The Clean Energy Legislative Amendment (International Emissions Trading and Other Measures) Act 2012 (Cth), along with a number of associated Acts, was passed on 26 November 2012 and is awaiting Royal Assent.  The Acts amend the Clean Energy legislative package, which implements the carbon tax, in a number of ways.

International emissions units

The Acts link the Australian emissions trading scheme to the European Union Emissions Trading Scheme (EU ETS).  EU ETS units will constitute “international emissions units” and, accordingly, liable entities will be able to use EU ETS units to meet up to 50% of their Australian carbon tax liabilities from the beginning of the flexible price period commencing on 1 July 2015.

From 1 July 2018, reciprocal provisions will be included in the EU ETS legislation, and European entities will be able to use Australian carbon units to meet their EU ETS liabilities.

In addition, the Acts abolish the additional charge that is currently imposed on the surrender of an international emissions unit.  This means that a liable entity will not be disadvantaged if it elects to surrender international emissions units rather than Australian carbon units in order to meet its Australian carbon tax liability.

Removal of floor price

Currently, a carbon unit floor price will apply during the first three years of the fixed price period commencing on 1 July 2015.  The carbon unit floor price is initially set at $15.00, and will rise by 4% in real terms each year.

The Acts remove the carbon unit floor price.  Due to Australian entities’ ability to use EU ETS units to meet up to 50% of their Australian carbon tax liabilities, the removal of the carbon unit floor price will allow the price of Australian carbon units to vary to reflect the price of EU ETS units.

However, the Minister will retain the power to determine a “reserve charge amount” for a specific auction, which will work in the same manner as a floor price.

Liquid fuels and synthetic greenhouse gases

The Acts amend the “per-tonne carbon price equivalent” to be applied to synthetic greenhouse gases and some liquid fuel use in order to ensure that it is more clearly equivalent to the carbon price payable by liable entities under the carbon pricing mechanism once it has been linked to the EU ETS.

Currently, the per-tonne carbon price equivalent that is imposed on liquid fuels and synthetic greenhouse gases is determined by reference to the price of carbon units sold at auctions.  The calculation of the equivalent carbon price will be amended to reflect the ability of an entity to use international emissions units to meet up to 50% of its Australian carbon tax liability (which may lower the entity’s overall cost of compliance).

Broadly, the per-tonne carbon price equivalent will be calculated based on a weighted average of prices for domestic and international units.

Natural gas

As the natural gas industry involves a wide range of supply arrangements which can change over time, the Acts allow regulations to be made to account for alternative natural gas supply arrangements, in order to capture all commercial arrangements and maintain complete coverage of natural gas.

In particular, the regulations may modify the definition of “supply” and may determine when a supply occurs in specific circumstances.  The purpose of this amendment is to maintain competitive neutrality across the energy industry.