The Greenhouse Gas Reduction Scheme (GGAS) commenced on 1 January 2003 and targets for reductions in greenhouse emissions have been set until 2021. The Government has extended the Scheme to 2021 in the absence of a national emissions trading scheme.

GGAS imposes mandatory greenhouse gas benchmarks on all NSW electricity retailers and certain other parties, including those who elect to manage their own benchmark, to abate the emission of greenhouse gases from the consumption of electricity in NSW. These parties are referred to as benchmark participants.

GGAS sets a State greenhouse gas benchmark expressed in tonnes of carbon dioxide equivalent (tCO₂-e) per capita. The initial level set for 2003 was 8.65 tonnes per capita and the benchmark progressively drops to 7.27 tonnes per capita in 2007 which is 5 per cent below the Kyoto Protocol baseline year of 1989-90, and will continue to 2021.

The State greenhouse gas benchmark is multiplied by the total State population, as published by the Independent Pricing and Regulatory Tribunal (IPART), to produce the annual electricity sector benchmark. (See Key Scheme Factors.) This represents the total amount of greenhouse gas emissions allowable for the consumption of electricity in NSW.

Each benchmark participant is allocated a share of the electricity sector benchmark based on the level of their electricity sales as a proportion of the total State Electricity Demand. For example, if an electricity retailer sells 5 per cent of total electricity sales in NSW, it is responsible for meeting 5 per cent of the required reduction applied to the NSW electricity sector benchmark. Total State Electricity Demand is as published by IPART. This allocation is used by benchmark participants as their individual greenhouse gas benchmarks.

Benchmark participants are required to reduce their emissions of greenhouse gases to the level of their greenhouse gas benchmark by offsetting their excess emissions through the surrender of abatement certificates. These certificates are created by accredited abatement certificate providers and can be traded to benchmark participants.

At the end of a compliance year, benchmark participants must submit an annual greenhouse gas benchmark statement to IPART. The statement details their emissions and any abatement certificates being surrendered to IPART, in its role as Compliance Regulator, to meet their greenhouse gas benchmark. Excess emissions remaining after the surrender of abatement certificates is called a greenhouse shortfall and currently attracts a penalty of $12.00 per tCO₂-e.

A greenhouse shortfall can be carried forward to the following compliance year but must be abated in that year or the greenhouse penalty must be paid. Benchmark participants can carry forward a shortfall of up to 10 per cent of their greenhouse gas benchmark in all years of GGAS, except 2007.

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