocol and minimising damage to Australian interests from ultraviolet radiation. Australia’s ratification will have a high symbolic value among parties to the Protocol and continued international resolve has an important bearing on the integrity of the ozone layer above Australia.

The alternatives or options for demonstrating Australia’s continuing commitment to international efforts to protect the ozone layer are limited. Accelerating Australia’s phase-out of ODS, strengthening end-use controls over ODS, taxing exports of HCFCs and imports of BCM, voluntary agreements with industry, unilateral legislative action and lobbying outside the Protocol’s framework provide insufficient assurance to the international community of Australia’s support for ozone protection.

Ratification will result in two changes to the current and expected structures of the Australian market for ODS, both of which are minor.

The first will limit the ability of Australian importers of HCFCs to export these substances to the neighbouring countries of Papua New Guinea, Niue, Tonga, Kiribati and the Cook Islands. No sales are currently made to these countries and ratification is not expected to have any material effect on future sales prospects. HCFC importers do not oppose ratification.

The second will prohibit imports of BCM that is used a re-agent in chemical synthesis in research organizations and certain pharmaceutical companies. A ban on imports is expected to have a minimal effect on the market for ODS, given the very small quantities used, the ready availability of alternative substances or processes, and scope for users to apply for an essential uses licence where no alternative exist and BCM is essential. Distributors and end-users of BCM do not oppose ratification.

Although ratification will involve some costs to industry and the government, these cost are more than accounted for by the considerable indirect benefits that stand to be gained by Australia through the effective maintenance of an international ozone framework. These significant benefits to the community and industry though reduced health care costs, reduced damage to agriculture, fisheries and building materials have been calculated to be in excess of 7 billion dollars.

The alternative option involves Australia maintaining the status quo and not implementing any legislative changes or ratifying the Beijing Amendment. This approach has several disadvantages as it will:

• not promote Australia’s interest in preventing further depletion of the ozone layer;

• not give Australia the flexibility of obtaining BCM in the future for possible essential uses;

• send a signal that Australia’s interest in global ozone protection interest is waning at a time when depletion of the ozone layer is at its greatest, and;

• pose a risk of exposing Australia to increased levels of ultraviolet radiation.

An analysis of the relative costs and benefits of each of the viable options leads to the conclusion that

Implementation of the Beijing Amendment requires Environment Australia to implement all required legislative changes prior to ratification. This will require:

• the incorporation of the text of the Beijing Amendment in a new schedule to t he Act, probably to be inserted after Schedule 3C of the Act, and a corresponding amendment to the section 7 definition of “Protocol”;

• an amendment to subsection 7(1) of the Act to incorporate bromochloromethane in the definition of ‘stage-2 scheduled substance’ for the purposes of the Act;

• an amendment to subsection 7(1) of the Act to insert a definition of bromochloromethane, along the lines of, “bromochloromethane means the substance referred to in Part VIII of Schedule 1, whether existing alone or in a mixture”; and

• an amendment to Schedule 1 of the Act to prescribe bromochloromethane as a ‘scheduled substance’ for the purposes of the Act, possibly by inserting a new part VIII in Schedule 1.

Environment Australia will continue to work directly with AFC, APMA, the University of Melbourne and other affected stakeholders to ensure comprehensive awareness of the new regulations amongst importers of HCFCs and BCM.

Section 68 of the Ozone Protection Act 1989 provides the Minister shall, at the end of each financial year, prepare a report on the operation of the Act during that year and cause a copy of the report to be laid before each House of Parliament within 15 sitting days of that House after the preparation of the report is completed. Consequently, the operation of Option 1, as a provision of the Ozone Protection Act 1989, would form part of the annual report to the Commonwealth Parliament.

The Ozone Protection Act 1989 has been the subject of a comprehensive review (completed in January 2000) in accordance with the National Competition Principles Agreement.

This Regulatory Impact Statement (RIS), examines options for resourcing the delivery of Environments Australia’s ozone protection programme in line with the Commonwealth’s national and international obligations.

In considering this component of the RIS package, the reader should also consider the RIS on the management of import, export and manufacture of synthetic greenhouse gases (SGG) on page 47 and the RIS considering options for the uniform management of end-use applications for both ODS and SGG (page 69).

Environment Australia is responsible for carrying out the Commonwealth’s obligations under the Ozone Protection Act 1989 (OPA). As a result Environment Australia has on-going responsibility for the implementation and administration of the Act including the administration of a licence and quota scheme for ozone depleting substances (ODS) included under Schedule 1 of the Act and the facilitation of a shift by industry to ozone benign alternatives through sponsoring research and development, informing industry of regulatory requirements, monitoring usage of ODS and other measures.

All new ODS currently available to the Australian market are manufactured overseas. Importers require a licence under the Act that is issued by and administered by Environment Australia. Licence conditions vary according to which species of ODS is procured. However, all licence holders must pay a licence application fee that is intended to cover relevant EA administrative costs. In addition, companies licenced to import the most widely used varieties of ODS pay an activity fee on each tonne they import. Revenue from this source is directed to developing alternatives for industries that rely to a high degree on access to ozone depleting inputs.

The original aim of the OPA was that meeting Environment Australia’s administrative and industry support activities be financed through fees paid by industry. However, commencing in 2010, Environment Australia’s costs are expected to exceed the combined revenue available from accumulated financial reserves and future revenue from payments under existing fee structures. In order to meet obligations extending through to 2020 when ODS will no longer be needed for most applications, Environment Australia is seeking increases of 50 percent in selected licence application fees, increases of 50 percent in activity fees and the introduction of fees for certain administrative functions now performed free of charge.

Licence application fees have not risen since 1995. In the ensuing period, normal parameter adjustments in the average cost to Environment Australia of employing staff to process licence applications have been experienced. Second, in the next 10-15 years the revenue which Environment Australia obtains from activity fees will decline sharply as legislative limits covering industry access to imports of two prominent ODS - hydrochlorofluorocarbons (HCFCs) and methyl bromide used for horticultural purposes - progressively restrict imports. A decline in revenue from activity fees will occur at the same time EA faces the greatest demand on its resources to assist industry in adjusting to ozone benign alternatives.

ODS are used primarily as a refrigerant in domestic and commercial refrigeration and air conditioning equipment. They also act as streaming agents in fixed and portable fire extinguishers and metered dose medical inhalers, as blowing agents in the manufacture of rigid polyurethane foam, as sterilising agents, as solvents for cleaning electronic and other equipment and as fumigants for disease and pest control.^[15] When vented into the atmosphere these substances damage the ozone layer protecting humans, animals, plants and building materials from the harmful effects of UV-B radiation.

• Licences issued under the OPA are a means of reducing Australian consumption of ODS in line with, and in some cases ahead of, Montreal Protocol on Substances that Deplete the Ozone Layer 1987 (Montreal Protocol) phase out requirements for controlled ODS. Licences also provide a vehicle for Government to monitor and enforce the requirement that a licence holder only imports ODS from, and exports ODS to, countries which are signatories to the Montreal Protocol at volumes agreed under industry limits and quotas established under the OPA. Licensing also provides a vehicle for mandatory reporting of import and export activity by licences.

• two essential use licences for the import of chlorofluorocarbons (CFCs); and

• two used substance licences for the import of halon and CFCs for destruction.

With the exception of essential uses licences which extend over a variety of time frames, each licence extends for two years and a fee is payable upon application or renewal. Fees stand currently at $10,000 for a controlled substance licence, $10,000 for a used substance licence and $2,000 for an essential uses licence. In addition to these measures, activity fees are payable by controlled substance licence holders at a rate of $2,000 for each ozone depleting tonne^[16] of imported HCFC and $90 for each metric tonne of imported methyl bromide.

Revenue from licence application and activity fees is paid into an Ozone Protection Reserve (OPR) which was established in 1995 under Section 65B(1) of the OPA. The Explanatory Memorandum to the Ozone Protection Amendment Bill 1995 which established the Reserve states that licence application fees will cover the costs of administering the licence scheme including assessing licence applications, issuing licences, monitoring licence activity, keeping records of quota allocations, transfers and variations and reporting to the Montreal Protocol Secretariat on annual activity. The Memorandum states that activity fees will be used to fund the furthering of an industry phase-out program for HCFCs and methyl bromide and related public awareness campaigns.

The Memorandum notes that the net effect of licence application and activity fees on Environment Australia revenue should be neutral. This means that all reasonable costs incurred by Environment Australia in administering its obligations under the OPA should be covered through contributions from industry. More specifically, it requires that sufficient fees be generated from licence applications to cover the reasonable costs of licence scheme administration and that sufficient funds be generated from activity fees to cover the reasonable costs of a program for assisting industry to move to alternatives to HCFCs and methyl bromide.

• the Montreal Protocol, which Australia has ratified, calls for Parties to adopt appropriate legislative or administrative measures to control, limit, reduce or prevent human activities likely to have adverse effects on the ozone layer, in accordance with the means at its disposal and its capabilities. Facilitating industry transition from controlled ODS helps to reduce these activities by accelerating a shift to alternatives;

• the OPA has the stated objective of using best endeavors to encourage Australian industry to replace ozone depleting substances and achieve a faster and greater reduction in the levels of production and use of these substances than are provided for in the Protocol, to the extent that such replacements and achievements are reasonably possible within limits imposed by the availability of suitable alternative substances and appropriate technology and devices^[17]; and

• transitional arrangements for industry form an important part of Australia’s broader ozone protection program as set down in the 1994 ANZECC Revised Strategy on Ozone Protection.^[18] The Revised Strategy acknowledges that while users of ODS should bear the costs of eliminating use and emissions of these substances, adjustment costs may fall unreasonably on some sectors. It establishes the general policy principle that, in these circumstances, unreasonable economic impacts should be alleviated^[19].

Industry support for the principle of a transition program is well documented and was described in the Second Reading Speech for the Ozone Protection Amendment Bill 1995:

“...industry supports the creation of a trust fund to ensure that revenue collected from licensees at the time of peak activity ... can be spread and utilised at the time of lower activity...when the need for information programs will be most critical if Australia is to minimise the economic impact of the final stages of the phase-out program.”

To this point, the majority of revenue generated by EA to fund an industry transition program has been directed to supporting research and industry awareness connected with alternatives to methyl bromide in horticultural applications. Relatively small amounts of funding have been directed to alternatives to the use of HCFCs in foam and other areas of secondary industry.

The problems faced by horticultural users of methyl bromide centre on the fumigation of soil and the absence of a single alternative substance which achieves not only effective product outcomes but minimises adverse effects on the environment and human health. This problem will be short-lived given that methyl bromide for horticultural application is scheduled for complete phase-out by 2005, through industry limits set under the OPA. However, as methyl bromide used in horticulture declines its use as a fumigant for quarantine and pre-shipment (QPS) purposes is set to escalate and to add substantially to Australia’s ODS emissions.^[20] QPS applications include the fumigation of rice, cottonseed, hay, fruit and vegetables and timber exports to control pests and diseases and treating imported wood and wooden products to achieve similar outcomes.

The Ozone Protection Reserve does not cover all ancillary costs connected with administering the legislation. These costs are associated with:

• compliance and enforcement actions associated with the licensing and quota systems;

Revenue for these purposes is drawn direct from the general appropriations of Environment Australia.

Section 40 of the OPA allows exemptions from compliance with the Act to be granted by the Minister for the import, export, distribution, use and manufacture of products which contain or rely upon CFCs, halons, carbon tetrachloride and methyl chloroform where these products are essential for medical, veterinary, defence, industrial safety and public safety purposes and no practical alternatives are available, a law prescribes that the product be used and no practical alternatives exist or the product is for use in conjunction with the calibration of scientific, measuring or safety equipment.

Since the mid-1990s, the overall revenue generated through licence application fees and activity fees has exceeded expenditure by Environment Australia in administering both areas of the legislation and facilitating a program of industry transition. However, neither accumulated funds nor the on-going revenue collected by Environment Australia under the current fee structure are adequate to meet forecast revenue requirements. Two problems are apparent in relation to the adequacy of Environment Australia’s long-term revenue stream.

First, the average total cost of each Environment Australia staff member assigned to administer licences has increased over the past seven years as a result of normal parameter adjustments. In addition, contrary to the Reserve’s original intent, to date Environment Australia has not recovered all costs associated with these staff, including superannuation, leave and accommodation. Consequently, when all costs associated with licence administration are taken into account, total costs have risen to the point where they will shortly exceed the revenue available to Environment Australia from licence application fees and relevant accumulated reserves. Under the current fee structure, operating costs exceeded operating revenue in 2001/2002. When financial reserves are taken into account, operating costs associated with these activities are expected to exceed available revenue by 2010.

The consequences of a revenue shortfall are a diversion of resources from other areas of Environment Australia to support ozone protection activities or a reduction in administrative effectiveness by EAs Ozone Protection Section. In the former case, resources could be taken from other important environmental policy initiatives. In the later case, Environment Australia would be less well placed to process licence applications and renewals in a timely manner or to prevent illegal imports of ODS by monitoring licence activity. Delays could restrict the availability of ODS to industry and place an additional compliance burden on licence holders.^[21] Illegal imports of HCFCs and other ODS may lead to higher levels of avoidable emissions and under-cut legitimate industry operators who are in compliance with legislative requirements.

Second, revenue from activity fees will decline markedly in the period ahead. Within a decade, these fees together with relevant accumulated reserves will be insufficient to cover the expected costs of an EA funded program for industry transition from HCFCs and methyl bromide.

The OPA calls for a total phase-out of imports of methyl bromide for horticultural applications by 2005 and for an all but complete phase-out of imports of HCFCs by 2015. In the case of methyl bromide for horticultural use, imports will decline from 340 metric tonnes in 2002 to zero tonnes in 2005. In the case of HCFCs, imports will decline from 190 ozone depleting (ODP) tonnes in 2002 to 2.5 ODP tonnes in 2015. Table 1 below sets out activity fees projections for the period ahead, under the current fee structure and the legislation’s prescribed phase-out schedule.

Table 1: Expected Revenue from Current Activity Fees 2001-2 to 2020-21 ($’000 constant 2000-2001 prices) Source: Environment Australia.

At the same time its revenue from activity fees is declining sharply, Environment Australia may face greater demand for resources to facilitate a program for industry transition for two reasons.

1. methyl bromide for QPS applications will be increasingly sharply and creating a pool of chemicals with important adverse effects on Australian efforts to contain emissions of ODS; and

2. a decline in the availability of HCFCs and methyl bromide for horticultural use reduces the availability of both substances to industry and strengthens the need for Government assistance to facilitate a smooth shift by users to alternative substances or processes.

As substance availability declines, those areas of industry which have not already transitioned using readily available methods may be forced to adapt using more costly and complex alternatives. Areas in which alternatives are less easily accessed include soil fumigation applications that will still rely on methyl bromide and the manufacture of certain kinds of rigid polyurethane foam that is expected to rely on the availability of HCFCs until at least 2006.^[22]

Environment Australia estimates that an additional $2 million revenue will be required to administer the OPA and fund the industry transition program for Scheduled ODS to 2020. This revenue will be directed to sponsoring research and development and public awareness but may go beyond these established policy approaches to include activities such as advanced forms of atmospheric monitoring for ozone depletion. These activities accord with existing policy principles that include requirements for Government to address any unreasonable economic impacts associated with a move away from ODS and to raise awareness of all key factors relevant to managing the transition to ozone benign technologies.^[23]

A significant portion of additional revenue from a new fee structure will be strategically targeted towards research and development to assist all industry participants with the transition to non-ozone depleting and environmentally acceptable alternatives. Australia has a history of limited investment by industry in research and development due, in part, to problems experienced by companies in raising capital and securing ownership rights over their inventions. Under the Ozone Protection Reserve, money can be targeted so that research and development outcomes are accessed by business of all sizes.

Summary of Problems

• by 2010 the costs to Environment Australia of administering the licence scheme will exceed revenue available from licence application fees and relevant accumulated reserves. Inadequate administration may contribute to increased illegal imports and higher levels of avoidable emissions of ODS as well as to higher regulatory compliance costs for industry and market disruption caused by undue restrictions on access;

• EA estimates that over the next 20 years it will be required to outlay substantially more than the funds available from activity fees and relevant accumulated reserves, in order to facilitate the transition by industry away from two major ozone depleting substances - HCFCs and methyl bromide. Failure to provide support for transition may place undue cost pressures on certain areas of industry including horticulture and the manufacture of foam. It may also prolong the use of ODS and the subsequent risk of avoidable emissions. These pressures conflict with nationally agreed policy principles for ozone protection; and

• any shortfall in revenue from licence application fees and activity fees contravenes a 1995 legislative objective for the administrative industry transition costs of Environment Australia be covered fully from industry contributions as part of a general objective for achieving revenue neutrality. Revenue deficiencies therefore contravene agreed principles of corporate governance for Environment Australia.

Option 1 offers the advantages of minimal additional costs associated with Environment Australia administering the licensing scheme and associated industry compliance. The disadvantages fall into three categories:

1. the prospect of higher emissions of ODS through illegal imports and the prospect of prolonged use of these substances in industries with few current alternatives;

2. disruption in supply of ODS to end-users and higher regulatory compliance costs for licence holders, from delays and other inefficiencies in licence scheme administration; and

This Option is not considered viable because it contravenes key tenets of Australia’s ozone protection program covering limits on ODS emissions and equity in industry transition arrangements.

Option 2 offers the advantages of retaining existing administrative arrangements and limiting the risk of Environment Australia extending beyond reasonable limits in its support for industry transition. The disadvantages of the Option include failing to address the problem of a future revenue shortfall to meet the costs of administering the licence application scheme and contravening minimum accepted legislative and policy objectives for equity in industry transition arrangements. For these reasons, this Option is not considered viable.

Option 3 offers the advantage of simplicity, in the sense that it retains existing administrative arrangements including current fee structures. The disadvantages include drawing resources away from other policy areas within the Department of Environment and Heritage or other areas of Government and contravening the original policy objective of revenue neutrality in fee structures. Contravention of revenue neutrality requirements means that this Option is not viable.

Option 4 offers the advantages of providing funds commensurate with Environment Australia’s forecast cost structure, ensuring that the original policy objective of revenue neutrality continues to be achieved and facilitating industry transition to ODS alternatives in a manner consistent with an identified need and established policy principal. The disadvantages of this Option include the need for minor revisions to arrangements for administering licence application and activity fees and the impact which higher fees may have on the price of ODS faced by industry and consumers. These factors suggest that Option 4 is viable but requires a detailed evaluation of its impact.

Environment Australia is proposing a 50 percent across-the-board increase in licence application fees and activity fees as well as the introduction for the first time of an application fee for exemptions under Section 40 of the OPA. In keeping with existing arrangements for other licenses, no refund of Section 40 exemption fees will apply in the event the application is unsuccessful. Table 2 below compares the existing and proposed fee structures.

Table 2 - Summary of Existing and Proposed Fee Schedules. *Activity fees for methyl bromide are calculated on a metric tonne basis rather than ODP tonne.

The objectives of the proposed increase in licence application fees is to generate revenue sufficient to satisfy the original legislative requirement for revenue neutrality in relation to Environment Australia assessing licence applications, issuing licences, monitoring licence activity, keeping records of quota allocations, transfers and variations and reporting to the Montreal Protocol Secretariat on annual activity.

The increase seeks to avoid unnecessary emissions of ODS and undue delays in access and higher compliance costs for the distributors and end-users of these substances, caused by a lack of administrative resources. An increase of 50 percent equates broadly to the rise in relevant Environment Australia staff costs since 1995. The introduction of a licence application fee for Section 40 exemptions reflects the fact that these exemptions absorb substantial administrative resources within Environment Australia whose costs should be covered through industry contributions in accordance with the principle of revenue neutrality.

• to meet an expected shortfall in revenue needed to promote awareness and help facilitate the shift by industry away from HCFCs and methyl bromide;

• to extend transition arrangements to new types of environmental protection activity such as atmospheric monitoring; and

The increase seeks to avoid market disruption which may arise from some industries facing undue or unreasonable pressure to move from ODS to ozone benign alternatives. An increase in activity fees of 50 percent for HCFCs and methyl bromide will generate revenue sufficient to meet the difference between the revenue that Environment Australia requires for its proposed industry transition program and funding available from a combination of accumulated reserves and existing activity fees.

It is not proposed that the new licence and activity fees be indexed to the Consumer Price Index or other measures of general prices increases. However, the new fee structure will be reviewed from time to time in close consultation with industry to determine its adequacy. Environment Australia’s proposed new fee structure does not seek to cover the costs associated with plans by Environment Australia to introduce a nationally uniform set of legislative controls over the end-use of ODS. These controls and their method of financing are discussed in a separate Regulatory Impact Statement (RIS).

Impact Analysis

A review of the impact of a shift to address revenue shortfalls for Environment Australia involves identifying and comparing the costs and benefits of the existing situation (or ‘base case’) against the costs and benefits that can be expected if the amendments proposed by Environment Australia are introduced under Option 4 (or ‘scenario for change’).

The immediate costs to business of the proposed amendments take the form of higher fees paid by licence holders.

Licence holders for HCFCs will face the highest increase by being required to pay an additional $2,500 each per year in application fees and an extra $1,000 per ODP tonne of imports, when fees are proposed to increase at the beginning of 2003. These fees will extend for the duration of their licenses, estimated to average between 8 and 10 years.^[25] The estimated total additional cost to industry over the period 2003 to 2020 is $1.36 million.^[26] Licence holders are all larger companies, many with international links. Accordingly, an increase in fees will not have an immediate impact on smaller enterprises.

Licence holders for methyl bromide will each be required to pay an additional $2,500 per year in licence application fees and an extra $45 per metric tonne on all imports of methyl bromide, beginning in 2003. In the case of methyl bromide for horticultural use, additional fees will extend only to 2005 when the level of permitted imports declines to zero in accordance with industry limits set under the OPA. Licence application fees and activity fees for the import of methyl bromide for QPS purposes will continue in perpetuity. Total fee increases for methyl bromide are estimated at an additional $324,400 over the period 2003 to 2020. License holders include a number of small-medium size enterprises.

Holders of used substances licenses will each face an extra $2,500 per year in application fees, at an additional total cost of $45,000 over the period 2003 to 2020. Holders of essential uses licenses will each face an extra $1,000 per year in application fees, at an additional total cost of $24,000 from 2003 to 2020. Finally, holders of Section 40 exemptions will each be charged an extra $1,500 per year commencing in 2004, at an estimated additional cost of $120,000 over the period 2004-2020. The holders of used substances licenses, essential use licenses and Section 40 exemptions are all larger enterprises, many with international ownership links. Table 3 overpage summarises the impact of proposed fee increases across licence categories.

	HCFCs	Methyl Bromide	Used Substances	Essential Uses	Section 40 Exemptions	Total
2001	540 (540)	120.6 (120.6)	20 (20)	4 (4)	0 (0)	684.6 (684.6)
2002	460 (460)	142.2 (142.2)	10 (10)	2 (2)	0 (0)	614.2 (614.2)
2003	570 (380)	119.9 (79.9)	0 (0)	3 (2)	0 (0)	692.9 (461.9)
2004	600 (400)	194.9 (129.9)	15 (10)	6 (4)	24 (0)	839.9 (543.9)
2005	480 (320)	92.4 (61.6)	0 (0)	3 (2)	0 (0)	575.4 (383.6)
2006	480 (320)	128.2 (85.5)	15 (10)	3 (2)	12 (0)	638.2 (417.5)
2007	390 (260)	73.9 (49.3)	0 (0)	6 (4)	0 (0)	469.9 (313.3)
2008	375 (250)	109.7 (73.1)	15 (10)	3 (2)	12 (0)	514.7 (335.1)
2009	300 (200)	55.5 (36.9)	0 (0)	3 (2)	0 (0)	358.5 (238.9)
2010	255 (170)	76.2 (50.8)	15 (10)	6 (4)	12 (0)	364.2 (234.8)
2011	210 (140)	36.9 (24.6)	0 (0)	3 (2)	0 (0)	249.9 (166.6)
2012	150 (100)	42.7 (28.5)	15 (10)	3 (2)	12 (0)	222.7 (140.5)
2013	120 (80)	18.5 (12.3)	0 (0)	6 (4)	0 (0)	144.5 (96.3)
2014	45 (30)	24.2 (16.2)	15 (10)	3 (2)	12 (0)	99.2 (58.2)
2015	30 (20)	-	0 (0)	3 (2)	0 (0)	33.0 (22.0)
2016	22.5 (15)	-	15 (10)	6 (4)	12 (0)	55.5 (29.0)
2017	7.5 (5)	-	0 (0)	3 (2)	0 (0)	10.5 (7.0)
2018	22.5 (15)	-	15 (10)	3 (2)	12 (0)	52.5 (27.0)
2019	7.5 (5)	-	0 (0)	6 (4)	0 (0)	13.5 (9.0)
2020	22.5 (15)	-	15 (10)	3 (2)	12 (0)	52.5 (27.0)
Total	5,088 (3,725)	1,236 (911.7)	165 (120)	78 (54)	120 (0)	6,668.7 (4,810.7)

Table 3 - Anticipated Revenue from Existing and Proposed Licence Application and Activity Fees^[27] 2001 to 2020 ($’000 constant 2001 prices) (Existing fee revenues in brackets) Source: Environment Australia.

Based on the current number of licence holders, Option 4 involves industry paying an additional $1.876 million to Environment Australia over the period 2003 to 2020. However, it is expected that the vast majority of this amount will be passed on to consumers. Thus, the only significant cost incurred direct by licence holders and applicants for Section 40 exemptions will be associated with the inconvenience of having to adjust their prices to accommodate a higher cost structure.

There are no clear or immediate benefits to licence holders or Section 40 exemption holders from Option 4, although by helping to ensure the effective administration of the licence scheme including aspects of enforcement the this Option may assist legitimate legal importers by preventing illegal imports and limiting numbers of domestic competitors.

Most licence holders distribute ODS rather than use these substances as part of their own production process. Thus, these licensees are unlikely to be significant beneficiaries of expenditure by Environment Australia on a fee-based industry transition program that includes research and development into alternatives to HCFCs and methyl bromide. Indeed, licence holders may be disadvantaged by Environment Australia’s program to the degree that alternatives are developed which lie outside their established business interests. Section 40 exemption holders import ODS - such as halons and CFCs - which lie outside Environment Australia’s proposed industry transition program..

The costs to Government are those of estimating the new fee structure and introducing and enforcing necessary legislative changes. It not expected that higher activity fees will encourage industry to understate their activity levels as part of periodic reporting to Environment Australia and require proportionately higher levels of Government monitoring and enforcement.

The costs of estimating a new fee structure and altering legislation are once off. They involve drafting relevant sections of the Ozone Protection Act Amendment Bill, informing industry of the changes being proposed and ushering the Bill through the Commonwealth Parliament. These costs are minimal given that the proposed new fee structure is already well developed and all licence holders are aware of changes.

• sustaining a position of revenue neutrality in line with the original legislative objective for ozone protection;

• avoiding any future need to divert resources to ozone protection from other areas of the Department of Environment and Heritage or Government;

• promoting and facilitating industry transition away from HCFCs and methyl bromide, in line with original legislative and policy objectives; and

• reinforcing Australia’s international reputation as an advocate of strong ozone protection measures, which may assist Australia in future global ozone protection negotiations.

The costs to consumers from Environment Australia’s proposed amendments are those passed on by licence holders paying higher application and activity fees. In this case, consumers are defined as businesses which source their ODS from wholesalers and distributors who hold licences under the OPA as well as customers for the products or services which these businesses offer for sale.

An estimated $1.36 million or around 73 percent of total costs will flow to consumers of HCFCs who are expected to face a rise of $1 per kilo in the market price for bulk supply of the most widely consumed variant, HCFC-22 - from $12 per kilo to $13 per kilo.^[28] These consumers include auto product manufacturers, food and chemical manufacturers, supermarkets, motor dealerships, building owners and refrigeration engineers. Their customers include final purchasers of vehicles, food, clothing, other convenience goods, office space and a range of other products.

There is no readily available data on how a rise may impact on each consumer group or the people dependent on the goods and services they provide. This is due in part to the absence of industry associations that garner the views of end-user interests. However, HCFC licence holders have indicated that any adverse impact is likely to be small given that ODS make-up a small proportion of consumer final cost structures and the price effect of Government licence fees tends to be far outweighed by exchange rate variations and other factors.^[29]

An estimated $324,400 or around 17 percent of the amount will flow over two years to consumers of methyl bromide - around one fifth to users in horticulture and the remainder to users for QPS. Fee rises will see the average market price for methyl bromide increase by up to 15 cents per kilo from $7.50 per kilo to $7.65 per kilo.^[30]

Methyl bromide for horticulture and QPS applications is imported by five companies who on-sell to a range of consumers. Approximately 28 percent of total imports are directed to horticultural use and the remaining 72 percent to QPS. No precise data is available on its current end-use although available estimates suggest that for horticulture more than 30 percent of the substance is used in the production of fruit and vegetables produced around Bundaberg, 20 percent in the production of strawberries, 13 percent in the production of flowers and 9 percent in the production of glasshouse products within South Australia.^[31] The majority of these end-users are small businesses. For QPS, the major users of methyl bromide are grain exporters (29 percent), cottonseed exporters (22 percent), hay exporters (12 percent) and timber, wooden products and wooden palleting associated with transport of a range of commodities (18 percent).^[32] Again, a number of end-users are small businesses.

There is no readily available data on how a rise in licence and activity fees may impact on down-stream consumers of methyl bromide including those at the point of end-use. However, licence holders have indicated that, for the horticultural industry at least, a fee-induced rise in the price for methyl bromide may place substantial pressure on producers of flowers and strawberry runners who have no ready alternatives and have recently experienced steep increases in the cost of methyl bromide as a result of exchange rate changes and industry limits on imports. Representatives of horticultural growers re-affirmed this position and expressed opposition to any fee increase.^[33]

Importers of methyl bromide used for QPS and QPS industry contacts have indicated that any fee increases would be passed on in their entirety to the end user. The extent of effect this would have on the industry was not agreed upon. The majority of importers reported that any further increase would be detrimental. However other industry QPS contacts suggested that the increase would be negligible. It was reported that any increase would be a disadvantage in the international market making the increase undesirable but not disastrous.

Approximately $45,000 or 2.4 percent of the amount will flow to holders of a used substance licence. Currently, there are two licence holders in this category - a company which stores and destroys halons from overseas and a company which uses chlorofluorocarbons (CFCs) for scientific research. Neither is a small business. One licence holder indicated that it would not be renewing its licence and that the proposed fee increase was therefore irrelevant to its operations. The other indicated that higher fees would not have a substantially adverse impact on its operations or the activities of its customers.

An estimated $24,000 or 1.3 percent of total costs will flow to holders of an essential uses licence. In turn, most of this amount is expected to be passed on to customers. There are currently two firms in this licence category, both of which are major pharmaceutical companies manufacturing metered dose medical inhalers for the treatment of asthma. However, at least one of these businesses is expected to transition from ODS to other substances before Environment Australia’s proposed fee increases take effect. The other has not indicated that higher fees will have a significant adverse impact on its profitability or the price of its products.

Finally, $120,000 of the amount or 6.4 percent will be paid by organisations with Section 40 exemptions. Current exemption holders include airlines, the military and major pharmaceutical companies. Their customers are airline passengers, the Defence Force and purchasers of a range of pharmaceutical products. These organizations indicated that higher fees will be passed along the supply chain. However, there was no evidence put forward to suggest that consequent rises in the price of goods or services would substantially disadvantage customer groups.

Benefits to consumers arise from Environment Australia using part of the additional revenue that it collects from higher fees to support research and other activities aimed at facilitating a shift to ozone benign alternatives. That facilitation will enable producers to adopt alternatives at a lower cost than might otherwise apply and provide scope for subsequent cost savings to be passed on to customers. Insufficient data is available to determine whether these benefits exceed the higher costs which consumers will face as higher fees are passed on by ODS importers and wholesalers. An important factor preventing a full assessment is the absence of data on what kinds of additional research and public awareness projects will be funded and in which areas of industry.

There are no costs to the community from Environment Australia’s proposed amendments.

The benefits to the community from an increase in licence application fees emerge from an enhanced ability of the Department of Environment and Heritage or Government to address environmental and other issues that go beyond ozone protection. By avoiding a diversion of resources from other areas of the Department to fund administration of the ozone protection licence scheme, a higher fee structure will enable other Government functions to proceed unhindered. Insufficient data is available to identify the nature of these gains.

The benefits to the community from higher activity fees are also difficult to determine. The fees will be used to ease the adjustment pressures faced by industry in complying with phase-out targets prescribed under the OPA. However, it is not clear whether or to what degree this will result in lower levels of ODS emissions by allowing phase-out targets under the OPA to be achieved at an earlier date or improving the recovery of used substances. Much depends on the individual research and other projects receiving funding - a factor which has still to be determined.

In the event that an earlier phase-out and improved recovery is achieved, environmental gains in the form of lower levels of depletion of the ozone layer can be expected. Less depletion will result in a lower incidence of skin cancers and cataracts in humans, less damage to human immune systems, reduced pressures on the health care system and improved quality of life, higher industrial productivity and an extended duration for working lives, improved agricultural and forestry productivity, enhanced productivity and sustainability of Australia’s marine and other natural resources, a lower incidence of diseases among animals and a longer product life for UV-B sensitive building materials including plastics and paints.^[34]

It is not possible to quantify these benefits due to the difficulty in gauging the future course of the proposed transition program. Nevertheless, such gains are tangible and could be significant. The global benefits of international action by signatories to the Montreal Protocol are well documented in a recent Canadian study which point to global gains from the Protocol in the period 1987-2060 of more than US$459 billion in 1996 prices, consisting of US$238 billion from reduced damage to fisheries, US$191 billion from reduced damaged to agriculture and US$30 billion from reduced damage to building materials. These estimates exclude dollar values for human health related benefits which the report acknowledged as highly significant.^[35]

In a recent study of Australia’s share of the global benefits of the Montreal Protocol for the period 1989-2060, a Commonwealth Task Force estimated gains to Australia of AUS$7.4 billion in 1996 prices.^[36] This consisted of $4.6 billion in reduced damage to fisheries and agriculture, $2.3 billion in reduced damage to human health and $0.5 billion in reduced damage to building materials. Taken together, the Canadian and Task Force studies point to substantial advantages to Australia from maintaining high levels of international commitment to ozone protection measures.

	Costs	Benefits
Business	Importers and wholesalers of ODS being inconvenienced by having to adjust their prices to reflect higher licence and activity fees.	Licence holders facing lower competition from illegal importers of ODS.
Government	Estimating, introducing and enforcing new fee structures.	Sustaining revenue neutrality in administration of ozone protection legislation, in accordance with established corporate governance requirements. Avoiding the need to divert resources from non-ozone protection policy areas. Satisfying established legislative and policy objectives to assist with industry transition. Enhancing Australia’s standing in future global ozone protection negotiations.
Consumers	Higher prices for ODS and ODS-dependant equipment - totalling approximately $2 million over 17 years.	Lower costs of moving away from HCFCs and methyl bromide through access to EA programs for industry transition.
Community	None.	More effective management by Government of non-ozone environmental issues. The potential for an earlier phase-out and improved recovery of ODS, with subsequent environmental gains in areas which include human health, agricultural productivity and the longevity of certain building materials.

The proposed amendments to the Commonwealth’s ozone protection legislation support the Commonwealth Government's commitment to ESD. The Commonwealth's National Strategy for Ecologically Sustainable Development describes three core objectives of ESD. These are:

1. to enhance individual and community well being and welfare by following a path of economic development that safeguards the welfare of future generations;

3. to protect biological diversity and maintain essential ecological processes and life support systems.

Legislative changes to the commonwealth’s ozone protection legislation, will provide the greatest scope for meeting these objectives. Protection of the stratospheric ozone layer is essential guarding the welfare of future generations and for providing equity between both current and future generations as ozone depletion will initially have the greatest impact on the southern hemisphere.

Stakeholder Comments

The Australian Fluorocarbon Council (AFC) that represents the interests of all holders of HCFC licences and a major holder of a methyl bromide licence for horticultural use does not oppose the proposed increase in licence application fees from $10,000 to $15,000 paid every two years. In the event that an increase in fees is introduced part way through an existing licence period, the AFC believes that appropriate pro-rata adjustments should be made.

However, AFC opposes any increase in HCFC and methyl bromide activity fees. The Council considers that existing fees are adequate to meet the costs of Environment Australia’s industry transition program for ODS, under reasonable assistance arrangements.

Remaining licence holders for methyl bromide used for horticultural purposes are generally opposed to any fee increases on two grounds: the rise in administrative costs incurred by Environment Australia since 1995 has exceeded movements in the Consumer Price Index over the same period, and fee increases may place undue pressure on horticultural users of methyl bromide who in recent years have already absorbed sharp increases in substance prices as a result of shrinking import quotas, the declining value of the Australian dollar and high levels of import competition which restrict their ability to pass fee increases along the supply chain.

The end-users most effected by a rise in fees for methyl bromide are growers of flowers and strawberry runners who are least able to access alternatives in the event of price rises.^[37] These organizations were contacted through the Queensland Department of Primary Industry and the Queensland Fruit and Vegetable Growers Association (QFVG) who have taken an active interest in methyl bromide phase-out issues and represented the interests of growers in the 2001 Commonwealth Task Force review of ozone protection legislation.

QFVG has indicated that horticultural producers do not support a rise in licence fees to cover a higher Environment Australia administrative cost structure. The Association also opposes any increase in activity fees, at least until Environment Australia has discussed and agreed with industry the specific applications to which higher fee revenues will be directed. Although QFVG acknowledged the need to seek alternatives to methyl bromide, it noted that horticultural producers were highly sensitive to rising production costs.

Licensed importers of methyl bromide used for QPS and a number of QPS industry contacts have indicated that any fee increases would be passed on in their entirety to the end user. The extent of effect this would have on the industry was not agreed upon however the majority of importers felt that any further increase would be detrimental. However other QPS industry participants suggested that the increase would be negligible. It was, however, a widely held view that any increase would be a disadvantage in the international market making the increase undesirable but not disastrous.

Neither essential uses licence holders nor holders of used substances licences indicated opposition to higher licence fees. In a number of cases, holders expected to transition away from ODS before the new fee structure came into place. Where higher fees were to be sustained, the relatively small value of the increase was expected to have a minimal effect on licencees or end-users of their products and services.

Holders of Section 40 exemptions held mixed views on the proposed introduction of a fee. These organizations were evenly split in terms of their acceptance or rejection of EA’s proposed new fee structure. Several organizations that supported the structure indicated that they would no longer need Section 40 arrangements by the time a fee was introduced. The majority acknowledged that higher fees would have a minimal impact on end-users of ODS subject a Section 40 exemption, as the fee was relatively small and part of it may be absorbed by exemption applicants. Several organizations noted that due to Government regulation in the aircraft and other industries, applicants had no choice but to use to ODS and were therefore unable to avoid a Section 40 fee. The overall tenet of comments was that although the principle of fee increase was not universally accepted, any rise would cause minimal disruption to the market.

Environment Australia is proposing an increase in the fees it charges industry to import certain ODS. One objective of higher charges is to limit avoidable emissions of these substances by enhancing the ability of Environment Australia to monitor illegal imports and assist certain areas of industry in transitioning towards ozone benign alternatives at an early date. Another is to satisfy corporate governance requirement for Environment Australia to operate under conditions of cost neutrality. Environment Australia’s proposed changes represent the only viable option for achieving these objectives, given that alternative approaches contravene one or more essential elements of Australia’s overall ozone protection program.

Beginning in most cases in 2003, Environment Australia is seeking increases of 50 percent in selected licence application fees, increases of 50 percent in activity fees and the introduction of fees for the administrative of industry applications for Section 40 exemptions now processed free of charge. If implemented, Environment Australia’s proposed fee structure will require that industry pay an additional $2 million over the period 2003-2020. The vast majority of higher costs will be passed on to consumers of ODS including auto product manufacturers, food and chemical manufacturers, supermarkets, motor dealerships, building owners, refrigeration engineers, horticultural producers and general fumigation businesses specializing in quarantine and pre-shipment work and their customers.

The direct environmental benefits of a fee increase are unable to be quantified. Difficulties emerge in estimating prevented emissions of ODS for three reasons:

4. No precedents are available to gauge higher emission rates from a reduction in effective enforcement of import licences by Environment Australia. Such enforcement has been fully resourced since licences were first introduced;

5. The rate of an accelerated shift by industry from ODS to ozone benign alternatives will depend on the specific measures contained in an enhanced industry transition program. Due to the extended time scale for this program, such measures have yet to be fully defined; and

6. A high cost is attached to adjusting existing models for measuring the environmental impact of ODS emissions to incorporate the effect of fee increases.

In the event that reduced emissions do emerge, there is a strong body of evidence to suggest that Australia will benefit in terms of reduced damage to fisheries and agriculture, human health, building materials and other factors. Overseas and Australian studies indicate that reduced emissions produce tangible community benefits that substantially outweigh the industry adjustment and other costs of containing ODS consumption. This provides prima facie evidence of tangible environmental gains in the event fee increases prevent ozone depletion.

The task of assessing the final impact of higher fees on industry and consumers is complicated by the wide number of organizations involved and the practical difficulties in achieving a consensus view in the absence of industry associations representing the interests of end-users of ODS.

Through their association - AFC - importers of HCFCs have indicated that their customers are likely to face an average $1 per kilo rise in substance prices as a result of higher fees, which equates to a price rise of around 8 percent. This is expected to lead to minimal market disruption for two reasons:

7. ODS make up a small proportion of the overall cost structures of most user businesses; and

8. the absolute size of the increase is substantially smaller than the effects of other ODS price determinants such as exchange rate variations and legislative-induced reductions in import volumes.

Irrespective of the degree of expected market disruption caused by the proposed fee increases, AFC does not support all elements of the new fee structure. While accepting the need to increase licence application fees to meet a rise in Environment Australia staffing costs since 1995, the AFC opposes a rise in activity fees that are directed to assisting transition by some parts of industry to ozone benign alternatives. The rationale in this case is that Environment Australia have not described the nature of the program in sufficient detail or demonstrated the merits of additional transitional assistance. There are also commercial considerations that centre on the likelihood that funding for transitional arrangements are likely to encourage some traditional users of ODS to move to other alternatives, in effect resulting in a reduction in the customers base for importers and wholesalers of ODS.

Suppliers and users of methyl bromide hold a less sanguine view than suppliers of HCFCs on the market effects of higher license and activity fees. They argue that the expected rise of $0.15 per kilo (a retail price increase from and average of around $9.00 to $9.15) will unreasonably reduce the profitability of users in the horticultural sector. This position hinges on two claims:

9. Any increase in Environment Australia’s staff costs above the Consumer Price Index is unjustified; and

10. Prices of methyl bromide for horticultural use have risen sharply in recent years as a result of exchange rate changes and legislative-induced import restrictions.

It is argued that these prices are already at, or close to the limits imposed by market competition. A fee increase would therefore place undue adjustment pressures on horticultural users producers.

In similar vein to suppliers of HCFCs, suppliers and users of methyl bromide for horticultural use oppose an increase in activity fees. They argue that even though assistance for industry to transition away from methyl bromide remains a desirable objective, further details of the program’s proposed new elements are needed before higher activity fee levels can be accepted.

The majority of importers of methyl bromide used for QPS reported that the impact on wholesale prices, from any fee increase, would be detrimental for exports. This position was dependant on foreign currency exchange rates with a lower Australian dollar placing considerable pressure on these industry participants. All contacted importers indicated that any fee increases would be passed on in their entirety to the end user. The areas of the industry which would be most effected were said to farmers and consumers. The extent to which this would affect the industry was not agreed upon, however the majority of importers reported that any further increase would be detrimental.

Other QPS industry contacts were not in favour of the fee increases but did not report severe consequences. They suggested that the increase would be negligible. It was reported that any increase would be a disadvantage in the international market making the increase undesirable not disastrous. The large majority of Australia’s hay and grain exports would be affected as they both require fumigation and there is no alternative fumigant. The proposed fee structure was generally supported by the exporters on the proviso that Environment Australia provides strong support and access to adequate funding to develop and prove alternatives to methyl bromide fumigation.

Data provided by holders of essential uses licences and used substances licences suggest that higher licence fees will have a minimal impact on the market. Licence holders do not oppose a higher fee structure. Although holders of Section 40 exemptions were muted in their support for the proposed introduction of an application fee, the majority considered such a fee would cause minimal market disruption. The fact that payment of a fee may arise from satisfying a Government regulation that ODS be used in specified applications does not overturn the legislative requirement for Environment Australia to secure payment direct from exemption applicants for its application processing costs. Should applicants seek reimbursement from Government, claims should be directed to the agencies responsible for such regulation.

• Environment Australia’s proposed increase in licence fees for all licence classes and applicants for Section 40 exemptions can be justified on the basis of actual increases in staffing costs since 1995, a legislative requirement for cost neutrality and support from most stakeholder groups. Cost neutrality principles override any sectoral opposition to fee increases which rely on the arguments that proposed fee rises exceed relevant increases in the CPI or the commitment to pay fees arises only from another form of Government regulation;

• Environment Australia’s proposed increase in activity fees for methyl bromide used for quarantine and pre-shipment can be justified on the basis of the substance will be required in increasing volumes in the period 2003-2020 for these purposes and revenues obtained through higher fees may therefore contribute to researching and promoting alternatives to an increasing important source of ODS emissions. Licence holders importing methyl bromide for QPS purposes have indicated whilst they do not necessarily support a higher licence and activity fee structure they are aware of the need for such measures and will be able to pass cost increases on to consumers.

Implementation

Option 4 could be implemented through changes to the Ozone Protection Act 1989 and related legislation and regulations.

Environment Australia will continue to work directly with AFC, QFVG and other industry participants to ensure comprehensive awareness of the new fee structure.

Review

The Ozone Protection Act 1989 has been the subject of a comprehensive review (completed in January 2000) in accordance with the National Competition Principles Agreement.

Controls on the Import, Export and Manufacture of Synthetic Greenhouse Gases & Import Controls on Pre-Charged Refrigeration and Air-Conditioning Equipment

The Regulation Impact Statement (RIS), on options for managing the import, export and manufacture of bulk synthetic greenhouse gases (SGG) used as replacements for ozone depleting substances (ODS), and import of pre-charged air conditioning and refrigeration equipment containing ODS and their SGG replacements, is a component of a proposed comprehensive update of the Ozone Protection Act 1989 and accompanying regulations. This part proposes extending the current provisions on the supply of bulk ODS to include the supply of bulk SGG, and the importation of ODS and SGG in pre-charged refrigeration and air conditioning equipment, excluding the existing quota and phase-out elements for ODS imported in bulk. In particular it calls for importers/manufacturers of bulk SGG and importers of pre-charged equipment to be licensed, to pay a small levy on the quantity of SGG or ODS imported or manufactured, and to submit to Government reports detailing the quantity of ODS or SGG imported or manufactured.

In considering this component of the RIS, the reader should also consider the following RIS (page 68), which considers options for the uniform management of end-use application for both ODS and SGG

Background

The Commonwealth Government has had in place a regulatory regime covering ozone depleting substances (ODS) for a number of years, through the Ozone Protection Act 1989 (OPA), to meet Australia’s international obligations under the Montreal Protocol on Substances that Deplete the Ozone Layer (the Montreal Protocol). The regime for ODS is based on establishing a set of controls for the import of all ODS included under the Montreal Protocol and encompasses a system of licences for importers and an activity fee based on the quantum of ODS imported.^[38] An integral component of this regime is the imposition of progressively diminishing quotas on imports of bulk ODS, provision for the phase-out of the use of ODS and provision for the regulation of the import of equipment containing ODS (ODS pre-charged equipment). This regime is supported by complementary legislation on end-use controls for ODS in the States and Territories.

The most widely-used ODS in Australia are hydrochlorofluorocarbons (HCFC)^[39], predominantly for refrigeration and air conditioning applications. The bulk of ODS contained in imported pre-charged equipment is also predominantly HCFC, in refrigeration and air conditioning products. To date, however, the Act’s provision for the regulation of imports of HCFC pre-charged refrigeration and air conditioning equipment has not been employed.

Partly as a result of the phase out of ODS and partly in response to changing technological and market trends internationally, Australian industry is progressively moving towards the use of alternatives to ODS in many applications, predominantly synthetic greenhouse gases that significantly add to global warming. Hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) are two major species of synthetic greenhouse gases (SGG^[40]). Neither species has a direct link to ozone depletion but each has a high global warming potential relative to other sources of greenhouse gas emissions. Both substances are increasingly used as substitutes for ODS in Montreal Protocol industries^[41] and, as Montreal Protocol industries restructure to prevent further damage to the ozone layer by moving from chlorofluorocarbons to HCFCs and then, typically, to SGG, they are contributing to the problem of global warming. Unlike ODS there are currently no requirements for Australian industry to manage SGG in an environmentally responsible manner and emissions, which could be cost-effectively mitigated, are occurring.

HCFC and HFC consumption represent the majority of Australia’s ODS and SGG consumption respectively. HFC is currently considered the major replacement for HCFC in refrigeration and air conditioning equipment^[42]. Significant volumes of HCFC and HFC are currently imported into Australia in pre-charged refrigeration and air conditioning equipment (‘pre-charged RAC equipment’). In 2001, an estimated 17% of total HCFC imported into Australia was in the form of pre-charged RAC equipment, while approximately 30% of total HFC imports comprised such equipment.

HCFC and HFC-containing RAC equipment is also manufactured in Australia. As neither HCFC nor HFC are manufactured in Australia, domestic manufacturers of this equipment must purchase their gas from bulk HCFC and HFC importers.

SGG emissions, like other greenhouse gases, contribute to the process of global warming and to the problems that are likely to arise as a result. The Intergovernmental Panel on Climate Change and the CSIRO have identified that the likely impacts of climate change for Australia through to 2030 include a warmer and drier climate, with more extremes such as hot days, more intense cyclones and other storm events, droughts and floods. These climatic changes are expected to have widespread impacts, many of which may have a significant impact on society, as well as on economic outputs and through a likely call on future budgets both from a need for further outlays and through possible reduction in revenue. These are expected to include:

• pressure on health systems such as from extension of disease vector ranges and increased heat stress;

• increased risk of infrastructure damage due to sea level rise, storm damage and more frequent and extreme bushfires;

• need for further infrastructure development due to reduced fresh water availability;

• reductions in tourism due to more frequent coral bleaching episodes and decreased snow cover in alpine ecosystems.

There is also the potential impact on Australia - both in terms of regional security and through population concerns - of mass migration in the Asia Pacific region due to climate change and other adverse environmental phenomena.^[43]

In 2001, HCFC consumption constituted the greatest percentage, by mass, of total ODS consumption by developed countries, including Australia. Once released into the atmosphere, ODS cause damage to the stratospheric ozone layer that naturally acts as a barrier to harmful UV-B radiation, protecting humans, animals, plants, certain plastics and other building materials from the harmful effects associated with increased exposure to such radiation. Specific impacts of ozone depletion include:

• decreasing productivity and sustainability of Australia’s marine and other natural resources;

• a shorter product life for UV-B sensitive building materials including plastics and paints.

SGG are increasingly likely to replace ODS as refrigerants and in other Montreal Protocol industry applications in the short to medium term and, in the absence of appropriate handling, emissions of SGG will rise significantly.^[44] The most significant use of HFCs in Australia is in the refrigeration and air conditioning industries. HFC consumption in these industries, including HFC in pre-charged RAC equipment , is estimated to have already increased from 200 metric tonnes in 1995 to 3,600 metric tonnes in 2001 and to increase further to at least 8,400 metric tonnes by 2020, the year in which the Montreal Protocol requires Australia to have ceased import and manufacture of the ODS refrigerant HCFC except for servicing existing equipment. Emissions of 8,400 tonnes of SGG would represent the equivalent of about 8.5 million tonnes of carbon dioxide or more than the annual emissions of the largest coal-fired power plants in Australia. Total consumption of SGG in 2020 is likely to exceed 10,000 metric tonnes.

Australia is required to limit emissions of greenhouse gases, including SGG, under the United Nations Framework Convention for Climate Change (UNFCCC), which Australia has ratified and which is in force internationally. Australia’s responsibility is further described under Measure 7.2 of the National Greenhouse Strategy, which includes the commitment by the Commonwealth to develop environmental management strategies for SGG through coordinated action with industry. Additionally, Australia is required to report annually to the UNFCCC Secretariat on estimates of emissions of SGG. To date, this has only been able to be achieved through extensive and expensive ad hoc industry surveys.

Under the Montreal Protocol, Australia is required to phase out consumption of HCFC by 2030. Domestic manufacturers of HCFC pre-charged RAC equipment contribute to Australia’s regime for fulfilling this international obligation as the importers of bulk HCFC pass on to the domestic manufacturers a large proportion of the cost of import licence and activity fees imposed under the Ozone Protection Act 1989^[45]. Consequently, domestic manufacturers of HCFC RAC equipment bear a financial burden for redressing the environmental impact of their activity.

While the Montreal Protocol does not currently require Australia to phase out imports of HCFC pre-charged RAC equipment, such imports work contrary to Australia’s efforts to achieve an orderly phase out of bulk HCFC imports as the imported equipment contributes toward the ongoing demand for the import of bulk HCFC to meet future service and maintenance needs.

In 2001, 2,693 metric tonnes of HCFC were imported into Australia. Eighty-seven percent, or 2,339 metric tonnes of that total consisted of refrigerants (with HCFC-R22 representing the most commonly imported HCFC species at 85% of total HCFC imports).

Whilst precise figures are not readily available on the proportion of bulk HCFC imports that are used in Australia to service and maintain, as opposed to manufacture, industry intelligence suggests that 60-70% of imports of bulk refrigerant is used to service and maintain equipment, predominantly imported pre-charged RAC equipment^[46]. Using other data^[47], EA and the AGO’s estimate is that approximately 55% of Australia’s bulk HCFC imports are used for servicing RAC equipment.

It is expected that over the next 5-10 years the proportion of imported bulk HCFC used for servicing and repair of RAC equipment will continue to increase. This expectation is based on the fact that the diminishing supply of bulk HCFC will make it increasingly difficult for a domestic manufacturer to remain viable in such a small market as Australia^[48]. In addition, alternatives to HCFC are available to both domestic and overseas manufacturers of RAC equipment. Diminishing global supply of HCFC will make these alternatives an increasingly more commercially attractive refrigerant option in manufacturing.

Currently, however, importers of HCFC pre-charged RAC equipment do not bear a financial burden for the environmental impact of their activity, but are effectively cross-subsidised by importers of bulk HCFC and domestic manufacturers of HCFC-containing RAC equipment.

Consequently, in addition to the inequity created in the refrigeration and air conditioning industry in regard to sharing the burden of implementing Australia’s obligations to redress ozone depletion, this situation places Australian HCFC refrigeration and air conditioning equipment manufacturers at a competitive disadvantage vis-a-vis importers of such equipment.

During 1999 and 2000, the Commonwealth conducted a review of the OPA. Industry, and other stakeholders consulted, unanimously recognised that the introduction of SGG as replacements for ODS results in adverse environmental impacts and that this issue needed to be addressed by the Commonwealth. Throughout this review, industry consistently favoured a response which streamlined their efforts to be consistent with the Commonwealth approach to ODS, ensured that all companies were treated equitably and was consistent across Australia.

SGG remain readily available to industry for commercial reasons and while emissions will occur, both the UNFCCC and UNEP have demonstrated that cost-effective means for minimising emissions exist. The achievement of an effective regime for reducing emissions of SGG requires a management strategy that covers the use of SGG along the entire supply chain, from importing and reporting of SGG use to improve containment practices and product stewardship for recovery and destruction.

While the Montreal Protocol does currently allow Australia to continue to import HCFC in both bulk and pre-charged equipment form, it requires Australia to work towards reducing its dependency on HCFC in order to cease HCFC consumption by 2030. To date, the established ozone protection regime has been successful in engaging the cooperation of the majority of the RAC industry in pursuing this objective, with the exception of importers of ODS pre-charged RAC equipment. Given the role of importers of ODS pre-charged RAC equipment in Australia’s ongoing dependence on HCFC, their engagement in the ozone protection regime is required to maintain Australia’s orderly HCFC phase out in accordance with its Montreal Protocol obligations.

This Part focuses on options for management of SGG and ODS at the top of the supply chain. By including importation, manufacture and exports in an overall management strategy, government can comprehensively monitor the consumption and use of SGG and ODS and conveniently impose obligations for product stewardship. This aspect of the management of SGG and ODS could be achieved through utilising one of the following three options^[49]:

Table 1: Summary of Options – Advantages / Disadvantages

Option	Advantages	Disadvantages
Option 1 – existing industry management	• Ability to set own standards • Avoid costs of regulation	• Great variation in size and capacity of industry. • Highly competitive commercial environment where cost of compliance perceived as flexible rather than fixed cost. • Problem of free riders. • Not consistent with approach taken to bulk ODS.
Option 2 – State legislation aimed at recovery and disposal of ODS and SGG	• Avoid costs of Commonwealth regulatory action	• Non-uniformity likely to persist given anomalies and differences that still exist for ODS. • Constitutionally, States & Territories cannot regulate import & export, preventing access to this efficient avenue for legislative control.
Option 3 - extension of the OPA to cover the import, export and manufacture of bulk SGG	• Ensures that most imports ODS and SGG are treated equally. • Streamlines industry’s regulatory burden by relying on a single Act for both ODS and SGG. • Simplifies implementation of Government policy.	• Minimal increased costs for consumers • Increased regulatory costs for government • Perpetuates cross-subsidisation of importers of RAC precharged with SGG and ODS by importers of bulk SGG and ODS and domestic manufacturers of ODS RAC equipment
Option 4 – Extension of the OPA to cover the import, export and manufacture of bulk SGG and SGG and ODS imported in pre-charged RAC equipment.	• Allows a consistent response across industry. • Ensures that all imports of ODS and SGG are treated equally. • Removes cross-subsidy of importers of RAC precharged with SGG and ODS by importers of bulk SGG and ODS and domestic manufacturers of ODS RAC equipment • Streamlines industry’s regulatory burden by relying on a single Act for both ODS and SGG. • Simplifies implementation of Government policy	• Minimal increased costs for consumers • Increased regulatory costs for government

Option 1 would involve industry management, whereby importers, exporters and manufacturers of bulk SGG, and importers of SGG and ODS pre-charged RAC equipment, will continue to voluntarily handle these substances at all times in a proper way so as to minimise emissions and contribute to HCFC phase out efforts. As with the consideration of the various aspects of end-use controls, however, there are two significant issues with this option. First, there are a number of businesses that are involved in the supply chain – ranging from large entities to sole proprietor businesses and individuals. The variation in the size and capacity of these businesses has the potential to jeopardise the objective of minimising emissions. This is especially the case in those businesses where the involvement with SGG and ODS is a very small part of the overall business and, moreover, where this activity is not part of the commercial rationale for the business. In these situations, it is easy for a business to ‘overlook’ managing SGG and ODS in accordance with public policy.

Additionally, this option does not provide industry with the assurance that all companies would respond equally, creating free-riders, nor would it be consistent with the approach taken for bulk ODS. Consequently, Option 1 is not considered to be effective.

Option 2 would involve each State and Territory enacting legislation to bring all bulk SGG and SGG and ODS contained in pre-charged RAC equipment into a regulatory framework that enables a suitable approach to be adopted for the recovery and disposal of SGG and contribution to the national HCFC phase out. The recent history of ozone protection in Australia highlights anomalies that continue to exist after more than a decade of reform. Victoria, for example is finally regulating HCFC, more than a decade after the earliest jurisdictions, while Western Australia alone has taken action with respect to SGG used as refrigerants only^[50]. Recent experience suggests that non-uniform regulatory structures would be likely to persist under Option 2, and this would extend high compliance costs to industry.

The advantage of this option is that it helps to avoid the costs of legislative action and compliance and enforcement monitoring by the Commonwealth. The disadvantage is that non-uniformity is likely to persist across the industry, with the result that higher than necessary venting of SGG would occur. Option 2 is not considered to be viable.

Option 3 would involve ensuring appropriate control of bulk SGG and ODS from the point of import through the domestic supply and end-use chain to eventual recovery and disposal through product stewardship arrangements by extension of the OPA to cover imports and manufacture of bulk SGG,. This Part focuses on the extension of the existing OPA licensing and levy system for imports, exports and manufacture of ODS to include both ODS and SGG in bulk. Part V deals with issues relating to end-use controls and product stewardship for SGG. Together, these amendments form part of the Commonwealth’s overall management strategy for ODS and SGG. The objective of the proposed licence and levy fees for bulk SGG is to comply with Commonwealth cost recovery policy and to ensure sufficient revenue to satisfy existing legislative requirements for revenue neutrality in relation to the Commonwealth administration of the revised OPA. Licensing at the top of the supply chain provides an appropriate point to raise the revenue required for administration of the expanded OPA. It also enables the Commonwealth to comprehensively monitor consumption and use of SGG through reporting conditions on licences.

Option 3 would involve the introduction of an SGG import, export and manufacture license scheme that mirrors existing arrangements for ODS and the introduction of license application fees and an activity levy system for bulk SGG in a way that is consistent with current requirements for ODS scheduled under the OPA and would include the following:

• A requirement that all importers, exporters and manufacturers of bulk SGG be licensed. Licensing allows the Commonwealth to apply binding conditions on licensees to report on volumes and species of SGG imported, exported or manufactured and to require appropriate handling provisions to assist in minimising emissions. It would also provide a point of contact for the Commonwealth in case any issues or concerns arise. Licences will be required by all ‘persons’ – that is, individuals and businesses – that wish to import, manufacture or export SGG;

• In addition to a licence fee, all importers, exporters and manufacturers of bulk SGG will be required to pay an activity fee based on the volume of SGG imported, exported or manufactured. As stated above, this fee will be set at a level to cover the costs of SGG emission abatement programs; and

• A requirement that importers, exporters and manufacturers of bulk SGG to report regularly on the volume of bulk SGG imported, exported or manufactured to EA and the AGO. This information will be used to improve inventory estimates and projections of SGG emissions, assist in policy development and meet Australia’s international commitments under the UNFCCC.

At this stage, the two SGG substances that will be included in the regulatory framework will be HFCs and PFCs used by the Montreal Protocol industries, as an alternative to ODS. Any other substance that is used as an alternative to an ODS, and that is accepted as posing a significant threat to the environment, could also be added to this regulatory framework through future regulations.

It is proposed that the licence application fee for a licence to import or manufacture SGG would be identical to that charged for ODS, namely $15,000 for a two year licence period^[51]. In addition to the licence application fee, an activity fee will be payable by licensees. In regard to bulk SGG, it is proposed that the activity fee will be a flat per-kilo fee and apply to all SGG used by Montreal Protocol industries^[52]. The quantum of the levies would be determined under amendments to relevant legislation (Ozone Protection (Licence Fees – Imports) Act 1995 and Ozone Protection (Licence Fees – Manufacture) Act 1995) and would be in line with the current levies on ODS.

The income raised from the cost recovery measures associated with licence application and activity fees will be managed through the establishment of a special account^[53]. Revenue in the special account will be directed to specific activities including the administration of the expanded OPA, end-use controls and product stewardship as described in Part V. The special account will also support research into better management of SGG and the development of both alternative substances and not-in-kind alternatives.

The opportunity to use the existing legislative regime for ODS is a particular advantage of the approach being considered by the Government as it:

• streamlines industry’s regulatory burden by relying on a single Act for both ODS and SGG; and

The existence of the regulatory framework for bulk ODS means that there is a ready-made structure onto which regulations relating to bulk SGG can be added to achieve an effective and efficient management approach for SGG.

This approach responds, in part, to industry’s views that streamlined regulation of both ODS and SGG provides policy certainty, eases the administrative burden on industry, ensures a smooth transition away from ODS and allows industry to plan for the long term, thereby reducing the net costs for industry in the long run.

As noted above, imports of bulk ODS are controlled and also are subject to quotas and to provisions for the phase-out of the use of ODS. The legislative regime for SGG, however, will not include either the use of quotas or provisions seeking the phase out of SGG^[54].

This option would provide the Commonwealth with an effective framework to regulate ozone depleting and global warming substances imported into Australia by ensuring that bulk imports ODS and SGG are treated equally and allow for streamlined industry regulatory burden by providing a single Act for both ODS and SGG at minimal increased costs for consumers. It does, however, perpetuate cross-subsidisation of importers of RAC pre-charged with SGG and ODS by importers of bulk SGG and ODS and domestic manufacturers of ODS RAC equipment and for this reason Option 3 is not considered effective.

Option 4 – would involve ensuring appropriate control of SGG and ODS from the point of import through the domestic supply and end-use chain to eventual recovery and disposal through product stewardship arrangements by extension of the OPA to cover SGG in both bulk and pre-charged RAC equipment, and employment of the OPAs existing provision for the regulation of the import of ODS pre-charged RAC equipment. This Part focuses on the extension of the existing OPA licensing and levy system for imports, exports and manufacture of ODS to include both ODS and SGG in bulk, and in pre-charged RAC equipment. Part V deals with issues relating to end-use controls and product stewardship for SGG. Together, these amendments form part of the Commonwealth’s overall management strategy for ODS and SGG. The objective of the proposed licence and levy fees for bulk SGG and pre-charged RAC equipment is to generate sufficient revenue to satisfy the legislative requirement for revenue neutrality in relation to the Commonwealth administration of the revised OPA and to correct the existing cross-subsidisation of ODS pre-charged RAC equipment importers by HCFC bulk importers and domestic manufacturers of ODS RAC equipment. Licensing at the top of the supply chain provides an appropriate point to raise the revenue required for administration of the expanded OPA. It also enables the Commonwealth to comprehensively monitor consumption and use of SGG through reporting conditions on licences.

Option 4 would involve the introduction of a licensing and usage levy system for bulk SGG and ODS and SGG imported pre-charged RAC equipment in a way that is consistent with current requirements for ODS scheduled under the OPA and would include the following:

• A requirement that all importers, exporters and manufacturers of SGG be licensed, as well as importers of SGG and ODS in pre-charged RAC equipment Licensing allows the Commonwealth to apply binding conditions on licensees to report on volumes and species of SGG imported, exported or manufactured and to require appropriate handling provisions to assist in minimising emissions. It would also provide a point of contact for the Commonwealth in case any issues or concerns arise. Licences will be required by all ‘persons’ – that is, individuals and businesses – that wish to import, manufacture or export SGG or import ODS or SGG pre-charged RAC equipment;

• In addition to a licence fee, all importers, exporters and manufacturers of bulk SGG and importers of ODS and SGG pre-charged RAC equipment will be required to pay an activity fee based on the volume of SGG or ODS imported, exported or manufactured. As stated above, this fee will be set at a level to cover the costs of licence application assessment and monitoring, ODS phase out and SGG emission abatement programs; and

• A requirement that importers, exporters and manufacturers of bulk SGG to report regularly on the volume of SGG imported, exported or manufactured to EA and the AGO, as well as importers, exporters and manufacturers of pre-charged RAC equipment. This information will be used to improve inventory estimates and projections of SGG emissions, assist in policy development and meet Australia’s international commitments under the UNFCCC.

It is proposed that the application fee for a licence to import or manufacture SGG would be identical to that charged for ODS, namely $15,000 for a two year licence period.^[55] The proposed licence application fee for pre-charged RAC equipment is $3,000 for a two year period reflecting the anticipated lower administration costs associated with the far smaller number of species of ODS and SGG to be monitored under pre-charged equipment licences compared to a bulk ODS or SGG licence, and the greater economies of scale achievable from an anticipated larger number of pre-charged equipment licensees. In addition to the licence application fee, an activity fee will be payable by licensees. In regard to bulk and pre-charged RAC equipment SGG, it is proposed that the activity fee will be a flat per-kilo fee and apply to all SGG used by Montreal Protocol industries.^[56] In regard to ODS pre-charged RAC equipment imports, it is proposed that the activity fee will be per-kilo accounting for the ozone depleting potential of the ODS, consistent with the existing approach to bulk ODS imports. The quantum of the levies would be determined under amendments to relevant legislation (Ozone Protection (Licence Fees – Imports) Act 1995 and Ozone Protection (Licence Fees – Manufacture) Act 1995) and would be in line with the current levies on ODS.

The revenue raised from the licence and activity fees will be managed through the establishment of a special account. Monies held in the special account will be directed to such activities as the administration of the expanded OPA, including end-use controls and product stewardship as described in Part V. The fund will also support research into better management of SGG and phase out of ODS, and the development of both alternative substances and not-in-kind alternatives.

The opportunity to use the existing legislative regime for ODS is a particular advantage of the approach being considered by the Government as it:

• streamlines industry’s regulatory burden by relying on a single Act for both ODS and SGG; and

The existence of the regulatory framework for ODS means that there is a ready-made structure onto which regulations relating to SGG can be added to achieve an effective and efficient management approach for SGG. Moreover, with the introduction of the regulations on imported ODS and SGG pre-charged refrigeration and air conditioning equipment, Australia will have successfully targeted all the most emissive forms in which ODS and SGG enter Australia.

This approach also responds more comprehensively to industry’s views that streamlined regulation of both ODS and SGG provides policy certainty, eases the administrative burden on industry, ensures a smooth transition away from ODS and allows industry to plan for the long term, thereby reducing the net costs for industry in the long run.

A comprehensive review of the impact of extending the existing regulatory framework to encompass all SGG and employing the provision to regulate imports of ODS in pre-charged RAC equipment involves identifying and comparing the costs and benefits of the existing situation (or ‘base case’) against the costs and benefits which can be expected if Option 4 is introduced (or ‘scenario for change’). Table 2 summaries the costs and benefits of Option 4:

	Costs	Benefits
Business	• Importers will incur costs associated with obtaining licences and paying the usage levy:^a • The annual licence fee costs would be $7,500 per company importing gas in bulk and $1500 if in pre-charged refrigeration and air conditioning equipment.^b The usage levy would be up to 16.5 cents per kilo for SGG and ODS in pre-charged equipment.^c These costs would be passed directly on to the consumer. • There will be minimal costs associated with complying with reporting conditions under licences. • Businesses along the supply chain, that may not have a direct involvement with SGG and ODS, will be required to ensure that the handling processes of their staff satisfy the national regulations. • The costs involved in this proposal are consistent with those for bulk ODS and would not act (and have not acted in the case of ODS) as a significant barrier to competition nor as a restraint of trade. This is particularly the case in regard to pre-charged RAC equipment imports given the ODS or SGG in the equipment constitutes only a small proportion of the equipment’s total cost. Those companies, however, who were interested in importing only a small amount of gas or RAC equipment on an ad hoc basis as a side component of their business would probably find the licensing costs prohibitive, but they could arrange gas or equipment supply from one of the regular gas or equipment importers and their business activities would not be restrained.	• The regulations will apply to all importers of SGG and ODS: bulk importers and importers of pre-charged equipment. • The existing inequity between domestic manufacturers of ODS RAC equipment and importers of ODS pre-charged RAC equipment would be removed. • All businesses that are part of the supply chain for SGG and ODS will implicitly become subject to appropriate product stewardship provisions for managing SGG.
Consumers	• Businesses will pass on the increased costs associated with licence fees and activity fee through increased gas costs in equipment and re-charging. • The additional cost for domestic refrigerators would be less than 5 cents, and for cars with mobile air conditioning and split system air conditioners up to 75 cents, while the increase service costs for industrial and commercial refrigeration and air conditioning facilities would be up to $10 every 3 to 4 years.	• Better performance from equipment as a result of improved emission minimization practices, leading to savings in energy use and associated costs. • More owners receiving the satisfaction that their equipment is less likely to lead to environmental damage.
Community	• None	• Lower levels of greenhouse and ozone depleting gas emissions and consequent reduction in the impacts of ozone depletion and climate change as described above.
Government	• Administrative cost of drafting, monitoring and enforcing legislation.	• Enhanced image/position for Australia in international ozone protection and greenhouse gas reduction negotiations. • Improved information that will enable the National Greenhouse Gas Inventory to be updated and maintained. The action also is consistent with the National Greenhouse Strategy • Increased knowledge about the operations of the relevant industries in Australia and greater certainty as to the engagement and awareness of these industries as regards the environmental impact of their activities • Revenue will be raised to fund administration of the regime and associated research activities. Existing cost recovery system in regard to HCFC phase out measures is improved.

a. There are currently less than 10 bulk importers of SGG, most of whom already hold licences for the importation of ODS. Bulk importers will be required to hold a separate licence for importing SGG. It is estimated that there are about 25 importers of pre-charged equipment, who will be required to be licensed. Around 30% of imports of SGG and 17% of HCFC imports are in pre-charged equipment. The majority of these costs will be imposed through the activity fee on SGG and ODS contained in pre-charged RAC equipment imports. By way of comparison, an average bulk ODS importer pays on an annual basis $5,000 for an ODS licence and around $55,000 in activity fees based on the amount of ODS imported.

b. This cost is based on the proposed increase in licence fees to $15,000 for 2 years, and $3,000 licence fee for a 2-year pre-charged RAC equipment licence. (Part II sets out the proposed increase in licence and activity fees.)

c. The average cost of HFCs is around $15 per kilogram. This is based on HFC-134a representing around 75% of the market (at about $12 per kilogram) and other HFCs (on average around $25 per kilogram) accounting for the remaining 25% of the market. The average domestic refrigerator contains 0.145kg of HFC-134a. The average cost of the ODS most widely-used in pre-charged RAC equipment is HCFC-22, which costs on average $12 per kilogram. The average domestic air conditioner contains 1kg of HCFC-22.

Business

The costs to business, arising from the licence fee and levy proposals in Option 4 that will apply over the period 2003-2008,^[58] will require:

• the payment of licence fees and activity fees to the Commonwealth (see table above);

• adjusting prices for either bulk SGG or for imported pre-charged RAC equipment charged with SGG and ODS to reflect the additional costs;

• informing the Commonwealth of their compliance with the new legislative requirements.

The implementation of these costs will depend on the timing of proposed changes to the Commonwealth’s legislation and associated regulations. It is possible that the changes will be in place in 2002-2003. It is expected that the major part of this additional cost will be passed on to distributors, retailers and final consumers of SGG (in whatever form).

The additional compliance costs in terms of time and financial resources likely to be associated with this option have not been an issue for industry during consultations. Since the introduction of the existing ODS bulk licensing system in 1995, licensees have not indicated their compliance requirements have been overly onerous. On average it takes a HCFC bulk licensee 5.5 hours per annum to complete all reporting requirements^[59].

Industry consultations indicate it is likely that those businesses that are involved in the importation of ODS (either in bulk or in equipment charged with ODS) will also be involved with SGG. It should be a relatively small increment in their processes, therefore, to incorporate the regulatory requirements associated with the licences and levies for SGG for bulk importers, including the requirement to report on imports of SGG. This type of business information is readily available to importers and would not represent a significant increase in administrative costs.

The costs involved in this proposal are consistent with those for bulk ODS and would not act (and have not acted in the case of ODS) as a significant barrier to competition nor as a restraint of trade. This is particularly the case in regard to pre-charged RAC equipment imports given, owing to the nature of the equipment concerned (refrigerators, air conditioners, motor vehicles), the ODS or SGG in the equipment constitutes only a small proportion of the equipment’s total value.

Those companies, however, who were interested in importing only a small amount of gas or small numbers of lower-value pre-charged equipment on an ad hoc basis as a side component of their business would probably find the licensing costs prohibitive. It is worth noting that, regardless of whether the proposed fees were imposed on such companies, as their involvement with SGG and ODS would be a very small part of their overall business and, moreover, not part of the commercial rationale for the business, it is likely they would ‘overlook’ managing SGG and ODS in accordance with public policy. Nevertheless, they could ensure their business activities were not restrained by arranging gas or pre-charged equipment supply from one of the regular importers. The key benefits to industry will be:

• to ensure that there are consistent approaches to supply controls on ODS and their SGG replacements;

• to remove the existing inequity between domestic manufacturers of ODS RAC equipment and importers of ODS pre-charged RAC equipment;

• that SGG use is monitored, which will support mechanisms designed to ensure the efficient use and handling of SGG; and

• industry being able to demonstrate and market to consumers their responsible approach to environmental impacts.

Business also will benefit from the implementation of a uniform, national scheme from the earliest possible time. This will be particularly beneficial to those businesses that operate in more than one jurisdiction. An indirect benefit to importers of SGG will be the implementation of a regulatory system that may assist legitimate legal importers by preventing illegal imports through ensuring effective administration of the licence scheme and a robust compliance regime.

A further benefit for industry will be the capacity to recover and dispose of SGG. Refrigerant Reclaim Australia Limited (RRA), which was established and is financed by contributions from importers and wholesalers, has been reclaiming, reprocessing and destroying used ODS for a number of years. RRA also has the technical capability to dispose of SGG^[60] and recently, through the assistance of Government funding,^[61] has expanded its recovery program to include recycling and destruction of used HFCs. The activities of RRA are important, therefore, as part of the enhancement of product stewardship associated with the use and disposal of SGG.

There are currently less than 10 bulk importers of SGG, most of whom already hold licences for the importation of ODS. Bulk importers will be required to hold a separate licence for importing SGG. It is estimated that there are about 40 importers of pre-charged equipment, who that will be required to be licensed. Around 30% of imports of SGG and 17% of HCFC imports are in pre-charged equipment. The majority of these costs will be imposed through the activity fee on SGG and ODS contained in pre-charged RAC equipment imports. By way of comparison, an average bulk ODS importer currently pays $5,000 per year for an ODS licence and around $55,000 in activity fees based on the amount of ODS imported.

This cost is based on the proposed increase in licence fees to $15,000 for 2 years, and $3,000 licence fee for a 2-year pre-charged RAC equipment licence (Part II sets out the proposed increase in licence and activity fees).

The average cost of HFCs is around $15 per kilogram. This is based on HFC-134a representing around 75% of the market (at about $12 per kilogram) and other HFCs (on average around $25 per kilogram) accounting for the remaining 25% of the market. The average domestic refrigerator contains 0.145kg of HFC-134a. The average cost of the ODS most widely-used in pre-charged RAC equipment is HCFC-22, which costs on average $12 per kilogram. The average domestic air conditioner contains 1kg of HCFC-22.

Consumers

There may be some relatively minor increased costs for consumers as importers, manufacturers and wholesalers seek to recover the costs of licence fees and the activity fees. These businesses also may incur additional administration and these costs also may be passed on, as is the current situation for bulk ODS. These costs will be offset to some extent by improved performance from equipment as a result of improved emission minimization practices, leading to savings in energy use and associated costs.

The benefits to consumers will include the knowledge that all businesses with which they deal in relation to equipment that incorporates SGG or ODS will be subject to a common regulatory regime across Australia. By introducing regulations for all SGG and ODS at this point, the Commonwealth is ensuring that there will be equity between all participants at the top of the ODS and SGG supply chain, whether they be bulk or pre-charged RAC equipment importers or domestic manufacturers of RAC equipment. Consequently, this equality of treatment will flow through all parts of the SGG and ODS supply chain such that there should not be any inequity from State to State in the imposition of the costs associated with the regulation of SGG and ODS on wholesalers, retailers or consumers.

Community

The only cost to the community is that incurred by Government in enacting new legislation. As is noted above, this cost is one that is part of the responsibilities of Government as it responds to community priorities, and the imperatives established by international relationships, through its policies and legislative program.

The benefits from the imposition of the licence, levy and reporting arrangements for SGG will be the reduction in emissions of highly potent greenhouse gases which lead to increased global warming.

An estimate of the possible savings in emissions of SGG, resulting from the introduction of supply controls, end-use controls and product stewardship, has been made based on work undertaken by the Technology and Economic Assessment Panel of the Montreal Protocol. Using this work as its basis, the Commonwealth Government estimates likely abatement of equivalent to between 35 and 50 million tonnes of carbon dioxide over the period 2003 to 2012. While it is not possible to document how this specific abatement will minimise anthropomorphic influence on the climate and reduce the impact of climate change, this action is part of an international commitment to prevent adverse environmental outcomes.

Ecologically sustainable development (ESD) has been defined for Australia as "using, conserving and enhancing the community’s resources so that ecological processes, on which life depends are maintained and the total quality of life, now and in the future, can be increased". The proposed amendments to the Commonwealth’s ozone protection legislation to include bulk SGG and SGG and ODS in pre-charged RAC equipment support the Commonwealth Government's commitment to ESD. The Commonwealth's National Strategy for Ecologically Sustainable Development describes three core objectives of ESD:

• to enhance individual and community well being and welfare by following a path of economic development that safeguards the welfare of future generations;

• to protect biological diversity and maintain essential ecological processes and life support systems.

Legislative changes to the Commonwealth’s existing ozone protection legislation to introduce a licensing and usage levy system for bulk SGG and SGG and ODS in pre-charged RAC equipment in a way that is consistent with current requirements for bulk ODS will provide the greatest scope for meeting these objectives. Protection of the earth’s atmospheric systems is essential in guarding the welfare of future generations and for providing equity between both current and future generations, particularly as climate change will have the greatest impact on the developing countries. Atmospheric protection is also critical in protecting biodiversity and maintaining essential ecological processes. Global warming and ozone depletion has the potential to seriously disrupt natural ecosystems and adversely impact on human health. Creating a strong national regulatory system is the most effective way of Australia being able to ensure an effective global response to this global problem.

Engaging importers of ODS and SGG pre-charged RAC equipment in these arrangements will realize additional benefits by further strengthening Australia’s ozone protection and synthetic gas management regime, thereby providing the community with greater certainty as to the phase out of ozone depleting HCFC and Government’s response to climate change.

Government

The costs to Government of Option 4 are those of creating new legislation to implement the licensing, usage levy and reporting requirements for bulk SGG and SGG and ODS in pre-charged RAC equipment. The costs are ordinarily accepted as part of the responsibility of Governments, however, and cannot be considered to be an unacceptable cost. These costs are estimated to be minimal given that the concepts involved are reasonably well developed as they parallel regulations that either are in place or are proposed for bulk ODS. Once enacted, however, there will be some small additional costs associated with the management of the legislation, particularly in compliance and reporting.

• ensuring that Australia will be able to fulfil its international requirements under the UNFCCC to limits its greenhouse gas emissions in order to stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, as well ensuring that the Government meets its commitment to reach its target of 108% of 1990 emissions during the period 2008-2012, irrespective of whether Australia ratifies the Kyoto Protocol to the UNFCCC;

• ensuring that Australia will be able to fulfil its international requirements under the UNFCCC to report emissions of SGG annually through the National Greenhouse Gas Inventory as a result of the introduction of mandatory reporting requirements on imports, exports and manufacture of SGG;

• improving the integrity of Australia’s ODS phase out program and related cost recovery arrangements;

• establishment of a specific reserve fund under the OPA to administer the Act including supporting the management of end-use controls (these are described in a separate Regulatory Impact Statement), promulgating information about policies and programs and undertaking research into alternatives to SGG; and

• enhancing Australia’s international reputation as a country committed to both ozone protection and to achieving reductions in greenhouse gas emissions in line with its commitments under the UNFCCC and as described in the National Greenhouse Strategy.

The Government also should benefit as knowledge about the operations of the industries and more detailed information about the use of various substances becomes available, as this information will facilitate the development of public policies relating to ozone depletion and global warming issues.

The following stakeholders were approached for comment on the options. Comments received from industry focused on Option 4. Their responses are detailed below.

The Australian Fluorocarbon Council (AFC), which represents all major importers of ODS and which represents at least the vast majority of importers of SGG, indicated that its members strongly supported the principle of the extension of the licensing, levy and reporting system from ODS to SGG. AFC has long emphasised the importance of having uniform regulation across all jurisdictions.

The AFC has considered the specific elements of the Commonwealth’s proposals and the views of the Council on the three key aspects are:

• the Council accepts the need for licences for the import (and manufacture) of SGG to be issued to suitable applicants;

• the Council accepts the proposal that an activity fee be introduced for SGG; and

• the Council accepts the proposal that appropriate reporting of SGG that are imported or manufactured be made by industry.

The AFC acknowledges that the proposal for the licences and reporting of imports of SGG parallel the requirements for ODS and that this should be an efficient addition to an existing policy. The Council agrees that the proposed fee for an SGG licence should be the same as the fee charged for an ODS licence: that is, $15,000 for two years. Equally, a licence to deal only with SGG would require a fee of $15,000 for two years. These fees should assist in ensuring that only genuine, long term traders are involved in the import of SGG.

The AFC supports, in principle, the Commonwealth's proposals for an activity fee for bulk gas and for charged equipment. AFC notes, however, the following provisos:

• the quantum of the fees needs to be agreed – AFC accepts that the program should be self-funding, but the fee basis should not enable surplus revenue to be accumulated;

• in the case of charged equipment, AFC proposes that a small licence or administration fee be implemented, with an activity fee being levied after a yet to be agreed point.

AFC emphasises that, while it is essential to include charged equipment in any regulatory regime, the system for assessing and collecting the fees needs to be as simple as possible. Consequently, it may be appropriate to group equipment into categories and apply a fee to each group, rather than to apply the fees on a piece-by-piece basis.

The proposals for reporting of imports of SGG are supported, although the Council notes that the reporting format should be as straightforward as possible and consistent with other similar types of reports prepared by companies.

The Air-conditioning and Refrigeration Equipment Manufacturers of Australia (AREMA), represents the majority of air conditioning and refrigeration equipment importing and manufacturing activity in Australia and include the major importing companies Emailair, Fujitsu, Daikin, Trane, Carrier, York and Mitsubishi. AREMA also has a substantial membership of smaller importers who have joined the Association in supporting the proposed changes. The views of the smaller members of AREMA may be taken as representative of those of smaller firms within the industry which are not Association members.

In a recent letter to Environment Australia, AREMA expressed the following views:

“AREMA members understand and accept the need for equity across the industry in terms of fees to support the program.

To this effect we agree, in principle, to fees on such refrigerants imported in charged equipment equating to activity fees charged on bulk imports, while any licence fees should reflect the costs of administering the licence.”

The Vehicle Air Conditioning Specialists of Australia (VASA), which represents wholesalers, manufacturers, retailers and other businesses that have an involvement in the after-market vehicle industry in Australia and New Zealand, supports a licensing system covering all importers, manufacturers and exporters of synthetic greenhouse gases, where this system also includes an activity fee and appropriate reporting requirements. VASA notes that there will need to be consultation with importers of pre-charged equipment, including vehicles, to ensure that a practical and efficient system of reporting is established.

Federal Chamber of Automotive Industries (FCAI)

The Federal Chamber of Automotive Industries (FCAI), representing manufacturers and importers of new vehicles marketed in Australia, provides the following comments on the proposals relating to the proposed controls on the bulk import, export and manufacture of synthetic greenhouse gases (SGG):

• The proposals appear to be mainly administrative; there are no technical changes to the use of current refrigerant - 134a;

• Our interpretation is that the automotive industry will need to treat our modern "ozone benign" 134a refrigerant as though it was CFC, R12, because of the former's contribution to greenhouse gas emissions. Refrigerant 134a will, in future, be treated as a "scheduled substance" under the Ozone Protection Act and the automotive industry will be classified as one of the Montreal Protocol industries, because we have replaced ODS refrigerants with SGG – 134a almost universally;

• The consequences of the Commonwealth proposals are understood to be that our industry will need to consider the associated controls related to use, record keeping of quantities purchased and training of users. For both automotive manufacture and service, registration and certification will be required - with relevant fees. The levy on imported refrigerant (none is manufactured in Australia) will increase refrigerant cost all round. The refrigerant in imported vehicles is also included in the levy; and

• There is a similarity to the situation that existed when R12 was in its phase out period and, in that sense, the proposals seems to fit a logical pattern. With the Commonwealth co-ordinating the new regulatory regime, there will be more consistency than existed previously when different States had their own individual requirements.

In regard to the proposed controls on the licensing of imports of pre-charged RAC equipment, FCAI provided the following additional comments:

• Whilst licence costs are a relatively minor issue^[62], of more significance is likely to be the management of licences for technicians and managing possible changes to handling practices for refrigerant gas. FCAI would request that a reasonable implementation period be provided; i.e. 2 years;

• As for [the previously mooted] threshold[63] before [import] licences and charges would apply, this would be of no benefit to vehicle importers.

States and Territories

State and Territory Governments have indicated their support for the Commonwealth extending the Ozone Protection Act to include the licensing and levy provisions on the importers and manufacturers of SGG through both the Ozone Protection Advisory Committee and the High Level Group on Greenhouse.

Option 4 could be implemented by amending the Ozone Protection Act 1989 to include HFCs and PFCs as scheduled substances, and making corresponding amendments to the relevant part covering licences, as well as amendments to the Ozone Protection (Licence Fees – Imports) Act 1995 and Ozone Protection (Licence Fees – Imports) Regulations covering licence fees.

The Australian Greenhouse Office and Environment Australia will continue to work directly with AFC, relevant industry associations and other stakeholders to ensure comprehensive awareness of the new regulations.

Review

Section 68 of the Ozone Protection Act 1989 provides that the Minister shall, at the end of each financial year, prepare a report on the operation of the Act during that year and cause a copy of the report to be laid before each House of Federal Parliament within 15 sitting days of that House after the preparation of the report is completed. Consequently, amending the OPA (as described in Option 4) would form part of the annual report to the Commonwealth Parliament.

The Ozone Protection Act 1989 has been the subject of a comprehensive review (completed in January 2001) in accordance with the National Competition Principles Agreement. In accordance with the Commonwealth Government’s Cost Recovery Guidelines for Regulatory Agencies – December 2002, the cost recovery arrangements associated with Option 4 will be reviewed no later than 5 years after they are implemented.

Recommended option

As the phase out of ODS continues, there is an increasing use of alternative substances – SGG – throughout Montreal Protocol industries in Australia. SGG are highly potent greenhouse gases and contribute to global warming. The key issue with respect to SGG is to ensure that there is appropriate management of them from the point at which they enter the commerce of Australia until they are removed from service and have to be destroyed. In this context, it is important that Australia’s measures to implement its obligations under the UNFCCC and the Montreal Protocol account for ODS and SGG imports in both their bulk or pre-charged RAC equipment forms. The existence of the regulatory framework for bulk ODS means that there is a ready-made structure onto which regulations relating to bulk SGG and SGG and ODS in pre-charged RAC equipment can be added to achieve an effective, efficient and equitable management approach.

The recommended option, therefore, is to introduce a licensing and usage levy system for bulk SGG and SGG and ODS in pre-charged RAC equipment in a way that is consistent with current requirements for bulk ODS under the OPA (Option 4). This allows a consistent response across industry, ensures that ODS and SGG are treated equally, streamlines industry’s regulatory burden by relying on a single Act for both ODS and SGG, and simplifies implementation of Commonwealth policy.

UNIFORM END-USE CONTROLS AND PRODUCT STEWARDSHIP FOR OZONE DEPLETING SUBSTANCES AND THEIR SYNTHETIC GREENHOUSE GAS ALTERNATIVES

This Regulatory Impact Statement (RIS), explores options for the uniform management of end-use controls and product stewardship. It is a component of a proposed comprehensive update of the Ozone Protection Act 1989 and accompanying regulations. This part proposes an extension of the Act to ensure that industry:

- uses both ozone depleting substances (ODS) and synthetic greenhouse gases (SGG) appropriately and in as least emissive ways as possible; and

- is responsible for the management of SGG from “cradle to grave” to ensure that SGG are not vented, in line with current arrangements for ODS.

In considering this RIS, the reader should also consider the RIS addressing the import, export and manufacture of SGG (page 47), which proposes examines the extension of the existing import, export and manufacture licensing controls for ODS to include SGG, although excluding the quota and phase-out elements.

Background

The Commonwealth Government regulates the import, export and manufacture of certain ozone depleting substances (ODS) through the Ozone Protection Act 1989 (OPA) to meet Australia’s international environmental obligations under the Montreal Protocol on Substances that Deplete the Ozone Layer. The regime includes controls for the import, export and manufacture of ODS included under Schedule 1 of the OPA and encompasses a system of licences for importers, exporters and manufacturers and an activity fee based on the quantum of ODS imported, exported or manufactured (currently neither ODS or SGG are manufactured in Australia and imports are the sole source of supply.^[64]) An integral component of this approach is the implementation of industry negotiated and agreed progressively diminishing quotas on imports of ODS and the provision for the phase-out of ODS import and manufacture.

This regime is supported by complementary legislation on end-use controls for ODS enacted by the States and Territories.^[65] Key activities for the States^[66] in managing ODS and in limiting the rates at which emissions of ODS occur include:

• a system of licensing wholesalers and other distributors of ODS. Licensing allows for conditions to be placed on sellers of ODS including requirements to handle, decant, store and transport ODS is such a way as to minimise emissions, to only sell ODS to appropriately certified or accredited parties and to report on sales, and to accept reclaimed ODS for storage, refining, re-use and or destruction as appropriate;

• limitation of ways in which ODS are applied at the point of end-use. State legislation prescribes the circumstances in which ODS can be vented into the atmosphere during a production process or when equipment containing these substances is serviced or replaced. For example, the legislation limits the ability of technicians to allow ODS to escape into the atmosphere when repairing a commercial or domestic refrigeration unit in situations other than emergencies;

• a system of training and licensing for technicians and others handling ODS. This ensures that technicians safely handle these substances and that accepted techniques for substance replacement and capture are applied. Operating through State legislation, a technician licensing system is in place to ensure that these people have completed suitable TAFE-based training courses and satisfy minimum work experience requirements;

• ensuring that ODS are eventually disposed of in an environmentally responsible manner. The legislation prescribes that technicians and others who handle ODS at the point of end-use must return unwanted substances to wholesalers who have legal responsibility for their safe disposal as part of a product stewardship obligation.

Additionally, industry is progressively moving towards the use of alternatives to ODS, predominantly synthetic greenhouse gases (SGG) that significantly add to global warming. Hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) are two major species of synthetic greenhouse gases.^[67] Neither species has a direct link to ozone depletion but each has a high global warming potential relative to other sources of greenhouse gas emissions. Both substances are increasingly used as substitutes for ODS in Montreal Protocol industries. Moreover, as Montreal Protocol industries restructure to prevent further damage to the ozone layer by moving from chlorofluorocarbons (CFCs) to hydrochlorofluorocarbons (HCFCs) and then, typically, to SGG, they are contributing to the problem of global warming. Unlike ODS, however, there are currently no requirements for entities in the supply chain to handle SGG in an environmentally responsible manner and as a result emissions which could be cost-effectively mitigated are taking place. A separate Regulation Impact Statement (RIS) has been prepared proposing the extension of the existing import, export and manufacture licensing controls for ODS to include SGG, although excluding the quota and phase-out elements.

Refrigerant Reclaim Australia Limited (RRA), which was established and is financed by contributions from importers and wholesalers, has been reclaiming, reprocessing and destroying used ODS for a number of years to fulfill existing product stewardship requirements for ODS. RRA also has the technical capability to dispose of SGG^[68] and recently, through the assistance of Government funding,^[69] has expanded its recovery program to include recycling and destruction of used HFCs.

Summary of the problem

Once released into the atmosphere, ODS cause damage to the stratospheric ozone layer that naturally acts as a barrier to harmful UV-B radiation, protecting humans, animals, plants, certain plastics and other building materials from the harmful effects associated with increased exposure to such radiation. Specific impacts of ozone depletion include:

• decreasing productivity and sustainability of Australia’s marine and other natural resources;

• a shorter product life for UV-B sensitive building materials including plastics and paints.

The States currently regulate end-use activities associated with the consumption of ODS controlled under the Montreal Protocol. These controls generally impose restrictions on the release of these substances into the atmosphere in situations other than emergencies or where the use of the substance is inherently emissive. Recent action taken by States has reduced the significant anomalies in the regulatory framework from jurisdiction to jurisdiction, however these changes have taken a considerable amount of time and differences in approaches remain. These differences disadvantage businesses that operate in more than one jurisdiction by creating the need to monitor and respond to differing government regulatory requirements across geographic areas of operation, creating uncertainty for industry in relation to compliance issues and weakening the Australian and New Zealand Environment and Conservation Council (ANZECC) objective of a national approach to ozone protection and the management of ozone depleting substances. Attachment A describes the key provisions of legislation across all jurisdictions.

Differences also occur in the resourcing priority that each jurisdiction allocates to legislative enforcement. Anomalies in resourcing create scope for avoidable emissions of ODS during product and equipment manufacture, commissioning, maintenance, modification and decommissioning as well as during certain industrial processes.

• Handling restrictions – the licensing provisions of the legislation are unclear in their description of minimum standards for handling ODS. For example, they make no explicit provision for licence holders to be knowledgeable about the human health and environmental effects of ODS. Second, licensing may not cover other entities in the supply chain that may handle ODS, including secondary distributors - those buying ODS from wholesalers for repackaging and subsequent sale - and organisations such as building owners who may buy ODS for their own use and handle them using staff who are not trained technicians.

• Technician training - The conditions under which licences are granted differ between States, due predominantly to differences in accreditation requirements. This means that there are likely to be different outcomes in seeking to reduce ODS emissions between some States, as a result of technicians having varying standards of training and skills outcomes.^[70] Licensed technicians may also differ in their ability to service all aspects of equipment. Licences issued by the States need to ensure that technicians are being trained adequately in the handling of different substances and that, to the extent that technicians are required to upgrade their skills and expertise, this additional study does not create an unnecessary barrier to relevant skill levels and qualifications being achieved.

Synthetic Greenhouse Gases

Emissions of SGG, like other greenhouse gases, contribute to the process of global warming and to the problems that are likely to arise as a result. The Intergovernmental Panel on Climate Change (IPCC) and the CSIRO have identified that the likely impacts of climate change for Australia through to 2030 include a warmer and drier climate, with more extremes such as hot days, more intense cyclones and other storm events, droughts and floods. These climatic changes are expected to have widespread effects, many of which may have a significant impact on society, as well as on economic outputs and through a likely call on future budgets both from a need for further outlays and through possible reduction in revenue. These are expected to include:

• pressure on health systems such as from extension of disease vector ranges and increased heat stress;

• increased risk of infrastructure damage due to sea level rise, storm damage and more frequent and extreme bushfires;

• need for further infrastructure development due to reduced fresh water availability;

• reductions in tourism due to more frequent coral bleaching episodes and decreased snow cover in alpine ecosystems.

There is also the potential impact on Australia – both in terms of regional security and population concerns – of mass migration in the Asia Pacific region due to climate change and other adverse environmental phenomena.^[71]

If current trends persist SGG will increasingly replace ODS as refrigerants and in other Montreal Protocol industries over the short to medium term and emissions of SGG will rising accordingly. The consumption of HFC in Australia by the refrigeration and air conditioning industries, the most significant use, is estimated to have already increased from 200 metric tonnes in 1995 to 3,600 metric tonnes in 2001 and to increase further to at least 8,400 metric tonnes by 2020. Emissions of 8,400 tonnes of SGG would equate to the equivalent of about 8.5 million tonnes of carbon dioxide or more than the annual emissions of the largest coal-fired power plants in Australia. Total consumption of SGG in 2020 is likely to exceed 10,000 metric tonnes.

Australia is required to limit emissions of greenhouse gases, including SGG, under the United Nations Framework Convention for Climate Change (UNFCCC), which Australia has ratified and which is in force internationally. Australia’s responsibility is further described under Measure 7.2 of the National Greenhouse Strategy, which includes the commitment by the Commonwealth to develop environmental management strategies for SGG through coordinated action with industry. The Government has also made a commitment to continue towards limiting Australia’s greenhouse gas emissions to 108% of 1990 emissions during the period 2008-2012, irrespective of whether Australia ratifies the Kyoto Protocol to the UNFCCC. Additionally, Australia is required to report annually to the UNFCCC Secretariat on estimates of emissions of SGG. To date this has only been able to be achieved through extensive and expensive ad hoc industry surveys.

During 1999 and 2000, the Commonwealth conducted a review of the Ozone Protection Act 1989. Industry, and other stakeholders, unanimously recognised that the introduction of SGG as replacements for ODS resulted in adverse environmental impacts and that this issue needed to be addressed by the Commonwealth. Throughout this review, industry participants consistently favoured a response that streamlined their efforts to be in compliance by being consistent with a national approach to end-use controls.

Australian industry is concerned that the difficulties caused by various approaches to end use control of ODS across Australia will be replicated for their preferred SGG alternatives, causing difficulty in their efforts to remain in compliance. From a refrigeration and air-conditioning industry perspective, both ODS and SGG refrigerants are treated in the same manner from a technical point of view. Indeed it would be difficult if not impossible for a technician to physically differentiate between a common ODS refrigerant, HCFC-22 and its commonly adopted SGG alternative, HFC-134a. Yet under current arrangements, all possible steps must be taken to avoid the release of the former whilst no regulations apply to the latter – with the exception of technicians operating in Western Australia which is the first jurisdiction to regulate SGG, but only for the refrigeration and air conditioning industry.^[72] Additionally, an ad hoc response by jurisdictions is unlikely to mitigate the identified environmental risks and is likely to foster an inefficient approach to the minimisation of emissions of SGG.

To guide the further development and implementation of SGG policy, and to provide industry and other stakeholders with policy certainty, the Commonwealth has developed a set of overarching responsible use principles for the management of SGG emissions. These include that SGG should only be used where they are needed to cost-effectively meet specific requirements for technical feasibility and reliability, health and safety, or reducing overall greenhouse gas emissions, and that where SGG are used, all practicable steps should be taken to reduce emissions through best practice life cycle management. A variety of options are available to reduce SGG emissions including increased containment, recovery, destruction and substitution by alternative substances and not-in-kind technologies. The Commonwealth’s approach to managing SGG emissions seeks to cover the full range of these options.

Within this context, the focus of this RIS is on options for minimising SGG emissions through end-use containment strategies. Although alternatives to using SGG currently exist (such as hydrocarbons, ammonia, water, carbon dioxide and ice slurry), there remains some uncertainty about their commercial, safety and environmental suitability in certain applications. The current focus of the Commonwealth in relation to alternatives to SGG is to ensure that it has a thorough and balanced understanding of the technical, environmental and safety issues. To this end, a study into the suitability of alternatives and barriers to their uptake is currently being carried out for the AGO.

Options for end-use controls and product stewardship for ODS and SGG

Effective action is needed to ensure that Australia has a consistent and uniform approach to managing ODS and SGG. Future Commonwealth policy must facilitate a coordinated, transparent and consistent national approach on end-use that accommodates the transition from the use of ODS to the use of SGG. It is essential, therefore, that this approach achieves the overall objectives sought in terms of minimising emissions of substances that result in ozone depletion and global warming. The issue for Governments across Australia is to implement the optimum approach to achieving these outcomes, while balancing all the different factors that impact on all the stakeholders.

There are five options that can be considered in seeking to achieve uniform end-use controls and product stewardship requirements in Australia:^[73]

Option	Advantages	Disadvantages
Option 1 – voluntary industry management		Great variation in size and capacity of diffuse entities. Highly competitive commercial environment where cost of compliance perceived as flexible rather than fixed cost. Free riders would jeopardise achieving national uniformity. Strongly opposed by industry as self-regulation did not work during the initial period of introduction of controls on ODS.
Option 2 – States reaching voluntary agreement on uniform end-use and product stewardship	No cession of responsibility to the Commonwealth.	Non-uniformity likely to persist given anomalies and differences that still exist for ODS.
Option 3 – Commonwealth financial support for States to resolve anomalies	No legislative action required by the Commonwealth.	Difficulty in ensuring consistent State legislation to regulate SGG use. Risk that increased financial commitment by the Commonwealth is not offset by any increased resource allocation by States.
Option 4 – Implementation of a NEPM	Structural flexibility to prescribe regulatory solutions.	No clear legal provision exists for a NEPM to cover ozone protection or climate change issues. Risk that NEPM would not address State inconsistencies because it only prescribes minimum legislative standards.
Option 5 - Extending the Ozone Protection Act to cover end-use controls for ODS and SGG and extension of product stewardship requirements	Resolves jurisdictional legislative and resourcing inconsistencies simultaneously. Economies of scale and national consistency from uniform Commonwealth regulation and administration.	States ceding responsibility for ozone protection to the Commonwealth. Increased requirements on some industry participants as the bar is raised to an even height.

Option 1, based on industry self-regulation, would require all entities and individuals who handle ODS and SGG at any point in the supply chain to observe the existing regulations and industry codes or standards relating to handling, venting and disposal and to act at all times in way so as to minimise emissions.

There are likely to be a number of entities that will be involved in the supply chain – ranging from large companies to sole proprietor businesses and individuals. The variation in the size and capacity of parties would jeopardise the minimisation of emissions, particularly where the management of ODS and SGG is a very small part of the overall business, where this activity is not part of the commercial rationale for the business, or where the commercial environment is highly competitive and the cost of voluntary compliance is perceived as a flexible rather than fixed cost. In these situations, it would be very easy to ‘overlook’ managing ODS and SGG according to public policy that possibly has little relevance to the businesses.^[74]

Moreover, while a substantial proportion of industry will conduct their business in line with public policy intentions, there will be some industry participants that will not be as responsible as others (free riders), and the activities of these parties will jeopardise achieving national uniformity. Industry participants contacted during the review of the Commonwealth’s ozone protection legislation have indicated that self-regulation did not work during the initial period of introduction of controls on ODS and is strongly opposed to this option. Option 1 is not considered to be viable.

Option 2 involves the States agreeing to implement their own regulatory regimes that are uniform across Australia for handling and product stewardship. A key challenge of such a proposal would be ensuring that appropriate resources are provided by each jurisdiction to administer the controls for all controlled substances at a minimum efficient level.

The potential for a lack of national uniformity persisting is a disadvantage for this option, especially given the imperative of each State achieving the required outcomes on controlling emissions of ODS and SGG.

The recent history of ozone protection in Australia, which points to lingering anomalies after more than a decade of reform which included regular coordination meetings through the Ozone Protection Advisory Committee under ANZECC, suggests that non-uniform regulatory structures will persist under Option 2. If so, the advantage of this option is that it helps to avoid the costs of legislative action and compliance by the Commonwealth and industry, respectively. The disadvantage is that non-uniformity is likely to persist and result in higher than necessary venting of ODS and SGG into the atmosphere. Option 2 is not considered to be viable.

Option 3 involves the Commonwealth funding States to achieve minimum efficient levels of monitoring and enforcement of existing legislation, including amendments to State legislation to include SGG. With more effective monitoring and enforcement, technicians will be required to conform to current legislation and contractors will be required to devote increased resources to recovery.

The advantages of this approach relative to the Commonwealth’s proposed amendments are that no legislative action is required by the Commonwealth other than to raise the revenue needed to provide financial support. Disadvantages include the prospect of higher than necessary venting of ODS and SGG into the atmosphere due to persisting anomalies in the wording and subsequent coverage of legislation across States, the increased financial commitment placed on the Commonwealth that is not offset by any increased management in resource allocation by the States and the difficulty of ensuring consistent State legislation to regulate SGG use. On balance, Option 3 is not considered to be a viable option.

Option 4 involves the negotiation and implementation of a National Environment Protection Measure (NEPM) which is a statutory instrument established through the National Environment Protection Council consisting of Commonwealth, State and Territory Ministers. These Measures outline agreed national objectives for protecting particular aspects of the environment and may consist of any combination of goals, standards, protocols and guidelines. An NEPM requires the support of two thirds of Council members and becomes law in each participating jurisdiction once it is made by the Council, unless disallowed by either House of the Commonwealth Parliament.

The advantages of an NEPM relative to the proposed amendments include its structural flexibility to prescribe regulatory solutions and an assurance of equal voting power for each jurisdiction in altering handling and end-use controls and product stewardship.

A disadvantage of the approach is that no clear legal provision exists under the National Environment Protection Council Act 1994 for an NEPM to cover ozone protection or climate change issues. The relevant environmental issues that can be covered by an NEPM are listed at s.14(1) of that Act and are defined in terms of ambient air quality. This definition does not readily extend to depletion of the ozone layer nor to global warming. Moreover, the Council has recently re-affirmed its opposition to an NEPM being used for ozone protection and greenhouse gas abatement purposes.

A further disadvantage is that it is unlikely that an NEPM would address the issue of inconsistency between State regulations. An NEPM prescribes minimum legislative standards or environmental protection measures that each State must implement. As a result, it is likely that States will, just as they do now, take a range of approaches to meeting their NEPM commitments – introducing regulations or amending existing regulations that either meet or exceed the commitments required under the NEPM. For these reasons, Option 4 is not considered a viable option.

Option 5 involves the Commonwealth taking over the legislative responsibilities of the States, introducing national end-use controls and legislative enforcement through the extension of the Commonwealth’s ozone protection legislation, and the development and implementation of regulations under those Acts including the extension of the product stewardship components of the OPA. This would involve the Commonwealth working with affected industries to introduce a national, uniform scheme for registration and certification of all suppliers, purchasers and users of ODS and SGG, and setting legally enforceable standards for the handling, storage, transport and recovery of ODS and SGG.

This option offers the advantage of resolving the jurisdictional legislative and resourcing inconsistencies simultaneously, avoiding the need for separate State legislative changes. This would allow any economies of scale from uniform regulation to be maximised through national coverage, while encouraging high levels of industry ownership of end-use controls and supplementing handling and end-use controls with industry training and skills development measures. The product stewardship component follows the pattern established for ODS, and ensures that there is a consistent legislative framework with which industry is familiar and comfortable which covers equitably action concerning all substances used by the Montreal Protocol industries.^[75]

The disadvantages of the option include the States ceding responsibility for certain aspects of ozone protection to the Commonwealth. In addition the amendments will, in some jurisdictions, place increased requirements on industry participants to prevent avoidable emissions at each step in the ODS/SGG supply chain where either legislation or compliance has been less effective. It is expected that there will be some minor additional burdens in requiring industry to manage SGG in the same manner as ODS.

The Commonwealth’s proposed uniform regulatory framework reflects similar action by other countries that recognises the practical link between ozone protection and synthetic greenhouse gas management. Switzerland, for example, is currently revising national legislation to provide a single regulatory framework covering ODS and SGG. The European Union is currently considering an EU-wide regulation to focus on data reporting, containment of emissions and marketing and use bans. Some EU Member States have gone further by proposing a phase-out of HFCs as the primary mechanism for minimising emissions. In contrast, the Commonwealth’s approach does not include any phase-out of HFCs, but instead focuses on the full range of management options to give industry the flexibility required to address their environmental obligations efficiently and cost-effectively. The North American response has been to focus predominantly on voluntary partnerships with industry. However, this approach has proven problematic in the United States, as it was in Australia during the initial stages of Australia’s ozone protection policy.

The proposed amendments are aimed at minimising emissions as a result of their supply, handling and use, and include requirements regarding labeling and filling of containers, recovery and recycling of ODS and SGG, and compliance with relevant industry codes of practice and consolidating these requirements into a single piece of legislation to be administered by the Commonwealth. Transitional arrangements for recognising existing State licensed technicians will also be incorporated in the proposed amendments.

The Commonwealth would also work with industry in a co-regulatory approach to establish and oversight the activities of industry based boards, whose primary role will be to administer a registration and certification scheme as detailed below. These Industry Boards would also establish and revise technical standards and codes of practice for the handling of ODS and SGG, monitor the industry consumption of these substances, and assist in ensuring that the new requirements are complied with through targeted education and awareness raising programs. The Commonwealth would retain the ability to audit and review the activities of the industry boards to ensure that environmental issues are being addressed effectively and in an appropriate manner.

The national system of registration and certification would involve the following:

Registration will apply to people involved in the wholesale supply or distribution^[76] of ODS or SGG, as well as anyone purchasing ODS or SGG to be used in connection with the installation, servicing, maintenance or decommissioning of air conditioning and refrigeration equipment (including motor vehicle systems) and of fixed flooding fire protection systems or portable fire extinguishers.^[77]

The objective of registration is to limit the release of ODS and SGG when these substances are being stored or transported, but only within Montreal Protocol industries which are heavy users of these substances, most exposed to avoidable emissions and in a position to readily amend their environmental protection procedures. Accordingly, registration will not apply to purchasers of ODS and SGG in the foam manufacture, aerosols, solvents and fumigation areas of Montreal Protocol industries, although they will still be required to comply with the general requirements outlined above.

A national system of certification will apply to end-users of ODS and SGG who handle these substances, rather than those persons selling or purchasing ODS and SGG (although there will certainly be some technicians who both purchase the substances and handle them in installing and servicing equipment). Certification will, however, only apply to technicians using ODS and SGG in connection with air conditioning and refrigeration and fire protection activities as there is most scope in these industries to prevent emissions through improved environmental protection procedures.

All registered and certified persons will be required to comply with specific record-keeping and reporting requirements.

To be registered or certified, people selling, purchasing and using ODS and SGG will need to meet certain criteria as demonstrated by completion of appropriate training courses to be developed by industry in conjunction with training and education institutions and delivered on a user pays basis. The criteria will likely include:

• demonstrated awareness and appreciation of the health and environmental effects of stratospheric ozone depletion and global warming, including the role of ODS and SGG in causing these environmental problems and the need to minimise emissions of these substances;

• demonstrated ability to take effective measures to prevent or minimise emissions of ODS and SGG, including adequate knowledge of the Commonwealth regulatory framework and any relevant industry codes of practice, standards or guidelines;

• access to the necessary equipment to prevent or minimise emissions of ODS and SGG, including high vacuum pump, leak detection and other refrigerant reclaim equipment, as deemed appropriate.

The proposed amendments will place the obligation on importers/wholesalers of SGG to dispose safely of all product sold, after these substances have been used. However, this requirement will only apply to importers/wholesalers in the air conditioning and refrigeration industry and not to any other Montreal Protocol industries. It is expected that the businesses that import and wholesale ODS to the air conditioning and refrigeration industry will be the same businesses that import and wholesale SGG.

The Commonwealth will retain overall responsibility for implementation of the end-use legislation, including responsibility for reviewing environmental, technical and legislative training standards for registration and certification, and implementing and coordinating compliance and enforcement. It is intended that the Commonwealth’s proposed regulatory framework will override the various State regulatory legislative schemes so that there is a complete and transparent hand-over of end-use regulation to the Commonwealth.

The proposed Commonwealth regulatory framework will include an appropriate compliance and enforcement regime. This is likely to involve the setting up of an inspectorate scheme to carry out audits and site visits of industry activities to ensure compliance with the proposed national regulatory framework.

To ensure minimal disruption to industry, appropriate transitional arrangements will also be put in place. Existing registrations and certifications under State regimes will remain valid for a reasonable period before suppliers and technicians would be required to satisfy the new national registration and certification requirements under the proposed Commonwealth end-use framework. The transitional period will also involve an extensive education program by the Commonwealth and national industry boards to raise awareness among the industry of the proposed changes.

Impact analysis of Option 5

A comprehensive review of the impact of a shift to achieve uniform end-use controls and product stewardship requirements involves identifying and comparing the costs and benefits of the existing situation (or ‘base case’) against the costs and benefits which can be expected if Option 5 is introduced. This is provided in line with Commonwealth Government requirements for the preparation of a Regulatory Impact Statement (RIS), including analysis of costs and benefits for four key stakeholder groups: business, Government, consumers and the community.^[78] Table 2 below summarises the costs and benefits associated with Option 5:

	Costs	Benefits
Business	Given the comparatively low costs described below, it is unlikely that there would be any significant restraint of trade resulting from the impact of end-use controls or product stewardship requirements. End Use Controls Business in most States will face marginally higher costs as recovery requirements for ODS are tightened and new legislation requires businesses to upgrade their technical skills. Importers – none from end-use controls. Wholesalers - companies required to be registered – probable annual costs of around $250.^a End-users - registration and certification costs of around $50 per annum; as well as costs for training courses for current technicians of around $200 per course.^a These costs will be passed directly to the consumer. Owners and operators of refrigeration and air conditioning systems will meet the majority of higher costs from more efficient usage through improved recovery and contractor training, as their systems are maintained, modified or de-commissioned. Product Stewardship Importers – can choose how to fulfill requirements; if they choose to use the existing industry organisation, RRA, costs will be up to a maximum of $1 per kilo of HFC. These costs will be passed directly to wholesalers and retailers. Wholesalers/retailers – the increased costs of HFCs will be passed directly to end-users (ie. technicians) or consumers through the sale of a product. End-users and equipment manufacturers – the increased costs of HFCs will be passed to consumers, but this is offset by receipt of a bounty of up to $1 per kilo of HFCs for recovered HFCs returned to RRA. Businesses will be required to make regular reports on their activities with SGG.	End Use Controls Better training and standards in handling ODS and SGG and servicing equipment will result in decreased emissions through leakage reduction, improved servicing and greater availability of reusable substances. This means lower quantities of substances will need to be used during the life of equipment, as well as leading to better energy efficiency, and these savings will lead to cost savings for businesses. At an average of $15 per kilo, this could lead to sizeable savings for business. Contractors operating in more than one State may face a lower legislative compliance burden, as uniform legislation reduces the need to respond to different regulatory regimes. Business will save on costs through the application of a single fee to operate nationally and as a result of economies of scale in administering a single, uniform scheme. Product Stewardship There will be equity in the treatment of all businesses that are involved in the SGG supply chain.
Consumers	End-use Controls Owners of domestic air conditioning and refrigeration systems will face marginally higher costs from improved technician training, as their systems are maintained, modified or de-commissioned. Businesses will pass on these increased costs through a small increase in the price of their service fees. The cost of training and certification passed on to consumers would be up to around 30 cents per service. Product stewardship Owners of domestic air conditioning and refrigeration systems will face marginally higher costs from improved recovery requirements through a small increase in the price of their equipment. The cost of purchasing products or recharging existing equipment would (at a cost of $1 per kilo) increase by around 13.5 cents for domestic refrigerators, and $1.50 for an average car with air conditioning or split system air conditioner. For large commercial and industrial facilities, the refrigerant is added on an as needs basis and a typical “top up” to be no more than 20 kilos. The increased costs would be about $20 every 3 or 4 years out of equipment costs of several thousand dollars and maintenance contracts of hundreds of dollars per year.	Enhanced servicing procedures may lead to cheaper overall running costs for equipment through savings on the indirect energy costs. Increased access to recovered refrigerants and extended lives of substance-dependent equipment, which leads to running cost savings. Satisfaction from consumers knowing that their systems are less likely to result in environmental damage.
Community	None.	Lower levels of greenhouse gas emissions and consequent reduction in the impacts of climate change as described above. Reduced economy-wide costs of greenhouse abatement by pursuing abatement of non-CO2 greenhouse gases.
Government	Administrative cost of drafting, monitoring and enforcing legislation.	A streamlined approach to management of ODS and SGG, utilising the framework offered by existing legislation, will minimise costs for Government. Enhanced image/position for Australia in international ozone protection and climate change negotiations. States will save on costs as a result of the Commonwealth legislation overriding the various State regulatory legislative schemes.

^a Wholesalers and technicians pay comparable amounts in a number of States for registration and certification. The net costs to industry will be less than outlined here.

Business

Given the comparatively low costs described below, it is unlikely that there would be any significant restraint of trade resulting from the impact of end-use controls or product stewardship requirements under this option. The costs to business from Option 5 fall into various categories.

There are likely to be higher compliance costs for handlers and end-users in those jurisdictions that currently have lower levels of regulation and limited compliance and enforcement activity. The legislative changes are expected to alter the market conduct of a substantial number of industry participants who adopt the position of complying with minimum legislative requirements only. Some businesses along the supply chain will face increased costs through being required to take back contaminated SGG for return to wholesalers.^[79] Because the air conditioning and refrigeration equipment using these substances typically operates under higher pressure than other equipment, the costs of recovering these substances are relatively high due to the enhanced technical skills, more advanced equipment and additional safety procedures involved.^[80] This requirement will also impose additional costs on businesses that will need to implement procedures to ensure the proper collection and storage of substances and containers until they are passed to wholesalers. On the assumption that businesses choose to utilise RRA to dispose of SGG safely, there will be a requirement for levy payments to be made to RRA.^[81]

The costs to business of adopting the product stewardship provisions of Option 5 will fall on all importers of SGG: those who import in bulk and those who import pre-charged equipment. This is a key principle of this Option, as it seeks to avoid the issues raised with the initial regulatory framework that applied to ODS, where importers of pre-charged equipment were not subject to the same requirements as were importers of bulk ODS. The costs to industry will likely take the form of a levy payment to RRA and the costs incurred by importers in administering the new arrangements that include:

• participating in RRA’s management through membership of its Board of Directors;

• adjusting the prices of imported equipment to reflect the relevant levy rates;

• informing the Commonwealth, through regular reports, of the compliance by industry with the new legislative requirements.

The levy would be payable initially by importers, although, in the longer term, the majority of this cost will be passed on to distributors, retailers and final consumers of equipment. Thus, the actual cost imposed on importers is likely to be the inconvenience of having to comply with an additional form of Government regulation.

There should be some scope for a reduction in levy rates, however, as Option 5 expands the breadth of RRA’s revenue base to include a growing source of revenue and some new contributors. A reduction might also occur as the introduction of product stewardship for equipment importers facilitates higher rates of recovery of refrigerant by contractors and the subsequent exploitation by RRA of economies of scale in recovery, long term storage and destruction. Higher recovery should also occur as product stewardship prompts equipment importers to reinforce the importance of capturing SGG emissions with contractors and technicians in downstream areas of the supply chain.

Owners and operators of refrigeration and air conditioning systems will meet the majority of higher costs from more efficient usage through improved recovery and contractor training, as their systems are maintained, modified or de-commissioned.

Direct costs - End-use controls

There will be higher costs for importers of ODS and SGG, who will need to be licensed and will be levied by the Commonwealth to cover, amongst other things, the margin of increased costs needed to achieve effective legislative monitoring and enforcement.^[82] Business in most States will face marginally higher costs as end-use requirements for ODS are tightened and new legislation for SGG requires businesses to upgrade their technical skills. In particular, businesses will be required to pay the fees to obtain registration and certification.^[83] Wholesalers are likely to be required to pay $250 for registration. End-users, including technicians, are likely to be required to pay around $50 per annum to be certified. Technicians will face additional costs for training courses as part of the certification process of around $200 per course. The frequency of training courses will be determined by industry boards in consultation with the Commonwealth, and is likely to depend on the rate of technological change in the industry. However, these costs will be passed directly to the consumer.

As the requirements for monitoring and enforcement increase under Option 5, the Commonwealth will be required to meet expenses above those currently met by State Governments. It is the stated objective of the Commonwealth that its cost of ozone protection and management of SGG will be self-funding – that is, relevant revenue would be derived from levies on industry.

Importers – can choose how to fulfill requirements; if they choose to use the existing industry organisation, RRA, costs will be up to a maximum of $1 per kilo of HFC. These costs will be passed directly to wholesalers and retailers.

Wholesalers/retailers – the increased costs of HFCs will be passed directly to end-users (ie. technicians) or consumers through the sale of a product.

End-users and equipment manufacturers – the increased costs of HFCs will be passed to consumers, but this is offset by receipt of a bounty of up to $1 per kilo of HFCs for recovered HFCs returned to RRA.

The benefits of Option 5 to business take a number of forms. Better training and standards in handling ODS and SGG and servicing equipment will result in decreased emissions through leakage reduction and greater availability of reusable substances. This means lower quantities of substances will need to be used during the life of equipment and, given the costs of ODS and SGG,^[84] these savings will lead to cost savings for businesses. Better management practices will also lead to an extension of the operating life of equipment as a result of equipment being serviced at higher standards and more regularly. These improved maintenance procedures will also result in lower operating costs for equipment.

Businesses that operate in more than one State or Territory will derive substantial benefits, as they will face lower legislative compliance costs by having to monitor only one set of legislation and pay only a single registration or certification fee to operate nationally. For those businesses operating in one jurisdiction, economies of scale from a uniform national system offer the potential of reducing their costs of complying with regulatory requirements. Uniform legislation across States also should reduce the costs of training staff when they move across jurisdictions and of devising and applying internal company compliance manuals and administrative procedures.

These industries will benefit from gaining an increase in skill levels and competencies in technicians and increasing efficiency in the way ODS and SGG substances are managed. Moreover, it should be possible for technicians to move within Australia and continue working within their industry without having to be retrained or re-certified.

• greater equity in levy arrangements through requiring all entities that have a part in the SGG supply chain to contribute to the recovery and destruction of SGG;

• scope for some reduction in the levy rate as RRA’s revenue base is expanded and higher levels of recovery by contractors allow economies of scale to be captured; and

• lower exposure to the risk of paying an increased levy in the longer term to keep RRA financially viable or, in the event that RRA ceases to be viable, to incur the costs of exporting used SGG.

Additionally, a requirement to keep and submit certain records also can have the flow-on effect of improving record keeping about these substances by each business and lead to more efficient work practices.

The costs to consumers from Option 5 are likely to be slightly higher charges from handlers and end-users of ODS when items and equipment are being produced, commissioned, maintained, modified or de-commissioned. In the case of ODS, these costs arise from higher numbers of consumers being charged for substance recovery than had applied in the past, at service rates which remain the same. For SGG, there will be costs for users that have not been imposed previously, as the relevant industries respond to the enhanced training requirements and to the end-use controls through the first-time application of recovery requirements for equipment which is dependent on SGG in its pure form. As well, consumers with equipment that contains SGG may experience a higher service rate to reflect the technical complexities of dealing with high-pressure systems. Additional costs are expected to be minimal. The cost of training and certification passed on to consumers would be up to around 30 cents per service.

The introduction of product stewardship provisions will increase costs to consumers on future purchases of air conditioning and refrigeration equipment and on consumers of goods and services that will be produced by businesses that will have to utilise SGG. There will be some limited impact on the purchase price of new systems. The cost of purchasing products or recharging existing equipment would (at a cost of $1 per kilo) increase by around 13.5 cents for domestic refrigerators, and $1.50 for an average car with air conditioning or split system air conditioner. For large commercial and industrial facilities, the refrigerant is added on an as needs basis and a typical “top up” to be no more than 20 kilos. The increased costs would be about $20 every 3 or 4 years out of equipment costs of several thousand dollars and maintenance contracts of hundreds of dollars per year. Imposition of a levy on importers is not expected to limit the quality or range of imported equipment from which consumers may choose.

Benefits to consumers from Option 5 include improved availability of reusable substances and extension of the operating life of dependent equipment as a result of better maintenance and servicing procedures. Moreover, improved maintenance procedures will result in lower operating costs for equipment. Consumers will also benefit from the knowledge that all businesses with which they deal in relation to equipment that incorporates ODS or SGG will be subject to a common regulatory regime across Australia, as well as an increased satisfaction from knowing that the goods consumers purchase – which contain ODS or SGG – are serviced and disposed of in a more environmentally friendly and safe manner.

There are no direct costs to the general community from Option 5. One theoretical cost that has been identified is the potential of Australian industry relocating offshore. This concern relates to original equipment manufacturers, which in Australia includes domestic refrigeration, industry and commercial refrigeration and air-conditioning, mobile air-conditioning and foam blowing. However, as the marginal additional costs to business, as outlined above, are minor and will be passed directly to consumers, it is not expected that these costs would result in original equipment manufacturers moving offshore.

The benefits to the community arise from lower levels of emissions of ODS and SGG into the atmosphere.

An estimate of the possible reduction in emissions for ODS is difficult to determine. A broad measure of the contribution, however, can be obtained by reference to data contained within a recent Commonwealth Task Force Report on Australia’s legislative framework and regulatory options for ozone protection.^[85] This Report indicated that the benefits to Australia from its legislative efforts to control ozone depletion from HCFC over the period 1989-2060 equated to around $93 million in discounted 1996 prices – $7 million in fisheries, $51 million in agriculture, $6 million in building materials and $29 million in health costs. Tangible savings from limiting the availability and subsequent emission of HCFC were recorded in terms of fewer cases of skin cancers and cataracts in humans as well as less damage to cereal crops, fisheries and the longevity of certain building materials.^[86]

Lower emissions of ODS mean less damage to the ozone layer and consequent gains through a lower incidence of skin cancers and cataracts in humans, less damage to human immune systems, reduced pressures on the health care system and improved quality of life, higher industry productivity and an extended duration for working lives, improved agricultural and forestry productivity, enhanced productivity and sustainability of Australia’s marine and other natural resources, a lower incidence of diseases among animals and a longer product life for UV-B sensitive building materials including plastics and paints.^[87]

Estimates of the possible savings in emissions of SGG resulting from the introduction of supply controls, end-use controls and product stewardship have been made based on work conducted by the Technology and Economic Assessment Panel of the Montreal Protocol. Using this work as its basis, the Commonwealth Government estimates likely abatement of equivalent to between 35 and 50 million tonnes of carbon dioxide over the period 2003 to 2012. While it is not possible to document how this specific abatement will minimise anthropomorphic influence on the climate and reduce the impact of climate change, this action is part of an international commitment to prevent adverse environmental outcomes.

Other benefits to the community include minimising economy-wide costs that could result from the future introduction of a price on greenhouse gas emissions (for example, through an emissions trading scheme or carbon tax) by ensuring that industry is well positioned to minimise any future costs through early action. Option 5 will encourage industry to adopt better environmental management practices that can minimise SGG emissions in the long run. There will also be occupational health and safety benefits to the community from the improved safety training for technicians and safer equipment through improved maintenance and servicing.

Economy-wide costs of reducing greenhouse gas emissions will also be minimised as a result of the significant and cost-effective reduction potential of non-CO₂ greenhouse gases (including SGG). In its Third Assessment Report, the IPCC points to the significant reduction potentials and cost-savings of including non-CO₂ greenhouse gases as part of national greenhouse abatement policies, particularly given their relatively high global warming potential compared to CO₂. The overall conclusion of economic modelling studies that have examined the impact of including multiple gases is that failure to take advantage of the flexibility accorded by the inclusion of non-CO₂ gases would raise the cost of meeting the objectives of any climate policy.^[88]

Overall, therefore, minimising or preventing emissions can be expected to have a positive impact on the community, through such outcomes as improved human health, increased agricultural and fishery production and enhanced longevity of certain building materials.^[89]

Additional benefits for the community occur from this option in supporting ecologically sustainable development. Ecologically sustainable development (ESD) has been defined for Australia as "using, conserving and enhancing the community’s resources so that ecological processes, on which life depends are maintained and the total quality of life, now and in the future, can be increased".

The proposed amendments to the Commonwealth’s ozone protection legislation to cover end-use controls for ODS and SGG and to provide a requirement for product stewardship for SGG support the Commonwealth Government's commitment to ESD. The Commonwealth's National Strategy for Ecologically Sustainable Development describes three core objectives of ESD:

• to enhance individual and community well being and welfare by following a path of economic development that safeguards the welfare of future generations;

• to protect biological diversity and maintain essential ecological processes and life support systems.

The proposed changes to the Commonwealth’s existing ozone protection legislation under Option 5 will provide the greatest scope for meeting these objectives. Protection of the stratospheric ozone layer and the earth’s climate system is essential in guarding the welfare of future generations and for providing equity between both current and future generations. Ozone and climate protection is also critical in protecting biodiversity and maintaining essential ecological processes.

The costs to Government of Option 5 are those of creating new legislation to implement nationally uniform end-use controls for ODS and SGG as well as monitoring and enforcing these requirements.

The costs of altering legislation are once-off and involve drafting relevant sections of the Ozone Protection Act Amendment Bill 2002, informing industry of the changes being proposed and managing the Bill through the Commonwealth Parliament. These are estimated to be minimal given that the concepts involved are reasonably well developed and industry and State Governments are already aware and supportive of the changes being proposed.

The costs of monitoring, enforcing and ensuring appropriate reporting under Option 5 are recurring and will be greater than those incurred nationally at present, given the minimal effort currently devoted to these activities in the States. However, the costs to Government from Option 5 will be covered by licence fees and levies and will be ameliorated through industry associations playing a significant role in the application and financing of higher standards of training for technicians and end-users.

There will be costs related to enforcing the product stewardship provisions, given the need to ensure that importers of bulk SGG and equipment that is pre-charged with SGG are aware of the regulatory regime. Once the scheme has become operational, however, the costs of enforcement are likely to reduce, as importers ensure that entities in the supply chain continue to remain aware of the requirements.

The benefits to Government from Option 5 come from minimising costs to Government through a streamlined approach to management of ODS and SGG that utilises the framework offered by existing legislation.

The Commonwealth has developed a comprehensive projection of future emissions of SGG used in the Montreal Protocol industries – based on a no policy change scenario - which indicates that there will be a marked increase in emissions from synthetic gases in the period leading up to 2010 and over the following decade. Given their potency, and the fact that emissions of SGG are projected to increase significantly from their current low level, the timing of this policy development is opportune for achieving cost-effective and efficient approaches.

Other benefits come from meeting international obligations to phase-out ODS and achieve real reductions in SGG emissions. The Montreal Protocol obliges Australia to adopt “appropriate legislative or administrative measures to control, limit, reduce or prevent human activities likely to have adverse effects on the ozone layer, in accordance with the means at its disposal and its capabilities.” End-use controls are pertinent to this requirement as non-compliance would likely result in a significant financial burden upon Australian industry which is exclusively reliant on imports of ODS. Were Australia deemed to be non-compliant, other countries would be legally precluded (by their own domestic legislation) from exporting ODS to Australia.

End-use controls will also help to ensure that Australia will be able to fulfill its international requirements under the UNFCCC to limits its greenhouse gas emissions in order to stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, as well ensuring that the Government meets its commitment to reach its target of 108% of 1990 emissions during the period 2008-2012, irrespective of whether Australia ratifies the Kyoto Protocol to the UNFCCC.

As well as enhancing Australia’s international reputation as a country committed to ozone protection and combating global warming, Option 5 will ensure that Australia will be able to fulfil its international requirements under the UNFCCC to report emissions of SGG annually through the National Greenhouse Gas Inventory. A comprehensive database of all businesses involved with ODS and SGG along the entire supply chain and of the quantities of these substances being handled and used will be built up. This information also will benefit the Government in its education campaigns to achieve further improvements in environmental performance and in the further development of public policies.

Stakeholder Views - End Use controls

The Australian Fluorocarbon Council (AFC), which represents all major importers of fluorocarbons (including HCFCs and HFCs), indicated that its members strongly support the need for more effective and national end-use controls. Industry also is broadly in favour of requiring enhanced handling processes along the entire supply chain.

Caveats noted by AFC, however, include the importance of uniformity being achieved in practice across all jurisdictions. Any inconsistencies will result in a continuation of the impost through industry having to remain aware of regulatory issues in up to eight separate jurisdictions and the increased costs that result from these differences. As a consequence, industry accepts the action being proposed by the Commonwealth for national legislation to be implemented, as this provides the best opportunity to gain a uniform national regulatory framework.

The AFC also indicated that industry generally accepts the rationale for the extension of the regulatory regime for ODS to include SGG. Industry sees this action as a logical step in the broader process of developing an effective policy regime for ozone protection and greenhouse gas reduction that encompasses all relevant substances. Again, industry emphasised the importance of uniformity being achieved in practice across all jurisdictions.

The Australian Institute of Refrigeration, Air Conditioning and Heating (AIRAH), which represents businesses and individual technicians involved in refrigeration, air conditioning, heating, ventilation and other building services, supports the proposed amendments to the Ozone Protection Act 1989. Given a number of issues that will be raised by these amendments, however, AIRAH looks forward to the challenges these changes will present. While the potential to reduce emissions by releasing replacement synthetic greenhouse gases into the atmosphere is significant, AIRAH believes that uptake by industry of these substances will be met with some resistance and the actual reductions achieved – at least in the short term – are likely to be minor.

AIRAH notes that the use of HCFC 22 and other HCFC refrigerants has significantly increased since the phase out of CFC was legislated in 1989. There are two main reasons for this situation. First, it is generally the case that HCFC refrigerants offer the best outcomes. There are many millions of pieces of equipment around the world that use refrigerants in applications ranging from residential and commercial refrigeration, industrial refrigeration, air conditioning in buildings and vehicles to a number of refrigerated transport activities. Apart from industrial refrigeration, which typically uses ammonia as the refrigerant, these other applications are making the transition from CFC to HCFC and, where feasible, other substances.

A number of replacement refrigerants for CFC and HCFC, however, are still under development. With some substances, such as R410A, further development is required either to achieve acceptable operating pressures or to redesign equipment and systems to accommodate such substances. With others substances, such as the hydrocarbon R290, the hazardous characteristics will necessitate substantial training of technicians relating to appropriate handling. In some instances, the operating characteristics of equipment such as water chillers mean that the only available replacement substance currently available on the market is R123 – an HCFC refrigerant.

The second reason is that AIRAH believes that the marketing strategies adopted by many refrigerant manufacturers and suppliers has resulted in end users being confused about the medium and long term solutions for CFC and HCFC based refrigeration systems. Moreover, there is some evidence that property owners and operators are minimising repair/retrofit expenditure for CFC and HCFC based refrigeration systems which has meant that, rather than seek long term solutions to replacing CFC, the trend has been to opt for low cost interim options using HCFC based refrigerants. The vast majority of air conditioning equipment manufacturers use R22 as their favoured refrigerant solution.

The Vehicle Air Conditioning Specialists of Australia (VASA), which represents wholesalers, manufacturers, retailers and other businesses that have an involvement in the after-market vehicle industry in Australia and New Zealand, believes that a uniform, national approach to end-use controls for ODS is the only acceptable solution. Allowing State and local interests to influence end-use controls would destroy this initiative.

VASA is aware that there is considerable scientific evidence to support the conclusion that end-use controls over SGG will contribute to a reduction in Australia’s greenhouse gas emissions. Consequently, VASA believes that, if the Commonwealth is serious, it also must move towards regulation of SGG.

A universal registration and certification scheme should ensure that there is safe handling of ODS and SGG. VASA emphasises that any scheme must target any person who intends to handle a cylinder or other container that contains these substances. As well, VASA is in total support of an industry-based scheme of technician training (VASA is a founding member of National Refrigeration and Air- conditioning Council Limited). In VASA’s opinion, training will be required for all technicians: existing Certificate 3 holders will need to upgrade their skills; those who are unqualified will need to reach at least Certificate 2, with strong emphasis on SGG handling and specific automotive air conditioning skills. In addition, all technicians will need to complete annual training to remain current with new developments.

The National Refrigeration and Air Conditioning Council Ltd (NRAC) has been established to develop and implement a national training scheme for the air conditioning and refrigeration industries. NRAC is undertaking a stock take of existing training activities and has determined that, while there is a reasonably consistent level of technician training courses offered throughout Australia, there are differences in the accreditation of technicians. NRAC is optimistic that action that is being implemented will result in:

• a set of certified standards of curriculum, literature and materials used in training courses;

It should be noted that the TAFE sector is represented on NRAC. As such, the TAFE sector has been closely involved in both the assessment of existing courses and accreditation activities and the development of a national approach to achieve better overall training outcomes across Australia.

FPAA supports Environment Australia’s objective of a progressive control and reduction in emissions of SGG across all industry sectors. In addition FPAA supports the need for a uniform national approach and supports implementation of a national policy framework aimed at reducing emissions of SGG.

FPAA supports the aims of minimising environmental harm through principles of responsible use. FPAA and its members have already actively implemented many of the recommendations proposed by Environment Australia. The current use of SGG by the fire protection industry is considered to be both responsible and non-emissive. SGG stored in these fire-extinguishing systems are almost only ever released to atmosphere in the event of an actual fire situation. To further reduce emissions, the Fire Protection Industry has adopted a National Code of Practice “For the reduction of emissions of vapourising liquid fire extinguishing agents”.^[90] The New South Wales EPA has already adopted this code of practice and FPAA would encourage its use in a national regulatory framework. This code of practice covers all aspects of good practice relating to these systems; from installation, commissioning testing, and maintenance through to decommissioning and recovery and aims to ensure emissions are avoided wherever possible. FPAA supports certification of technicians and emission minimisation controls in implementing this code of practice. FPAA has already developed a training course for this purpose, “Ozone Protection Authorisation Course”, which is currently used in NSW by the NSW EPA for the training and accreditation of fire protection technicians.

In addition to minimising emissions, the fire industry worldwide continues to search for, identify and implement alternative fire protection technologies with reduced environmental impact. Implementations of these new technologies are already reducing usage of SGG in fire protection.

FPAA supports improved environmental understanding through effective monitoring and reporting of SGG end-use. This is especially important given that FPAA believe much of the existing information collected by Environment Australia in relation to the environmental impact of the Fire Industry in Australia is grossly overstated.

FPAA believes there is a strong need for Environment Australia to differentiate the Fire industry from other SGG industry groups given the fire industries low usage and extremely low emissions of SGG. Much of the information currently tabled by Environment Australia regarding current and projected usage of SGG and projected increased emissions of SGG is not representative of the situation in the Fire Protection Industry. SGG used in the fire protection industry is a very small percentage of total SGG imported into Australia. In addition, the emissions of SGG from the fire protection industry are so low as to be considered insignificant when considering total SGG emissions from all industry sectors. To try and categorize the fire industry with other industries such as air conditioning & refrigeration and foam blowing gives a distorted representation as to the overall impact of SGG used in fire protection. It also detracts from the great deal of proactive work that FPAA and its members have already completed in minimising use of SGG and their emissions. It is considered that Australia is a relatively mature market in terms of fire protection and that future growth in this industry will be relatively flat.

So as to clarify the above important issues for fire system end users, FPAA would seek support from Environment Australia in the production and distribution of PR material. Distribution of this PR material is critical to ensure that fire industry end users are properly informed and to reassure them that the currently used SGG in fire protection (i.e. FM200) does still have an important and ongoing role in providing fire protection solutions for Australia. There are three key properties which this product offers which are unmatched by most other fire fighting agents – speed of extinguishment, efficiency of storage and safety. The United Nations TEAP 1999 report similarly concluded, “HFC’s are important halon substitutes, primarily in occupied areas where space and weight are constrained or speed of suppression is important”. It must be made very clear that this new set of regulatory controls is not a phase out program but one aimed at ensuring appropriate use and reducing emissions.

The Federal Chamber of Automotive Industries (FCAI), representing manufacturers and importers of new vehicles marketed in Australia, provides the following comments on the proposals relating to ozone depleting substances (ODS) and synthetic greenhouse gases (SGG):

• The proposals appear to be mainly administrative; there are no technical changes to the use of current refrigerant: 134a.

• There is a similarity to the situation that existed when R12 was in its phase out period and, in that sense, the proposals seems to fit a logical pattern. With the Commonwealth coordinating the new regulatory regime, there will be more consistency than existed previously when different States had their own individual requirements.

Approaches were made to other industry stakeholders, including the Refrigeration and Air Conditioning Contractors Association and the Foam Division of the Plastics and Chemicals Industry Association; however, no comments were received from these organisations.

State and Territory Governments have indicated their support for the Commonwealth extending the Ozone Protection Act to include end-use controls and product stewardship of SGG through both the Ozone Protection Advisory Committee and the High Level Group on Greenhouse. Several States indicated strong support for continued industry board involvement as envisaged in this proposal. A number of issues have been raised by States, including:

• the need for the Commonwealth to either implement its proposals at no additional cost to States or to properly compensate States for any costs incurred as a result of the Commonwealth proposals;

• the importance for the Commonwealth proposals to be no less effective than existing State arrangements;

• Commonwealth proposals should not result in an unnecessarily increased compliance burden on industry;

• the Commonwealth move into ODS (and SGG) end-use controls would see all States cease their current efforts on ozone protection;

• there needs to be a clear, transparent and unambiguous definition of Commonwealth and State responsibilities; and

• a smooth transition to the new arrangements for both government and industry is important.

These issues will be addressed through ongoing consultation between the Commonwealth and the States on the proposed amendments.

The Australian Fluorocarbon Council, which represents fluorocarbon importers and major user groups in the fluorocarbon using industries in Australia, indicated that the current eight importers, who are likely to be involved in importing and wholesaling SGG, accept the need for proper management of SGG to be mandated. As with other matters relating to SGG, industry saw this proposal as another logical step in the broader process of developing a policy regime for ozone protection that encompassed all relevant substances.

Further, the industry emphasises that its preferred approach would be to utilise the services of RRA in the management and disposal of SGG.^[91] In fact, as noted above, RRA is already involved in the disposal of SGG, given that ODS mixtures invariably contain some SGG. Thus, as RRA has established that it has the technology to dispose of SGG and that this technology is satisfactory for handling SGG, industry sees this as a sound option for managing SGG.

A significant advantage of this approach is that, as the volume of SGG being used in Australia increases, the viability of RAA will be enhanced through the receipt of levies paid by wholesalers of SGG wishing to dispose of SGG. As volumes of ODS decline in line with the reduction in the use of these substances, the usage of SGG will increase.

It is clear that business would face additional administrative costs through bringing SGG into the product stewardship regime. In consultations undertaken in the context of the preparation of the Task Force Report,^[92] however, industry representatives indicated that these costs were expected to be minor and any impost would be outweighed by establishing a stable regulatory environment for all ODS and SGG.

VASA agrees totally with the extension of product stewardship requirements to SGG. VASA notes that Australia already has the perfect steward in RRA.

Implementation

Option 5 could be implemented by amending the OPA to include HFCs and PFCs as scheduled substances, and including new provisions covering end-use controls and product stewardship.

The Australian Greenhouse Office will continue to work directly with AFC, RRA, relevant industry associations and other stakeholders to ensure comprehensive awareness of the new regulations amongst importers, wholesalers and end-users of SGG relating to the requirement for appropriate product stewardship of these substances.

Review

Section 68 of the OPA provides that the Minister shall, at the end of each financial year, prepare a report on the operation of the Act during that year and cause a copy of the report to be laid before each House of Federal Parliament within 15 sitting days of that House after the preparation of the report is completed. Consequently, amending the OPA (as described in Option 5) would form part of the annual report to the Commonwealth Parliament.

The OPA has been the subject of a comprehensive review (completed in January 2001) in accordance with the National Competition Principles Agreement.

Recommended option

The recommended option is to extend the OPA to cover end-use controls for ODS and SGG and extension of product stewardship requirements (Option 5). This option offers the advantages of:

§ resolving the jurisdictional legislative and resourcing inconsistencies simultaneously, avoiding the need for separate State legislative changes;

§ allowing any economies of scale from uniform regulation to be maximised through national coverage, while encouraging high levels of industry ownership of end-use controls and supplementing handling and end-use controls with industry training and skills development measures;

§ follows the pattern established for ODS, and ensures that there is a consistent legislative framework with which industry is familiar and comfortable which covers equitably action concerning all substances used by the Montreal Protocol industries.

SUMMARY OF STATE AND TERRITORY OZONE PROTECTION END-USE CONTROL REGULATIONS

	Commonwealth	Queensland	New South Wales	Australian Capital Territory	Victoria	Tasmania	South Australia	West Australia	Northern Territory
Venting		Must be avoided	Prohibited	Prohibited	Prohibition implied through requirement to recover ODS	Prohibited unless in possession of exemption.	Prohibited	Prohibited	Prohibition implied through requirement to recover ODS
Recovery		Required	Required	Required. Recovery equipment must meet appropriate Australian Design Standard.	Required	ODS must be recovered from equipment at end of life. Implied elsewhere by prohibition on venting.	Implied by prohibition of venting.	Required	Required
Collection		Sellers of ODS must accept recovered ODS	Sellers of CFC/HCFC are obliged to provide appropriate containers for the recovery of CFC/HCFC and accept recovered CFC/HCFC	Distributors of ODS are obliged to accept recovered ODS	Distributors of ODS are obliged to accept recovered ODS	Can be required as a condition of permit to sell controlled substances.		Sellers of ODS are obliged to provide appropriate containers for the recovery of ODS and accept recovered ODS	Sellers of ODS must accept recovered ODS
Destruction		Not specified	Must be in a manner approved by the NSW EPA	Requires authorisation under the regulations	Not specified	Not specified	Not Specified.	Not specified	Not specified
Storage			Must be in accordance with labeling requirements and in appropriate container	Requires authorisation under the regulations	Not specified	Not specified.	Requires permit.	Storage cylinders must be in good condition and gastight.	Must be in accordance with labeling requirements
Sale and/or Purchase		All persons who “handle” ODS must be qualified to do so. Sellers of ODS are required to abide by relevant industry code-of-conduct. No additional restrictions on purchasers of ODS.	Both purchasers and sellers of ODS must be authorised and it is a condition of authorisation that purchasers only buy from authorised sellers and sellers only sell to authorised purchasers.	License required to sell ODS.	Parties intending to purchase ODS must be registered.	Sellers and purchasers of ODS must be authorised.	Sale and purchase of ODS prohibited unless an exemption has been granted. Purchasers must be registered (or if a company, have a registered employee) and sellers are required to report on transaction of ODS on a quarterly basis.	Individuals and corporations wishing to sell ODS must be registered.	Both purchasers and sellers of ODS must be authorised and it is a condition of authorisation that purchasers only buy from authorised sellers and sellers only sell to authorised purchasers. Sellers are required to report on transaction of ODS on a quarterly basis
Labelling		All equipment containing ODS and vessels used for the storage of ODS must be appropriately labelled	All equipment containing ODS and vessels used for the storage of ODS must be appropriately labelled		All equipment containing ODS and vessels used for the storage of ODS must be appropriately labelled	Required.	Manufacturers of equipment containing controlled substances must label equipment.	All equipment containing ODS and vessels used for the storage of ODS must be appropriately labelled	All equipment containing ODS and vessels used for the storage of ODS must be appropriately labelled
Handling		All persons who handle ODS must be “qualified” to do so.	License required for handling of ODS (which includes sale, purchase and use).	Persons who handle ODS are required to hold a license. Observance of relevant industry code-of-practice is a license requirement.	All persons who handle ODS must be accredited.	Authorisation required to undertake a controlled activity – including the handling of ODS. Formal training must be undertaken in order to obtain authorisation.	Only holders of trade qualifications who have undertaken and passed approved study courses in ODS handling can receive accreditation to handle ODS in South Australia.	All persons who handle ODS required to obtain authorisation.	All persons who handle ODS must be registered.

Comments	Current Commonwealth regulation relates only to the import, export and manufacture of ODS in Australia. It is proposed that the Commonwealth will take over responsibility for the end-use regulation of ODS from 2002 onwards.	The majority of industry participants undertake formal vocational training in the handling of ODS (generally as a component of training towards a trade qualification).			Does not cover HCFCs. Sunset clause built into the regulations expired 29 November 2000. Accreditation and licensing (inc. training and administration) delegated to industry based boards.		On a prima facie basis the Jurisdiction with the most stringent accreditation / certification requirements.	West Australian regulations also cover “alternative refrigerants” including HFCs.	The Northern Territory regulations cover CFCs, halon, methyl chloroform and carbon tetrachloride (they do not cover HCFCs)
Responsible agency	Environment Australia	Queensland Environmental Protection Agency	NSW Environment Protection Agency	Department of Urban Services	Victorian Environment Protection Authority	Department of Primary Industries, Water and Environment	South Australian Environment Protection Agency	Department of Environmental Protection	Northern Territory Environment Protection Agency

Environment Australia’s organisational objectives in relation to the protection of stratospheric ozone are identified in the 2002-2003 Environment and Heritage Portfolio Budget Statement (PBS). Relevant PBS outcomes include:

• Outcome 1 – The environment, especially those aspects that are matters of national significance, is protected and conserved.

• The Commonwealth’s obligation to promote HCFC and Methyl Bromide phase out programmes and administration of the licensing and quota system under the Ozone Protection Act 1989 is met; and

• the phase out schedule in the Ozone Protection Act (the Act) is met for all ozone depleting substances (ODS).

The organisational objectives of the Australian Greenhouse Office in relation to the management of synthetic greenhouse gases are identified in the 2002-2003 Environment and Heritage PBS. Relevant outcomes include:

• Outcome 1 - The environment especially those aspects that are matters of national environmental significance, is protected and conserved

• 1.5.1 Evaluating progress towards commitments under the convention and the Kyoto target, and improving the knowledge base on climate change

Current cost recovery arrangements fall into the Commonwealth’s two broad categories of cost recovery charges: fees for goods and services (ie. licence application fees for the import, export and manufacture of substances controlled under the Act); and, ‘cost recovery’ levies (ie. activity fees for the import, export and manufacture of controlled substances).

Existing Cost Recovery Arrangements

• ODS are used in the following industries: air conditioning and refrigeration, fire protection and explosion suppression, agriculture and quarantine, foam and aerosol manufacture and solvent applications. Consequently, existing cost recovery arrangements are targeted are this discrete group in order to recover the cost of ODS regulated activity.

• Costs are recovered through the fees described below on those persons at the top of the ODS supply chain (ie importers, exporters and manufacturers of ODS and ODS-containing products). Stakeholder consultation indicates that these charges are passed on to the public, through the supply chain of the gases to their ultimate end use and are supported by industry on the basis it represents the simplest, most cost-effective and reasonable way of recovering the costs of regulated activity related to ODS.

• At present, there are 17 controlled substances licences issued under the Act. With the exception of essential uses licences which extend over a variety of time frames, each licence is valid for two years and a fee is payable upon application or renewal.

• Fees currently stand at $10,000 for a controlled substance licence, $10,000 for a used substance licence and $2,000 for an essential uses licence.

Activity fees are payable by controlled substance licence holders at a rate of $2,000 for each ozone depleting tonne^[93] of imported HCFC and $90 for each metric tonne of imported methyl bromide. No controlled substances are currently manufactured domestically in commercial quantities.

All revenue from licence application and activity fees is paid into the Ozone Protection Reserve (OPR), a special account established in 1995 under Section 65B(1) of the Act. Funds in the Reserve are used to reimburse the Commonwealth for costs associated with:

• the administration of the licensing and quota systems established under the Act.

Licence application fees cover the costs of administering the licence scheme including:

Activity fees paid into the reserve are used to fund the furthering of an industry phase-out programs for HCFCs and methyl bromide and related public awareness campaigns.

The intention of the existing arrangements, as described in the Explanatory Memorandum that accompanied the Bill to establish the OPR, was that the net effect of licence application and activity fees on Environment Australia revenue should be neutral. This means that all reasonable costs incurred by Environment Australia in administering its obligations under the Act should be covered through contributions from industry. More specifically, it requires that sufficient fees be generated from licence applications to cover the reasonable costs of licence scheme administration and that sufficient funds be generated from activity fees to cover the reasonable costs of a program for assisting industry to move from HCFCs and methyl bromide to non-ozone depleting alternatives.

The level of the licence application fees was based on consideration of the anticipated number of regulated firms and the costs associated with administering the licensing and quota system with that number of regulated firms. Controlled substances licences relate to the ODS HCFC and methyl bromide. The $10,000 licence application fee for such licences balanced the complexities of calculating associated quotas and monitoring quarterly reporting and activity fee payment with the economies of scale achieved through the relatively large number of anticipated applicants. The $10,000 used substances licence reflected a balance between the less complex administrative obligations and the absence of any economies of scale owing to the very small number of anticipated regulated firms. The $2000 (effectively $4000 if considered over the same period as the controlled or used substances licences) essential uses licence reflected a similar level of complexity in the administrative obligations as the used substances licence but the anticipated economies of scale from a reliable number of identified regulated firms.

The level of the per ODP and metric tonne activity fees were based on consideration of the environmental impact for which the regulated firms were responsible, the duration for which the regulated activities must occur in order to redress this impact, and the costs associated with such regulation. The regulatory activities are required to implement Australia’s obligations under the Montreal Protocol on Substances that Deplete the Ozone Layer (the Protocol). These obligations require that Australia undertake these regulatory activities until at least 2020, when both HCFC and methyl bromide should be virtually phased out.

It was however expected that the costs associated with regulated activities will not fall in line with the declining availability of HCFCs and methyl bromide, as remaining HCFC and methyl bromide consumption will be in those areas where alternatives are either not yet available or costly and complex. Therefore, in order to achieve revenue neutrality over the life of the regulated activities associated with industry phase out of HCFC and methyl bromide, the activity fees level were intended to generate a surplus during the early period of greatest HCFC and methyl bromide activity (on an ODP and metric tonne basis) that would cover the increased costs per ODP and Metric Tonne associated with the later period of lower HCFC and methyl bromide activity.

The establishment of the OPR as a Special Account within the Consolidated Revenue Fund ensured that the over-cost recovery generated from activity fees on industry in the OPR’s initial years would be returned to industry to address the under-cost-recovery arising in later years.

Analysis of existing cost recovery arrangements indicates two problems with the maintenance of full cost recovery for whole of regulated activity period (ie until 2020).

First, when cost recovery was introduced, Environment Australia did not recover all costs associated with staff assigned to the regulated activities, resulting in under-cost recovery. Consistent with the original intention of the cost-recovery arrangements, full cost recovery of all staff-related costs including superannuation, leave, accommodation and other support is now proposed. Even in the absence of this proposal, however, normal parameter adjustments have increased the cost of regulated activities to the point where it will shortly exceed the revenue available to Environment Australia from fees and relevant accumulated over-cost recovery. Under the current fee structure, operating costs associated with regulated activities exceeded operating revenue in 2001/2002. When financial reserves are taken into account, operating costs associated with all regulated activities are expected to exceed available revenue by 2010.

Second, The OPR does not presently cover all costs associated with administering the legislation. There has been inconsistent application of the cost recovery policy in regard to regulated activities under the ozone protection program. This has resulted in tax payers subsidising regulated firms in regard to the costs connected with administering the legislation. These costs are associated with:

• compliance and enforcement actions associated with the licensing and quota systems;

• policy development directly related to the licensing and quota systems and associated industry transition to ozone-benign alternatives; and

Revenue for these purposes is currently drawn direct from the general appropriations of Environment Australia and the AGO.

To illustrate the under-cost recovery resulting from the existing cost recovery arrangements, income and expenditure for 2001/2 is shown overpage.

Table 1: Cost Recovery Income 2001-2002

Table 2: Ozone Protection Act Related Expenditure 2001-2002

^♦any short-fall between income and expenditure is currently met through annual appropriations to Environment Australia from the Consolidated Revenue Fund.

2. Additional regulated activity arising from the 2001 Review of the Commonwealth Ozone Protection Legislation

The recommendations of the 2001 Review of the Commonwealth’s Ozone Protection Legislation, undertaken in accordance with the Commonwealth’s obligations under the National Competition Policy, and subsequent stakeholder consultation propose Environment Australia undertake the following additional regulated activity. The proposed changes will include amendments to the purpose of the OPR. Funds in the OPR will therefore by required to meet the additional costs associated with:

• administration of a licensing system for the import of air conditioning and refrigeration equipment containing ODS and SGG;

• administration of ODS and SGG end-use regulations to the extent they are not delivered through a co-regulatory approach with industry;

• the administration of the licensing system for SGG established under the Act;

• monitoring, compliance and enforcement actions associated with the end-use regulations, including monitoring and enforcement of co-regulatory end-use approaches; and

Licence application fees will cover the costs of administering the new licence arrangements including:

• keeping records of quota allocations and import, export and manufacture activity; and

• oversight of the industry co-regulatory arrangements (including Industry Boards and the development of industry sector specific Environmental Improvement Plans)

• keeping records of quota allocations and import, export and manufacture activity;

• reporting to the Montreal Protocol and UNFCCC Secretariat on annual ODS and SGG activity; and

Cost Recovery Implications

The Act will be amended to extend and alter existing cost recovery practices contained in the current provisions. The amendments will:

• increase existing application fees for HCFC and methyl bromide controlled substances licences by 50%;

• Increase existing application fees for used substances and essential use licences by 50%;

• Increase existing activity fees on imports, exports and manufacture of HCFCs and methyl bromide by 50%;

• Introduce an application fee for Section 40 exemptions and import licences for pre-charged air-condition and refrigeration equipment;

• Introduce licence application fees for HFC and PFC controlled substances licences; and

• Introduce an activity fee for the import, export and manufacture of HFCs and PFCs used as alternatives to ODS by traditional Montreal Protocol industries.

Table 4: Summary of Existing & Proposed Cost Recovery Charges

# Activity fees for HCFC are calculated on ODP tonne. In regard to the most commonly used HCFC, HCFC-22, this converts into an activity of $165 per metric tonne.

* Activity fees for methyl bromide are calculated on a metric tonne basis rather than ODP tonne.

♣Activity fees for HFCs/PFCs are calculated at a rate equivalent to that levied for the HCFCs they replace (most commonly HCFC-22). As HFCs/PFCs are not ozone depleters the levy cannot be calculated according to their ODP.

The fees on pre-charged air-conditioning & refrigeration equipment contained in the above table are estimates only. The amendments to the Ozone Protection Act do not set the applicable fee but provide for the fee to be set under delegated legislation. The estimates provided here are modeled on the known costs associated with processing essential use exemption applications that are considered to be comparable to the proposed Pre-charged Air-Conditioning and Refrigeration Equipment Import Licence in terms of resource commitment.

The proposed increase in licence application fees will satisfy the legislative requirement for revenue neutrality in relation to Environment Australia’s responsibilities in administering the Act. The approach contained in the amendments takes into account the possibility that fluctuations in revenue and administration costs may result in either a surplus or a deficit for any given financial year while remaining revenue neutral in the longer term.

The introduction of a licence application fee for HFCs and PFCs acknowledges that there are costs incurred by Government that are broadly equivalent to those associated with the administration of controlled substances licenses for ODS.

The introduction of a licence application fee for Section 40 exemptions will ensure the application of a consistent cost recovery policy across all firms regulated by the Act and remove the existing subsidization of exemption holders. That is, to date while the administrative costs of the licensing system have been charged to the firms seeking a licence through an application fee, the administrative costs of the exemption system under the Act have been borne by the general tax payer, through general appropriations.

Increased activity fees for HCFCs and methyl bromide will generate revenue sufficient to meet the difference between the revenue that Environment Australia requires for its proposed industry transition program and funding available from a combination of accumulated reserves and existing activity fees.

Table 6: Estimated Expenditure 2003/2004 – 2004/5 ($M)

Note: figures rounded to 3 decimal places and so will not sum exactly to totals.

^Ωsurplus income is retained for future expenditure in accordance with the purpose of the OPR. Annual surpluses will decline and then become annual deficits as the number of licensees decline and HCFC and methyl bromide is phased out, reducing recoverable licence and activity fees while the total costs associated with regulated activities does not experience a similar decline.

Consultation Mechanisms for monitoring the efficiency and effectiveness of cost recovery arrangements

As stated previously, as the OPR is a Special Account within the Consolidated Revenue Fund, fees recovered from regulated firms can only be directed to the regulated activities prescribed under the provisions of the OPR.

The proposed amendments provide the Minister with the power to create industry boards to assist in the administration of many aspects of the Act, providing a conduit for the technical and policy advice to the Minister on licensing arrangements and regulated activities. The amendments also require Environment Australia to report annually to the Minister on the performance of the Act, including the estimation of emissions and information on revenue collected and funds dispersed. The efficacy of these new arrangements can also be considered through comparisons with the prior experience of State and Territory governments in regulating the use of ODS within their jurisdictions prior to the introduction of these arrangements.

Cost recovery arrangements will be reviewed every five years in line with Commonwealth Cost Recovery Guidelines for Regulatory Agencies (DoFA December 2002).

The proposed amendments to the legislation, including associated cost recovery arrangements, draw on the following heads of power under the Commonwealth Constitution: the external affairs, trade and commerce and corporations powers. As levies, the activity fees are enacted under a separate tax Act.

• the need for importers, exporters and manufacturers of ODS and SGG to hold a controlled substances licence – a non-refundable licence application fee will be payable upon application;

• the need for importers, exporters and manufacturers of ODS and SGG to report on the volumes of ODS and SGG imported, exported and manufactured and to pay an activity fee based on that activity;

• the Commonwealth Parliament will be provided with an annual report detailing cost recovery revenue arising from the arrangements; and

• a capacity for changing the respective fees for licences to reflect prevailing circumstances.

In developing the cost recovery components of the proposed legislative changes, Environment Australia and the Australian Greenhouse Office undertook extensive consultation with affected industry participants and other interested stakeholders.

The concerns raised by industry have been considered in the context of preparing the cost-recovery policy and have been taken into consideration in the design of the licence application and activity fee system. The ongoing opportunities for reviewing the cost recovery structure will provide a further opportunity to revisit these issues and re-evaluate the concerns raised by industry.

Australian Fluorocarbon Council

The Australian Fluorocarbon Council (AFC) that represents the interests of all holders of HCFC licences, a major holder of a methyl bromide licence for horticultural use and the majority of existing importers of SGG, does not oppose the proposed increase in licence application fees from $10,000 to $15,000 paid every two years. In the event that an increase in fees is introduced part way through an existing licence period, the AFC believes that appropriate pro-rata adjustments should be made.

The AFC supports the principle of the extension of the licensing, levy and reporting system from ODS to SGG. AFC has long emphasised the importance of having uniform regulation across all jurisdictions.

The AFC has considered the specific elements of the Commonwealth’s proposals and the views of the Council on the three key aspects are:

• the Council accepts the need for licences for the import (and manufacture) of SGG to be issued to suitable applicants;

• the Council accepts the proposal that an activity fee be introduced for SGG; and

• the Council accepts the proposal that appropriate reporting of SGG that are imported or manufactured be made by industry.

The AFC supports, in principle, the Commonwealth's proposals for an activity fee for bulk gas and for charged equipment. AFC notes, however, the following provisos:

• the quantum of the fees needs to be agreed – AFC accepts that the program should be self-funding, but the fee basis should not enable surplus revenue to be accumulated;

• in the case of charged equipment, AFC proposes that a small licence or administration fee be implemented, with an activity fee being levied after a yet to be agreed point.

Air-conditioning and Refrigeration Equipment Manufacturers Association

In a recent letter to Environment Australia, AREMA expressed the following views:

“AREMA members understand and accept the need for equity across the industry in terms of fees to support the program.

Vehicle Air Conditioning Specialists of Australia

Federal Chamber of Automotive Industries (FCAI)

• The proposals appear to be mainly administrative; there are no technical changes to the use of current refrigerant - 134a;

There is a similarity to the situation that existed when R12 was in its phase out period and, in that sense, the proposals seems to fit a logical pattern. With the Commonwealth co-ordinating the new regulatory regime, there will be more consistency than existed previously when different States had their own individual requirements.

In regard to the proposed controls on the licensing of imports of pre-charged RAC equipment, FCAI provided the following additional comments:

• “Whilst licence costs are a relatively minor issue^[95], of more significance is likely to be the management of licences for technicians and managing possible changes to handling practices for refrigerant gas. FCAI would request that a reasonable implementation period be provided; i.e. 2 years”;

• “As for [the previously mooted] threshold^[96] before [import] licences and charges would apply, this would be of no benefit to vehicle importers”.

Methyl Bromide Licensees

The end-users most effected by a rise in fees for methyl bromide are growers of flowers and strawberry runners who are least able to access alternatives in the event of price rises.[97] These organizations were contacted through the Queensland Department of Primary Industry and the Queensland Fruit and Vegetable Growers Association (QFVG) who have taken an active interest in methyl bromide phase-out issues and represented the interests of growers in the 2001 Commonwealth Task Force review of ozone protection legislation.

Essential Use & Used Substances Licensees

Holders of Section 40 exemptions held mixed views on the proposed introduction of a fee. These organizations were evenly split in terms of their acceptance or rejection of EAs proposed new fee structure. Several organizations who supported the structure indicated that they would no longer be needing a Section 40 arrangements by the time a fee was introduced. The majority acknowledged that higher fees would have a minimal impact on end-users of ODS subject a Section 40 exemption, as the fee was relatively small and part of it may be absorbed by exemption applicants. Several organizations noted that due to Government regulation in the aircraft and other industries, applicants had no choice but to use to ODS and were therefore unable to avoid a Section 40 fee. The overall tenet of comments was that although the principle of fee increase was not universally accepted, any rise would cause minimal disruption to the market.

State and Territory Jurisdictions

OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS LEGISLATION AMENDMENT BILL 2003

Clause 1: Short Title
1. Clause 1 is a formal provision specifying the short title of the amending legislation as the Ozone Protection and Synthetic Greenhouse Gas Legislation Amendment Act 2003.

Clause 2: Commencement
2. Clause 2 specifies that the Bill will commence on the day it receives Royal Assent.

Clause 3: Schedule(s)
3. Clause 3 is a formal provision specifying that each Act specified in the Schedule to the Bill be amended as indicated by the Schedule.

Clause 4: Application and transitional

4. Clause 4 provides that where offences under the amended Act have been created or extended to include activities that have previously been offences, those offences are not to take effect until the Governor-General makes a proclamation in the Gazette that they are in force.

5. This however, does not apply to offences against subsection 18(7), which relates to contravening a condition of a licence. Such persons are considered to have been adequately notified of their obligations under the amended Act.

6. This clause also defines the term “Principal Act” for the purposes of this clause.

Item 1 – Part 1 of the Dictionary at the end of the Act (subparagraph (b)(vi) of the definition of Commonwealth document)

7. This Item changes the reference to the Ozone Protection Act 1989 in the Evidence Act 1995 to reflect its name change to Ozone Protection and Synthetic Greenhouse Gas Management Act 1989.

8. Item 2 changes the long title of the Ozone Protection Act 1989 to correctly describe the legislation as relating to the ozone layer, rather than atmospheric ozone generally, and incorporate reference to the Act’s expanded purpose of minimising emissions of synthetic greenhouse gas emissions.

9. This Item changes the short title of the Ozone Protection Act 1989 in section 1 to reflect its expanded scope in covering synthetic greenhouse gases. The short title of the amended Act will be the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989.

10. This Item amends paragraph 3(a) to replace the reference to “Convention and the Protocol” with “Vienna Convention and the Montreal Protocol” to avoid confusion between the Vienna Convention for the Protection of the Ozone Layer and the United Nations Framework Convention on Climate Change. The United Nations Framework Convention on Climate Change relates to synthetic greenhouse gases rather than ozone-depleting substances. The change from “Protocol” to “Montreal Protocol” is intended to make it clear that the term does not refer to the Kyoto Protocol to the United Nations Framework Convention on Climate Change.

11. Item 5 amends subparagraph 3(a)(ii) to clarify that Australia’s obligations to reduce production and consumption levels of ozone-depleting substances derive from the Vienna Convention for the Protection of the Ozone Layer and its Montreal Protocol on Substances that Deplete the Ozone Layer.

12. This Item amends section 3 to incorporate two additional objectives of the Act:

• instituting controls on the manufacture, import, export and use of synthetic greenhouse gases, to give effect to Australia’s obligations under the United Nations Framework Convention on Climate Change; and

• promoting the responsible use and management of all ozone depleting substances and synthetic greenhouse gases controlled under this Act to minimise their impact on the atmosphere.

13. These Items provide for inclusion in subsection 7(1) of the Act, a series of new terms that are used in the Bill, and redefines some existing terms:

• “bromochloromethane” is defined at Item 7. The definition does not only refer to pure substances, but also includes references to mixtures that contain bromochloromethane. Item 25 clarifies that this definition does not include bromochloromethane that is contained in manufactured products.

• Item 8 deletes the definition of Convention as it relates to the Vienna Convention for the Protection of the Ozone Layer to avoid confusion with the new definition of “Framework Convention on Climate Change”.

• Item 9 makes a technical change to the definition of “essential use” to clarify that the reference to “Protocol” means the “Montreal Protocol”.

• Item 10 provides the definition of the “Framework Convention on Climate Change” to refer to the United Nations Framework Convention on Climate Change. A copy of the Framework Convention on Climate Change is set out in Schedule 3E of the amended Act.

• Item 11 creates a definition for “HCFC licence” to mean a controlled substance licence for the import, export or manufacture of hydrochlorofluorocarbons (HCFCs).

• Item 12 creates a definition for “HFC” by reference to a series of chemical substances listed expressly in Part IX of Schedule 1 to the amended Act. This definition defines HFCs to include that part of any mixture that consists of an HFC.

• Item 13 creates a definition for “Montreal Protocol” to avoid confusion with the Kyoto Protocol and include reference to the most recent amendment to the Montreal Protocol, the Beijing Amendment. This Amendment to the Protocol is set out in Schedule 3D to the Act. Consequently, the definition of Protocol is amended to include the reference to the new Schedule 3D. The former definition of “Protocol” is deleted at Item 17. The definition refers to both Adjustments and Amendments to the Montreal Protocol. Both Adjustment and Amendments to the refer to changes to the text of the Montreal Protocol that are adopted at the annual Meeting of the Parties. Whereas Parties become bound by Adjustments six months after an Adjustment is communicated to all Parties by the UN Depositary, Parties only become bound by Amendments once they have ratified, accepted or acceded to the Amendment.

• Item 14 creates a definition for “PFC” by reference to a table in Part X of Schedule 1 to the amended Act. PFCs (perfluorocarbons) are the only other synthetic greenhouse gas that is currently used as an alternative to ozone depleting substances. As PFCs are also imported and exported as mixtures, this definition includes PFCs that form part of a mixture with other substances.

• Item 15 creates a definition for “pre-charged equipment” to mean refrigeration and air-conditioning equipment (such as fridges and freezers and car air-conditioners) that contains the ozone depleting substance HCFC and/or the synthetic greenhouse gas HFC. This definition does not include refrigeration and air conditioning equipment that is designed to run on a HCFC and/or HFC, but has not yet been filled with the required substance. The definition does include pre-charged equipment that contains a mixture of substances, where any part of that substance is either an HCFC or an HFC. It also clarifies that section 9 has no effect when determining what is a HCFC or HFC for the purposes of this definition.

• Item 16 creates a definition for “pre-charged equipment licence” which refers to a licence for the import of pre-charged equipment as defined in Item 15.

• Item 17 repeals the definition of “Protocol”. The definition is replaced by the corresponding definition of Montreal Protocol created at Item 13.

• Item 18 creates a definition for “recycled or used HCFCs” that refers to HCFCs that have previously been used. The definition has been included for the purpose of distinguishing the Commonwealth’s controls on the import and export of used HCFCs, from its controls on the import and export of HCFCs that have not been previously used.

• Item 19 creates a definition for “recycled or used methyl bromide” that refers to methyl bromide that has previously been used. The definition has been included for the purpose of distinguishing the Commonwealth’s controls on the import and export of used methyl bromide, from its controls on the import and export of methyl bromide that have not been previously used.

• Item 20 creates a definition for “SGG” or “synthetic greenhouse gas” as an HFC or PFC as defined above in Items 12 and 14 respectively.

• Item 21 creates a definition for “SGG licence” to mean a controlled substances licence to import, export or manufacture synthetic greenhouse gases. An SGG licence does not refer to a licence for the import of pre-charged equipment that contains synthetic greenhouse gases.

• Item 22 extends the existing definition of “stage-2 scheduled substance” to include bromochloromethane. This substance is an ozone depleting substance that was added to the Montreal Protocol on Substances that Deplete the Ozone Layer by the Beijing Amendment as outlined in the new Schedule 3D to the Act.

• Item 23 defines “Vienna Convention” as having the same meaning as the Act’s former definition of “Convention”, which was repealed by Item 8. This amendment is made to avoid confusion between this Convention and the Framework Convention on Climate Change.

14. This Item deletes subsections 7(2) and (3) that contain redundant references to the Crimes Act 1914. The same function is now performed by section 11.6 of the Criminal Code.

15. Item 25 replaces the existing section 9 with new text. The substituted section 9 clarifies the intention of the existing section. The purpose of this section is to distinguish those parts of the legislation that are intended to control products that contain and use scheduled substances in their operation or were manufactured with controlled substances, from those parts that are intended to control substances in their bulk form. Products that solely store or transport scheduled substance are not taken to be products that use scheduled substances in their operation.

16. This Item expressly states that the revised definition applies to Parts III, IV and VII. This ensures that the revised definition is applied in a consistent manner.

17. This Item extends the exemption from the operation of Part III of the legislation that currently exists in regard to the carriage of CFCs or HCFCs by ships and aircraft where the volumes carried do not exceed reasonable servicing requirements of air conditioning or refrigeration equipment, to also apply to SGGs.

18. This Item inserts a new subsection 13(1A) that creates an offence for a person to manufacture, import or export a synthetic greenhouse gas. However, a person may manufacture, import or export a synthetic greenhouse gas without committing an offence if they hold a licence that allows them to do so, or the manufacture, import or export is allowed by the regulations. This is a strict liability offence provision that will come into effect upon proclamation by the Governor General. The penalty for manufacturing, importing or exporting an SGG without a controlled substances licence is 500 penalty units. This level of penalty is consistent with other penalties for unlicensed import, export or manufacture of scheduled substances.

19. This Item provides that regulations may be made that permit the manufacture, import or export of synthetic greenhouse gases. This ensures that where synthetic greenhouse gases are used other than as alternatives to ozone depleting substances (such as in the manufacture of aluminium and magnesium), they can be excluded from the operation of the legislation.

20. This Item inserts a new subsection 13(6A) that creates an offence for the import of pre-charged equipment. A person may import pre-charged equipment without committing an offence if they hold a pre-charged equipment licence, or the equipment is a personal or household effect as covered by paragraph 68(1)(d) of the Customs Act 1901. This is a strict liability offence provision that will come into effect upon proclamation by the Governor-General. The penalty for importing pre-charged equipment without a licence is 500 penalty units. This level of penalty is consistent with other penalties for unlicensed import of scheduled substances.

21. Item 29 provides that a person may apply to the Minister for a pre-charged equipment licence. This licence will permit the holder to import equipment (refrigerators and air conditioners) that contain HCFC or HFC.

22. This Item clarifies that a separate controlled substances licence is required for each substance that a person wishes to import, export or manufacture. This clarification is important as each of these substances is subject to different controls, reporting requirements and phase-out schedules.

23. One licence can authorise more than one activity in relation to a substance. For example, a person may be licensed to import and manufacture HCFCs. Alternatively, a person may be licensed to import manufacture and export SGGs. In contrast, two licences would be required for a person to import HCFCs and HFCs.

24. Item 31 extends the purposes for which a used substances licence may be granted. A used substances licence may now be issued for the import or export of specified HCFCs or methyl bromide. It is anticipated that these licences will be sought for the purpose of importing or exporting these substances for destruction; or importing these substances for recycling and/or reclamation for re-export.

25. This represents the natural progression of the global phase-out of ozone depleting substances in accordance with the Montreal Protocol. As the global permissible use of these substances declines, there will be a corresponding increase in demand for destruction of surplus or contaminated used substances and recycling and reclamation of used substances for reuse in critical applications.

26. This Item amends section 13A to specify that the holder of a pre-charged equipment licence may import refrigeration and air-conditioning equipment containing HCFC and HFC. Unless the conditions of the licence specify otherwise, this licence does not limit the licensee to importing only one kind of equipment, nor does it limit the licensee to only importing pre-charged equipment that contains only one substance.

27. Item 33 amends section 14 to clarify that a licence application fee, prescribed by the regulations, must accompany an application unless it has been waived. This clarifies the original drafting intention that fees paid by applicants are intended to cover the cost to the Commonwealth in processing them. Where the Minister refuses to grant an applicant a licence, the application fee will not be returned to the applicant as the Commonwealth has still incurred the cost of processing the application.

28. Item 34 deletes a reference to subsection 16(2) made redundant by Item 35, which deletes subsection 16(2).

29. This Item repeals the subsection 16(2). The matters dealt with by this section are now included in the amendment to section 14 at Item 33.

30. Item 36 provides that no HCFC licence, pre-charged equipment licence or SGG licence is subject to the requirements of subsection 16(3). Subsection 16(3) provides that all licences need to state the substance or substances to which they relate, and the activities and maximum quantities concerned.

31. For an HCFC licence, subsection 16(3) is not applicable as the maximum quantities of HCFC that may be imported, exported or manufactured are detailed on a separate quota instrument issued in accordance with the Act’s existing quota system provisions.

32. For an SGG licence or a pre-charged equipment licence, subsection 16(3) is not applicable as there is no intention to specify a maximum quantity that may be imported, exported or manufactured. Those details that a SGG licence must specify are described by reference to the amendment at Item 37.

33. Item 37 inserts a new subsection 16(3AA). This subsection provides that an SGG licence must specify that the licence relates to SGGs and the activities that the licence allows. This Item picks up those aspects of subsection 16(3) that are applicable to SGG licences for the import, export and manufacture of SGGs.

34. This Item amends subsection 18(2) to exclude its application to SGG licences. This section provides that a licensee must not import a scheduled substance from a country that is not a party to certain Amendments to the Montreal Protocol. SGGs, however, are not subject to this obligation, as the Montreal Protocol does not control SGGs.

35. Subsection 18(2) does not apply to pre-charged equipment licences as these licences are not licences for the “import of a scheduled substance”. The Montreal Protocol does not control pre-charged equipment containing HCFCs or HFCs.

36. Item 39 clarifies that the reference to “Protocol” in subsection 18(2) is a reference to the Montreal Protocol on Substances that Deplete the Ozone Layer. The change avoids any confusion with the Kyoto Protocol of the United Nations Framework Convention on Climate Change.

37. This Item amends subsection 18(3) to exclude its application to SGG licences. This section provides that a licensee must not export a scheduled substance from a country that is not a party to certain Amendments to the Montreal Protocol. SGGs, however, are not subject to this obligation, as the Montreal Protocol does not control SGGs.

38. Subsection 18(3) does not apply to pre-charged equipment licences as these licences are not required for the export of such equipment and the Montreal Protocol does not control pre-charged equipment containing HCFCs or HFCs.

39. Item 41 clarifies that this reference to “Protocol” in subsection 18(3) is a reference to the Montreal Protocol on Substances that Deplete the Ozone Layer. The change avoids any confusion with the Kyoto Protocol of the United Nations Framework Convention on Climate Change.

40. This Item amends subsection 19A(2) to exclude its application to SGG licences and pre-charged equipment licences. Subsection 19A(2) prevents the Minister from terminating a licence unless satisfied that it is necessary to do so for the purpose of giving effect to an adjustment or amendment of the Montreal Protocol. As the Montreal Protocol does not regulate SGGs or pre-charged equipment, these licences are excluded form the operation of this subsection.

41. Items 43 and 44 clarify that the references to “Protocol” in subsections 19A(2) and 19A(4) are references to the Montreal Protocol on Substances that Deplete the Ozone Layer. The change avoids any confusion with the Kyoto Protocol under the United Nations Framework Convention on Climate Change.

42. This Item inserts a section that provides that the Minister may amend a licence upon the written request of the licensee. This will permit the Minister to amend the name of any licensee where the name of the licence holder has changed.

43. This Item does not provide for the transfer of licences between two different people, which is covered by section 19B of the Act.

44. Item 46 introduces an application fee for exemptions granted under section 40 of the Act. The fee is introduced to recover the cost to the Commonwealth of processing exemption applications.

45. This item replaces the current section 41, with a new section that requires the Minister to maintain a register of countries that are party to the Montreal Protocol on a per substance basis. As countries adopt amendments to the Montreal Protocol, the substances for which they may be considered to be party to the Protocol, changes. This not only applies to Part VI of the Act, in relation to the import of products, but also subsection 18(2) and (3) that refer to Part VI for the purposes of identifying countries with whom a person with a licence for the import or export of ozone depleting substances may trade.

46. For example, under subsection 18(2) a person must only import a scheduled substance (other than an SGG) from a country that is a party to the Protocol. The Register established under this Item will expressly state, for each substance controlled by the Montreal Protocol, who is a party to the Montreal Protocol.

47. The Minister may not list a country on the Register, if to do so would be inconsistent with Australia’s obligations under the Montreal Protocol.

48. Further to ensure that the Register is easily accessible to the public, the Minister must make the Register available on the Internet.

49. For certainty, under the amended subsection 41(5) the Minister may issue a certificate stating whether or not a particular country was listed in the Register in relation to a specified substance.

50. These items clarify that references to “Protocol” in subsections 44(2), (3), (6), 45 (2), (3), (3B) and (5) are referencing the Montreal Protocol on Substances that delete the Ozone Layer. Similarly, references to “non-Protocol” in subsections 44(1), (5), 45(1) and 45(3A) are also referencing the Montreal Protocol on Substances that Deplete the Ozone Layer. The change avoids confusion with the Kyoto Protocol under the United Nations Framework Convention on Climate Change. The change is consistent with the new definition introduced at Item 13.

51. This Item creates a new Part to the amended Act that permits the creation of Regulations relating to the end-use applications of all scheduled substances to target preventable emissions. The use of Regulations will allow the Commonwealth to flexibly adapt end-use controls to reflect changes in technologies and practices in each of the affected industries.

52. This Item permits the creation of Regulations in relation to sale, purchase, storage, use, disposal, handling and labelling of scheduled substances in order to target those points in the supply chain where emissions are most likely to occur. This Item is intended to permit the Commonwealth to require participants within an industry to comply with codes of practice or standards that may be developed by that industry in regard to such activities.

53. In addition, the new subsection 45A(1)(d) introduced by this Item permits the creation of Regulations to confer certain functions on persons or bodies in relation to these activities. This power is intended to enable a co-regulatory approach by permitting industry boards to perform specified functions (such as reporting, licensing and training) in regard to certain industries, under Commonwealth supervision. It is envisaged that such an approach will be employed where a board with appropriate professional standing and national coverage can be identified, and presents the most cost-effective and efficient means of delivering those functions and maintaining dialogue with industry stakeholders.

54. This Item introduces a new section 45B. This section creates a strict liability offence for the venting of scheduled substances to the atmosphere except as allowed by the Regulations.

55. The venting of scheduled substances represents the single activity that causes the most harm to the atmosphere. The penalty for contravention of this provision is 100 penalty units. This strict liability offence will commence upon the date to be proclaimed by the Governor-General under clause 4. This delay will allow for certain regulations to be made and give people reasonable notice of the new offence.

56. This Item provides that the prohibition on venting relates to discharges of scheduled substances from bulk containers as well as products that use scheduled substances in their operation (for example, motor vehicle air conditioners, refrigerators). The offence does not apply to the discharge of scheduled substances in circumstances where the discharge constitutes the designed purpose of product (such as the use of a fire extinguisher to extinguish a fire or the use of a metered-dose inhaler to treat asthma) or where the discharge occurs during the calibration of scientific or laboratory equipment.

57. Due to the application of Clause 4 of this Bill, this offence will not commence until proclamation by the Governor-General. It is anticipated that this will allow enactment of Regulations specifying the appropriate procedures that must be observed in order to avoid the application of this offence in regard to emissions occurring during the commissioning, maintenance and disposal of equipment and products containing scheduled substances.

Item 60 – Quarterly reports for SGG and pre-charged equipmentAfter subsection 46(1)

58. This Item amends subsection 46(1) to exclude the import export and manufacture of SGGs and pre-charged equipment from the operation of the Act’s existing reporting obligations. The Item provides that the reporting obligations that apply to these activities will be set by Regulation. This will permit alternative reporting arrangements better suited to manufacturers, importers and exporters of SGGs and importers of pre-charged equipment.

59. The Item postpones operation of the reporting requirements for SGG and pre-charged equipment for three months following the amended Act’s commencement, to provide time for the Commonwealth to develop relevant regulations.

60. This Item creates a new subsection 46(2AA) that makes it an offence to import or export an SGG, or import pre-charged equipment and not provide a report in accordance with the Regulations. This offence does not impact persons importing personal or household effects covered by paragraph 68(1)(d) of the Customs Act 1901. This offence attracts a penalty of 10 penalty units.

61. This Item amends subsection 46(2A) such that an offence for not reporting under subsection 46(2AA) is also an offence of strict liability, as per section 6.1 of the Criminal Code.

62. This Item extends the defence of reasonable excuse as it applies to offences against section 46(2), to offences against subsection 46(2AA) inserted by Item 61. Where a person has been charged with an offence under this section, that person may show that they have not committed an offence by demonstrating that they have a reasonable excuse.

63. This is a technical Item that limits the operation of paragraph 46(3)(a) to subsection 46(1). As the operation of section 46 has expanded, this amendment ensures that paragraph 46(3)(a) operates consistently.

64. These Items make minor technical amendments to subsections 52(1), (2) and (6). These changes enhance the consistency of Part VIII of the Act by ensuring that all references to offences include offences against the Regulations as well as offences under the Act.

65. This Item repeals the existing Part VIIIA of the Act that dealt with what was known as the Ozone Protection Reserve, renaming the Part as the “Ozone Protection and SGG Account” and making changes to reflect the expansion in scope of the Act to cover SGGs as well as controls on the end-use applications of all scheduled substances.

• “National Halon Bank” referring to the Commonwealth facility that is used to collect, process and store halon for critical uses and destroy waste or surplus ozone depleting substances; and

• “ODS” referring to any of the ozone-depleting substances listed from Parts I to VIII of Schedule 1 of the Act.

67. This Item specifies that the Ozone Protection and SGG Account is an Account under Division 1A of Part 4 of the Financial Management and Accountability Act 1997.

68. This Item specifies that the Account shall be credited with amounts received by the Commonwealth as application fees for licences or exemptions under section 40 of the Act, amounts received by the Commonwealth under the licence levy Acts, income from the operation of the National Halon Bank, penalties under subsection 69(2) as well as interest received by the Commonwealth from the investment of these funds.

69. This Item extends the purposes of the Account to reflect the Act’s expanded scope. In addition, in order to minimise the cost of administering the account, this Item provides that costs incurred by the Commonwealth in relation to the purposes of the Account may be directly debited to the Account. The previous practice of reimbursing the Commonwealth from the Account for its costs incurred has proven to be excessively administratively onerous.

70. The additional purposes of the Account include furthering the phase-out programs for all ODS; emission minimisation programs for ODS and SGG (there is no intention to limit the use or phase out SGG, however, there is an intention to develop programs that minimise their emission to the atmosphere) and administration of the National Halon Bank.

71. This Item provides that, consistent with all other decisions made under this Act, a decision refusing to make an amendment to a Licence under section 19C is reviewable by the Administrative Appeals Tribunal.

72. Item 70 provides that the Minister may delegate any of his powers and duties (with the exception of those granted under sections 19A and 20 of the Act) granted under the Act to an SES employee, or acting SES employee of the Department. The Minister is also given the power to provide directions to any SES employee in the exercise of a delegated power.

73. The Minister’s obligations under sections 19A and 20 cannot be delegated. These two sections deal with the cancellation and termination of licences. Due to the severely detrimental impact created by the exercise of these powers (a licensee’s loss of livelihood) it is appropriate that the Minister retain responsibility for them.

Items 71 to 74 – Subsections 69(1), (2) and (4) and paragraph (3)(a) Licence levies

74. These Items amend section 69 of the Act to replace the term “licence fee” with “licence levy”. This change is made to clearly distinguish between licence application fees paid with an application for a licence, and licence levies which are payable on a pro-rata basis according to the amount of substance imported.

75. To avoid confusion, the definition of “licence levies” as defined under this Item includes not only levies collected under this section, but also levies collected prior to the commencement of this Act.

76. Items 75 and 76 clarify that the references to “Protocol” in subsections 69A(1) and (2) are references to the Montreal Protocol on Substances that Deplete the Ozone Layer. The change avoids any confusion with the Kyoto Protocol under the United Nations Framework Convention on Climate Change.

77. Item 77 amends subsection 69B(1) to clarify that where Regulations are made that go beyond giving effect to Australia’s international obligations, those Regulations may be read down so that they are within the legislative power of the Commonwealth.

78. This Item amends subsection 69B(1) to include the Framework Convention on Climate Change as one of Australia’s international agreements the Act is intends give effect.

79. This Item amends paragraph 69B(2)(a) to include the “Framework Convention on Climate Change” as one of the conventions that the Act, or regulations made under the Act, are to be read down to. In addition, to avoid confusion between the “Framework Convention on Climate Change” and the Vienna Convention for the Protection of the Ozone Layer, the existing reference to “Convention” is changed to “Vienna Convention”.

80. This Item creates a new Part VIII to Schedule 1 of the Act, and adds a new substance, bromochloromethane, and specifies its chemical formula to assist in its identification. This substance is an ozone-depleting substance that was added to the Montreal Protocol by the Beijing Amendment. Its inclusion in Schedule 1 of the Act is consistent with all other ozone-depleting substances controlled by Montreal Protocol.

81. This Item also adds a new Part IX and X to Schedule 1. These Parts specify the chemical formulas of each SGG that is controlled by the Act. Each chemical is defined by its chemical formula. If a particular species of HFC has more than one structure, all different structures are included and treated identically.

82. Defining HFCs by reference to its chemical formula meant that all isomers are included within the operation of the Act.

83. Items 81, 82 and 83 clarify that the references to “Protocol” in subsections 69A(1) and (2) are references to the Montreal Protocol on Substances that Deplete the Ozone Layer. The change avoids any confusion with the Kyoto Protocol under the United Nations Framework Convention on Climate Change.

84. This Item creates a new Schedule 3D and incorporates in it the text of the Beijing Amendment to the Montreal Protocol. The definition of “Protocol” in section 7 of the Act is defined to include this Schedule. This Item also inserts the text of the United Nations Framework Convention of Climate Change as a new Schedule 3E of the Act.

85. This Item changes the reference in the Trans-Tasman Mutual Recognition Act 1997 to the Ozone Protection Act 1989 to reflect its name change to Ozone Protection and Synthetic Greenhouse Gas Management Act 1989. The change also makes sure that the application of the Trans-Tasman Mutual Recognition Act 1997 does not change due to the inclusion of SGGs in this Bill. This Item expressly states, that the exemption from the operation of the Trans-Tasman Mutual Recognition Act 1997 only applies to ozone-depleting substances.

^[2] A full legal explanation of the changes is provided in correspondence from the Office of International Law, Attorney-Generals’s Department to the Ozone Protection Section, Environment Australia dated 9 July 2001. The cap on domestic manufacture of HCFCs and ban on imports and exports of HCFCs from non-parties would both come into effect on 1 January 2004. The ban on domestic manufacture of BCM would come into effect on 1 January 2002, while the ban on imports and exports of BCM would come into effect one year after Australia’s ratification.

^[4] A full legal explanation of the changes is provided in correspondence from the Office of International Law, Attorney-Generals’s Department to the Ozone Protection Section, Environment Australia dated 9 July 2001. The cap on domestic manufacture of HCFCs and ban on imports and exports of HCFCs from non-parties would both come into effect on 1 January 2004. The ban on domestic manufacture of BCM would come into effect on 1 January 2002, while the ban on imports and exports of BCM would come into effect one year after Australia’s ratification.

^[5] The last domestic manufacturer of HCFCs ceased operations in 1995 and a re-emergence of production is unlikely. BCM has never been produced commercially in Australia and the establishment of a local production facility is not expected.

^[6] The Commonwealth Ozone Protection Act 1989 (OPA) limits on the domestic consumption of HCFCs. Consumption is defined as domestic production plus imports minus exports. Increased demand for re-exports of HCFCs, would not necessarily impact upon domestic availability of HCFCs.

^[7] For synthetic laboratory use, BCM is used to generate chlorocarbene by reaction with a strong base. This can be trapped as a Wittig reagent by reacting it in situ with Ph3P, then transferred in a metathethetical reaction with ketone, leading to a new alkene C=CHCI plus triphenyl phosphine oxide. It can also be used to create a very reactive anion which could be used to form new bonds to a carbon center and for other purposes. The technical data on BCM used in this RIS was provided by Professor Ian Rae of the University of Melbourne.

^[8] BCM could also be used freely if sourced from reprocessing. However, there are no Australian reprocessing facilities capable of handling BCM and this option is therefore precluded.

^[9] Over the period 1988-1998, Australia consumption of ODS accounted for approximately 1.4 percent of global consumption. IN the case of HCFCs which will be most effected by the Beijing Amendment, Australia accounted for just 0.8 percent of global consumption. Se Environment Australia, Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options Supporting Papers, Canberra, January 2001, p.39.
^[10] Office of Regulation Review, A Guide to Regulation, Productivity Commission, Canberra, 1998.
^[11] Only 8 licence holders currently exist and all are members of the Australian Fluorocarbon Council.
^[12] The lines of causality and nature of benefits associated with emissions of ODR, depletion of the ozone layer and damage to human health and the environment are detailed in ARC Applied Research Consultants, Global Benefits and Costs of the Montreal Protocol on Substances that Deplete the Ozone Layer, Environment Canada, Ottawa, 1997.
^[13] The quantitative application of this and other data to Australia is considered in Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January 2001.
^[14] P.46 Volume 2.
^[15] Taken together, these areas of economic activity are described as Montreal Protocol industries.
^[16] An ozone depleting tonne is calculated as the mass in tonnes of a specific ODS multiplied by its agreed ozone depleting potential. ODS vary in their potential to damage the ozone layer. ODP measures are set out Schedule 1 of the Ozone Protection Act 1989.
^[17] Ozone Protection Act 1989, Section 3.

^[18] Australian and New Zealand Environment and Conservation Council, Revised Strategy for Ozone Protection in Australia 1994 - Report No.30, Canberra, April 1994.

^[19] Australian and New Zealand Environment and Conservation Council, Revised Strategy for Ozone Protection in Australia 1994, op.cit, pp. 4-5. The Strategy also notes that a high priority should be given by governments, industry and public interest groups to raising awareness of the public, unions and affected industries of the phase-out schedule [for ODS], the availability of alternative technologies and products and ways of managing the transition to ozone benign technologies with minimum cost and disturbance. Finally, the Strategy commits Governments to monitor the development in Australia and overseas of alternatives to ozone depleting substances and encourage industry to adopt those with the best possible outcome for health and the environment.

^[20] It should be noted that methyl bromide in QPS applications is not expressly limited under the Montreal Protocol. However, international discussions on such limits have recently been undertaken and the possibility exists of formal restrictions over consumption being introduced through the Protocol in the medium-long term.

^[21] Taken together, these areas of economic activity are described as Montreal Protocol industries.

^[22] For discussion of the adjustment pressures facing these industries see Task Force to Review the Commonwealth’s Ozone Protection Legislation - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January 2001, pp. 19-20.

^[23] Australian and New Zealand Environment and Conservation Council, Revised Strategy for Ozone Protection in Australia 1994, op.cit, p.4.

^[24] Office of Regulation Review, A Guide to Regulation, Productivity Commission, Canberra, 1998.

^[25] For budgeting purposes, EA has assumed that the number of HCFC licence holders will decline from 2003 in proportion to the decline in the availability of these substances under the Ozone Protection Act 1989.

^[26] All figures used in this RIS are expressed on constant 2001 prices unless otherwise stated.
^[27] It should be emphasized that these figures are projections and may be subject to change at a later date.

^[28] The number of ODP tonnes of HCFC provided for under the OPA for 2003-2020 inclusive is 1,215. Data on expected fee increases is provided by the Australian Fluorocarbon Council (AFC).

^[29] Data provided by AFC.
^[30] The number of metric tonnes provided for under the OPA for 2003-2005 inclusive is 408. Data on the price impact of licence and activity fee increases provided by the Australian Fluorocarbon Council (AFC).
^[31] Methyl Bromide Consultative Group, National Methyl Bromide Response Strategy, Part 1 Horticultural Uses, Environment Australia, June 1998, p. 15. Figures are used to illustrate main uses only and do not add to 100 percent.
^[32] See Environment Australia, National Methyl Bromide Response Strategy Part 2 - Quarantine and Pre-shipment Uses, Canberra, 2001.

^[33] Correspondence from the Queensland Fruit and Vegetable Growers Association dated 8 February, 2002.

^[34] The lines of causality and nature of benefits associated with emissions of ODR, depletion of the ozone layer and damage to human health and the environment are detailed in ARC Applied Research Consultants, Global Benefits and Costs of the Montreal Protocol on Substances that Deplete the Ozone Layer, Environment Canada, Ottawa, 1997.

^[36] The quantitative application of this and other data to Australia is considered in Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January 2001.

^[37] The particularly structural adjustment issues faced by these growers is discussed in Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January, 2001, pp. 18-20.

^[38] Neither ODS or SGG are manufactured in Australia and imports are the sole source of supply. While no SGG are currently manufactured in Australia, any Government response needs to be sufficiently broad to accommodate any potential domestic manufacture of these substances, in line with approaches to ODS.

^[40] For the purposes of this paper, SGG refers to HFCs and PFCs used in Montreal Protocol industries, which include those industries where ozone depleting substances are currently used and being phased out and include the refrigeration, air conditioning, fire protection, foam blowing, aerosols, solvents and fumigation and pest control industries.

^[41] HFCs are currently the refrigerant of choice in Australia for most new domestic and commercial air-conditioning and refrigeration systems. These substances are also used in the manufacture of rigid polyurethane foam and metered dose medical inhalers and serve as a sterilising gas, as a solvent, as a propellant in aerosols and as a streaming agent in fire extinguishers. PFCs are used in specialist situations as cleaning agents in the electronics industry, in fire suppression systems and in very low temperature refrigerant blends.

^[42] Although alternatives to using HFC currently exist (such as hydrocarbons, ammonia, water, carbon dioxide and ice slurry), there remains some uncertainty about their commercial, safety and environmental suitability in certain applications.

^[43] More details on greenhouse gases and climate change are set out in Understanding greenhouse science – Frequently asked questions, Australian Greenhouse Office, Canberra, 2002.

^[44] Australian industry has identified HFC-410a as the most readily identifiable substitute for HCFC-22, which is the most widely used ODS currently consumed. HFC-134a and HFC-404a are viewed as the most ready substitutes for HCFC-407c and HCFC-502, other common ODS, respectively.

^[45] Approximately 73%
^[46] While this covers pre-charged RAC equipment containing both HCFC and HFCs, the portion of gas used for manufacture as opposed to servicing is considered to be comparable between these gases.
^[47] Estimate based on available data on number of domestic RAC equipment manufacturers, their annual production of RAC equipment containing HCFC, and an assumption of the average charge per unit.

^[48] A number of large companies have ceased domestic manufacturing operations in recent years. Email ceased domestic manufacture of HCFC-containing domestic air conditioning units in 1999, while York International ceased domestic manufacture of HCFC-containing packaged commercial air conditioning units in late 2000.
^[49] Emissions trading is not included as an option given the Government's current position that mandatory domestic emissions trading will be introduced only if the Kyoto Protocol is ratified by Australia, the Protocol is in force and there is an established international emissions trading regime.
^[50] The Western Australian legislation refers to refrigerants, which would include SGG. Other uses of SGG are not covered.

^[51] A separate RIS deals with the proposal to increase the current licence fee from $10,000 to $15,000.

^[52] The proposal for the SGG levy would be similar to the levy for HCFC-22, the most commonly imported ODS. The levy for ODS is based on the ozone depletion potential of the particular substance.

^[53] Special Account as defined under the Financial Management Accountability Act 1997.

^[54] This important distinction reflects the Government’s recognition that, at this time, the uptake of non-ODS and non-SGG alternative substances and not-in-kind technologies (such as hydrocarbons, ammonia, water, carbon dioxide) has been relatively limited in Australia and depends on the availability, and acceptance by industry, of cost-effective and technically safe and feasible alternatives. The Commonwealth Government is currently considering this issue through a Government-funded study into the availability and suitability of alternatives to SGG.

^[55] A separate RIS deals with the proposal to increase the current licence fee from $10,000 to $15,000.

^[56] The proposal for the SGG levy would be similar to the levy for HCFC-22, the most commonly imported ODS. The levy for ODS is based on the ozone depletion potential of the particular substance.

^[57] This important distinction reflects the Government’s recognition that, at this time, the uptake of non-ODS and non-SGG alternative substances and not-in-kind technologies (such as hydrocarbons, ammonia, water, carbon dioxide) has been relatively limited in Australia and depends on the availability, and acceptance by industry, of cost-effective and technically safe and feasible alternatives. The Commonwealth Government is currently considering this issue through a Government-funded study into the availability and suitability of alternatives to SGG.

^[58] In accordance with the Government’s Cost Recovery Policy, the fee and levy will be reviewed 5 years from the year of the proposed amendments.

^[59] Data from time boxes included on quarterly reporting forms in compliance with the requirements of the Commonwealth Office of Small Business.

^[60] In collecting used ODS, RRA also has been obliged to collect SGG as the various substances are inevitably combined in the storage containers. Hence, RRA has had to develop and refine its technical capability to dispose of SGG.

^[61] Under the Commonwealth Government’s Greenhouse Gas Abatement Program (GGAP), RRA has been granted funding to expand its program of reclaiming contaminated ODS from old refrigeration and air conditioning machinery to include used HFCs.
^[62] FCAI stated: “As for whether or not we agree that the proposed charge is reasonable, we do not clearly understand at this stage the justification for the charges.”. They indicated they wished to consider the Regulation Impact Statement for the Bill relating to the proposed charges.
^[63] In consultations between the FCAI, EA and the AGO the merit of incorporating provision for a waiver of the licence application fee was discussed. Discussion focused on a 20kg annual import threshold as a possible criterion for such a waiver. The FCAI noted that, as such a threshold only represented 20 cars, it was not of interest to them.
^[64] While no SGG are currently manufactured in Australia, any Government response needs to be sufficiently broad to accommodate any potential domestic manufacture of these substances, in line with approaches to ODS.
^[65] Section 39 (1) and (2) of the Ozone Protection indicates that the Commonwealth does have the authority to make "regulations [which] may include provisions prohibiting or regulating the manufacture, import, export, distribution or use by persons to whom this Part [scheduled substances] applies, or by persons engaging in activities to which this Part applies, of products that contain scheduled substances or depend upon such substances for their operation. . . . The provisions may include . . . prohibiting the use of particular kind of products except in accordance with prescribed requirements."
^[66] References to ‘State’ should be taken to include ‘Territory’.
^[67] Synthetic greenhouse gases included under the Kyoto Protocol “basket of six” greenhouse gases are hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF₆). References to SGG in this paper should be taken to refer to HFCs and PFCs where they are used by Montreal Protocol industries as replacements or alternatives to ODS. The Montreal Protocol industries are those that traditionally use ODS that are currently subject to phase out under the Montreal Protocol. These industries include the refrigeration, air conditioning, fire protection, foam blowing, aerosols, solvents and fumigation and pest control industries.
^[68] In collecting used ODS, RRA also has been obliged to collect SGG as the various substances are inevitably combined in the storage containers. Hence, RRA has had to develop and refine its technical capability to dispose of SGG.
^[69] Under the Commonwealth Government’s Greenhouse Gas Abatement Program (GGAP), RRA has been granted funding to expand its program of reclaiming contaminated ODS from old refrigeration and air conditioning machinery to include used HFCs.
^[70] In relation to the refrigeration and air-conditioning industry, for example, a recent review by the National Public Affairs Group shows that Victoria (until recently) and the Northern Territory did not require accreditation for air conditioning and refrigeration technicians dealing with HCFC. Only New South Wales and Victoria require that technicians be licensed for non-electrical work on refrigeration and air-conditioning systems. In New South Wales, South Australia, Northern Territory and the Australian Capital Territory, technicians are required to have a minimum amount of industry experience, in addition to meeting licensing and other requirements. In Victoria, South Australia, Western Australia and Tasmania, technicians need formal trade qualifications, in addition to meeting other regulatory requirements: National Public Affairs Group, National Certification Program, Canberra, 1999, p. 13.
^[71] More details on greenhouse gases and climate change are set out in Understanding greenhouse science – Frequently asked questions, Australian Greenhouse Office, Canberra, 2002.

^[72] Although this only covers SGG used as refrigerants, Western Australia’s legislation defines “alternative refrigerant” as a substance that replaces an ozone-depleting refrigerant.

^[73] Emissions trading is not included as an option given the Government's current position that mandatory domestic emissions trading will be introduced only if the Kyoto Protocol is ratified by Australia, the Protocol is in force and there is an established international emissions trading regime.
^[74] Section 39 (1) and (2) of the Ozone Protection indicates that the Commonwealth does have the authority to make "regulations [which] may include provisions prohibiting or regulating the manufacture, import, export, distribution or use by persons to whom this Part [scheduled substances] applies, or by persons engaging in activities to which this Part applies, of products that contain scheduled substances or depend upon such substances for their operation. . . . The provisions may include . . . prohibiting the use of particular kind of products except in accordance with prescribed requirements."
^[75] Under the proposed amendments, industry faces no additional restrictions on the ability to purchase these substances for two reasons. First, import licensing controls are already in place for ODS and these will lead to a phase-out of these substances at rates agreed by industry. Second, at present, SGG are widely held to represent the most suitable alternatives to ODS in Montreal Protocol industries. SGG are, therefore, an essential industry input and any attempt to restrict their availability may give rise to undue commercial and social costs
^[76] This is to ensure that suppliers are adequately equipped to handle these substances with no or minimal emissions, particularly where they are required to accept recovered substances returned for reuse, or destruction. This would also apply to some wholesalers of pre-charged equipment. If the wholesalers purchases pre-charged equipment for resale, then no registration would be required. However, if wholesalers handling ODS and SGG (eg. charging equipment), then they would be required to be registered. Technicians working for such wholesalers would also be required to have the appropriate certification.
^[77] A voluntary program aimed at raising standards among refrigeration and air conditioning technicians is currently being established by the National Refrigeration and Air Conditioning Council Limited (NRAC) with the assistance of Commonwealth funding ($3.5 million) under the Australian Greenhouse Office’s Greenhouse Gas Abatement Program. NRAC comprises representatives from all relevant specialist industry associations and the TAFE sector. The Fire Protection Association Australia has also developed industry standards that could be used as the basis for registration.
^[78] Office of Regulation Review, A Guide to Regulation, Productivity Commission, Canberra, 1998.
^[79] It is worth noting that the majority of existing State legislation that requires that wholesalers and distributors of ODS accept recovered substances does not preclude them from charging for this function, ie. they can pass on fair and reasonable costs.
^[80] Part of these costs are being met by a $3.5 million grant from the Commonwealth to the National Refrigeration and Air Conditioning Council aimed at raising standards amongst technicians.
^[81] Businesses could choose to make their own arrangements for disposal in Australia or to export recovered SGG. It is reasonable to assume that the costs of utilising the services of RRA will be less than any of the alternative methods of disposal. If RRA is industry’s preferred approach to managing the product stewardship requirements, at least part of this higher cost structure will have been offset by a grant from the Australian Greenhouse Office under the Greenhouse Gas Abatement Program designed to support the collection and destruction of contaminated SGG.
^[82] The two RIS on supply controls for SGG and on licence fees contains further details on this point.
^[83] It is proposed that the registration and certification fees will be administered by the industry boards at a rate established by the industry to meet the legislative requirements and to ensure the ongoing viability of industry boards. None of this revenue will accrue directly to the Commonwealth.
^[84] The average cost of HFCs is around $15 per kilogram. This is based on HFC-134a representing around 75% of the market (at about $12 per kilogram) and other HFCs (on average around $25 per kilogram) accounting for the remaining 25% of the market.
^[85] Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January 2001.
^[86] Ibid, p. 46.
^[87] The lines of causality and nature of benefits associated with emissions of ODS, depletion of the ozone layer and damage to human health and the environment are detailed in ARC Applied Research Consultants, Global Benefits and Costs of the Montreal Protocol on Substances that Deplete the Ozone Layer, Environment Canada, Ottawa, 1997. The quantitative application of this and other data to Australia is considered in Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January 2001.
^[88] See, for example, Reilly, J., Mayer, M. and Harnisch, J., “Multiple Gas Control under the Kyoto Protocol” in J. van Ham et al (eds.), Non-CO2 Greenhouse Gases: Scientific Understanding, Control and Implementation, Kluwer Academic Publishers, Dordrecht, 2000, where the authors conclude that total costs across all countries with targets under the Kyoto Protocol (Annex B countries) are lower under a multigas abatement scenario by over 30% compared with a CO₂-only abatement scenario. See also: Reilly, J., R. Prinn, J. Harnisch, J. Fitzmaurice, H. Jacoby, D. Kicklighter, J. Melillo, P. Stone, A. Sokolov, and C. Wang, “Multi-Gas Assessment of the Kyoto Protocol” (1999) Nature, 401.
^[89] Ibid, p. 46.
^[90] The Office of Regulatory Review advises that note that Government endorsement of the Code would require the preparation of a separate Regulatory Impact Statement.
^[91] The industry has estimated that 10 tonnes of HFC will be recovered in the first year of operation of the scheme; recoveries then will increase at around 10 tonnes per year to reach an annual rate of 130 tonnes by 2012. Using a CO₂ equivalence of 2000, this means that these estimates of HFC recoveries represent a reduction in global warming equivalent emissions of 20,000 tonnes in 2000 rising to 260,000 tonnes in 2012. When the cumulative impact of recoveries of substances is taken into account, this shows that, by 2012, there will be a substantial reduction in emissions equating to around 1.8 million tonnes of CO_2.
^[92] Ibid, p 55.
^[93] An ozone depleting tonne is calculated as the mass in tonnes of a specific ODS multiplied by its agreed ozone depleting potential. ODS vary in their potential to damage the ozone layer. ODP measures are set out Schedule 1 of the Ozone Protection Act 1989.

^[94] These figures reflect the payment in 2001/2 of licence application fees for: the 2-year methyl bromide licence period 2002; the 2-year used substances licence period 2002-3; and 1 year essential use licence period, 2002. Licence application fees for the 2-year HCFC licence period 2002-3 were paid in 2000/1.
^[95] FCAI stated: “As for whether or not we agree that the proposed charge is reasonable, we do not clearly understand at this stage the justification for the charges.”. They indicated they wished to consider the Regulation Impact Statement for the Bill relating to the proposed charges.
^[96] In consultations between the FCAI, EA and the AGO the merit of incorporating provision for a waiver of the licence application fee was discussed. Discussion focused on a 20kg annual import threshold as a possible criterion for such a waiver. The FCAI noted that, as such a threshold only represented 20 cars, it was not of interest to them.

^[97] The particularly structural adjustment issues faced by these growers is discussed in Task Force to Review the Commonwealth’s Ozone Protection Legislation, Report - A Review of the Legislative Framework and Regulatory Options, Environment Australia, Canberra, January, 2001, pp. 18-20.

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Controlled Substances	License Fees^[94] ($M)	Activity Fees ($M)	Total ($M)
HCFCs	0.000	0.365	0.425
Methyl Bromide	0.060
Other	0.012	NA	0.012
Total	0.072	0.365	0.437

Cost Recovery Activity	ASL	Other Costs ($M)	Total ($M)
Management	0.50		0.046
Licensing	1.00		0.092
Compliance & Enforcement	1.00	0.001	0.093
Programme Management	1.00	0.006	0.098
Administrative functions	0.50	0.005	0.051
Ad Hoc grants from Special Account Existing Commitments - New Commitments -	0.50		0. 443
		0.04
		0.357
Total	4.5	0.409	0.823

Summary of Cost Recovery: 2001-2002	$M
Total Income	0.437
Total Expenditure	0.823
Surplus/(Deficit)^♦	(0.386)

	Licence Application Fees			Activity Fees
	Current	Proposed	Net Increase	Current (per ODP tonne)	Proposed (per ODP tonne)	Net Increase
HCFC	$10000	$15000	$5000	$2000	$3000#	$1000
HFC/PFC	-	$15000	$15000	-	$165/T♣	NA
Methyl Bromide	$10000	$15000	$5000	$90	$135/T*	$45
Used Substances	$10000	$15000	$5000	NA	NA	NA
Essential Uses	$2000	$3000	$1000	NA	NA	NA
Section 40 Exemption	NA	$3000	$3000	NA	NA	NA
Pre-charged Air-Con. & Refrigeration equipment	NA	$3000	$3000	NA	$3000/ODP tonne and $165/T for SGG	$3000/ODP tonne and $165/T for SGG

	2003-2004		2004-2005
	License Fees	Activity Fees	License Fees	Activity Fees	Total
HCFCs	0.120	0.736	-	0.676	1.607
Methyl Bromide	0.075		-
HFCs & PFCs	0.150	0.738	-	0.738	1.726
Other	0.100		-
Total	0.445	1.474	-	1.414	3.333

	HCFC Activity Fees	Methyl Bromide Activity Fees
2000/1	440	81
2002/3	380	86
2004/5	320	71
2006/7	260	52
2008/9	200	40
2010/11	140	28
2012/13	80	15
2014/15	20	3
2016/17	5	0
2018/19	5	0
2020	5	0
Total	3,710	752

Option 1	− maintaining the status quo;
Option 2	− reducing the scale and scope of programs developed by Environment Australia to facilitate industry transition;
Option 3	− funding revenue shortfalls through appropriations from the Department of Environment and Heritage or other areas of Government; and
Option 4	− Amending the ozone protection legislation to allow for increased license and activity fees.

Option 1	− Permitting industry to implement voluntary management to ensure proper handling of substances, including proper disposal;
Option 2	− Reliance on States reaching a voluntary agreement on end use and product stewardship;
Option 3	− Commonwealth financial support for the States, but no new legislation, to resolve anomalies arising from resourcing constraints;
Option 4	− Legislation, backed by appropriate Commonwealth financial support, through a National Environment Protection Measure (NEPM);
Option 5	− Extending the Ozone Protection Act to cover end-use controls for ODS and SGG and extension of product stewardship requirements.

Summary of Projected Cost Recovery: 2003/2004 – 2004/5	$M
Total Expected Income	3.333
Total Expected Expenditure	2.814
Surplus/(Deficit)^Ω	0.519

Cost recovery activity	HCFC	Methyl bromide	HFCs & PFCs	Other	Total
Management	0.052	0.012	0.050	0.023	0.138
Licensing	0.098	0.062	0.123	0.080	0.362
Industry board & Co-regulatory arrangements	0.147	0.029	0.132	0.059	0.368
End-use compliance & Enforcement	0.094	0.019	0.084	0.037	0.234
Programme Management	0.187	0.037	0.168	0.075	0.468
Administrative Functions	0.077	0.015	0.069	0.031	0.192
Ad hoc grants from Special Account	0.421	0.084	0.379	0.168	1.052
TOTAL	1.075	0.259	1.006	0.473	2.814

Commonwealth of Australia Explanatory Memoranda