On July 17, 2014, the Australian federal parliament passed the Clean Energy Legislation (Carbon Tax Repeal) Act 2014, repealing the carbon tax legislation with effect, aside from a few transitional provisions, taking place retrospectively from July 1, 2014.

In order to pass the carbon repeal legislation, a number of concessions had to be agreed to by the government. Importantly, this included retaining the Renewable Energy Target of achieving 20 percent of energy in Australia to come from renewable sources by 2020 and ensuring that the Australian Renewable Energy Agency remained. The Australian Renewable Energy Agency was previously created to fund a variety of projects and programs for research and development of renewable energy in Australia.

In addition to the repeal of the various carbon tax legislations, a number of temporary consumer protection measures were implemented with the objective of ensuring the cost savings associated with the repeal are passed to consumers. Powers were given to the Australian Competition and Consumer Commission to ensure no price exploitation takes place in relation to the carbon tax repeal.

The government released its Emissions Reduction Fund White Paper in April 2014 ("White Paper"), which contained designs of the Emission Reduction Fund (the "Fund") proposed to deal with reductions in emissions. The Fund is the centerpiece of the government's Direct Action Plan. The government is committing AUD 2.55 billion to the Fund.

After public consultation on the White Paper, the government released a Carbon Farming Initiative Amendment Bill 2014 exposure draft on June 18, 2014 to establish the Fund and give effect to the Direct Action Plan.

The Fund's overriding objective is to reduce emissions at lowest cost over the period to 2020 and make a contribution toward Australia's 2020 emissions reduction target of five percent below 2000 levels by 2020.

The features of the Fund are as follows:

  • The Clean Energy Regulator will issue Australian Carbon Credit Units ("Units") for genuine emission reductions estimated and verified in accordance with approved streamlined methods to the registered project proponent. Genuine emission reductions are reductions that would likely not have occurred without the Fund, are verifiable and calculated on a conservative basis, and can be counted toward Australia's emission reduction target. Projects will receive the Units over a crediting period of seven years in general, although sequestration projects will have a 15-year crediting period.
  • The Units can be used in the voluntary National Carbon Offset Standard, and the government will cancel credits issued to it under the Kyoto Protocol where Units are used under that Standard. Units cannot be exported out of Australia's registry for the first three years of the Fund.
  • Emission reductions will be purchased by the Regulator through auctions. Project proponents who are registered can participate in the auctions. Bids that provide emission reductions at the lowest cost will be selected. There will be a benchmark price set by the Regulator above which emission reductions will not be purchased. There will be guidelines published for the auctions including a minimum project size.
  • There will be standard contracts for the purchase of the emission reductions.
  • There will be a safeguard mechanism effective July 1, 2015, whose objective is to ensure that the emission reductions achieved under the Fund are not displaced by a significant rise in emissions elsewhere in the economy. The mechanism will apply at the facility level and will be restricted to facilities with direct emissions of 100,000 metric tons or more of CO2-e a year
  • The Carbon Farming Initiative will become part of the Fund.

The government has committed to reviewing its international targets in 2015, and the Fund will be reviewed toward the end of 2015.

Despite the repeal of the carbon tax legislation going through, it is not known at this time whether the Direct Action Plan legislation will be supported by the new members of the Australian Senate, who have the balance of power. These new members have expressed a general support of carbon reduction initiatives, although they may require further revisions to the legislation before the legislation is passed.

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