Most Read Contributor in Australia, September 2016
In the lead up to the 2013 election, the Coalition promised to
repeal the carbon tax and take direct action on climate change.
Agribusiness expected to benefit from both reforms. Firstly, the
repeal of the carbon tax would reduce costs. Secondly, direct
action would offer the opportunity to invest in areas such as
carbon farming. With the Abbott government now more than a year
old, let's take stock of what has become of the promises.
Carbon tax repeal
On 17 July 2014 the government succeeded in repealing the carbon
tax and backdated its effect to 1 July 2014. The government
predicted that the repeal would result in the average energy costs
for Australian businesses being lower than they otherwise would
be in 2014-15. In the agribusiness sector, this was likely to
be achieved through reduced direct and indirect costs.
The important thing to remember is that costs being lower
than they otherwise would be is quite a different concept to
energy costs actually falling. While the introduction of the carbon
tax in 2009 coincided with a surge in energy prices, a 2012 Senate
inquiry found that increased spending on network infrastructure
(the so-called 'gold plating of the network') was
responsible for much of the price jump. Indeed, Treasury estimates
suggest that 51 per cent of the average energy bill is spent on
network costs. So while the repeal of the carbon tax may see a
reduction in energy prices, they are unlikely to return to pre-2009
Importantly, electricity and gas retailers are required by law
to prepare a written statement that sets out an estimate of the
costs saving attributable to the removal of the carbon tax. The
ACCC is responsible for ensuring that all savings are passed along
The former Labor government created the Carbon Farming
Initiative in 2011 as part of its action to address climate change.
Carbon farming involves storing carbon in vegetation and soil
through changes in agricultural practice and land management, with
carbon farmers receiving carbon credits according to changes in the
carbon levels of their soil. The credits can be onsold to
businesses to reduce their carbon emission liabilities or to market
themselves as 'carbon neutral'.
The carbon tax repeal, however, cast a shadow over the future of
carbon farming in Australia. Until late 2014 it appeared that both
the market for carbon and the mechanism for pricing carbon units
would be dismantled.
Carbon farmers were thrown a lifeline, though, in the form of
amendments to the government's direct action plan. The
amendments, negotiated by independent Senator Nick Xenophon and the
Palmer United Party, included:
a safeguard mechanism to ensure that net emissions from major
polluters do not exceed specified levels, with penalties for
neutral treatment of international carbon credits so that
trading in international carbon credits may occur in the future,
despite the current government's position
an 18 month grace period for the Climate Change Authority,
during which time it will undertake a study of the effectiveness of
emissions trading schemes and make recommendations.
The upshot for carbon farmers is that there may yet be a future
for the sale of carbon credits in Australia. The legislation now
leaves the door open for future governments to introduce trading in
international carbon credits. More importantly, in the near term,
carbon farmers will be able to sell their carbon credits through a
$2.55 billion Emissions Reduction Fund. The Fund will purchase
carbon credits through reverse auctions, with the first auction
expected to occur in March 2015. It is worth noting that any new
carbon farming projects registered after 1 July 2015 will have to
comply with the Emissions Reduction Fund's new eligibility
Carbon farming remains a complex area. With many of these
changes yet to take full effect, advice is recommended for those
seeking to comply with the new regulatory framework.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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