Australian Federal Climate Change Action

On July 17, 2014, the Australian federal parliament passed the Clean Energy Legislation (Carbon Tax Repeal) Act 2014, repealing the carbon tax legislation with effect, aside from a few transitional provisions, taking place retrospectively from July 1, 2014. 

In order to pass the carbon repeal legislation, a number of concessions had to be agreed to by the government. Importantly, this included retaining the Renewable Energy Target of achieving 20 percent of

energy in Australia to come from renewable sources by 2020 and ensuring that the Australian Renewable Energy Agency remained. The Australian Renewable Energy Agency was previously created to fund a variety of projects and programs for research and development of renewable energy in Australia.

In addition to the repeal of the various carbon tax legislations, a number of temporary consumer protection measures were implemented with the objective of ensuring the cost savings associated with the repeal are passed to consumers. Powers were given to the Australian Competition and Consumer Commission to ensure no price exploitation takes place in relation to the carbon tax repeal. 

The government released its Emissions Reduction Fund White Paper in April 2014 ("White Paper"), which contained designs of the Emission Reduction Fund (the "Fund") proposed to deal with reductions in emissions. The Fund is the centerpiece of the government's Direct Action Plan. The government is committing AUD 2.55 billion to the Fund. 

After public consultation on the White Paper, the government released a Carbon Farming Initiative Amendment Bill 2014 exposure draft on June 18, 2014 to establish the Fund and give effect to the Direct Action Plan. 

The Fund's overriding objective is to reduce emissions at lowest cost over the period to 2020 and make a contribution toward Australia's 2020 emissions reduction target of five percent below 2000 levels by 2020. 

The features of the Fund are as follows:

  • The Clean Energy Regulator will issue Australian Carbon Credit Units ("Units") for genuine emission reductions estimated and verified in accordance with approved streamlined methods to the registered project proponent. Genuine emission reductions are reductions that would likely not have occurred without the Fund, are verifiable and calculated on a conservative basis, and can be counted toward Australia's emission reduction target. Projects will receive the Units over a crediting period of seven years in general, although sequestration projects will have a 15-year crediting period.

  • The Units can be used in the voluntary National Carbon Offset Standard, and the government will cancel credits issued to it under the Kyoto Protocol where Units are used under that Standard. Units cannot be exported out of Australia's registry for the first three years of the Fund.

  • Emission reductions will be purchased by the Regulator through auctions. Project proponents who are registered can participate in the auctions. Bids that provide emission reductions at the lowest cost will be selected. There will be a benchmark price set by the Regulator above which emission reductions will not be purchased. There will be guidelines published for the auctions including a minimum project size.

  • There will be standard contracts for the purchase of the emission reductions.

  • There will be a safeguard mechanism effective July 1, 2015, whose objective is to ensure that the emission reductions achieved under the Fund are not displaced by a significant rise in emissions elsewhere in the economy. The mechanism will apply at the facility level and will be restricted to facilities with direct emissions of 100,000 metric tons or more of CO2-e a year

  • The Carbon Farming Initiative will become part of the Fund.

The government has committed to reviewing its international targets in 2015, and the Fund will be reviewed toward the end of 2015. 

Despite the repeal of the carbon tax legislation going through, it is not known at this time whether the Direct Action Plan legislation will be supported by the new members of the Australian Senate, who have the balance of power. These new members have expressed a general support of carbon reduction initiatives, although they may require further revisions to the legislation before the legislation is passed. 

— Tony Wassaf (+61.28272.0527, twassaf@jonesday.com)

Excess Emissions of Greenhouse Gases: No Possibility for National Courts to Vary the 100 Euro Penalty

Pursuant to Directive 2003/87/EC establishing a scheme for greenhouse gas emissionallowance trading within the European Community, any operator that does not surrender sufficient allowances by April 30 of each year to cover its emissions during the preceding year shall be held liable for the payment of an excess emission penalty of 100 euros for each ton of carbon dioxide equivalent emitted not surrendered.

At the national level, Swedish companies tried to challenge the excess emission penalties they had been subject to, arguing that they had sufficient emission allowances in their holding accounts to cover their total emissions for the preceding year. They also argued that the failure to surrender their allowances in time was only due to an internal administrative breakdown. In the context of a preliminary ruling, the Swedish court asked the Court of Justice of the European Union ("CJEU") to clarify the concept of "excess emission." The Swedish court also asked the CJEU whether the excess emission penalty may be varied by national courts on the basis of the principle of proportionality.

In its decision in Billerud Karlsborg AB and Billerud Skärblacka AB v. Naturvardversket (C-203/12) of October 17, 2013, the CJEU ruled that operators that did not surrender the allowances equal to their emissions for the preceding year by April 30 of the current year may not avoid the imposition of a penalty for the excess emissions, even where they hold a sufficient number of allowances on that date. Therefore, the concept of punishable "excess emissions" consists in the failure to surrender allowances equal to the emissions for the preceding year by April 30, "irrespective of the reason for the non-surrendering or of the number of allowances actually held by the operators." This interpretation is justified by the very nature of the European Union emissions trading system ("EU-ETS"), which is based on a strict accounting of the issuance, holding, transfer, and cancellation of allowances. 

In addition, the CJEU considered that the excess emission penalty may not be modified by national courts on the basis of the principle of proportionality. Indeed, the creation of a predefined penalty in Directive 2003/87/EC was justified by the protection of the EU-ETS from distortions of competition resulting from market manipulations. According to the CJEU, such a fixed penalty does not carry "drawbacks which are incommensurate with the advantages to be gained by the EU's fulfillment of its commitments under the Kyoto Protocol."

Anne-Caroline Urbain (+33.1.56.59.39.93, aurbain@jonesday.com) and Caroline Tourtet(+33.1.56.59.38.16, ctourtet@jonesday.com)
 

The War on Pollution: China Amends its Environmental Protection Law 

In an attempt to further strengthen China's commitment to curb its pollution crisis, the Standing Committee of the National People's Congress passed significant amendments to its Environmental Protection Law on April 24, 2014 (the "Revised Law"). Although China remains the world's biggest carbon emitter, this is the first time the Environment Protection Law has been amended since its enactment in 1989. The Revised Law is due to take effect on January 1, 2015. 

The Revised Law is particularly robust compared to its predecessor and imposes harsher punishments for environmental wrongdoing. Previously, polluting enterprises were subject to one-time penalties only; however, the amounts were not significant enough to provide a serious deterrent. The revision enables the Environmental Protection Bureaus ("EPBs") to now (i) fine offending companies on a daily basis until compliance with the EPB-issued orders are achieved, (ii) restrict production, and/or (iii) shut down operations, provided approval is granted at the national level. The Revised Law states that companies will be named and shamed for breaking environmental protection laws. 

Responsible persons could also face up to 15 days' detention should their company fail to comply with an issued order to (i) submit an Environmental Impact Assessment, which is now required prior to the commencement of construction, (ii) obtain a license prior to creating pollutants, (iii) halt the use of prohibited pesticides for agriculture, or (iv) comply with suspension orders. Personal liability also arises should any responsible person attempt to circumvent supervision by falsifying monitoring data or improperly using pollution prevention equipment. 

Companies will also be obliged to adhere to both government and provincial standards for pollution control, which vary according to industry. The provincial governments will be primarily responsible for monitoring companies operating within their jurisdiction, according to the pollutant quotas allocated by the government. 

Finally, the Revised Law allows for the formal introduction of public interest environmental litigation in China. Although the process is currently restricted to registered civil-level organizations, it is anticipated that the impact will be considerable as it legally empowers the public to seek redress for environmental protection violations. 

It is likely that the implementation of the Revised Law will take some time, and its success remains to be seen; however, it does send a clear message to current operators in China: The war on pollution has officially begun. 

— Ostiane Goh-Livorness (+852.3189.7296, ogohlivorness@jonesday.com