With the conservative Coalition parties sweeping to office on a platform of reducing spending and repealing the carbon scheme, this alert examines whether (and when) the new Government can repeal the Clean Energy Act.

While the Australian election on 7 September produced a clear enough winner, it leaves significant uncertainty over the fate of Australia’s carbon scheme. The scheme, which is established under the Clean Energy Act, imposes a charge on most carbon emissions in Australia (notably excluding agricultural and road transport).

The conservative Coalition parties, whose campaign relied heavily on perceived voter dissatisfaction with the carbon scheme, won a comfortable majority in the lower house of Parliament, allowing them to form the next Government. However, the new Government does not hold a majority in the upper house (Senate), significantly complicating its plans to repeal the carbon scheme.

For carbon-intensive businesses in Australia, this means ongoing uncertainty as to their short term compliance and cost pressures, as well as longer term carbon incentives. This uncertainty is illustrated by a quick outline of the carbon scenarios that might play out.

Scenario 1: The carbon scheme is repealed quickly. This would only occur if the Government convinces the Labor party (now in opposition) to support the repeal on the basis of a voter mandate. If this occurs, the scheme could be wound up by the end of the current compliance year (2013/14).

Scenario 2: The carbon scheme is repealed after a prolonged political process. This could include waiting for the new senators to take their seats (1 July 2014) and, if the Senate remains hostile, seeking a fresh double-dissolution election. The balance of power in the new Senate will be held by a handful of minority and independent senators, and it seems likely that the Coalition will attempt to negotiate for their support. In this scenario, it is difficult to see the scheme being would up before the end of the 2014/15 compliance year.

Scenario 3: The carbon scheme is not repealed within the next three years. It remains possible that a confluence of political factors (and brinksmanship) could result in the repeal measures failing. If this occurred, then the issues are likely to remain unresolved before the next election; typically due in 2016.

Scenario 4: some combination of these. For example, a compromise solution to reduce the carbon tax rate from AUD 25.40 in 2014/15 to a price closer to the international carbon price of AUD 7.00.

Each of these scenarios remains possible, although scenario 2 seems the most likely at this stage.

What does this mean for business?

To begin with, businesses should take these changes into account before deciding to invest in major emissions reduction projects. The regulatory environment will hopefully become much clearer in the next 12 months.

In the meantime, the Clean Energy Act remains on the statute books and compliance is mandatory for affected parties. Which means business as usual in carbon reporting, permits and cost pass-through, at least for 2013/14 and possibly beyond. Don’t shred your copy of the Clean Energy Act just yet.

Whilst the Clean Energy Act continues to apply, businesses now face the added complexity of having to plan for its potential repeal.