Renewable Fuel Scheme FAQs

The Renewable Fuel Scheme (RFS) is a key action in the NSW Hydrogen Strategy to increase green hydrogen production in NSW. It was established under the NSW Energy Security Safeguard in the Electricity Supply Act 1995 (the Act) and operates as a market-based certificate scheme.

Under the scheme, renewable fuel producers can create a certificate for every gigajoule (GJ) of renewable fuel they produce. Liable parties (currently gas retailers and large gas users who do not use a retailer) must obtain and surrender certificates to meet their share of the scheme’s renewable fuel production target or pay a penalty for a certificate shortfall. This creates a financial incentive to produce renewable fuel and supports projects to be commercially viable.

Currently only green hydrogen is eligible for certificate creation. The scheme’s annual green hydrogen target is set in the Electricity Supply (General) Regulation 2014. The target gradually increases to 8 million GJ in 2030.

At this stage, the RFS only supports the production of green hydrogen and no other renewable fuels. However, we are currently investigating options to expand the Renewable Fuel Scheme to include additional renewable fuels and liable parties. We intend to consult publicly on scheme expansion options in mid-2024.

The Independent Pricing and Regulatory Tribunal (IPART) is the scheme administrator. IPART will ensure compliance with the scheme rule and maintain the certificate registry.

Liability under the RFS commences in 2025. Obligations associated with the 2024 target will not be enforced.

The RFS target for green hydrogen in each compliance period is set out in Part 7A of the Electricity Supply (General) Regulation 2014 (see table below). As scheme liability will commence in 2025, liable parties do not need to surrender certificates to meet 2024 targets.

* Estimated assuming 140 tonnes per year per megawatt electrolyser capacity.

The RFS will undergo a statutory review every 5 years to ensure that the scheme’s policy objectives remain suitable and that the scheme can deliver its objectives. The RFS rule will be reviewed annually and updated as required in consultation with industry.

Liable parties are gas retailers, and large gas users who source their gas directly from gas producers.

Liability for the scheme target is allocated between liable entities based on their share of total liable gas use in NSW in the previous year. Liable gas use is defined in clause 154 of Schedule 4A of the Electricity Supply Act 1995.For example, if total liable gas use in NSW in 2024 was 100 PJ and a gas retailer sold 10 PJ of gas that year, its liability would be 10% of the 2025 scheme target (i.e. 36,000 certificates, being 10% of 360,000 GJ target).

Liable parties must comply with the obligations outlined in Part 3 of Schedule 4A of the Electricity Supply Act 1995. As liability will now commence in 2025, the government does not intend to enforce compliance with obligations of the 2024 target. The following timeline provides an indication of responsibility for liability in 2025:

• liable parties must report their liable gas use over the 2024 calendar year, by 30 September 2025 at the latest
• by 15 November 2025 the Regulator (IPART) will sum these reported values and publish the total NSW liable gas use
• by 1 March 2026 liable parties lodge annual statements and surrender certificates.

Liability is based on gas consumption from the previous year so it can be calculated in a timely manner. There is a delay between gas use and the final reporting of gas data, with revisions occurring up to 9 months later. Using the previous year’s usage data ensures liability can be calculated within a reasonable time frame.

The 2025 penalty rate is $17.50 per certificate. Assuming a company tax rate of 30%, this equates to a tax effective penalty rate of $25 per certificate.

If a liable party does not surrender enough certificates to meet its liability, it will have a certificate shortfall. The shortfall is the difference between the party’s individual certificate target and the number of certificates it surrenders against this target. Liable parties can elect to carry forward a shortfall to the next compliance period or pay a penalty. The legislated maximum shortfall that can be carried forward is currently 10% of a liable party’s annual liability. Penalties are calculated by multiplying the number of certificates in the shortfall (after accounting for carry forwards) by the penalty rate. The penalty rate for 2025 is $17.50.

The Act allows the Government to set higher or lower carry forward percentages in the regulations.

To enable existing liable parties to plan for their scheme liability, we propose to have no exemptions for 2025. We are considering an exemptions framework for 2026 onwards, as part of an expanded scheme design.

Green hydrogen producers who comply with the scheme rule are eligible to create certificates. The draft scheme rule and consultation paper can be reviewed for further detail.

Certificates can be sold by accredited certificate providers, through bilateral arrangements with liable parties, or through the services of a third party. Whenever a sale or trade occurs the transfer of ownership must be registered on IPART’s online system TESSA, in accordance with the requirements of the Electricity Supply Act 1995 and the Electricity Supply (General) Regulation 2014. More information on the Registry of Certificates is available on IPART’s transferring certificates webpage.

No, there is no minimum price for RFS certificates. However, the penalty rate will act as a maximum price.

Renewable fuel certificates can only be used to meet liabilities under the RFS. They cannot be used to claim the purchase or use of green hydrogen. This eliminates the potential for double counting environmental benefits by end users and liable parties who purchase certificates for compliance purposes.

Renewable fuel certificates expire three years from the date of creation. This ensures targets are met from recently created renewable fuel certificates and provides an ongoing incentive for renewable fuel production.