Following the Federal election on 7 September 2013, significant changes to Federal carbon law and policy are anticipated. This update examines the pre-election carbon policy proposals and highlights the likely changes to the carbon regime.
The headline change is the proposed abolition of the carbon price mechanism and related Jobs and Competitiveness Program. These are to be replaced by the introduction of a new Emissions Reduction Fund. There are also several proposed changes to administrative and funding bodies, although the Clean Energy Regulator and the National Greenhouse and Energy Reporting Scheme are to be retained to administer the Emissions Reduction Fund.
In this eBulletin we look at the likely changes to the carbon regime and what this means for your business.
The current Federal scheme designed to meet Australia's emissions reductions targets comprises a number of legal and policy initiatives administered by the Clean Energy Regulator (CER). These are:
- the National Greenhouse & Energy Reporting Scheme (NGERS) which requires certain entities to report on their emissions reductions;
- the carbon price mechanism (CPM) (established under the Clean Energy Act 2011); and
- the Renewable Energy Target (RET) for 20% of Australia’s electricity to be produced from renewable sources by 2020.
Following the change of Government, there are likely to be significant changes to these legal and policy arrangements under the Liberal Government's Direct Action Plan policy.
The key change: a voluntary Emissions Reduction Fund
The key proposed reform under the Direct Action Plan is the replacement of the CPM with a new Emissions Reduction Fund (ERF).
Rather than entities being required to trade in carbon credits, the ERF is proposed to enable entities to voluntarily abate their emissions below business as usual levels (to be determined under NGERS). In return, the Government will buy that abatement at the lowest price in a reverse auction.
There will be no penalties for those who continue to emit carbon pollution, but penalties will apply to those whose emissions rise. Participation in emissions abatement through the ERF will also be open to any individual, company or group who voluntarily wishes to propose an abatement project to the reverse auction process.
The types of projects that have been suggested as potentially suitable for ERF funding are:
- Soil carbon sequestration
- Electricity generation from methane gas produced by coal mines and landfill
- Forestry measures
- Increasing the energy efficiency of buildings
- Incentives to make inefficient power stations reduce their emissions
- Composting organic matter to reduce methane and nitrous oxide emissions
- Recycling to minimise emissions through increased consumption
- Investing in alternative transport fuels and increased fuel efficiency for transport vehicles.
The CER and the NGERS are proposed to be retained to administer the ERF. However, the Government does not currently intend to retain the Climate Change Authority, Climate Commission, Clean Energy Finance Corporation and the Energy Security Fund as part of the reform.
When will the changes happen?
It is unclear when the new legislation will be implemented to give effect to the ERF. Pre-election announcements indicated that repeal of the CPM would be one of the immediate priorities for the new Government and that there would be public consultation on the new proposals within the first 150 days of government. It is likely that draft legislation will be introduced when parliament resumes after October.
What about RET and CFI
Pre-election policy was committed to the retention of the RET. Similarly, the Carbon Farming Initiative (CFI) is to be retained and integrated with the Emissions Reduction Fund.
Where does this leave my business?
Despite current policy announcements and the proposed repeal of the CPM, it remains important to ensure that your business continues to comply with existing legal obligations. For example, liable entities under NGERS must continue to comply with existing regulatory requirements. The NGERS reporting requirements in particular are likely to continue unchanged and so provision should be made for continued reporting and auditing expenses. However, depending on the timing of introduction of new legislation, the acquittal of carbon units under the current Clean Energy Act 2011 may not take place if this legislation is repealed.
At the same time, business should assess the opportunities, costs and risks associated with the incoming Government's new proposals and consider making submissions on any draft legislation introduced.