On 4 May 2009, the Federal Government released the revised Carbon Pollution Reduction Scheme (CPRS) bills. The changes come after stakeholder feedback on the exposure draft which was released on 10 March 2009, as well as adjustments made by the government in response to the global financial crisis.
Key changes introduced in the revised CPRS include:
- obligations placed on liable entities will now be deferred by one year to 1 July 2011, with the first permit surrenders required in December 2012;
- transitional protections which fix the price of permits at $10 per tonne for the 2011-2012 period with an indexed price cap for the following four years, and provide an increased number of free permits for emissions-intensive trade-exposed (EITE) industries;
- tougher penalties, including increased fines and jail terms for certain offences; and
- the objects of the CPRS bill now include a commitment to reduce carbon pollution by 25 per cent of 2000 levels by 2020 if Australia is a party to a comprehensive international agreement.
Timetable For Implementation
The Government has acknowledged the impact of the global recession and, reportedly to enable a financial recovery period, has deferred commencement of mandatory obligations under the CPRS until the 2011-2012 financial year. This is a one year delay from the timetable originally announced, and it means that the first permit surrenders will now take place in December 2012. Certain aspects of the CPRS will start earlier, however, with the new Australian Climate Change Regulatory Authority (the Authority) to be established 28 days after the CPRS legislation is passed. Some aspects of the previously announced scheme will operate from July 2010 - for example, eligible reforestation projects will be able to earn Australian emissions units for carbon sequestration from July 2010.
In the meantime, reporting requirements under the National Greenhouse and Energy Reporting Act 2007 (NGER Act) will continue. Liable corporations are required to register under the NGER Act by 31 August 2009, and the first reporting deadline is 31 October 2009.
Unlimited numbers of permits will be available for the 2011-2012 period at a fixed price of $10, though these units will not be able to be used in future periods. This means that the government is capping the price of permits for the first year at $10 - well below the previously predicted price of around $25 per tonne.
For the following four years, ending in 2015-2016, the price cap will be indexed at 5 percent real growth (calculated using CPI growth) from the originally announced price cap of $40 per tonne. The Government will also provide a "Global Recession Buffer" in the form of additional units (that is, additional permits available for free) for EITE industries in the first five years of the CPRS.
The Government's new target, 25 percent reduction on 2000 levels by 2020, is heavily conditional. This more stringent target applies "if Australia is a party to a comprehensive international agreement that is capable of stabilising atmospheric concentrations of greenhouse gases at around 450 parts per million of carbon dioxide equivalence or lower". Should this target not be met the Government has confirmed an unconditional emissions reduction target of 5% by 2020.
The new CPRS bills substantially increase the level of penalties which were outlined in the exposure draft, as well as adding new offences. Certain offences now carry custodial penalties, including failure to answer questions or produce documents to an authorised officer who has entered premises under the authority of a warrant, which carries a maximum penalty of six months jail, or $3,300, or both.
The scheme imposes an obligation transfer number (OTN) regime, which manages how scheme obligations are allocated between upstream fuel suppliers and fuel users. Penalties range up to $220,000 for individuals and $1.1 million for corporations, for offences including:
- unauthorised mandatory quotation of an OTN;
- failure to properly report or maintain required records; and
- inaccurate recording of fuel supplies by holders of OTNs and fuel suppliers.
Greater discretion on penalties has also been built in to the Authority's powers under the revised CPRS, with the ability to extend the deadline for surrendering emissions units in the event of telecommunications or computer system failure shortly before the deadline, and discretion to remit late payment penalties in special circumstances.
Other important changes include:
- legacy emissions from landfills will no longer attract a permit liability;
- broadening the circumstances in which liability to meet scheme obligations can be transferred. "Liability transfer certificates" will now be able to be used within joint ventures to transfer CPRS liability to the entity which has the economic benefit of a facility;
- the definition of 'activity' has been broadened to include storage and stockpiling; and
- changes to the 'operational control' test where no single entity has the greatest control - in this situation, liability will now be divided equally so that there is always a liable entity (or entities).
Future Of The CPRS
The Government tabled the draft legislation in Parliament on 14 May 2009, and is working to have the legislation passed this year. If the CPRS is passed it will enable Australia to sign up to new targets and, the government argues, to better participate in international negotiations at the Copenhagen meeting of the UN Framework Convention on Climate Change in December 2009. However, given that the Government does not have control of the Senate, and that some senators including the Greens have confirmed that they will oppose the legislation, the passage of the legislation is far from guaranteed.
We will continue to provide updates as the bills move through parliament.
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