On 10 March 2009, the Federal Government released the eagerly anticipated draft Bill designed to introduce the Carbon Pollution Reduction Scheme. The legislation seeks to implement the design of the scheme originally proposed in the Government's Green Paper and more recently set out in the Government's White Paper issued on 15 December 2008 (see our previous legal updates). Minister Wong has described the Bill as containing 'no significant policy changes' from that outlined in the White Paper.
As anticipated, some aspects of the scheme remain to be dealt with through regulations, such as the program which will provide assistance to the emissions-intensive trade-exposed industries. However the draft Bill does provide the working framework for the operation of the scheme, detailing who is liable and how that liability is to be satisfied. This legal update summarises some of the key components of the proposed legislation. Submissions on the draft Bill must be submitted to the Government by 14 April 2009.
Liable entities
As forshadowed by the White Paper, there will be two primary types of liable entities – entities that have operational control over a facility with direct emissions of more than 25,000 tonnes of CO2-e per annum, and fuel importers, producers or suppliers. (One exception to the 25,000 tonnes CO2-e threshold is landfills, where they are located within a certain prescribed distance from another landfill receiving the same type of waste. In this case, the threshold is 10,000 tonnes CO2-e)
Ordinarily, the liability will fall on the controlling corporation (see our legal update on the NGERS for an explanation of this term). However, in some circumstances it may be possible for the controlling corporation to transfer its liability to another corporation within its group or to a corporation that has financial control of the particular facility. In these instances, a Liability Transfer Certificate may be issued by the Authority (see below). Liability Transfer Certificates remain in place indefinitely, but are not transferable. The transfer tests are set out in the draft Bill, as is the definition of 'financial control'.
In relation to the obligations falling on fuel importers, producers and suppliers, there is also a mechanism for shifting liability to other parties in certain circumstances. The draft Bill sets up a system of Obligation Transfer Numbers, which may be issued to large users of fossil fuels and synthetic greenhouse gases. In some circumstances, the holder of an Obligation Transfer Number will be required to take responsibility for surrendering Australian emissions units (see below) to cover the emissions released from the combustion of the purchased fuel.
Australian emissions units
Each year, the Authority will issue Australian emissions units up to the national scheme cap. (The national scheme cap will be set out in regulations and it is intended that regulations specifying the first five years of scheme caps will be made before 1 July 2010.) One Australian emissions unit will represent one tonne of CO2-e.
The Australian emissions units will belong to a financial year and will have a unique identification number. They will be personal property, and will be transferable.
The majority of Australian emissions units will be sold through auction. Details of the auctioning procedures will be released in a further discussion paper. A proportion of the total yearly issued units will be provided, without fee, to the emissions-intensive trade-exposed industries and coal-fired electricity generators.
Liable entities will be required to surrender sufficient eligible emissions units to cover their emissions for a financial year. Eligible emissions units include Australian emissions units or certain approved Kyoto Protocol emissions units. Once an emissions unit is surrendered it is cancelled. It is also possible to buy units for voluntary cancellation.
It will be possible to use Australian emissions units issued in earlier years to satisfy a liability in a later year (known as 'banking'). It will also be possible to use Australian emissions units issued for the following year for up to 5% of an entity's emissions liability (known as 'borrowing').
If insufficient emissions units are surrendered to cover an entity's emissions liability, it will be required to pay a penalty. The penalty will apply to the shortfall amount. It will either be a fixed amount prescribed by regulations, or if no regulations are in place, it will comprise 110% x the benchmark average auction price for the previous financial year. In addition to the penalty, the entity will also be required to 'make good' its shortfall (i.e by purchasing emissions units to cover the shortfall).
Australian Climate Change Regulatory Authority
The Carbon Pollution Reduction Scheme will be administered by a new authority which will be established under the Australian Climate Change Regulatory Authority Bill 2009. This Authority will also administer the reporting regime established under the National Greenhouse and Energy Reporting Act 2007, and the expanded renewable energy regime (see our legal update).
Compliance issues
The draft Bill specifically seeks to regulate actions that may be taken by entities to escape or avoid liability under the scheme. For example, if the Authority considers that an arrangement has been entered into with the purpose of seeking to avoid triggering a threshold, it can determine that the relevant entity is not entitled to obtain the benefit of the relevant threshold. These provisions apply to any arrangement put in place after 15 December 2008 (i.e the date of release of the White Paper).
If a person is convicted of an offence relating to fraudulent conduct, and that conduct has involved the issuing of Australian emissions units, the court may order that the person must relinquish a specified number of units. In practice, this provision of the draft Bill will only apply where emissions units have been issued without charge, such as those proposed to be issued to the emissions-intensive trade-exposed sectors and coal-fired electricity generators.
The draft Bill expands upon the corporate liability arrangements contained within the National Greenhouse and Energy Reporting Act 2007, by expanding possible liability to all executive officers of a company, rather than just the Chief Executive Officer. The draft Bill provides that if a company contravenes a civil penalty provision, and an executive officer was involved in the contravention, that person will also contravene a civil liability provision.
Penalties for contravention of civil penalty provisions are up to $1,000,000 for a body corporate and up to $200,000 for an individual. Proceedings can be commenced up to 6 years after the contravention.
There are also significant penalties (up to $1,000,000 or 10 years imprisonment) if a person enters an arrangement to avoid an existing or future liability to pay a penalty for an emissions unit shortfall.
Further information
There are specific parts of the draft Bill dealing with the assistance to be provided to coal-fired electricity generators, the free emissions units to be created through reforestation and destruction of synthetic greenhouse gases. If you require information on these aspects, or further information on the matters covered above, please do not hesitate to contact us.
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.
