On July 1, 2014, the Australian government abolished the carbon tax, announcing that “families and businesses will no longer be slugged by Labor’s Carbon Tax.” As a result, no new carbon tax liabilities will be incurred as of that date, although carbon tax liabilities incurred before that date must still be met in full.
Australia was one of 40 or so countries that introduced a carbon tax in 2012, before becoming the first country to repeal the provision last month. Abolishing the tax has not been without controversy. For instance, the Australian Refrigeration Association believed that abolishing the tax was counterproductive, as the levy made the refrigerant industry aware of the need to transition from high Global Warming Potential (GWP) refrigerants to low GWP refrigerants and caused them to reconsider their operations and investment options.
The tax, introduced by the Clean Energy Act in 2012, essentially involved putting a price tag on greenhouse gas emissions released into the atmosphere and was designed to reduce air pollution and promote investment in clean and renewable energy. The tax was levied at a rate of 23 AUD per metric ton of CO2 emissions, which increased to 25 AUD on July 1, 2014 and mainly affected the largest emitters known as “liable entities.” Liable entities consisted of facilities that met an emissions threshold of at least 25,000 tons of carbon dioxide equivalent (CO2-e) or that supplied or used large amounts of natural gas. The mechanism included emissions from electricity generation, landfills, waste water, industrial processes, stationary energy and fugitive emissions.
As the carbon tax was established in law through Acts of Parliament, removing it required repealing these Acts through the carbon tax repeal legislation.
The bills, which were introduced by the Australian Government on November 13, 2013, were originally rejected by the Australian Senate on March 20, 2014 but were subsequently reintroduced on June 23, 2014. They received the Royal Assent on July 17, 2014 and entered into force with retroactive effect from July 1, 2014.
The Clean Energy Legislation (Carbon Tax Repeal) Act 2014 is the cornerstone of the repeal measures and resulted in the repeal of the 2011 Clean Energy Act. The 2014 Act also resulted in amendments being made to other sources including the National Greenhouse and Energy Reporting Act 2007 and the National Registry of Emissions Act 2011.
Impact on Australian businesses
Repealing the carbon tax was designed to:
- Lower retail electricity and gas prices.
- Boost Australia’s economic growth and international competitiveness by the removal of an unnecessary tax that impacts households and businesses.
- Reduce compliance costs for liable entities
Under the old scheme, liable entities were obliged to report to the Clean Energy Regulator under the National Greenhouse and Energy Reporting Act (NGER Act) the amount of emissions and to satisfy their liability for each ton of greenhouse gas emitted, either by surrendering emissions units or paying a unit shortfall charge.
A company was considered a liable entity if it was:
- a direct emitter,
- supplied natural gas or used large quantities of natural gas or
- both of the above.
Direct emitters were companies that:
- had operational control of a facility that directly emitted a minimum annual amount of 25,000 ton of greenhouse gas and there was no transfer of full liability to another person or
- there was a transfer of liability to that company in relation to a facility that directly emitted an annual minimum amount of 25,000 tons.
Liability for a facility only arose if it had “covered emissions,” which consisted of emissions released into the atmosphere as a direct result of the activity or activities that made up the facility (“Scope 1 emissions”) and consisted of:
- carbon dioxide (CO2),
- methane (CH4),
- nitrous oxide (N2O) and
- perfluorocarbons attributable to aluminium production
Under the new scheme, liable entities must still meet their carbon price obligations for the 2013-2014 fiscal year. These obligations include reporting their emissions number to the Clean Energy Regulator (the Regulator) under the NGER Act by October 31, 2014, and acquitting their final carbon price liability for 2013-2014 by February 2, 2015.
Liable entities will no longer be required to provide reports to the Regulator relating to emission numbers under sections 22A and 22AA of the NGER Act after the reporting requirements for 2013-2014 are met. Obligations on controlling corporations for the reporting of greenhouse gas emissions, energy consumption and energy production under section 19 of the NGER Act have not changed as a result of the repeal.
All suppliers of regulated goods are required to pass on their cost savings directly or indirectly attributable to the carbon tax repeal to customers. Regulated goods are:
- natural gas,
- synthetic greenhouse gas (e.g. refrigerant gases) and
- synthetic greenhouse gas equipment (i.e., equipment that contains these gases).
Cost savings directly attributable to the carbon tax repeal are those that arise from the removal of a supplier’s own carbon tax liability. If a business was subject to the carbon tax, it is now required to decrease its price by any amount previously increased to cover the liability.
Cost savings indirectly attributable to the carbon tax repeal are those that arise from cost savings attributable to the carbon tax repeal that are passed through by suppliers.
A new prohibition has been inserted in section 60k of the Competition and Consumer Act 2010 whereby a corporation must not, in trade or commerce, in connection with the supply or promotion of any goods or services, make a false or misleading representation concerning the effect of the carbon tax scheme or the repeal thereof on the price for the supply of goods or services between July 1, 2014 and June 30, 2015.
For example, if a business states to its customers that it has passed on all carbon tax cost savings, but further investigation reveals that it has only partially passed on those savings, the business may be liable for an infringement notice or court-imposed pecuniary penalties.
This requirement exists in addition to existing provisions under Australian Consumer Law which already prohibit misleading or deceptive conduct.
Increased regulation by the ACCC
The Competition and Consumer Act 2010 was amended by the Repeal Act providing the Australian Competition and Consumer Commission (ACCC) with additional powers. Until July 2015, the ACCC is entitled to take action against businesses supplying regulated goods that attempt to exploit other businesses and consumers by failing to pass on the cost savings referred to above or that make false or misleading claims about the effect of the carbon tax repeal on prices.
Who is next?
Australia’s carbon tax repeal has caused much controversy and has caused some other countries to rethink their own emissions reduction schemes.
Australia was due to join the EU’s Emissions Trading Scheme in July 2015, a move that was seen by many as a major victory for the emissions-reduction effort. This will not happen now. U.S. Republican legislators believe the Australian approach should act as a warning to the U.S. government, which has issued regulations aimed at reducing CO2 emissions from existing power plants.
New Zealand is also eyeing up its Australian counterparts. Having already opted out of the Kyoto Protocol’s second phase, the future of the New Zealand emissions scheme depends on the outcome of the general election in September. If the ruling National Party stays in power, it is unlikely the current system will change. However, if they are ousted from power, then they may soon follow their neighbors across the Tasman Sea.
Australia has been heavily criticized by the Australian Climate Institute as “taking a monumentally reckless backward leap, even as other major countries are stepping up climate action” in what has been described as an “historic act of irresponsibility and recklessness.”
Next year’s UN Climate Change Conference, which is due to take place in Paris in December 2015, will be crucial in the ongoing divergence in international opinion on how best to deal with global warming. The Conference’s main objective to achieve a legally binding and universal agreement on climate change remains as elusive as ever as an increasing number of countries review their climate change policies as a result of the Australian reversal. Time will tell.
Clean Energy Regulator Guide to Carbon Price Liability under the Clean Energy Act 2011 – http://www.cleanenergyregulator.gov.au/Carbon-Pricing-Mechanism/Fact-sheets-FAQs-and-guidelines/Guidelines/Documents/Guide%20to%20Carbon%20Price%20Liability.pdf
Department of the Environment Factsheet How the Carbon tax works – http://www.environment.gov.au/system/files/pages/59388d77-a9b5-4e4c-87b7-d732baf7c45b/files/factsheet-how-carbon-tax-works_1.pdf
Department of the Environment Factsheet How the Repeal Will Work – http://www.environment.gov.au/system/files/pages/59388d77-a9b5-4e4c-87b7-d732baf7c45b/files/factsheet-how-repeal-will-work_2.pdf
Department of the Environment Factsheet: Industry Assistance – http://www.environment.gov.au/system/files/pages/59388d77-a9b5-4e4c-87b7-d732baf7c45b/files/factsheet-how-industry-assistance-works.pdf
Reuters RPT-COLUMN-Australia dumps working carbon tax, keeps failed mining tax: Clyde Russell – http://uk.reuters.com/article/2014/07/21/column-russell-australia-carbon-idUKL4N0PW1CI20140721
Australian Government, How Australia’s carbon price is working – One Year On – http://www.cleanenergyfuture.gov.au/wp-content/uploads/2013/06/one-year-on.pdf
Prime Minister of Australia, Press Release, Government Delivers on Commitment to Abolish the Carbon Tax , 17 July 2014 – http://www.pm.gov.au/media/2014-07-17/government-delivers-commitment-abolish-carbon-tax
Department of the Environment, Repeal of the Carbon Tax , Exposure Draft Legislation and Consultation Paper October 2013 – http://www.environment.gov.au/carbon-tax-repeal/pubs/consultation-paper.pdf
Australian Climate Institute, The Carbon Laws Two Years On: Pollution is Down, our Energy is Cleaner and our Economy is Growing, July 2014 – http://www.climateinstitute.org.au/verve/_resources/CarbonLawsTwoYearsOn_PolicyBrief_1July2014.pdf
Australian Climate Institute, Australia Lurches Backwards as Pollution is Free Again, July 2014 – http://www.climateinstitute.org.au/articles/media-releases/australia-lurches-backwards-as-pollution-is-free-again.html/section/397
Clean Energy Act 2011 No. 131, 2011 – http://www.comlaw.gov.au/Details/C2013C00372/Download
Clean Energy Legislation (Carbon Tax Repeal) Act 2014 – http://www.comlaw.gov.au/Details/C2014A00083
National Greenhouse and Energy Reporting Act 2007 No. 175, 2007 – http://www.comlaw.gov.au/Details/C2014C00456
National Registry of Emissions Units Act 2011, Act No. 99 of 2011 – http://www.comlaw.gov.au/Details/C2012C00610
Australian Department of the Environment – http://www.environment.gov.au/
Australian Competition and Consumer Commission – http://www.accc.gov.a/
Australian Clean Energy Regulator – http://www.cleanenergyregulator.gov.au/Pages/default.aspx
Australian Climate Institute – http://www.climateinstitute.org.au/
Australian Refrigeration Association – http://www.ausref.org.au/