The government introduced the Clean Energy Legislative Package (“CELP”) to Parliament this week. Cue fierce public debate, political sparring and all the bells and whistles that you would expect from one of the biggest reforms in recent Australian history.
The introduction of the final form of the CELP represents a key step in what will be a game-changing moment in the economic structure of Australia.
Whatever a company’s point of view on the CELP, it will always be necessary for end users to be aware of both their position under the CELP and the political environment of the day. The importance of the former is self-explanatory. The importance of the latter is characteristic of a polarised political environment which will arguably flavour the final form of the CELP (if passed) with the character of uncertainty.
How is the CELP intended to work?
Let’s have a quick review of how the CELP is intended to work before we move onto the changes.
The centrepiece of the CELP is the Clean Energy Bill. The Clean Energy Bill implements a fixed price on carbon for the first three years (A$23 per tonne, rising at 2.5% per year) and a market based price on carbon from 1 July 2015 with a floor and ceiling price.
As well as a price on carbon, the CELP details such matters as what industries will receive assistance and what form such assistance will take. The CELP also indicates that households will be assisted with the impacts of rises in the cost of living as a result of the CELP (although an exposure draft of the relevant bill has not been released).
It is the government’s position that the implementation of a price on carbon together with certain support mechanisms is the most efficient and effective way to achieve Australia’s 2020 emissions reduction targets.
What are the key changes to the exposure drafts of the CELP?
There have been a number of changes to the exposure drafts of the CELP. However, in our opinion there are two key amendments. These are the introduction of a fuel opt-in scheme, and changes to the obligations of consumers of natural gas.
With regards to the introduction of a fuel opt-in scheme, amendments to the exposure draft of the Clean Energy Bill mean that from 1 July 2013, users of liquid fuel emissions who are liable under the fuel tax system will be able to opt-in to the carbon pricing mechanism. Eligibility to opt-in will be determined on the basis of whether the entity is entitled to fuel tax credits; whether it is a member of the GST group under the Fuel Tax Act 2006; or whether it is a member of a GST joint venture under that Act. The ability to “opt-in” will allow sectors such as the aviation industry to better manage their liabilities under the carbon pricing mechanism.
When it comes to changes to the obligation of large consumers of natural gas, amendments to the exposure draft of the Clean Energy Bill will mean that large consumers could now be liable for the potential emissions from the supply. Large consumers of natural gas are now obligated to quote an obligation transfer number (“OTN”) in relation to the supply of that natural gas.
An OTN is the mechanism incorporated by the Clean Energy Bill to transfer the liability for potential emissions from the facility to the end consumer. In some circumstances, the quotation of an OTN by an end user will not result in that end user being liable for those potential emissions (known as the netting out provisions of the Clean Energy Bill). However, where an end consumer consumes 25,000 tonnes of CO2-e or more in 2010-2011, that end consumer will be now potentially be liable for the potential emissions arising as a result of that consumption.
What does this mean for you?
The amendments to the exposure draft of the Clean Energy Bill will have implications on all end users of energy. The introduction of a fuel opt-in scheme allows the aviation industry in particular to better manager its exposure to the carbon pricing mechanisms. It does so by opening up the carbon credits market to such industries, allowing them to purchase credits to offset their liabilities.
If the aviation industry passes on the relative savings made as a result of its ability to source cheaper offset solutions, this may result in cheaper relative aviation costs than would otherwise have been the case under the exposure drafts of the CELP.
The introduction of a compulsory OTN quotation mechanism represents a fundamental shift for large consumers of natural gas and the suppliers of natural gas. The CELP has introduced certainty as to where liability for potential emissions as a result of the supply of natural gas will be held.
The political fracas which will inevitably escalate after the introduction of the CELP will ensure that an element of uncertainty will inevitably be a defining characteristic of whatever legislation is passed.
This means that as well as keeping an eye on the physical changes to the legislation, companies should keep an eye on the political environment of the day. This will give companies the best indicator of what their future liabilities may look like under the scheme.
Gaining appropriate legal advice will ensure adequate compliance with the new legislation and assist in indentifying ways to manage a company’s exposure to, and take advantage of, a system of carbon pricing.
