Fresh legal doubts hang over the Morrison government's move to expand the remit of Australia's green bank, with a parliamentary committee questioning whether it has power to fund non-renewable energy projects.
A briefing provided to the Greens by the independent Parliamentary Library also suggests the changes could be invalid and vulnerable to legal challenge, which could place "considerable uncertainty" over projects financed under the new rules.
The questions have arisen just a day after the government announced it had awarded Rio Tinto up to $580,000 in ARENA funding to test the feasibility of using renewable hydrogen to process alumina.
A spokeswoman for Energy Minister Angus Taylor did not respond directly when asked on Thursday if the government was confident the agency was allowed to fund non-renewable energy projects.
However, his department's officials last month told Senate estimates that government legal advice had said the new regulation was "quite legitimate", as they expressed confidence the changes would survive any legal challenge.
Mr Taylor last month introduced new regulations allowing Australia's green energy agency to finance the government's favoured low-emissions technologies, such as carbon capture and storage and "clean" hydrogen projects.
Labor and the Greens opposed the changes, but their push to torpedo the regulations was voted down in Parliament earlier this week.
During debate on the motion to rip up the new regulations, Greens leader Adam Bandt claimed the move was "manifestly illegal" because ARENA was established under law to fund green energy projects.
A Senate scrutiny committee has now raised concerns directly with Mr Taylor after examining the new regulations.
Liberal senator and committee chairwoman Concetta Fierravanti-Wells said in a letter to Mr Taylor that the changes expanded the agency's remit beyond what was envisaged when legislation to establish it passed Parliament.
"The object of the act is to improve the competitiveness and supply of renewable energy in Australia," she wrote in the letter.
"The committee further notes that there is nothing in the explanatory memorandum to the bill preceding the act to suggest that it was contemplated that the ARENA would have the ability to foster anything other than renewable energy technologies."
The committee wanted answers on how the agency could be allowed to fund non-renewable projects, given that was its explicit purpose.
Senator Fierravanti-Wells said the committee believed that, given its significance, the change should have been put to Parliament for debate, rather then waved through by Mr Taylor.
The committee also said the proposal should have been circulated to stakeholders and experts, rather than just government departments and ARENA, before the changes were introduced in May.
Further doubts have been raised in Parliamentary Library advice provided to the Greens and seen by The Canberra Times.
The briefing paper states the regulation-making powers under the legislation "do not appear to allow the scope of the act to be expanded in this way".
The briefing, which does not amount to legal advice, said the regulations appeared "vulnerable" to judicial review. If a court found the new regulations were invalid, that could have significant consequences for grants awarded to non-renewables projects.
"If such a proceeding is brought, and the court finds the regulations invalid ... that invalidity operates retrospectively," the briefing stated.
"This might cause considerable uncertainty in relation to relevant funding grants made under the regulations for purposes which appear to be beyond the scope of the ARENA Act (that is, projects which are not in any way related to renewable energy)."
Mr Bandt said the regulations exposed the government to being sued.
"This government is willing to break the law to give public money to gas corporations that pay no tax," he said.
In response to The Canberra Times' questions, Mr Taylor's spokeswoman said the changes were designed to bring new technologies to commercial parity with high-emitting alternatives, which would help cut emissions, protect industries and help create new jobs.
Greens senator Larissa Waters questioned Energy Department officials about the legality of the new regulations during last month's Senate estimates hearings.
The department's deputy secretary, Jo Evans, said advice from the government solicitor "strongly supported the fact that it was quite legitimate to make this regulation under the act".
Asked if she was confident the regulations would survive a legal challenge, Ms Evans said: "Yes."
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