Climate change - Australia’s carbon emissions trading scheme
During March the Australian Government released its long awaited carbon trading legislation designed to introduce its proposed Carbon Pollution Reduction Scheme (CPRS).
The package of six carbon trading bills will be introduced into the Australian Parliament during May and the Government hopes to have the laws passed this year, although whether or not that occurs will depend upon the Australian Government passing the bills through the Senate, where the Australian Government does not control the numbers.
The principal piece of legislation is known as the Carbon Pollution Reduction Scheme Bill (Scheme) and introduces a “cap and trade” system of carbon emissions trading. The scheme was to commence on 1 July 2010, however, citing the current economic conditions the Government has announced a revised start date of 1 July 2011. The scheme sets a 2020 greenhouse emissions reduction target for Australia of between 5% and 15% and potentially up to 25% if international agreement at this level is reached.
The European Union has an Emissions Trading Scheme (ETS) in place, but very few other countries have followed the lead. Australia is one of the few countries outside of Europe to have prepared laws to set up an ETS.
Under the proposed CPRS, there will be two primary types of liable entities - entities that have an operation or control over a facility with direct emissions of more than 25,000 metric tonnes of carbon dioxide per annum and, fuel importers, producers or suppliers. Ordinarily, liability will fall on the controlling corporation, however in some circumstances it may be possible for the controlling corporation to transfer its liability to another corporation within its group or to a corporation that has financial control of the particular facility.
Each year the Australian Government will issue Australian Emissions Units (AEU) up to the national scheme cap. One AEU will represent one tonne of carbon dioxide.
An AEU will be individually numbered, belong to a financial year and will be transferable personal property, the majority of which will be sold through auction. In the first year of the scheme permits will cost A$10 per tonne of carbon, with the transition to full market trading from 1 July 2012.
Liable entities will be required to surrender sufficient eligible emissions units (either AEUs or certain approved Kyoto Protocol emissions units) to cover their emissions for a financial year. If insufficient emission units are surrendered to cover an entity’s emissions liability, it will be required to pay a penalty. Compensation and assistance is available for entities involved in Emissions Intensive Trade Exposed (EITE) activities.
The CPRS Bill contains broad anti-avoidance provisions to apply with effect from 15 December 2008 and will be directed at entities who attempt to structure operations in a way to fall below applicable liability thresholds. Executive officers of a company that fails to comply with certain requirements under the CPRS may incur personal liability where they knew that (or were reckless or negligent as to whether) the contravention would occur, were in a position to influence the company’s conduct and take reasonable steps to prevent the contravention.
National Greenhouse Energy Reporting (NGER) Act 2007
The National Greenhouse Energy Reporting Act 2007 (NGER Act) has been retained as part of the Government’s carbon pollution reduction scheme, including the mandatory emission measurement and reporting obligations under NGER Act.
Under NGER Act from 1 July 2008, registration and emissions reporting became mandatory for corporations where energy production, energy use or greenhouse gas emissions met specific thresholds.
Corporations and business entities (including joint ventures) therefore need to be aware of the thresholds in the NGER Act for both a facility and the corporate group. There are two levels of thresholds at which corporations are required to apply for registration and provide reports of gas emission levels. Currently for a facility this is 100 terajoules (TJ) of energy consumption or 25 kilotonnes (kt) of greenhouse gases emitted. From 1 July 2008 all controlling corporations must apply for registration with the Greenhouse and Energy Data Officer if their corporate group emits greenhouse gases or produces or consumes energy are at or above these thresholds during a financial reporting year.
Written by Anthony Highfield, Partner
