The Leader of the Opposition, Tony Abbott has pledged that if the Coalition is elected in this year’s federal election, he will repeal the carbon tax and proceed to a double dissolution if his repeal legislation doesn’t pass the Senate.

Save for exceptional circumstances (such as the Government losing a vote in the Lower House or a new Prime Minister being installed and choosing a different date) 14 September 2013 is the date when Australians go to the polls in a national election. Amongst other things, the future of the Australian carbon price hangs in the balance.

Carbon price basics

In Australia, liable companies are nearing the end of their first compliance year (1 July 2012 – 30 June 2013) of the carbon price, introduced by the Clean Energy Act 2011. For the first three years, there is no cap on emissions and the carbon price is fixed at $23 (adjusted marginally each year to account for inflation) (Fixed Price Period).

From 1 July 2015, the carbon price moves from operating like a fixed ‘tax’ to an emissions trading scheme (Flexible Price Period). Under the Flexible Price Period a cap on emissions will be set and a limited number of carbon units (operating like a permit to pollute) will be auctioned and sold on secondary markets. The price of these units will not be fixed. In meeting their annual carbon liability, liable entities will also be able to supplement their use of carbon permits purchased in Australia with international carbon permits.

Impediments to repeal

Whilst few would doubt Mr Abbott’s determination to repeal the legislation, if the Coalition is elected this year, there are certain legal, practical and political impediments to implementing a repeal of the carbon price:

Double Dissolution - Timing

  • Given that Labor and the Greens will almost certainly oppose any repeal legislation, Mr Abbott needs to secure a majority in the Senate. On 13 March 2013, the ABC’s chief election analyst, Antony Green described the scenario in his Election Blog as follows:i

“The Coalition is highly unlikely to gain enough Senate seats to achieve control of the Senate in its own right. However, if the election can change the composition of the Senate cross-bench, then the Abbott government could achieve its goal of repealing the carbon price legislation, and also find itself a negotiation path on other legislation that avoids having to deal with the Greens and Labor….The election of a WA National and a Katter candidate from Queensland would almost certainly give an Abbott government the numbers to repeal the carbon price legislation. However, it would not necessarily deliver government control over all legislation.”

  • If this occurs, then there will be no need for a double dissolution and Australia could find itself without a carbon price shortly after the new Senators take their seats (1 July 2014). However, if these Senate victories do not eventuate for the Coalition in September 2013, a double dissolution would almost certainly be necessary before a Coalition government can pass its repeal legislation.
  • A double dissolution may only be called if a bill to repeal the carbon price legislation is voted down in the Senate twice. An interval of three months between tabling the same bill twice is required by section 57 of the Constitution and the Senate must be afforded a ‘proper opportunity for debate’ on each occasion.
  • A curiosity of the electoral system means that the newly elected Senators from the 14 September 2013 election (a half-Senate election) will not take their seats until 1 July 2014. A double dissolution in the interim could be subject to challenge because the Governor-General would effectively be terminating the terms for those newly elected Senators (and before they had even been sworn in) on the basis of a decision by the pre-existing Senators to block the repeal legislation.ii
  • It is therefore likely that any attempt to call a double dissolution prior to the latter part of 2014 or early 2015 might be subject to challenge.

Double Dissolution – the politics

  • Any double dissolution means going back to the polls after the Coalition will have only just regained power following six years of Labour-led government. The Coalition is unlikely to take this step unless it is confident of achieving a more favourable result than it achieves in the September 2013 federal election.
  • Early indications from the operation of the carbon price over the past nine months suggest that it has had a limited impact on inflation and the Coalition’s dire predictions of it being a ‘wrecking ball’ to the economy have not been realised. Compensation payments via tax breaks for low income families are also now in operation.

One would expect this to result in a softening of voter opposition to the carbon price, however the latest Australian Financial Review/Nielson poll shows that consistent majority of voters who believe they are no worse off still oppose the policy and support its repeal.iii

The change in the level of voter support or opposition to the carbon price will be monitored closely throughout 2013 and into 2014 as this will dictate the success or failure of any double dissolution.

  • The level of support for repeal from business is less clear. Earlier this month, the manufacturing lobby group, Ai Group called for a move to the emissions trading period rather than scrapping the carbon price in its entirety. This approach might attract increasing support from the business community to the extent that a market-based system (with availability of cheap international permits, no floor price and free allocation of permits for some industries) is more attractive than the Coalition’s current ‘Direct Action’ policy.
  • There is already evidence that this is occurring with the Australian Financial Review reportingiv that generators and key industry bodies have been voicing concern to the Coalition over how the Direct Action policy will work in practice, whether it will be cheaper than international abatement options under the current scheme and whether it will cause unfair advantage to some companies given compensation which has already been paid and which the Coalition has said will not be clawed back.
  • EU and Australian bureaucrats are racing to implement an inter-governmental Registry link by mid-2013 (prior to the September election) to facilitate trading in EU Allowances by Australian liable entities in anticipation of the emissions trading scheme commencing in Australia by 1 July 2015 (see Linking Australian and European emissions trading schemes for more details click here). If this expedited timetable can be met, and if Australian entities take up the trading opportunity with some enthusiasm, repeal could become much more unpopular amongst the Australian business community and also more unsavoury from an international relations perspective.
  • A repeal of the Fixed Price Period whilst retaining emissions trading from 1 July 2018 (or another date) might be an available compromise for the Coalition. Whilst it might be a semantic distinction, a Coalition government could also claim that by removing the Fixed Price Period and going to a Flexible Price Period they are still honouring their commitment to repealing the carbon ‘tax’ (as opposed to the emissions trading scheme). Alternatively, introducing some mechanism for the use of cheap international carbon units by liable companies under the Direct Action policy might assist the Coalition to secure industry support for the repeal of the emissions trading scheme.
     

Potential challenges to repeal legislation

  • Even if the Coalition is successful in ultimately obtaining Senate support for repeal legislation, section 56(xxxi) of the Constitution would make any repeal legislation which resulted in the acquisition of property on unjust terms, subject to challenge on the basis that it is outside the power of Parliament.
  • Shadow Minister for Climate Action, Greg Hunt and some legal commentatorsv have suggested that repealing the carbon price legislation would be an ‘extinguishment of a proprietary right’ and not an ‘acquisition of property’ in the meaning of section 56 (xxxi). However, detractorsvi emphasise that carbon units generated under the scheme (along with prescribed international units proposed to be incorporated into the scheme after 1 July 2015) are expressly stated in the legislation to be ‘personal property’ and are subject to ownership, transfer and other equitable dealings like any other type of property or chattel. Assuming carbon units are ‘property’ (which seems the better view) the more pertinent question is whether any repeal legislation will amount to an ‘acquisition’ of that property and, if so, is it on ‘just terms’.
  • At the time of any likely repeal legislation, liable entities will have already purchased units from the Clean Energy Regulator at $24.15 each, purchased Australian Carbon Credit Units in respect of the Carbon Farming Initiative, received free allocation of permits (which it can sell to others for a price) and perhaps purchased Kyoto units like CERs and European units (known as EUAs) in anticipation of being able to use these from 1 July 2015.
  • In respect of the Australian units, unless compensation is offered or some buy-back system is provided for, arguably this ‘property’ has been ‘acquired’ by the Government with an absence of ‘just terms’ because the liable entities have been deprived the opportunity to generate income from the sale of those units.
  • Assuming a European and international carbon market still exists for the sale of Kyoto units and EUAs, then liable entities would be able to offload these credits in those markets (albeit perhaps at a price disadvantage). A repeal of the domestic market for such credits would not constitute ‘acquisition’ of such property.
  • Repeal legislation is therefore quite capable of being implemented without offending section 56(xxxi) of the Constitution, however, lawmakers will need to be careful in their drafting and some compensation may need to offered before one can be truly confident that it would withstand any challenge.

What this means for your business

Notwithstanding the potential for repeal, in light of the above factors, liable entities would be prudent to proceed on the basis that the fixed carbon price may well remain in place for most of the next two years. There also remains a potential for the emissions trading scheme to commence operation from 1 July 2015 as per the current legislation and perhaps equally a likelihood of this date being brought forward pursuant to a Coalition Government compromise.

In addition to maintaining current compliance obligations under the Clean Energy Act 2011, Australian liable entities and interested stakeholders should consider the implications of the new EU linking proposal, the changes to the legislation in respect of availability of foreign carbon units and the removal of the floor price.

These issues are addressed in the following articles:

  • European carbon markets in turmoil as EU Parliament dithers on rescue plan (to view article please click here)
  • Linking Australian and European emissions trading schemes (to view article please click here).