Australia: Landfill operators now liable for carbon tax

Climate Change Alert: 26 Jul 2012
Last Updated: 29 July 2012

By Michele Muscillo, Partner and Ben Ricketts, Solicitor

Landfill facilities that emit more than 10,000 tonnes of carbon dioxide equivalent (CO2e) per year are currently required to calculate and report their greenhouse gas emissions to the Clean Energy Regulator. As of 1 July 2012, landfill facilities that emit more than 25,000 tonnes per year will also be liable for the carbon tax, initially at $23 per tonne. In certain circumstances, landfill facilities emitting more than 10,000 tonnes may also be liable to pay the tax.

While payment of the tax won't be due until the end of the current financial year, it is important that landfill operators factor in their liability now to avoid a shortfall come 30 June 2013.

Here, partner Michele Muscillo and solicitor Ben Ricketts outline how the carbon tax affects landfill facilities and what landfill operators need to know about meeting their carbon tax obligations.

Key points

  • The carbon tax will affect primarily polluters, electricity producers and, indirectly through price rises, heavy users of electricity (such as aluminium producers and refineries). It will also apply to landfill facilities. Liability for landfill emissions will not kick in until 30 June 2013, after which time, operators will need to calculate their emissions and purchase permits.
  • The carbon tax is applicable for facilities that emit more than 25,000 tonnes of CO2e (carbon dioxide equivalent) per year. Liability for the tax will fall to the entity that has operational control of the landfill facility. In certain circumstances, even landfill facilities emitting less than 25,000 tonnes but more than 10,000 tonnes may also be liable to pay the tax.
  • Landfill owners need to be aware of their ability to pass on the costs of the carbon tax, and the potential risks of doing so illegally.

How Australia's carbon tax affects landfill facilities

Generally, the carbon tax is applicable for facilities that emit more than 25,000 tonnes of CO2e (carbon dioxide equivalent) per year. However, this threshold is reduced for certain landfill facilities (as described below). Liable facilities will be required to purchase from the Government, and then relinquish, carbon permits at a cost of $23 per tonne in the first year, rising to $24.15 the second year and $25.40 in the third year. After this time, the price of a carbon permit will be determined by the free market through an emissions trading scheme.

Liability will arise for waste received at a landfill facility from 1 July 2012 onwards. There will be no liability for waste received before 1 July 2012 (called 'legacy waste'). Landfill operators will not be required to pay the carbon tax (purchase and then relinquish permits) until 30 June 2013 (in other words, after a years' worth of waste has been collected).

The threshold for emissions liability is 25,000 tonnes of CO2e. Because landfill emits methane rather than CO2, the threshold is reduced. As methane emissions are around 21 times more volatile than CO2, the practical effect is that the threshold for methane emissions is actually around 1,190 tonnes of methane.

Additionally, in certain circumstances, including where two landfill facilities accepting the same class of waste which are located within close proximity of each other, the threshold for liability under the carbon tax is reduced to 10,000 tones of CO2e.

Reporting on your emissions

There is a different and lower threshold for the reporting obligations of landfill facilities. If a landfill facility emits more than 10,000 tonnes of CO2e in a reporting year, the liable landfill operator is required to calculate and report its greenhouse gas emissions to the Clean Energy Regulator.

There are three different methods for calculating methane emissions from landfill (see Chapter 5 of the National Greenhouse and Energy Reporting (Measurement) Determination 2008). The proportion of household to commercial waste, the location of the landfill (ie warm or cold climate), and any amounts of waste removed for recycling or biological treatment will also need to be considered in calculating emissions.

Operational control of the landfill facility

Liability for the carbon tax will fall to the entity that has operational control of the landfill facility. A three stage test determines which entity has operational control based on the authority to introduce and implement the facility's:

  1. operating policies;
  2. environmental policies; and
  3. occupational health and safety policies.

The operating and environmental policies carry more weight in the test, as occupational health and safety has little impact on emissions.

Confusion may arise where a contractor has been engaged to operate a landfill facility, and that contractor is required by the owners of the landfill to implement the operating and environmental policies. The contractor will arguably not be liable for the emissions of the landfill facility, as the contractor is not the entity with the greatest authority to introduce and implement the policies required to satisfy the three stage test.

Contractual obligations

Generally, waste industry participants will have entered into long-term contracts with landfill operators for dumping waste. Those contracts may or may not allow any increase in costs resulting from the carbon tax to be passed on. While a well-drafted long term agreement will contain a 'change in law clause' or a 'change in tax clause' to allow costs to be passed on, a 'change in tax clause' may not necessarily apply to the carbon tax. For more information about the application of these clauses to the carbon tax, see our previous Alert.

Other factors affecting landfill facilities

A number of factors come into play when calculating the emissions of a landfill facility: the rate at which waste breaks down and emits CO2e, the expected longevity of the facility, the climate of the landfill's location, and the type of waste received, to name a few. These factors will all influence the tipping fees charged to customers, which landfill operators will be striving to keep competitive.

Landfill owners also need to be aware of the investigative powers of the ACCC in relation to the carbon tax. For more information about passing the costs of the carbon tax on to your customers, please see our previous Alert.

Opportunity also exists for landfill operators to reduce their liability by either capturing methane and flaring it (thereby converting the methane to CO2), or capturing methane and converting it to electricity for retail sale or domestic use. Landfill operators can also consider diverting landfill through recycling, green waste collection and/or composting.

It is vital that landfill operators seek legal advice on the issues outlined here to avoid a potential revenue shortfall when they become liable for the carbon tax at the end of this financial year.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

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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