Government Matters

Focus:	Government Matters for September 2008
Industry Focus:	Government
Date:	19 September 2008
Author:	Jim Holding, Partner

Dibbs Abbott Stillman Lawyers restructured on 1 March, 2009.

The Sydney, Brisbane and Canberra offices are now DibbsBarker.

Fuel: Tax Offsets and Handouts under the Carbon Pollution Reduction Scheme. Are they a Good Idea?

At the National Press Club launch of the Garnaut Climate Change Review’s Draft Report Professor Ross Garnaut clearly stated that offsetting fuel price increases (cause by an ETS) by cuts in fuel excise ‘would send some funny sort of signal because what this [an ETS] is all about is encouraging people to economise on activities that are intensive in emissions.’ Nevertheless, the Government’s Carbon Pollution Reduction Scheme (CPRS) Green Paper contemplates fuel excise offsets on a cent-for-cent basis for at least the first three years of the scheme and handouts to the agriculture sector and heavy vehicle road users for the initial year. The obvious political consequences of increased fuel costs aside, the Federal Government has justified these assistance measures by citing evidence that peoples’ responses to fuel price increases are long-term and that the measures will give households and some businesses time to adjust.

The agricultural, fishing and heavy road vehicle industries will be initially shielded for the cost impacts of the CPRS, while other major sectors miss out. Recently, representatives from the rail and shipping industries have expressed concerns that they will be disadvantaged by the assistance measures. The government’s response to their concern may be similar to its response to the mining industry, which the government feels should not receive fuel rebates because it is capable of absorbing the costs. There are obvious political reasons for fuel assistance measures, but less obvious environmental reasons. The fuel issue demonstrates just one aspect of the delicate public policy balancing act that is involved in initiating an emissions trading scheme. Whether the scheme is compromised by the issue (as Garnaut has hinted it may be) remains to be seen.

The Emerging Law on Climate Change in Australia – Consequences for Government

Over the last four years, Australian courts have seen a dramatic increase in litigation involving climate change.

The cases generally involve applicants or litigants attempting to reduce the green house gas emissions (GHG) of particular property developments. An absence of national leadership on the issue of climate change, will mean the courts and climate change litigation are likely to continue to play a significant role in the actions taken to reduce GHG emissions in Australia. It is only now that the beginnings of such national leadership are being realised.

The release, on 16 July 2008, of the Federal Government’s Carbon Pollution Reduction Scheme Green Paper represents a significant step towards national regulatory action on the issue of climate change. However, given the recent genesis of a body of case law on climate change, a failure to implement an effective national emissions trading scheme (ETS) will undoubtedly result in an increase of climate change litigation.

The litigious consequences of failing to successfully implement an ETS should not be underestimated. Climate change litigation has the potential to fragment government processes and delay major infrastructure projects, with significant cost to both governments and business. State governments, statutory authorities and corporations involved in major (GHG emissions intensive) infrastructure projects have been the primary respondents in climate change cases. The impacts of litigation are compounded by the fact that climate change litigation is unlikely to be an effective means of reducing Australia’s total GHG emissions, meaning the costs involved to parties are frivolous. Further, actions are often commenced or continued only to gain public exposure for environmental campaigns.

There are various types of litigation possible. In Australia, climate change litigation has been conducted via environmental administrative law actions, rather than common law tortious actions. Generally, litigation is commenced where applicants seek judicial review of governmental decisions approving development involving significant GHG emissions.

The recent rise in the number of climate change cases has resulted in increasing judicial recognition of climate change and its effects. In general, the judiciary appears more open to the recognition of the adverse effects of climate change than not. Judges frequently invoke scientific consensus in recognising climate change: the IPCC’s Fourth Assessment Report (2007) is cited frequently.

Since Greenpeace v Redbank Power Co (1994), Australian courts have considered climate change in a number of cases including: Re Australian Conservation Foundation v Latrobe City Council (2004) and Wildlife Preservation society of Qld Proserpine/Whitsunday Branch v Minister for Environment and Heritage (2006). Each case has concerned the development of major infrastructure projects, including coal-fired power stations, wind farms and coal mines, with applicants objecting to the environmental impacts of such developments.

Two key cases highlight the judiciary’s growing acceptance of climate change. In Gray v Minister for Planning (2006) Pain J was unequivocal in recognising a causal link between coal mining and climate change:

“I consider there is a sufficiently proximate link between the mining of a very substantial reserve of thermal coal in NSW, the only purpose of which is for use as fuel in power stations, and the emission of GHG which contribute to climate change/global warming, which is impacting now and likely to continue to do so on the Australian and consequently NSW environment”

Similarly, in Walker v Minister for Planning (2007), Biscoe J held that the Minister was under an implied obligation, which he did not discharge, to consider the climate change flood risks of a proposed development. His Honour stated that:

“Climate change presents a risk to the survival of the human race and other species. Consequently, it is, a deadly serious issue.It has been It has been increasingly under public scrutiny for some years. No doubt that is because of It public scrutiny global scientific support for the existence and risks of climate change and its anthropogenic causes.”

While causation remains a contentious issue, these statements clearly indicate an emerging acceptance of climate change, which translates into obvious legal consequences. However, not all courts are receptive to such acceptance.

In Re Xstrata Coal Queensland (2007), Koppenol P held it was not appropriate to impose conditions (to offset GHG emissions) on the grant of a mining lease application, and was openly sceptical about climate change science. The decision was subsequently overturned on administrative law grounds, and remitted to the Land Court for re-determination. Following the appeal, the Queensland Government passed specific legislation ensuring the grant of the mining lease would proceed (see Part 4A Mining and Other Legislation Amendment Bill 2007). The Queensland government’s response demonstrates the current state of climate change regulation: absent a comprehensive, national government response, each State adopts policies to suit its own particular needs.

Clearly such ad hoc responses to, often, frivolous litigation will not reduce overall GHG emissions. Without an effective national ETS, climate change litigation will continue to expand, frustrating government processes and creating significant costs, both financial and environmental, to governments, business and the broader Australian community.

Taking the Paper to the People

What Happened at the Federal Government’s Green Paper Public Information Session in Brisbane?

On the 25th of July 2008, the Federal Government held a public information session, at the Mercure Hotel Brisbane, to discuss its recently released Carbon Pollution Reduction Scheme (CPRS) Green Paper. The session was conducted by the Deputy Secretary of the Department of Climate Change Mr Blair Comely. There was a presentation outlining the government’s proposals for the national CPRS, as well as a question and answer session.

Importantly, the Deputy Secretary discussed some of the more controversial aspects of the CPRS proposal:

The exclusion of agriculture: the Deputy Secretary explained the rationale behind the government’s preferred position not to initially include the agricultural sector in the scheme. Currently, the methodologies for calculating agricultural emissions are underdeveloped and it is less obvious that upstream liability for emissions can be found as the behaviour of farmers (i.e. what they farm and farming practices) determines total emissions.

Proposed fuel tax cuts: to offset the impact of the CPRS, were then discussed. Evidence was highlighted suggesting that people’s responses to fuel prices (that is, fuel price increases) are long-term. The government is therefore proposing to offset the rising cost of fuel through tax cuts on a cent for cent basis to allow consumers approximately five years to adjust to rising costs. It was not acknowledged that this proposal is contrary to the advice of the Garnaut Climate Change Review (for more detail, see page 4).

Assistance to Emissions Intensive Trade Exposed Industries (EITE) was addressed. There are two basic elements of the rationale of assistance to EITE industries: to mitigate the risk of ‘carbon leakage’ and the need to provide a smooth transition for specifically affected companies. There will be free allocation of permits to EITE industries, but no dollar for dollar profit protection.

Finally, the issues involved in the proposed Electricity Sector Adjustment Scheme were explained. It was emphasised that coal fired generators may not be able to effectively pass on costs imposed by the scheme to electricity consumers because of the presence of gas and renewable energy sources. The government sees a real need to support such firms in adjusting to operation under a CPRS.

The session demonstrates that the Federal Government is eager to present its views on how the CPRS should be implemented, especially considering the emphasis on the more contentious issues. Some of the questions asked also indicate that there are legitimate concerns about the CPRS design from diverse areas of the community. The stakeholders present were encouraged to make submissions about the Green Paper. Submissions were due on September 10 2008.

CPRS FAQS

What is ‘carbon leakage’?

Carbon leakage occurs where an industry, because of the increased costs associated with an emissions trading scheme, reduces or discontinues operations in a country.

Prevention of carbon leakage is critical because it will simultaneously damage the Australian economy and, possibly, result in increased GHG emissions in another country with less stringent environmental policies.
What is the interplay between price and emission caps?

There has been substantial internal government debate about where the price cap should be set. The price cap will be high enough so that it is to be used only in exceptional circumstances.

At the same time, the price cap ensures the scheme’s credibility: the idea is that the price cap will be set high enough so it wont be used, but low enough to express the (highest) cost (of carbon pollution reduction) the government is prepared to impose on the Australian economy.

What are Scope 1, 2 and 3 emissions?

The World Business Council for Sustainable Development and World Resources Institute GHG Protocol 2004 outlines 3 types of emissions:

Scope 1 emissions are emissions that occur from sources directly owned or controlled by an (emitting) entity. Scope 2 emissions are concerned with purchased electricity, and the indirect emissions it creates.
Scope 2 emissions are physically produced by electricity generators, but can be accounted for by the purchasing entity.
Scope 3 (an optional reporting category) involves emissions outside the entity’s direct ownership or control, but consequential on the activities of the entity (e.g the transportation of purchased goods).

In a markedly different approach, the CPRS Green Paper contemplates only ‘direct’ (analogous to Scope 1) and ‘indirect’ (upstream liability) points of obligation for GHG emissions.

Which category applies will be industry dependant. For example, fuel producers are likely to be held liable for the emissions related to their products, despite the fact that these emissions are not directly controlled by the producers.

The Scope 2 & 3 emissions defined above are not contemplated by the Green Paper.