Introduction

This article summarises the recent developments, status and potential future of climate change regulation in Australia. The carbon tax has been repealed, ACCC overseen repeal related obligations currently apply and future regulation, including Direct Action, remains uncertain.

Next steps

The continuing uncertainty around climate and renewable energy regulation means these issues continue to need close attention in commercial dealings, particularly where material greenhouse gas emissions are involved (for example electricity, gas, coal and major industrial activities).

This includes:

  1. In commercial agreements, where carbon clauses should be broad enough to contemplate all potential future developments,
  2. For project approvals, where environment and planning regulators may look to impose climate change related conditions following the carbon tax repeal and if the future regulation is uncertain, and
  3. For engaging with the government regarding future regulation, especially in respect of the Direct Action safeguard mechanism.

Carbon tax repeal

Legislation was passed on 17 July 2014 to repeal the Clean Energy Act 2011 (Cth) and associated legislation and end the carbon tax on 30 June 2014. Liability still applies for the 2013/14 financial year and connected reporting and surrender obligations will apply (and hence carbon cost pass through for 2013/14 will also likely apply subject to commercial arrangements).

The National Greenhouse and Energy Reporting Act continues, requiring greenhouse gas emission, energy production and consumption reporting.

The Clean Energy Finance Corporation, Renewable Energy Agency and Climate Change Authority survived the repeal, but the government may still seek to disband them in the future.

ACCC overseen repeal related obligations

The Federal Government is concerned to ensure carbon tax repeal savings are passed through to customers and the Australian Competition and Consumer Commission (ACCC) is accordingly very focused on this issue.

In addition to removing the carbon tax, the repeal Act legislation imposed a number of obligations on electricity, gas and synthetic greenhouse gas suppliers and retailers in connection with the repeal. These obligations relate to those entities making certain disclosures to the ACCC and customers regarding their expected savings due to the carbon tax repeal and then passing those savings through to customers. 

For more information on these ACCC issues see http://www.herbertsmithfreehills.com/insights/legal-briefings/carbon-tax-repeal-accc-issues.

Future regulation

Direct action

The government is seeking to implement an alternative climate change policy, called Direct Action. Direct Action is proposed to operate by:

  1. Using a government Emissions Reduction Fund (ERF) to purchase Australian based greenhouse gas emissions reductions and abatement at auctions, and
  2. Applying a ‘safeguard’ baseline mechanism for large emitters, with penalties for exceedances. The government has proposed to apply this mechanism to facilities with direct emissions of 100,000t CO2-e pa or more.

The government intended to implement the ERF by 1 July 2014. The implementing legislation is currently being considered by a Senate Committee. However, based on comments by Clive Palmer it appears the legislation is unlikely to pass the Senate. If that was the case the government has indicated it would consider seeking to implement the ERF by regulation (with lesser parliamentary scrutiny) or by executive action. It is uncertain if that would be possible or effective and the final details.

The government proposes to start the safeguard mechanism on 1 July 2015, with further consultation on its details before that date. Similar to the position for the ERF, the final proposal for the safeguard mechanism is not yet known and whether it will be implemented is uncertain.

Emissions trading

The ALP has indicated it will oppose Direct Action and again take a policy of an emissions trading to the next federal election.

In his speech presented with Al Gore, Clive Palmer stated his party would oppose direct action and push for a new emissions trading scheme to be ‘zero rated’ and once Australia’s main trading partners also take action to establish such a scheme. No further detail has been provided for this proposal and its future is uncertain.

Renewable Energy Target

The report of the Expert Panel established to review the Renewable Energy Target (RET) Scheme was released to the public on 28 August 2014. The Panel has recommended two options for reforming the Large-scale Renewable Energy Target (LRET):

  1. The first is to ‘grandfather’ the scheme by closing it to new entrants while allowing it to continue until 2030 for existing and committed renewable generators, and
  2. to modify the target each year as a 50 per cent proportion of new growth in projected national electricity demand until 2020.

The implementation of the Panel’s recommended changes to the LRET would require legislation that is likely to be resisted in the Senate. Labor, the Greens and the Palmer United Party have previously expressed opposition to changes of the type recommended by the Panel.

For further details see: http://www.herbertsmithfreehills.com/insights/legal-briefings/renewable-energy-target-scheme-report-of-the-expert-panel