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Carbon tax brings legal challenges for businesses

Carbon tax brings legal challenges for businesses

Businesses must prepare for the various legal ramifications of the Labor Government's new plan for a "clean energy future", according to climate change lawyers. In her address to the nation…

Businesses must prepare for the various legal ramifications of the Labor Government's new plan for a "clean energy future", according to climate change lawyers.

In her address to the nation yesterday (10 July), Prime Minister Julia Gillard confirmed the controversial carbon tax will come into play from 1 July next year, forcing approximately 500 "big polluters" to pay $23 for every tonne of carbon they release into the atmosphere. The carbon price per tonne is set to increase from $23 to $24.15 in 2013-14 and $25.40 in 2014-15, with an emissions trading scheme (ETS) to come into force on 1 July 2015.

Governing the future of one of the top 20 polluters in the world, the ultimate goal of the Australian Government's new carbon policy is to cut the nation's carbon emissions by 5 per cent by 2020, cutting 160 million tonnes per year of carbon pollution.

"Putting a price on carbon is a big change for our country," Prime Minister Gillard said. "I know we can do it together. Our economy is the envy of the world. We have world-leading renewable technology, a coal industry determined to cut pollution among the world's richest reserves of natural gas."

Under the new plan, which will withdraw $4.3 billion from the Federal Budget, the Government has introduced three new measures aimed at creating economic incentives for businesses to invest in low and zero emissions innovations. These include $10 billion to establish the Clean Energy Finance Corporation, to help businesses get clean energy proposals and technologies off the ground; $3.2 billion for an Australian Renewable Energy Agency for research and development into renewable technologies and initiatives to bring them to market; and $200 million for a Clean Technology Program to support investment in renewable energy, low emissions technology and energy efficiency.

A Climate Change Authority, to be headed by former Reserve Bank governor Bernie Fraser, will make recommendations on future pollution caps once the ETS comes into play and conduct regular public reviews and reports.

According to Clayton Utz partners Graeme Dennis and Brendan Bateman, businesses must ensure they understand the potential impact of the carbon price and the risks of a future ETS.

In particular, the introduction of a carbon price, according to Dennis and Bateman, could trigger "change of law" clauses in long-term supply contracts, which could lead to wholesale contract negotiations and disputes over pricing.

"If the new carbon pricing mechanism falls within the definition of 'change of law' in a particular contract, there are a couple of possible scenarios," said Dennis. "One could be a forced renegotiation of the contract and a dispute between the parties over how the increased costs resulting from the change in law should be factored into the new price."

In relation to the issue of carbon price pass-through, there will also be the question of liability for the obligations under the new scheme.

According to Bateman, the point of obligation under the new scheme will be imposed on the facility operator and not the parent company, as was the case under the original CPRS.

"This will need to be carried across into the legislation if potential impediments to carbon price pass through are to be avoided," he said.

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