Last week the Federal Government released draft legislation for its proposed carbon pricing mechanism, and the implications for business are far reaching, writes Elisa de Wit, head of climate change at Norton Rose.
The Government will introduce its Clean Energy bill in the Spring session of Parliament, with the intention of ensuring passage by the end of 2011. Assuming the legislation is passed within this timeframe, the carbon pricing mechanism is set to begin on 1 July 2012.
Perhaps most pressing, for business and industry, is the fact that there is a very limited timeframe for submissions to be provided on the draft legislation, with a closing date of 22 August. Covered sectors, such as the electricity, resources, industrial and waste sectors, will therefore need to give urgent consideration to the detail of the bill, to determine whether any changes are required to provide greater clarity or certainty in relation to their liability.
As anticipated, the draft itself is similar to the previous CPRS Bill. Some of the main differences include a higher target of emissions reduction of 80 per cent by 2050, and no statutory target set for 2020, although the bi-partisan target of 5 per cent reduction by 2020 is currently the adopted position of all political parties. The significance of this omission is that it may be possible for the 5 per cent target to be increased prior to the 2020 deadline.
There are also minor changes concerning how liability is applied to the different sectors, and some new provisions enabling infringement notices, which are essentially fines, to be issued for non-compliance. In particular, liability is proposed to rest directly with the operator of a facility which meets the specified threshold (generally 25,000 tonnes CO2-e per year), rather than being directed up the corporate tree to the ultimate parent company.
The draft legislation confirms that agricultural emissions are excluded and will be covered by the Carbon Farming Initiative, Australia's proposed domestic offsets scheme. For agricultural industries and other land based activities, such as forestry, this will provide an opportunity to generate carbon credits, which can then be used for compliance purposes under the carbon pricing mechanism.
Overall, the package of legislation essentially reflects the content of the Government's policy announcement on 10 July, with relatively few surprises. And given the Government has the numbers to get the package through Parliament, business and industry should now start considering the range of commercial and compliance issues raised by the legislation. Where do they stand in relation to coverage under the mechanism? Will they be given free permits under the Jobs and Competiveness Program? What sort of liability will they have? For publicly listed corporations, what sort of information will need to be disclosed to the market in compliance with ASX Listing Rule 3.1?
Another key consideration is whether or not commercial enterprises can pass direct or indirect carbon costs on to customers, under existing contractual relationships, or whether there may be restrictions on the ability to pass through such costs, due to issues such as international competition or domestic market sensitivity.
These are issues which need to be carefully explored, and the clock is now ticking.