As with the CE Act, the NGER Act will remain in its current form until 1 July 2014 and will continue, subject to some amendments, under the transitional provisions for reporting in relation to the 2013-14 financial year. As a result, liable entities and controlling corporations registered under the NGER Act will need to prepare and submit reports for the 2012-13 financial year by 31 October 2013 and for the 2013-14 financial year by 31 October 2014.
After this, the Main Repeal Bill makes consequential amendments to the NGER Act which essentially returns the NGER Act to its pre-CE Act form.
Consequently, from the 2014-15 financial year onwards, only “controlling corporations” which meet the registration thresholds under the NGER Act would be required to submit reports on their greenhouse gas emissions, energy production and energy consumption to the Regulator. Most liable entities are likely to meet the registration threshold (for example, operational control of a facility with over 25,000 tonnes CO2-e emissions) and therefore even though they would have no liability under the CE Act, they would still be subject to reporting obligations under the NGER Act.
One exception to this, however, is those entities which do not fall within the definition of “controlling corporations” (for example, local governments). These entities would no longer have reporting obligations under the CE Act and would also not be covered by the NGER Act.
The three primary forms of industry assistance under the Clean Energy legislative package will be removed as follows:
- JCP – free carbon units will not be issued beyond the current (2013-14) compliance year
- Energy Security Fund – free carbon units will be issued to eligible electricity generators for the current compliance year and no further units will be issued after 1 July 2014
- Steel Transformation Plan – no further financial assistance will be provided, however the assistance provided to date ($164 million) will not be impacted
There will be a true-up arrangement prior to the final compliance date of 2 February 2015, which will require JCP participants to submit their actual production data towards the end of 2014. Further detail of the arrangements for this true-up mechanism, including the reporting requirements, will be set out in a legislative instrument, which is intended to be made prior to 1 July 2014.
The JCP provisions highlight one of the issues that may be faced by the Coalition in the event that it is not able to secure passage of the repeal legislation prior to 1 July 2014. If the CE Act remains in force post 1 July 2014 it is conceivable that JCP participants could lodge applications for free carbon units for the 2014-15 compliance year. Such applications could be lodged anytime up to 31 October 2014. Unless the Regulator required further information in relation to the application, it is required to make a decision on the application within 60 days, and if all of the relevant requirements are met (as listed in regulation 804 of the Clean Energy Regulations 2011) it is required to issue the free units.
Of course, if it is evident that the repeal legislation will be passed by the new Senate post 1 July 2014, it is possible that any such applications would not be made, given that there will be no liability against which to utilise the free units.
On the other hand, JCP participants may proceed with applications in order to utilise the buy-back provisions which allow them to sell their free units back to the Regulator after 1 September 2014. We believe that further consideration will need to be given to these arrangements in the final form of the repeal legislation, depending upon the actual date of royal assent.
The Main Repeal Bill provides that the Regulator must not hold an auction of carbon units after 30 June 2014 (or the day the Main Repeal Bill receives royal assent if it is passed earlier). Additionally, the Clean Energy (Auction of Carbon Units) Determination 2013 (Auction Determination) ceases to have effect after 30 June 2014 (or the day the Main Repeal Bill receives royal assent if it is passed earlier).
The Regulator, however, is still likely to be required to hold two auctions during the 2013/14 financial year (as required by the Auction Determination). So far, the Government has not indicated any intention to amend or repeal the Auction Determination prior to 30 June 2014 and the Consultation Paper specifically notes that “auctions … may have to occur before the carbon tax is repealed”.
Nevertheless, if an entity does purchase carbon units from one of these two auctions held during the 2013/14 financial year, the Main Repeal Bill provides that from the fifth business day after the Main Repeal Bill receives royal assent (ie, is passed by both houses and receives approval from the Governor General), the Regulator must cancel those carbon units and pay the person an amount equal to the charge they paid for the units.
Liable entities and other possible participants (ie. banks, traders) will need to give consideration to whether they participate in either of these auctions. That decision will probably depend upon the view they hold of the likelihood of the Repeal Bills being passed.
We note that in order to ensure compliance by 2 February 2015 for the 2013-14 financial year, the Main Repeal Bill does still allow the Regulator to issue carbon units until 9 February 2015 under the purchase and automatic surrender mechanisms in the CE Act (ie not by way of auction).
The Consultation Paper notes that “direct or indirect linking of Australia’s carbon tax with international emissions trading schemes… will no longer occur as a result of the carbon tax being repealed”.
As a result, provisions that would have facilitated the link with the European Union emissions trading system and any other international linking will be removed from the ANREU Act from 1 July 2014.
No regulation of carbon contracts
Contractual arrangements for the pass through of the carbon price and the transfer and trading of carbon units as financial products have been entered into by both Government and the private sector and these costs have washed through the economy since the CE Act came into force. The unwinding of the CPM will remove the legislative basis for these contractual arrangements and is likely to trigger the relevant change of law clauses.
As expected, the Main Repeal Bill is silent as to the impact on contractual arrangements and the Consultation Paper expressly provides that any “renegotiation of commercial arrangements is a matter for the parties involved”. While such renegotiations for the unwinding of carbon clauses or contracts may be easier where the parties involved are large entities with significant resources, all takers of the carbon price under the CPM will be concerned to ensure an appropriate price review.
Business should note that the availability, process and outcome of price reviews will be determined by the terms of the contract and may not lead to refunds, or at least complete refunds, in all circumstances, particularly where the entity imposing the carbon price has been put to significant cost in establishing its compliance framework.
Increased regulation of pricing by ACCC
The Main Repeal Bill foreshadows business and household concern regarding the impact of the CPM repeal on prices and, in particular, that price reductions resulting from the removal of the CPM and carbon price equivalents will be passed on to consumers.
The Government proposes 4 main initiatives with the ACCC to address this concern. These are:
Priority of CPM repeal investigations: The Government proposes to direct the ACCC to prioritise its investigation of carbon price related misrepresentations and to facilitate business and consumer awareness regarding the impact of the CPM repeal on prices;
Prohibition on price exploitation of key goods for limited time: The Competition and Consumer Act 2010 (CC Act) is to be amended to prohibit corporations from engaging in CPM-related price exploitation in respect of defined key goods for one year from repeal. These key goods are to be electricity, natural gas, synthetic greenhouse gases and synthetic greenhouse gas equipment and the threshold for exploitation will be where the price for the supply of the key goods is unreasonably high. Additional key goods may be included in subordinate legislation;
Prohibition on CPM misrepresentations for limited time: A further amendment to the CC Act is proposed to prohibit a corporation making a false or misleading representation about the impact of the CPM or the CPM repeal on the price for the supply of goods or services for one year from repeal; and
Price monitoring power: The Main Repeal Bill grants the ACCC new powers to monitor prices of the defined key goods and goods which are supplied by liable entities. These powers will be in place from the commencement of the Main Repeal Bill (where it commences prior to 1 July 2014) and will continue for one year after the repeal.
The ACCC is to be given an additional $10 million of funding over 3 years to facilitate the performance of these additional functions and to enforce what Minister Hunt has described as the “reasonably expected price reductions”.1
The time limitation on these new powers is based on the assumption that the commercial unwinding of the CPM can be completed within one year from repeal (the “carbon tax repeal transition period”). Many of these arrangements are complex, have taken many months to conclude and provide for the payment of a carbon price for many years’ worth of accrued liability. The resetting of these types of arrangements will be complex and an efficient renegotiation within the carbon tax repeal transition period will rely heavily on the good will and resources of the entities involved.
Continued regulation of carbon units as financial products
The preservation of the CE Act obligations for the 2013-2014 compliance year means that the status of the carbon units will also need to be preserved until the designated carbon unit day. Accordingly, the Main Repeal Bill will insert transitional provisions into both the Australian Securities and Investments Commission Act 2001 and the Corporations Law 2001 to provide that carbon units issued before the designated carbon unit day will continue to be regulated as financial products. This is intended to ensure that ASIC retains its broad powers regarding fraudulent activities with respect to dealings in carbon units as well as facilitate the completion of existing carbon contracts that have been entered into in reliance on this characterisation.