Australia: Carbon Tax Repeal Bills Do What They Say On The Tin - But Is That Enough?
24 October 2013
Posted by: Authors: Brendan Bateman and Alison Packham
Authors: Brendan Bateman and Alison Packham (Clayton Utz)
Business should be getting specific advice now on the impacts of the carbon tax repeal on a wide range of matters.
The Federal Government released a Consultation Paper and exposure drafts of a suite of eight draft bills (the Carbon Tax Repeal Bills) that will abolish the Carbon Price Mechanism last week.
While they would in fact abolish the carbon tax, the Carbon Tax
Repeal Bills as they currently stand are predicated on the assumption
that they will be passed and the Carbon Price Mechanism abolished by 30
June 2014 – an assumption that is optimistic, given the composition of
the current Senate.
As a result, there are concerns in some sectors about how and when the
abolition will occur, and what that will mean for their business models.
Three elements to the abolition of the Carbon Price Mechanism
The draft Carbon Tax Repeal Bills have three main objectives.
First, they abolish the Clean Energy Act 2011 and its supporting legislation and entities, including:
the Climate Change Authority, whose functions for periodic legislative
review of the Carbon Farming Initiative, the Renewable Energy Target
and the National Greenhouse & Energy Reporting Scheme are
transferred to the Minister of the Department of the Environment;
the Jobs & Competitiveness Program industry assistance after 1 July 2014; and
the income tax cuts, which were to commence in 2015.
Secondly, they retain the Clean Energy Regulator and energy reporting
requirements under the National Greenhouse and Energy Reporting Act 2007
and the Australian National Registry of Emissions Act 2011.
Finally, the Australian Competition and Consumer Commission gets new
powers to monitor prices and ensure businesses are not exploiting or
making false or misleading statements about the carbon tax repeal.
When will the carbon tax be abolished?
Critically, the Government has publically committed to abolishing the carbon tax on 1 July 2014, even if Parliament has not passed the Carbon Tax Repeal Bills by this date.
Given that the Greens and Labor are currently opposed to the repeal of the carbon tax
unless its replacement includes some form of emissions trading scheme,
however, their combined power in the Senate is likely to frustrate the
Government's plans to axe the tax by the end of this financial year.
Nonetheless, the Government is adamant that the repeal will occur by
the stipulated deadline and has not ruled out a double dissolution
election should the Senate frustrate the passage of the carbon tax
repeal bills (although politically this might be more threat than a
promise). The alternative is to wait until the formation of the new
Senate in July 2013.
No retrospective effect for the carbon tax abolition
If the carbon tax repeal bills are
not passed until after 1 July 2014, it is unclear if the Government
intends for the legislation to operate retrospectively.
The current form of the draft legislation does not contemplate its
retrospective application, and if this was the Government's intention,
then it would need to include an express provision to that effect. It is
more likely that if the scheme could not be repealed before the
proposed 1 July 2014 deadline, that either some abridged compliance
period would ensue, or the scheme continues for a further full
compliance period until June 2015. Either scenario would lead to considerable complexity and uncertainty for business.
Carbon Price windfall?
Many of the concerns about transitional issues that we have raised previously are not addressed in the draft Carbon Tax Repeal Bills, because the Government is operating on the basis that the Bills will be passed and commence by 30 June 2014.
As an example, what would happen with permits surrendered after 1 July 2014, or for any excess free permits retained at this date?
If the abolition occurs before that date, as the Government intends it
to, then no compensation would be payable. Consequently the transitional
provisions in the draft Carbon Tax
Repeal Bills only permit the issue and dealing in carbon units, and
surrender of eligible permits, in order to discharge liabilities in the
financial year ending 30 June 2014. But what if the carbon tax is still in place?
If the Government has to delay the abolition until a friendlier Senate
is sworn in, a possible end-point for the Carbon Price Mechanism could
be September 2014. If this was the case, entities entitled to assistance
under the Jobs and Competitiveness Program, could apply to receive an
allocation of free carbon units. If that happens, RepuTex says that:
"the government can expect companies to utilise the buy-back facility
before the permits become worthless, with government facing a bill in
excess of A$2 billion to cash in nearly 87 million freely allocated
permits. In such a scenario, the Metals, Energy, and Power sectors stand
to receive a significant cash windfall, while avoiding almost all
liability for their emissions."
Whether this in fact transpires will depend on the approach adopted by
the CER in determining such applications, and the manner in which any
allocations are made. Nevertheless, the CER is constrained by the
current terms of the Clean Energy Act and associated regulations, and it
has limited ability to reduce or pro-rata allocations. It is likely
however that if the passage of the Bill is delayed beyond July 2014, it
will be amended to address this scenario.
Direct Action and its Emissions Reduction Fund still not finalised
Following the draft Carbon Tax
Repeal Bills, the Government called for public comment on the Emissions
Reduction Fund. This will be the major component of the Direct Action
Plan that will replace the carbon tax as the Coalition's policy response to carbon emission reduction.
The Terms of Reference for the Emissions Reduction Fund
contain insufficient detail to assess this replacement policy. We will
have to wait until December before a consultation Green Paper is
released indicating the Government's preference for the structure and
operation of the fund, before we get a White Paper and draft legislation
in early 2014. Whether the Government can keep to this timetable
remains to be seen.
Consequently, there is clear possibility that the debate over the
repeal of the Clean Energy Act will occur without the benefit of any
detail of the policy alternative to reduce emissions.
So what should you do now?
The first point to remember is that until it is repealed, businesses
must still comply with their obligations under the Clean Energy Act,
including reporting of covered emissions and surrendering of eligible
units to meet any liability.
Business should be getting specific advice on the impacts of the carbon tax repeal on matters such as:
the permits they hold and could be entitled to apply for if the carbon tax is still in place as at 1 July 2014;
supplier / customer contracts and how they handle carbon cost pass through as well as changes to fuel taxes;
electricity contracts and any derivatives used to manage their exposure;
their participation in the Carbon Farming Initiative and the National
Greenhouse and Energy Reporting Schemes, or any carbon unit auctions
(scheduled to commence in early 2014);
their exposure on the domestic secondary market via the purchase of
Australian Carbon Units or Australian Carbon Credit Units; and
the viability of their emissions abatement projects.
The Government has released a Consultation Paper which calls for submissions on the Carbon Tax Repeal Bills. Stakeholders are asked to submit responses to Government identifying any technical issues with the draft carbon tax repeal bills as well as any transitional issues for liable businesses and entities.
Given the issues we've identified, businesses affected by the repeal of
the Carbon Price Mechanism should take this opportunity to seek more
detail about the transitional issues. The closing date for public
comments is 5pm Monday 4 November 2013.
This article first appeared in lexology.com.