Australia: The future of Labor's Clean Energy Future package

"Securing a clean energy future – The Australian Government's climate change plan" was released by the Labor Government on 10 July 2011. Commonly referred to as the Clean Energy Future package, it included a broad range of policy measures to reduce greenhouse gas emissions and drive clean energy investment.

The key and most controversial aspect of the package is the carbon pricing mechanism, which came into effect on 1 July 2012 and requires certain businesses to acquire and surrender emissions units for their greenhouse gas emissions. Labelling this a "carbon tax", the Coalition has campaigned for its abolition, proposing to replace it with the Direct Action Plan. As it promised during the election, the Coalition introduced legislation to repeal the carbon pricing mechanism as the first item of business for the new parliament (on 13 November 2013). The 11 repeal bills have now been referred to a Senate committee, which is due to report back on 2 December 2013. Also, the Coalition is currently consulting on the design of the Emissions Reduction Fund (the centrepiece of its Direct Action Plan). Alongside the carbon pricing mechanism, the Clean Energy Future package also included various forms of industry assistance and transitional support, the Carbon Farming Initiative, research and development funding and new government agencies/authorities to administer the package. With the proposed introduction of the Coalition's Direct Action Plan, the fate of some of these aspects of the package is unclear.

This note has been prepared by Corrs Chambers Westgarth and AECOM. It is intended as an 'at a glance' summary of the changes to the funding, agencies and programmes introduced under Labor's Clean Energy Future package that the Coalition proposes to make to transition to its Direct Action Plan.

Clean Energy Future package Current status Will it continue?
Opportunities on the land
Carbon Farming Initiative (CFI) The CFI allows projects in the agriculture/land use sectors, legacy landfill emissions abatement projects, and alternative waste treatment projects to generate carbon credits based on approved methodologies.

To date:
  • 21 methodologies have been approved across the areas of agriculture emissions, vegetation, and landfill and alternative waste treatment;
  • 5 methodology proposals are currently being considered; and
  • approximately 2 million carbon credits have been generated.
Liable entities under the carbon pricing mechanism are the primary market for carbon credits created under the CFI.
Operating Operating In May 2013, the Coalition announced that it would expand the CFI by:
  • including a wider range of emissions reduction methodologies, potentially covering additional industry sectors; and
  • speeding up the process to have a methodology approved.
The Coalition intends that the Clean Energy Regulator (CER) (instead of the Minister) will be responsible for approving new methodologies. The existing approved methodologies will be maintained.

While new methodologies and activities can be approved by the Government immediately (e.g. via regulations and legislative instruments), amendments to the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) are likely to be required to simplify the procedures and expand the scope of the CFI into new sectors.
Biodiversity Fund The Biodiversity Fund provides funding to projects which involve carbon farming, enhance biodiversity and build greater environmental resilience. It is designed to complement the CFI.

In July 2013, a return of an unallocated $213m of funding from the Biodiversity Fund was announced.
Operating The Coalition is planning to discontinue the Biodiversity Fund, but indicated in pre-election announcements that it will honour signed contracts for existing projects.

Therefore, projects already receiving funding under Round One and Two, and targeted investments in northern Australia and Tasmania will continue. However, no future funding rounds of the Biodiversity Fund will be conducted.

In future, there may be CFI opportunities through new initiatives such as the Emissions Reduction Fund.
Clean energy investment measures
Renewable Energy Target (RET Originally enacted in 2001, the RET requires liable entities (generally, electricity retailers) to acquire and surrender renewable energy certificates, in line with increasing yearly targets.

In January 2011, the scheme was spilt into two parts - the Small-scale Renewable Energy Scheme (SRES) and the Large-scale Renewable Energy Target Scheme (LRET).

The LRET is set by legislation as a specific number of GWh of electricity each year increasing to 41,000 GWh by 2020 (intended to be 20% of Australia's electricity generation at that time). However, because electricity demand is falling the legislated LRET target is currently expected to be significantly more than 20% of Australia's electricity generation in 2020.
Operating The Coalition has stated that it supports the LRET target of 20% of Australia's electricity to come from renewable sources by 2020. In July this year, Coalition Senator Simon Birmingham clarified this meant the fixed target of 41,000 GWh by 2020.

The RET will be reviewed in 2014 and there is speculation that this may result in an adjustment to the LRET to align it with current electricity demand forecasts. If the Climate Change Authority (Abolition) Bill 2013 is passed, the Minister, not the Climate Change Authority, will direct future reviews. The Government's intention is that these reviews will be undertaken by the Department of Environment.

The Coalition has also proposed to create a new band in the RET reserved for renewable energy projects over 50 megawatts and for emerging technologies (such as solar fields, geothermal projects or tidal projects) over 10 megawatts.

The Coalition's policy is otherwise silent on the RET.
Clean Energy Finance Corporation (CEFC) The CEFC is a government owned corporation created to invest in renewable energy, low pollution and energy efficiency technologies. Its investments are intended to have a commercial return.

Since May 2013 it has incorporated Low Carbon Australia Limited (a Commonwealth company that administered the $100m Energy Efficiency Program).

The CEFC is allocated $2 billion to invest each year from 2013/14 to 2017/18 under the Clean Energy Finance Corporation Act 2012 (Cth).

As of August 2013, the CEFC has committed investments of approximately $500m, was in active discussions in relation to a further $2 billion of CEFC finance, and had received applications for a further $3.3 billion in funding.
Operating The Coalition intends to close the CEFC and to do so it has introduced the Clean Energy Finance Corporation (Abolition) Bill 2013. If this bill is passed, the abolition of the CEFC will take effect 28 days later. All assets and liabilities of the CEFC (excluding its employees) will be transferred to the Commonwealth. It is intended that ongoing assets and liabilities will be managed by the Treasury. This bill is currently being considered by a Senate committee, along with the other repeal bills.

On 1 November 2013 the CEFC indicated that it is required by law to fulfil its statutory responsibilities until the abolition legislation is passed, and therefore it is continuing to progress investment proposals.

While the Coalition had previously indicated that it would back out of CEFC contracts entered into prior to the election, in introducing the abolition bill Treasurer Joe Hockey stated that the government would honour payments for committed investments. If the government were to attempt to back out of any CEFC contracts, it may have to pay compensation.

Although the Coalition intends to shut down the CEFC, it has proposed to demerge and retain Low Carbon Australia (LCA), to independently manage the auction process under the Emissions Reduction Fund.
Australian Renewable Energy Agency (ARENA) ARENA administers funding for research and development, demonstration and commercialisation of renewable energy technologies. It provides funding to both individual programs as well as a number of government initiatives such as:
  • the Regional Australia Renewables Initiative;
  • the Accelerated Step Change Initiative;
  • the Renewable Energy Venture Capital Fund; and
  • the Emerging Renewables Program.
In the 2013 Budget, Labor proposed to cut ARENA's budget by approximately 5% leaving it with just over $3 billion in funding, as well as re-profiling funding into later years. At the time of writing, ARENA is still accepting and encouraging grant applications.
Operating In late August 2013, the Coalition announced that it would strip a large proportion of funding from ARENA's budget. As well as carrying through Labor's proposed changes to ARENA's budget, the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 proposes to cut a further $434.9m from ARENA's funding from 2014-15 to 2016-17.

According to statements from ARENA, this will leave it with around $200m in uncontracted funding up to 2016-17. It appears that the Coalition intends ARENA's main role going forward to be the administration of the solar panel programs under its Direct Action Plan.
Regulators and agencies
Clean Energy Regulator (CER) The CER is a government body set up to administer the carbon pricing mechanism, the National Greenhouse and Energy Reporting scheme, the Carbon Farming Initiative and the Renewable Energy Target. Operating The Coalition has stated that it will retain the CER.

It appears that the Coalition intends the main role of the CER to be the administration of the Direct Action Plan, particularly verification of Emissions Reduction Fund projects. Also, the Coalition has indicated that the CER will remain responsible for the Renewable Energy Target and a reworked and expanded version of the Carbon Farming Initiative.
Climate Change Commission (CCC) The CCC was an independent body established to provide the public with independent and reliable information about the science of climate change, the international action being taken to reduce greenhouse gas emissions, and the economics of a carbon price. Shut down The Coalition shut the CCC down on 19 September 2013 and has stated that any functions of the CCC which are still relevant will be brought in-house to the Department of Environment.

Although the CCC no longer exists, former members of the CCC have set up a crowd-funded not-for-profit body (the Climate Council) to continue their work.
Climate Change Authority (CCA) The CCA is an independent body established to provide advice on the operation of Australia's carbon price, emissions reduction targets, caps and trajectories, and other Government climate change initiatives.

The CCA was established under the Climate Change Authority Act 2011 (Cth).
Operating The Coalition proposes to abolish the CCA. It can only do so through legislation and has introduced the Climate Change Authority (Abolition) Bill 2013 to do so. If this bill is passed, the CCA would be abolished 6 months later or earlier by proclamation. The Coalition has stated that any functions of the CCA that are still relevant will be brought in-house to the Department of Environment.
Business assistance, transformation and energy efficiency measures
Jobs and Competitiveness Program (JCP) The JCP provides support to emissions intensive businesses that are exposed to international competition by allocating them free carbon units amounting to a percentage of their increased costs due to the carbon price.

Applications for assistance under the JCP for the 2013-14 compliance year closed on 31 October 2013.

The JCP was established under the Clean Energy Act 2011 (Cth).
Operating The Coalition plans to discontinue the JCP. The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 provides that the 2013/14 compliance year will be the last year in which assistance is provided under the JCP.

Under the proposed repeal arrangements,
  • there will be a process to correct under and over-allocations of 2013/14 JCP carbon units;
  • businesses who have received 2013-14 JCP carbon units will be required to report information for the purposes of this correction;
  • the details of the reporting requirements and the calculation of under and over-allocations will be set in rules to made by the Minister in consultation with stakeholders;
  • the CER would issue additional 2013-14 carbon units to rectify an under-allocation. Most entities are expected to be under-allocated, with rising production levels over time; and
  • a person who has received an over-allocation of free units could relinquish the over-allocated units or pay a true-up shortfall levy, as provided by the draft True-up Shortfall Levy (Carbon Tax Repeal) Bill 2013. Late payment penalties would apply.
Given the current political context, it appears likely that the carbon tax repeal legislation will not be passed until after 1 July 2014. Although the Coalition has indicated that it would retrospectively abolish the carbon price if this occurs, until the repeal legislation is actually passed the CER will continue to have statutory obligations under the JCP.

This means that, unless the repeal legislation has been passed, from 1 July 2014 eligible businesses would be entitled to apply for assistance for the 2014/15 compliance year. The CER is required to take all reasonable steps to make a decision within 60 days of receiving a complete application and then must issue the first allocation of free units as soon as practicable after approving the application.

Unless the repeal legislation is passed beforehand, from 1 September 2014 recipients of free units may sell them back to the CER for a "buy-back amount".
Clean Technology Program (CTP) The CTP provides $1.2 billion of matching grants from 2012/13 to 2018/19 to manufacturing industries to support investment in energy-efficient equipment and low-pollution technologies and research and development in renewable energy, low-pollution technology and energy efficiency. It includes the:
  • Clean Technology Investment Program;
  • Food and Foundries Investment Program; and
  • Clean Technology Innovation Program.
As of 16 July 2013, $290m of CTP grants had been made.
Uncertain The Coalition plans to discontinue the CTP.

The CTP could be discontinued immediately by the Government making changes to the Directions under the Industry Research and Development Act 1986 (Cth) (which were used to set up the CTP).

AusIndustry, which administers the CTP, now provides a warning on its website that the Government plans to discontinue funding of the CTP and that future program arrangements are currently being decided.
Coal Sector Assistance Package (CSAP) This package consisted of two elements:

Coal Sector Jobs Package

Transitional assistance for coal mining companies whose operations have a high fugitive emissions intensity. Following adjustments in the May 2013 Budget, it was to provide $763.5m in assistance to 2016/17.

Applications for grants for the 2013/14 financial year were approved in April and May of 2012 and grants were scheduled to be made to approved applicants from 30 June 2013.

Coal Mining Abatement Technology Support Program

Provides funding to the coal industry to support the development of emission reducing technology and emission abatement strategies. Following adjustments in the May 2013 budget, this program was to provide $39m in funding for 2013- 14.

Successful applicants were announced in July and August 2013 by the Department of Resources, Energy and Tourism.
Operating The Coalition has announced that it will discontinue the CSAP (we assume both elements). No details of when or how this will occur have been released.
Steel Transformation Plan (STP) The STP provides up to $300m worth of cash assistance from 2012-13 to 2015-16 to eligible innovation, investment and production activities in the steel manufacturing industry. The object is to assist this industry to become more efficient and sustainable in a low carbon economy.

The STP was established under the Steel Transformation Plan Act 2011 (Cth).
Operating The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 provides for the repeal of the Steel Transformation Plan Act 2011 (Cth) and would effectively abolish the STP from 1 July 2014.

If the repeal legislation is passed, eligible corporations would not be entitled to further payments and would no longer be required to maintain registration.

The repeal would not have any impact on the competitiveness assistance advances (a total of $164m) provided to the eligible corporations in the 2011-12 financial year.

If the repeal legislation is not passed within the Coalition's anticipated timeframe, the Coalition may be able to halt payments under the STP until this occurs by amending the legislative instrument which specifies the administrative arrangements for the STP.
Energy Security Fund (ESF) The ESF was set up to provide $5.5 billion dollars in compensation to highly emissions-intensive coal-fired electricity generators from 2011-12 to 2017-18.

Applications to be eligible for the ESF closed in May 2012, and all free carbon units for the 2013-14 compliance year have already been issued to eligible generators.

The ESF was established under the Clean Energy Act 2011 (Cth).
Operating The Coalition plans to discontinue the ESF. The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 provides that the 2013/14 compliance year will be the last year in which assistance is provided under the ESF.

As stated above, currently it appears likely that the carbon tax repeal legislation will not be passed until after 1 July 2014 and, until it is, the CER will continue to have statutory obligations under the ESF.

This means that, if the repeal legislation is not passed before 1 September 2014, the CER would be obliged to issue free carbon units to generators eligible for ESF assistance (i.e. the generators which were granted a certificate of eligibility in June 2012).

The Coalition has indicated that the Direct Action Plan will provide some form of incentive for coal-fired power stations to reduce emissions. However, details of what these incentives will involve have not been released.
Carbon Farming Futures Program (CFFP) The CFFP provides $429m of grant funding from 2011-12 to 2017-18 to support research and development, conduct on-farm trials, and provide technical information and support in relation to carbon farming. The goal is to assist farmers and landholders to benefit from the CFI.

A significant amount of this funding is yet to be allocated.

The successful applications for the second round of CFFP programs were finalised earlier this year, except for the CFFP Extension and Outreach program which had not been determined before the caretaker provisions took effect.
Operating The Coalition has not specifically commented on the future of the CFFP.

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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