Australia: What you need to know about the Carbon Tax Legislation

Climate Change Alert
Last Updated: 9 August 2011

Article by Michele Muscillo, Partner and Ben Ricketts, Solicitor

Following release of the draft Carbon Tax Legislation, business and the public now have until 22 August 2011 to comment on The Clean Energy Bill 2011.

At 340 pages, the draft legislation is significant and contains a variety of issues for business to consider.

Here, Partner Michele Muscillo and Solicitor Ben Ricketts provide a brief overview of the mechanics of the Clean Energy Bill, with a particular focus on those companies that will be liable for greenhouse gas emissions and the mechanism being created for the purchase and relinquishment of carbon units in order to offset those greenhouse gas emissions.

What you should know

  • Based on Government estimates, the top 500 largest polluters in Australia will be liable for their greenhouse gas emissions. It is estimated approximately 110 of these are based in Queensland and miners and electricity producers will dominate the list.
  • If you are one of the top 500 companies, you will be liable for every tonne of CO2, nitrous oxide or methane released from 1July 2012 onwards. That liability will require you to purchase carbon units from the Clean Energy Regulator at a starting price of $23 per tonne, for each tonne emitted.
  • Certain emissions will be exempt (eg emissions from livestock, rice production, decommissioned underground mines and the combustion of fuel or gas already the subject of customs or excise duties).
  • The company that has direct operational control of the emitting facility will be liable, not the parent company.

Who will be liable?

The Government has indicated that the top 500 largest polluters in Australia will be liable for their greenhouse gas emissions. The figures released show that 110 are based in Queensland. The presumption is that miners and electricity producers will dominate the list, in particular, those emitting more than 25,000 tonnes of greenhouse gas per year.

Those top 500 emitters will be liable for every tonne of greenhouse gas emitted as from 1 July 2012 unless exempt. For each tonne emitted, that liable person or company will be required to relinquish a carbon unit. For example, if you emit 25,000 tonnes of greenhouse gas, you will need to relinquish 25,000 units.

A person or company will be liable if they fulfil the following criteria:

  • 1. During a financial year, they emit 25,000 tonnes of carbon dioxide, or the equivalent amount of methane or nitrous oxide (also in relation to aluminium production the equivalent amount of perfluorocarbon).
  • 2. Companies or persons involved in the following will be exempt:
    - 2.1 the combustion of fuel or gas that has already been subject to customs or excise duties;
    - 2.2 agricultural emissions from livestock, decomposition of livestock waste;
    - 2.3 emissions from rice production;
    - 2.4 emissions from the burning of savannah, grassland, crops or sugarcane;
    - 2.5 emissions from soil;
    - 2.6 fugitive emissions from decommissioned underground mines;
    - 2.7 legacy emissions from landfill facilities for waste accepted prior to 1July 2012.

Previously under the Carbon Pollution Reduction Scheme (CPRS) the company that would be liable was the parent company that had overall control of the subsidiary companies that were responsible for the emissions of greenhouse gas. That is no longer the case, now it will be the person or company that has the direct operational control of the facility that emits the greenhouse gas that will be liable.

In the case where control of a liable facility is relinquished half way through a financial year, the party will be liable for those emissions on a pro rata basis.

In the case of joint venture operations, the parties' liability will be calculated in the proportion that control is held in the joint venture operation.

So if you emit more than 25,000 tonnes of carbon dioxide or the equivalent amount of methane or nitrous oxide and you are not otherwise exempt in relation to combustion of fuel or gas, agriculture emissions, rice production, decommissioned underground mines and/or landfill facilities, then you will be liable to surrender emission units in relation to the number of tonnes of greenhouse gas emitted.

How do you buy and surrender emission units?

There are three types of emission units available. Those are:

  1. Carbon units for sale from the Clean Energy Regulator, at a starting price of $23 each.
  2. International emission units.
  3. Australian carbon credits.

For the first three years (the fixed year period), 1 July 2012 to 30 June 2015, international emission units cannot be surrendered and as yet, Australian carbon credits are still being formulated via the Government's carbon farming initiative. So, for the initial year at least, carbon units for sale by the Clean Energy Regulator, will comprise the majority of emission units to be relinquished.

The Clean Energy Regulator will issue carbon units to liable companies who open an account with the Clean Energy Regulator. Each carbon unit will be given a particular number and will be valid for the financial year of issue only.

The commencement price for the carbon units will be $23.00 on 1 July 2012, rising to $24.15 on 1 July 2013 and then $25.40 on 1 July 2014.

Once you purchase a carbon unit, you will automatically be deemed to have surrendered same. An entry then will be made in your account showing that you have relinquished that unit.

During the first three years, the carbon units are not transferable. After the fixed period, from 1 July 2015 (the flexible period) carbon units will be auctioned and will be transferable.

If you are liable for and do not relinquish a carbon unit, then you will face a shortfall charge which will be a debt payable to the Commonwealth.

Further information

HopgoodGanim will shortly issue a second paper which will cover the topic of the allocation of free carbon units to trade exempt industries and to coal fired power stations. A third and final paper will cover the topics of proposed penalties and offences under the draft bill.

© HopgoodGanim Lawyers

Gold Employer of Choice - ALB magazine, April 2010
Finalist, Brisbane Law Firm of the Year, ALB Australasian Law Awards 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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