Climate Change, Energy, the Environment and Water portfolio

The Climate Change, Energy, the Environment and Water portfolio is responsible for advising the government and implementing programs on: climate change; energy supply efficiency, quality, performance and productivity; the environment, biodiversity and heritage; meteorological services; water resources; and Australia’s interests in the Antarctic and Southern Ocean.

The Department of Climate Change, Energy, the Environment and Water is the lead entity in the portfolio. It is responsible for developing and implementing policies and initiatives to protect Australia’s environment, biodiversity and heritage; helping Australia respond to and address climate change; and managing Australia’s water and energy resources. Further information is available from the department’s website.

In addition to the Department of Climate Change, Energy, the Environment and Water, there are 11 entities within the portfolio that are responsible for: renewable energy regulation; financing the renewable energy sector; advice on climate change mitigation; meteorological services; Commonwealth national parks; managing Commonwealth lands around Sydney Harbour; and the Great Barrier Reef Marine Park.

In the 2024–25 Portfolio Budget Statements (PBS) for the Climate Change, Energy, the Environment and Water portfolio, the aggregated budgeted expenses for 2024–25 totalled $11.2 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through annual appropriation Acts.

The level of budgeted departmental  and administered  expenses, and the average staffing level for entities in the GGS within this portfolio are shown in Figure 1. The Clean Energy Finance Corporation represents the largest proportion of the portfolio’s expenses, and departmental expenses of the portfolio are the most material component, representing 74 per cent of the entire portfolio’s expenses.

Figure 1: Climate Change, Energy, the Environment and Water portfolio – total expenses and average staffing level by entity

Source: ANAO analysis of 2024–25 Portfolio Budget Statements.

In determining the 2024–25 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments or changes in the operating environment.

The primary risks identified for the Climate Change, Energy, the Environment and Water portfolio relate to:

• the oversight of government investments, particularly those relating to equity, concessional loans and guarantees; and
• the Department of Climate Change, Energy, the Environment and Water’s capacity to effectively implement risk based regulatory regimes.

The strategic risks in the Climate Change, Energy, the Environment and Water portfolio relate to governance, service delivery, grants administration, procurement, regulation and asset management and sustainment.

Governance

The portfolio includes functions in remote and unique operating environments such as national parks, Australia’s Antarctic presence and construction of Snowy 2.0. These activities present risks relating to culture and workforce management. Appropriate governance is required to establish and maintain a safe working environment and high performing teams.

Issues with measuring, evaluating and reporting on the contribution of activities to their intended outcomes and effectively managing risk to the achievement of outcomes continue to be identified across portfolio entities .

The governance of financial mechanisms, including equity investments, concessional loans and guarantees, require portfolio entities to monitor risk tolerance levels and implement risk mitigation actions .

Development of the sustainability reporting framework and assurance regime in Australia is progressing. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 will require climate related disclosures for certain entities established under the Corporations Act 2001. Snowy Hydro Limited would be required to report under these arrangements at 30 June 2026 on areas such as climate risks and opportunities, governance arrangements and emissions. The climate disclosures for these entities will be subject to assurance. Entities should review their preparedness to meet these requirements in order to support accurate and timely reporting and audit.

Deficiencies in record keeping arrangements limit entities’ ability to demonstrate the effective and ethical delivery of their activities. There are ongoing issues with the accuracy and completeness of records across the Climate Change, Energy, the Environment and Water portfolio .

Service Delivery

Initiatives that have commenced in the portfolio over recent years include: the $20 billion Rewiring the Nation program; the $2 billion Hydrogen Headstart program; the $1.9 billion Powering the Regions Fund; and the $1.3 billion Household Energy Upgrades Fund. There is a risk that new initiatives may not achieve desired outcomes if they are not supported by sufficient planning, a clear rationale of where intervention is required, use of the best available evidence, and application of appropriate risk management and performance measurement frameworks .

Grants administration

There is a risk that the grant programs and funds may not achieve desired outcomes if they are not supported by effective grants administration. Documenting the basis for funding decisions in grants administration was identified as an area for improvement across a range of portfolios, including in the Climate Change, Energy, the Environment and Water portfolio . Effective grant administration also requires appropriate planning, implementation and monitoring arrangements .

Procurement

Previous performance audits have identified deficiencies in demonstrating value for money in the department’s procurement activities . Establishing and implementing effective arrangements to ensure value for money will remain important for procurement activities delivered by the department. There is a risk the department has not improved its performance in this area.

Regulation

Effective regulatory approaches are required to achieve the desired outcomes of regulation. Past audits have identified failures with regulation in portfolio entities relating to: the use of intelligence; establishment of a risk-based approach to regulation; implementation of effective regulatory plans and strategies; governance arrangements; compliance with procedural and legislative requirements, and performance measurement and evaluation . There is a risk that the portfolio entities have not improved their performance in this area and that the desired outcomes of regulation are not being met.

Asset management and sustainment

Portfolio entities manage a large number of physical assets, including: Snowy Hydro infrastructure used for energy generation activities and water services; an icebreaker vessel; national parks; and meteorological equipment and research stations. These assets require specific maintenance and sustainability planning unique to the nature and use of the asset . It is also important that targets are set in asset management strategies, and that tracking and reporting against targets is undertaken, to provide a clear focus for performance and accountability for delivering on objectives.

The ANAO’s performance audit activities involve the independent and objective assessment of all or part of an entity’s operations and administrative support systems. Performance audits may involve multiple entities and examine common aspects of administration or the joint administration of a program or service.

During the performance audit process, the ANAO gathers and analyses the evidence necessary to draw a conclusion on the audit objective. Audit conclusions can be grouped into four categories:

• unqualified;
• qualified (largely positive);
• qualified (partly positive); and
• adverse.

In the period between 201920 to 202324 entities within the Climate Change, Energy, the Environment and Water  portfolio were included in tabled ANAO performance audits 18 times . The conclusions directed toward entities within this portfolio were as follows:

• one was unqualified;
• eight were qualified (largely positive);
• eight were qualified (partly positive); and
• one was adverse.

Figure 2 shows the number of audit conclusions for entities within the Climate Change, Energy, the Environment and Water portfolio that were included in ANAO performance audits between 2019–20 and 2023–24 compared with all audits tabled in this period.

Figure 2: Audit conclusions 2019–20 to 2023–24: entities within the Climate Change, Energy, the Environment and Water portfolio compared with all audits tabled

Source: ANAO data.

The ANAO’s annual audit work program is intended to deliver a mix of performance audits across seven audit activities: governance; service delivery; grants administration; procurement; policy development; regulation and asset management and sustainment. These activities are intended to cover the scope of activities undertaken by the public sector. Each performance audit considers a primary audit activity. Figure 3 shows audit conclusions by primary audit activity for audits involving entities in the Climate Change, Energy, the Environment and Water portfolio.

Figure 3: Audit conclusions by activity for audits involving entities within the Climate Change, Energy, the Environment and Water portfolio, 2019–20 to 2023–24

Source: ANAO data.

Overview

Entities within the Climate Change, Energy, the Environment and Water portfolio, and the risk profile of each entity, are shown in Table 1.

Table 1: Climate Change, Energy, the Environment and Water portfolio entities and risk profile

Note a: Sourced from Public Governance, Performance and Accountability Act 2013 (Flipchart of PGPA Act) Commonwealth entities and companies (Department of Finance) as at 1 March 2024.

Department of Climate Change, Energy, the Environment and Water

The Department of Climate Change, Energy, the Environment and Water is responsible for developing and implementing a national response to climate change and improving Australia’s energy supply, efficiency, quality, performance and productivity; conserving, protecting and sustainably managing Australia’s biodiversity, ecosystems, environment and heritage; advancing Australia’s interests in the Antarctic region; and improving the health of rivers and freshwater ecosystems and water use efficiency.

The Department’s total budgeted assets for 2024–25 are $53.3 billion, with other investments representing 41 per cent as shown in Figure 4. Other provisions represents 48 per cent of total budgeted liabilities and grants expenses represent 37 per cent of total budgeted expenses.

Figure 4: Department of Climate Change, Energy, the Environment and Water’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 2024–25 Portfolio Budget Statements.

The Department of Climate Change, Energy, Water and the Environment has been classified by the ANAO as a high risk engagement. This engagement risk rating reflects the number and quantum of key areas of financial statements risk that will be a focus of the audit, as well as, the: diverse functions across a range of programs outcomes which results in a large number of programs and payments under management which are managed in geographically dispersed locations; the level of judgement and complexity involved in determining the fair value of key financial balances; and continuing change and maturation of the department’s operating model and system of internal control, including relating to IT systems, following establishment of the department in 2022–23.

There are five key risks for the Department’s 2023–24 financial statements that the ANAO has highlighted for specific audit coverage, including three risks that the ANAO considers potential key audit matters (KAMs).

• The calculation of the Australian Government’s liability to restore Australia’s Antarctic bases to their original condition, given the significant judgements required in the selection of the assumptions used in the valuation model. (KAM – Valuation of restoration obligations in Antarctica)
• The valuation of water entitlement assets, due to the estimation and judgement involved in the valuation methodology, and given the trading of water assets is conducted in a developing market. (KAM – Valuation of water entitlements)
• The valuation of the investment in Snowy Hydro Limited, due to the materiality of the investment, nature of Snowy Hydro’s business activities and complexities associated with the choice of assumptions and judgements which are applied in the valuation model. (KAM – Valuation of Snowy Hydro Limited administered investment)
• The valuation of the investment in Marinus Link Pty Ltd , due to the nature of the company’s core project delivering an electricity and telecommunications interconnector between Tasmania and Victoria and complexities associated with the choice of assumptions and judgements which are applied in the valuation model.
• The management of, and accounting for, the department’s grants programs, due to the value, scale and diversity of these programs and the range of modes of delivery.

Bureau of Meteorology

The Bureau of Meteorology (the Bureau) is responsible for providing weather, water, climate and ocean services for Australia.

The Bureau’s total budgeted assets for 2024–25 are $1.3 billion, with 38 per cent attributable to property, plant and equipment and 32 per cent attributable to intangible assets, as shown in Figure 5. Sales of goods and services represent 24 per cent of total budgeted revenue.

Figure 5: Bureau of Meteorology budgeted financial statements by category ($’000)

Source: ANAO analysis of 2024–25 Portfolio Budget Statements.

There are three key risks for the Bureau’s 2023–24 financial statements that the ANAO has highlighted for specific audit coverage.

• The valuation of non-financial assets, particularly specialised weather and observing plant and equipment, due to the complexity of the valuation process which involves judgement and estimation.
• The valuation of intangible assets, particularly computer software, given the judgement applied by the Bureau in confirming that they are capitalised and valued appropriately.
• The recognition of the Bureau’s own source revenue due to the value of revenue from rendering of services. Given the number of revenue contracts administered by the Bureau, there is increased complexity in determining performance obligations under contract which provide the criteria for recognition of revenue.

Clean Energy Finance Corporation

The Clean Energy Finance Corporation (CEFC) is responsible for facilitating increased flows of finance into the clean energy sector and facilitating the achievement of Australia’s greenhouse gas emissions reduction targets.

CEFC’s total budgeted revenues for 2024–25 are $359.9 million, with 69 per cent of this revenue attributable to interest, as shown in Figure 6. Advances and loans, investments in shares and investments in other interest-bearing securities represent 49 per cent, 21 per cent and 15 per cent, respectively, of total budgeted assets.

Figure 6: Clean Energy Finance Corporation budgeted financial statements by category ($’000)

Source: ANAO analysis of 2024–25 Portfolio Budget Statements.

There are five key risks for the CEFC’s 2023–24 financial statements that the ANAO has highlighted for specific audit coverage.

• The measurement of interest and fee income from the CEFC’s loans and deposits, which is a significant portion of the CEFC’s revenue.
• The accounting for complex financing arrangements, due to the bespoke nature of CEFC’s investment transactions.
• The adequacy of the impairment provision relating to loans, due to the complexity of the transactions, the concentration of sectoral exposure and the degree of management judgement required to estimate the provisions.
• The valuation and accounting for direct unlisted equity investments, which are required to be recognised at fair value. CEFC applies a range of valuation methodologies and exercise increased levels of judgement and estimation in determining an appropriate fair value for these investments.
• The verification of the carrying value of the CEFC’s investment in its associates – entities that the CEFC does not control but has significant influence over.

Clean Energy Regulator

The Clean Energy Regulator (CER) is responsible for the administration of market based mechanisms that incentivise reduction in greenhouse gas emissions and the promotion of additional renewable electricity generation. In achieving these objectives the CER is responsible for the administration of the Australian Carbon Credit Unit Scheme and the programs and regulation supporting the Renewable Energy Target.

CER’s total budgeted expenses for 2024–25 are $387.8 million, with other expenses attributable to 69 per cent, as shown in Figure 7. Other provisions represent 86 per cent of total budgeted liabilities.

Figure 7: Clean Energy Regulator budgeted financial statements by category ($’000)

Source: ANAO analysis of 2024–25 Portfolio Budget Statements.

There are two key risks for the CER’s 2023–24 financial statements that the ANAO has highlighted for specific audit coverage.

• The occurrence and valuation of expenses and liabilities for the Australian Carbon Credit Unit Scheme, due to the complexity of the program and judgement required by CER to determine the provision for payments.
• The recognition of shortfall charges under the Renewable Energy (Electricity) Act 2000 and associated refund provision, due to the significance and complexity of the program judgement required by CER in determining the refund provision.

Snowy Hydro Limited

Snowy Hydro Limited (Snowy Hydro) is a government business enterprise responsible for energy generation activities to supply the National Electricity Market as well as operating as a retail energy provider through the Red Energy and Lumo Energy brands.

Snowy Hydro’s total actual total assets for 2022–23 were $9.8 billion, with property, plant and equipment contributing to 73 per cent and other financial assets (encompassing other financial assets including energy derivatives) contributing to 11 per cent, as shown in Figure 8. Snowy Hydro’s total liabilities were just under $3.9 billion, with interest bearing liabilities (including debt) contributing 66 per cent.

Figure 8: Snowy Hydro Limited actual financial statements by category ($’000)

Source: ANAO analysis of Snowy Hydro Limited’s 2022–23 Annual Report.

There are five higher risks for Snowy Hydro’s 2023–24 financial statements that the ANAO has highlighted for specific audit coverage, including three risks that the ANAO considers potential key audit matters (KAMs).

• The valuation of derivative financial instruments, reflecting the complexity of the valuation processes and models for Snowy Hydro Limited’s various financial instruments which include hedging instruments, forward contracts and swaps. The valuation of these derivative instruments require a high level of judgement from management to determine inputs into the valuation model, particularly for unobservable inputs. (KAM – Valuation, existence and completeness of financial instruments – energy derivatives)
• The capitalisation of Snowy 2.0, which reflects the complexity of the underlying project and the judgement that needs to be applied to meet the requirements of the accounting standards. (KAM – Valuation of property, plant and equipment (‘PPE’) – construction in progress)
• The recoverability of retail debtors, due to the level of judgement applied by management in determining the estimate of expected lifetime credit loss on trade and other receivables. (KAM – Valuation of allowance for doubtful debts)
• The capitalisation of Hunter Power Project costs, which reflects the complexity of the project and the judgement that needs to be applied to meet the requirements of the accounting standards.
• Debt facilities and covenant compliance, due to the requirements and conditions of debt arrangements.