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Australia – Carbon Price Repeal: The Government Lays Out Its Roadmap.

17 October, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Environment 

 

WHAT YOU NEED TO KNOW

 

  • On 15 October 2013, the Government released its draft Bills for the repeal of the Carbon Pricing Mechanism and the Climate Change Authority.
  • The Government has stated that the Carbon Price will operate until 30 June 2014, and that the Government will not extend the carbon price beyond 2013-2014, even if the Parliament does not pass the carbon tax repeal Bills until after 1 July 2014.
  • The Carbon Farming Initiative (CFI) will continue, although after 30 June 2014, the only buyers will be the Government or the voluntary market.
  • The ACCC will have new powers to monitor prices and take action against business that engages in “price exploitation”.
  • The passage through Parliament of the repeal legislation is uncertain and not likely until after 1 July 2014, when the new Senators take their positions.
  • Submissions on the draft legislation will be accepted until 5.00pm on 4 November 2013.
 

WHAT YOU NEED TO DO

 

  • If you plan to lodge a submission, you will need to do so by 4 November. We would be happy to assist you with drafting your submission.
  • If you’re a liable entity, you are required to comply with the Carbon Pricing Mechanism until 30 June 2014.
  • Review contracts to assess how, and whether, carbon cost pass through can be unwound, and assess whether any commercial arrangements could amount to carbon price exploitation.
 

The Government has released draft legislation for the repeal of the carbon pricing mechanism and has repeated its intention to introduce the eight repeal Bills as the first item of legislative business when Parliament is reconvened (expected to be on 12 November 2013).


This update sets out the key provisions of the repeal package. 

 

1. All Key Carbon Price-Related Acts To Be Repealed So That 2013-2014 Will Be The Last Financial Year In Which The Carbon Price Will Apply

 

The package provides for the repeal of all key Acts that made up the Clean Energy Legislation package. Once passed by Parliament, the carbon price or carbon price-equivalent payable under the Clean Energy Act 2011 (Cth), the fuel tax credits system, excise or excise-equivalent customs duties and synthetic greenhouse gas levies will no longer apply.

 

The Government promises that even if it does not get the repeal package through until after 1 July 2014, the carbon price will not extend beyond the 2013-2014 financial year. The key repeal provisions are stated to commence on 1 July 2014, irrespective of the day the relevant repealing legislation receives Royal Assent.


Some parts of the repeal Bills that relate to actions that would otherwise occur prior to 1 July 2014, such as the conduct of auctions of carbon units in early calendar 2014, are to be repealed from the day after the repeal legislation receives Royal Assent. However, as there is a real chance auctions may have occurred prior to the repeal, the repeal legislation contains a mechanism for refunding the price paid for carbon units at auction.

 

2. All Current Carbon Price Obligations Continue For The 2013-2014 Financial Year

 

All liabilities and obligations under the Clean Energy Act 2011 (Cth), fuel tax credits system, excise or excise-equivalent customs duties and synthetic greenhouse gas levies will be payable for the 2013- 2014 financial year. Transitional provisions under these Acts will continue so that liabilities and obligations in respect of the 2013-2014 financial year (which extend through until 1 February 2015) can be met and finalised, and enforcement action taken if required.

 

Industry assistance under the Jobs & Competitiveness Program (JCP) and the Energy Security Fund will continue in this financial year to allow relevant entitles to meet their 2013-2014 financial year liabilities, with applications for JCP assistance for this financial year remaining open until 31 October 2013. Recipients of free units under the JCP must report 2013-2014 production data for final allocations for 2013-2014.


Australian Carbon Credit Units (ACCUs) will continue to be able to be used to meet current liabilities for the 2013-2014 financial year.

 

3. NGERS, CFI And Australian National Registry Of Emissions Units Will Be Retained

 

Substantial parts of the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGERS) that supported the carbon price mechanism are to be repealed. The effect is that NGERS will largely operate as it did prior to the commencement of the carbon price mechanism. Controlling corporations will continue to have reporting obligations for emissions and energy under NGERS.

 

The Australian National Registry of Emissions Units is retained but with all references to carbon units and “prescribed international units” (which allowed for linking with international emissions trading schemes) to be removed. This will allow CFI units to continue to be traded after 1 July 2014. However, it prevents European or other international units from being transferred into Australia, consistent with the Government’s commitment to the domestic sourcing of abatement.


The repeal package does not include any amendments to the CFI legislation. It suggests that the right to create ACCUs will continue under the CFI legislation and raises an issue as to how these will have value and application as part of the Government’s Direct Action policy. While ACCUs will remain available for trading in the voluntary market, the value of units in this market is likely to be below that which would have prevailed under the carbon pricing mechanism, with consequences for the economics of some CFI projects, or for ACCU off-takers that have contracted to acquire ACCUs for a fixed price.

 

4. The ACCC Will Be Given New Powers

 

As promised shortly before the election, the ACCC is to be given new powers to monitor prices and take action against businesses attempting to exploit the repeal of the carbon price through unreasonably high prices or making false or misleading representations about the impact of the repeal on pricing.

 

New provisions to be inserted into the Competition and Consumer Act 2010 (Cth) include power for the ACCC to issue infringement notices for price exploitation relating to the supply of natural gas, electricity, synthetic greenhouse gases or equipment or other specified goods. “Price exploitation” is defined to include the circumstance where the price for the supply of these goods is both unreasonably high having regard to the carbon tax repeal and the price is unreasonably high even if the following are taken into account: the supplier’s costs; supply and demand conditions; and any other relevant matter.
Penalties for contravention of these new provisions include maximum fines of approximately $1.1 million for a corporation and $220,000 for an individual.


Amendments have also been made to the Competition and Consumer Act 2010 (Cth) to allow persons other than the ACCC to seek injunctions or recover damages for losses associated with the contravention of the price exploitation provisions.


The operation of the price exploitation provisions are of critical political importance for the Government, as they are its principal means of ensuring that prices do fall to the degree they have indicated they will. The definition of “price exploitation” is likely to attract considerable interest from a range of industry participants, and there is a reasonable basis for concluding the current drafting is insufficiently clear, particularly in relation to its application to existing contractual arrangements, to provide adequate commercial and legal certainty for parties to many electricity and gas supply contracts.

 

5. The Climate Change Authority (CCA) Will Be Abolished

 

The CCA will be abolished and its review roles under the CFI legislation, NGERS legislation and the Renewable Energy (Electricity) Act 2000 (Cth) will be replaced by arrangements at the discretion of the Minister under each Act.

 

6. Industry Assistance Under The Jobs & Competitiveness Program And The Energy Security Fund

 

Industry assistance under the JCP and the Energy Security Fund will continue in this financial year, but not beyond, to allow relevant entitles to meet their 2013-2014 financial year liabilities.

 

Applications for JCP assistance for this financial year remain open until the end of this month with free units to be allocated for 2013-2014 on the current legislated basis, including the operation of the JCP unit buyback. As free units for a given year are allocated on the basis of the preceding year’s production, the current legislation provides for a true-up to occur in the following year to account for whether the actual production in the given year was more or less than the year on which that allocation was based. With the repeal of the carbon pricing mechanism, the JCP will not extend beyond 2013-2014, and so the true-up will not be able to operate in the manner currently legislated. For this reason, the Government is proposing a special process involving the provision by JCP recipients of 2013-2014 production data following the completion of that financial year in order that a final true-up may be performed. This is intended to avoid providing any additional windfall or imposing an arbitrary hardship on JCP recipients.


There will be no new payments under the Steel Transformation Plan and the underlying legislation will be repealed from 1 July 2014. Similarly, there will be no payments from the Energy Security Fund after 2013-2014.

 

7. Second Round Of Tax Cuts Will Not Proceed

 

The repeal package also includes legislation to repeal the second round of personal income tax cuts that were to commence on 1 July 2015.

 

8. No Transitional Provisions To Deal With Specific Commercial Arrangements

 

As was the case with the introduction of the carbon price, the repeal package does not contain any provisions that apply to specific commercial arrangements, such as contracts. This is likely to be significant for contracts where carbon inclusive pricing has been used.

 

The operation of the pricing provisions of such contracts is likely to be affected by the proposed price exploitation provisions to be included in the Competition and Consumer Act 2010 (Cth).

 

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For further information, please contact:

 

Tony Hill, Partner, Ashurst
[email protected]


Jeff Lynn, Partner, Ashurst
[email protected]


Paul Newman, Partner, Ashurst
 [email protected]


James Bruining, Partner, Ashurst
[email protected]


Natsuko Ogawa, Partner, Ashurst
[email protected]


Ashurst Environment Practice Profile in Australia

 

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