Further details of the Government’s carbon price mechanism have emerged from the release of the Clean Energy draft legislative package.  Comprising of a centrepiece Clean Energy Bill together with 13 related bills, the package establishes the carbon price mechanism, a number of compensation packages, a new regulator and an independent advisory body.

Timetable

The release of the Clean Energy legislative package accords with the Government’s tight deadline required to meet the proposed 1 July 2012 start date.  With a number of hurdles still to overcome, the Government has a long road ahead.  Key dates looking forward include:

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Testing parliamentary dynamics

With the release of the draft legislation, introduction to Parliament is the next step for the Clean Energy package.  The Government’s long negotiations with the Greens and key independent members were designed to ensure safe passage of this legislation through Parliament.  Although all members of those negotiations have continued to express support for the package, those commitments have not yet been tested on the floor of the House of Representatives. 

Setting scheme caps

As expected, the Clean Energy Bill sets up a three-year fixed price period, during which the Clean Energy Regulator will make available an unlimited supply of carbon permits at the specified price (initially A$23 per tonne of CO2-e). 

After three years, the scheme automatically flips to a floating price period, where the number of permits available (the annual Carbon Pollution Cap Numbers) are to be set by regulation five years in advance, with the 2015-2019 caps to be set by 2014, and each subsequent year to be set annually. 

In a move that appears designed to limit the ability of future governments to alter the scheme, the legislative package includes a default mechanism for setting the number of permits available during the floating price phase.  If the Carbon Pollution Cap regulations are disallowed by the House of Representatives or Senate, then the Clean Energy Bill provides for a self-executing cap, being 12,000,000 units less than the previous year’s cap.  This represents a default reduction rate of around 2.5% against the emissions from the covered sectors.

Carbon permits described

The Clean Energy Bills introduce new terminology for the carbon permits described in the scheme.  These include:

  • ‘Eligible Emissions Unit’ - the broad term for carbon permits which liable entities will be required to purchase and surrender under the scheme;
  • ‘Carbon Units’ - Eligible Emissions Units which are sold or auctioned by the Clean Energy Regulator, or provided as compensation;
  • ‘Eligible Australian carbon credit units’ - Eligible Emissions Units which are carbon offset units issued under the Carbon Farming Initiative;
  • ‘Eligible International Emissions Units’ - Eligible Emissions Units which are carbon units created in accordance with the rules of the Kyoto Protocol or another international agreement.

Corporate liability and group thresholds

The Clean Energy Bill imposes liability on entities with “operational control” of a “facility” which emits over 25,000 tonnes of CO2-e during a financial year.  These concepts reflect those already used under the National Greenhouse and Energy Reporting scheme (NGERS).  However, as expected, the bill contains  two important departures from the NGERS framework:

  • liability under the scheme does not automatically fall to the top Australian holding company in the group (described under NGERS as the “controlling corporation”).  Instead, liability remains with the entity with operational control of the facility; and
  • in most cases there are no group aggregation thresholds under the Clean Energy Bill.  For example, a corporation with two facilities emitting 20,000 tonnes of CO2-e each will not attract liability under the scheme.

In addition, the Clean Energy Bill includes a mechanism for moving liability from one entity to another.  By completing a ‘liability transfer certificate’, liability can be voluntarily transferred between entities within a corporate group, or from the entity with operational control to the entity with financial control of the facility.

Tough enforcement powers

The Clean Energy legislative package establishes the Clean Energy Regulator - a new statutory body to administer the carbon price mechanism and other programs including NGERS, the Carbon Farming Initiative and the Renewable Energy Target.

The Clean Energy Regulator is invested with significant powers to undertake its role of monitoring, facilitating and enforcing compliance, including the power to enter premises, copy documents and obtain information.  The bill proposes significant penalties for serious offences including maximum fines of up to $1.1 million.  Where entities are found liable for breaches under the scheme, executive officers may also face significant penalties in certain circumstances.

Where to from here?

Certain details still remain unclear despite the release of the Clean Energy Bills.  Important details on industry compensation, for example, are yet to be released, along with other details which are likely to be left to the regulations.

Interested stakeholders have until 22 August 2011 to make submissions to the Government on the legislative package.