Details of the Financial Framework (Supplementary Powers) Amendment (Defence Measures No. 2) Regulations 2023

 

Section 1 - Name

 

This section provides that the title of the Regulations is the Financial Framework (Supplementary Powers) Amendment (Defence Measures No. 2) Regulations 2023.

 

Section 2 - Commencement

 

This section provides that the Regulations commence on the day after registration on the Federal Register of Legislation.

 

Section 3 - Authority

 

This section provides that the Regulations are made under the Financial Framework (Supplementary Powers) Act 1997.

 

Section 4 - Schedules

 

This section provides that the Financial Framework (Supplementary Powers) Regulations 1997 are amended as set out in the Schedule to the Regulations.

 

Schedule 1 - Amendments

 

Financial Framework (Supplementary Powers) Regulations 1997

 

Item 1 - In the appropriate position in Part 4 of Schedule 1AB (table)

 

This item adds one new table item to Part 4 of Schedule 1AB to establish legislative authority for government spending on an activity to be administered by the Department of Defence (the department).

 

New table item 607 establishes legislative authority for government spending on the program to build renewable fuels plant in the Burdekin region (the program).

 

The program will deliver on the Government's election commitment to support the development of sovereign capacity in liquid fuel manufacturing, including biofuels, including for the Australian Defence Force.

 

With around 90 per cent of liquid transport fuels and refinery feedstock imported, Australia relies heavily on the international fossil fuel market for fuel security. A domestic renewable fuel industry will reduce this reliance by diversifying sources of supply and decreasing dependence on imported oil and petroleum products. Creation of new domestic renewable fuel production capabilities would support job growth, and indirectly support the renewable fuel supply chain. Renewable inputs for fuel production in Australia may deliver lower emissions, enhance regional growth, provide additional income streams for farmers, enhance energy resilience and reduce waste.

 

In particular, the program aims to:

*         create a new domestic renewable fuel production capability. If successful, this would support regional employment, reduce pollution from the burning of cane field waste, and indirectly, support a domestic renewable fuel supply chain;

*         help meet Australia's Paris Agreement commitment by contributing to emissions reductions; and

*         enhance Australia's fuel security, by diversifying sources of liquid transport fuels reducing reliance on imported oil and petroleum products.

 

Grant funding of $5.1 million over three years from 2022-23 will be provided to Licella Holdings Limited (Licella), a biotechnology company, to support the early stage of development of a facility in Queensland's Burdekin region which would utilise sugarcane waste to produce renewable fuels.

 

Licella will prove its proprietary technology to produce Sustainable Aviation Fuel (SAF) from the biocrude that the proprietary technology is anticipated to produce from sugarcane or other biomass. This will in turn support Australia to meet its obligation to reduce greenhouse gas emissions through the use of renewable fuels and contribute to the management of the investment, acquisition and sustainment of equipment, supplies and services, to meet government and the department's requirements.

 

Licella has been identified as the appropriate recipient as:

*         it has demonstrated the conversion of biomass (bagasse from sugarcane including tops and trash) to biocrude (synthetic crude oil) using its proprietary technology, Cat-HTR (hydrothermal liquefaction technology) at its pilot commercial demonstration facility in Somersby, NSW;

*         it has the required technical expertise to undertake the activities; and

*         the nature of the grant activity is designed to utilise Licella's technology and expertise to facilitate pathways for potential production of synthetic fuels.

The intended outcomes of the program are:

*         the development and demonstration of the technology to use sugarcane as a feedstock to produce a biocrude that can be refined into renewable fuel;

*         the certification of the proposed fuel development pathway;

*         industry development and creation of jobs in the Burdekin region;

*         the reduction of sugarcane waste burning in the Burdekin region, resulting in reduced air pollution and carbon emissions;

*         reduced reliance on fossil fuel resources, resulting from the successful production of renewable fuel from the biocrude; and

*         creating a revenue stream for farmers, enhanced productivity, profitability and expenditure in the local area.

 

The department will deliver a grant to Licella through a closed, invitational, non-competitive grant process in accordance with the Commonwealth Grants Rules and Guidelines 2017 (CGRGs). Licella will be selected on the basis of eligibility criteria which relate to the legal and operational status of the applicant, the proposed activity for which funding is sought, and the expertise of the applicant to deliver the services required, that the grant is intended to fund.

 

The grant opportunity guidelines will be developed and made available through GrantConnect (www.grants.gov.au). The grant will be administered by the Business Grants Hub.

 

Details of the grant recipient will be published no later than 14 working days after the funding agreement for the grant takes effect, in accordance with the CGRGs. This information will be retained on the department website for at least two financial years (and published on the business.gov.au and GrantConnect websites).

 

The funding would be delivered to the recipient via a multi-year grant, with payments subject to satisfactory delivery against milestones set out in the grant guidelines and detailed in an agreement between the department and the grantee. The department will consider the information that the potential grantee, Licella, provides in its grant application, relevant to those milestones. 

 

Applicants for the program must be Australian-based organisations with an Australian Business Number. To be eligible to apply for a grant to manage and administer the program, the organisation must also:

• be invited by the Commonwealth to submit a proposal; and
• have demonstrated technological expertise in the conversion of sugarcane trash
  by-products to a potential source of renewable fuel.

In conducting the grant activity, a grantee will need to ensure that relevant certification pathways are followed to meet technical requirements at each stage during development of the renewable fuels capability.

 

It is intended that senior officials at the Senior Executive Service Band 1 level or above within the Business Grants Hub would hold delegated authority to administer the grant for the department, under section 32D of the Financial Framework (Supplementary Powers) Act 1997. Senior officials administering the Business Grants Hub are the intended delegates due to their special expertise in grant administration, developed through their grant hub dealing with a large number of grant arrangements on behalf of the Commonwealth.

 

Funding decisions made in relation to the grant to Licella will not be suitable for an independent merits review as the decision relates to the allocation of a finite resource. In this case, overturning the decision on a closed, non-competitive basis could have a negative impact on the potential applicant, Licella. This is because the development of the capability to produce a renewable fuel requires significant compliance and certification costs before any product could be made available using the proprietary technology.

 

A change in the proposal to fund the program would only delay the development of a pathway to sovereign renewable fuels capability by adding time to the certification process. This in turn may delay the potential for carbon reduction in hard to abate sectors such as the aviation sector, and reinforce dependence on imported fossil fuels, which the program is aimed to address. The Administrative Review Council (ARC) has recognised that it is justifiable to exclude merits review in relation to decisions of this nature (see paragraphs 4.11 to 4.19 of the guide, What decisions should be subject to merit review?).

 

The ARC suggests that administrative accountability is still required, and that the process for allocating funds under a grant program must be fair and the criteria for funding must be made clear. Further, decisions relating to grant funding must be made objectively. The department considers that these requirements will be met because of the detailed and robust governance arrangements surrounding the administration of the program. The grant to build renewable fuels plant in the Burdekin region will be administered in accordance with the Commonwealth's resource management framework, including the Public Governance, Performance and Accountability Act 2013 and the CGRGs.

 

A complainant who is dissatisfied with a decision relating to a grant under this program will be encouraged to approach the Commonwealth Ombudsman.

 

The department has consulted stakeholder entities in the development of the program, including with the Department of Climate Change, Energy, the Environment and Water.

 

The department has relied on expert advice of the Business Grants Hub and the department's Science and Technology Group in designing the guidelines.

 

Consultation about any grant matter must be circumspect so as to manage grantee expectations, because funding cannot be provided in advance of the commencement of any legislative authority required to authorise the funding. However, the potential grantee, Licella, has been consulted on the opportunity to develop its technology under the program. It responded to the announcement of the election promise, stating that the funding would 'accelerate demonstration of SAF production from Licella's biocrude and the certification of SAF for domestic civil and military applications'.

 

Funding of $5.1 million for the program was included in the October 2022-23 Budget under the measure 'Support for Defence and Manufacturing Industries' for a period of three years commencing in 2022-23. Details are set out in Budget October 2022-23, Budget Measures, Budget Paper No. 2 at page 88. 

 

Funding for this item will come from Program 2.4: Joint Capabilities, which is part of Outcome 2. Details are set out in Portfolio Budget Statements 2022-23, Budget Related Paper 1.4A, Defence Portfolio at page 13.

 

Noting that it is not a comprehensive statement of relevant constitutional considerations, the objective of the item references the external affairs power (section 51(xxix)) of the Constitution.

 

External affairs power

 

Section 51(xxix) of the Constitution empowers the Parliament to make laws with respect to 'external affairs'. The external affairs power supports legislation implementing Australia's international obligations under treaties to which it is a party.

 

Australia has obligations relating to the Kyoto Protocol to the United Nations Framework on Climate Change (9 May 1992) ('the Kyoto Protocol'), the Paris Agreement (12 Dec 1995) and the United Nations Framework Convention on Climate Change. The program will include measures that will assist Australia to meet its general obligations, which are detailed in the following paragraphs.

 

Kyoto Protocol

 

Article 10 of the Kyoto Protocol requires Australia to take a range of actions, including:

*         Article 10(a) which requires Australia to: 'Formulate, where relevant and to the extent possible, cost-effective national, and where appropriate regional programmes to improve the quality of local emission factors'.

*         Article 10(b) which requires Australia to: 'Formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing measures to mitigate climate change and measures to facilitate adequate adaptation to climate change'.

 

The program assists Australia to meet this obligation by funding development of new technology that would create a biocrude substitute for a fossil fuel source, using a source of biomass (sugarcane waste) that is currently burned, adding to Australia's carbon emissions. Creating a market for this biomass will assist farmers in the Burdekin region by providing an economic incentive to improve local emission factors.

 

Paris Agreement

 

The Paris Agreement sets out some general aims to strengthen the global response to the threat of climate change. This includes the obligation for Australia to implement measures in accordance with Article 2(1)(b), which requires: 'Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production'.

 

Article 4(2) of the Paris Agreement requires Australia to ' ... pursue domestic mitigation measures, with the aim of achieving the objective of such contributions'.

 

The program aims to develop renewable fuels that will reduce Australia's greenhouse gas emissions. This should assist in meeting Australia's Paris Agreement commitments, because in providing an incentive to reduce the burning or burying of sugarcane waste, which can instead be used as feedstock for biocrude production, the program activity will contribute to emissions reductions.

 

United Nations Framework Convention on Climate Change

 

Article 4 of the United Nations Framework Convention on Climate Change requires Australia to take a range of actions, including:

*         Article 4(1)(b) requires Australia to: 'Formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing measures to mitigate climate change by addressing anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol, and measures to facilitate adequate adaptation to climate change'.

*         Article 4(1)(c) requires Australia to: 'Promote and cooperate in the development, application and diffusion, including transfer, of technologies, practices and processes that control, reduce or prevent anthropogenic emissions of greenhouse gases not controlled by the Montreal Protocol in all relevant sectors, including the energy, transport, industry, agriculture, forestry and waste management sectors'.

*         Article 4(2) requires Australia to ' ... adopt national policies and take corresponding measures on the mitigation of climate change, by limiting its anthropogenic emissions of greenhouse gases ... '.

 

By funding the development of the Licella technology and the certification of pathways to facilitate the broader production and use of the renewable resource produced by the facility, Australia can be seen to implement a regional program which aims to reduce anthropogenic emissions by creating an economic incentive for removal of a source of emission, and by developing technology that may assist in the control and prevention of further emissions, by providing a renewable alternative to fossil fuels produced from the biomass of salvaged sugarcane waste.

 

Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Financial Framework (Supplementary Powers) Amendment (Defence Measures No. 2) Regulations 2023

 

This disallowable legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the legislative instrument

 

Section 32B of the Financial Framework (Supplementary Powers) Act 1997 (the FF(SP) Act) authorises the Commonwealth to make, vary and administer arrangements and grants specified in the Financial Framework (Supplementary Powers) Regulations 1997 (the FF(SP) Regulations) and to make, vary and administer arrangements and grants for the purposes of programs specified in the Regulations. Schedule 1AA and Schedule 1AB to the FF(SP) Regulations specify the arrangements, grants and programs. The powers in the FF(SP) Act to make, vary or administer arrangements or grants may be exercised on behalf of the Commonwealth by Ministers and the accountable authorities of non-corporate Commonwealth entities, as defined under section 12 of the Public Governance, Performance and Accountability Act 2013.

 

The Financial Framework (Supplementary Powers) Amendment (Defence Measures No. 2) Regulations 2023 amends Schedule 1AB to the FF(SP) Regulations to establish legislative authority for government spending on a program to build renewable fuels plant in the Burdekin region (the program). The program is administered by the Department of Defence (the department).

 

The program will deliver on the Government's election commitment to support the development of sovereign capacity in liquid fuel manufacturing, including biofuels, including for the Australian Defence Force.

 

With around 90 per cent of liquid transport fuels and refinery feedstock imported, Australia relies heavily on the international fossil fuel market for fuel security. A domestic renewable fuel industry will reduce this reliance by diversifying sources of supply and decreasing dependence on imported oil and petroleum products. Creation of new domestic renewable fuel production capabilities would support job growth, and indirectly support the renewable fuel supply chain. Renewable inputs for fuel production in Australia may deliver lower emissions, enhance regional growth, provide additional income streams for farmers, enhance energy resilience and reduce waste.

 

In particular, the program aims to:

• create a new domestic renewable fuel production capability. If successful, this would support regional employment, reduce pollution from the burning of canefield waste, and indirectly, support a domestic renewable fuel supply chain;
• help meet Australia's Paris Agreement commitment by contributing to emissions reductions; and
• enhance Australia's fuel security, by diversifying sources of liquid transport fuels reducing reliance on imported oil and petroleum products.

 

Grant funding of $5.1 million over three years from 2022-23 will be provided to Licella Holdings Limited, a biotechnology company, to support the early stage of development of a facility in Queensland's Burdekin region which would utilise sugarcane waste to produce renewable fuels.

 

Table item 607 does not engage any of the applicable human rights or freedoms.

 

Conclusion

 

Table item 607 is compatible with human rights as it does not raise any human rights issues.

 

 

 

 

Senator the Hon Katy Gallagher

Minister for Finance