Chapter 1

Introduction

Referral

1.1        On 9 May 2012, the Senate passed the following resolution:

To ensure appropriate consideration of time critical bills by Senate committees, the provisions of all bills introduced into the House of Representatives after 10 May 2012 and up to and including 31 May 2012 that contain substantive provisions commencing on or before 1 July 2012 (together with the provisions of any related bill), are referred to committees for inquiry and report by 18 June 2012.[1]

1.2        Accordingly, following their introduction in the House of Representatives on 23 May 2012, the provisions of the following bills were referred to the Senate Economics Legislation Committee for inquiry and report:

• Clean Energy Legislation Amendment Bill 2012;
• Clean Energy (Customs Tariff Amendment) Bill 2012; and
• Clean Energy (Excise Tariff Legislation Amendment) Bill 2012.[2]

1.3        The bills propose amendments to the Clean Energy Act 2011 and the Fuel Tax Act 2006 to change coverage arrangements for gaseous fuels. The bills also propose to make a number of minor and technical amendments relating to the Opt-in Scheme, the Carbon Farming Initiative and the Australian National Registry of Emissions Units, as well as to enable information sharing between relevant agencies and the proposed Clean Energy Finance Corporation.

Conduct of the inquiry

1.4        The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting submissions. The committee received five submissions, which are listed in Appendix 1.

1.5        The committee thanks all of the organisations which provided a submission to this inquiry.

Structure of the report

1.6        This report consists of two chapters. The remainder of Chapter 1 provides an overview of the main amendments proposed by the bills. Chapter 2 outlines the evidence received from stakeholders and includes the committee's views and recommendations.

Changes to how the carbon price will be applied to gaseous fuels

1.7        Liquefied petroleum gas (LPG) and liquefied natural gas (LNG) are naturally occurring gases used for a variety of transport and non-transport purposes.[3] Compressed natural gas (CNG) is produced from natural gas. Common uses of these gases are outlined below:

• LPG—used as a transport fuel and for non-transport purposes. Non-transport uses of LPG 'include residential and leisure (for uses such as heating and gas barbecues), manufacturing, materials handling (such as warehouse forklift use), and commercial'.[4] LPG is supplied to around 100,000 commercial and industrial enterprises.[5]
• LNG—used as a fuel that can be transported and re-gasified for supply to distant markets.[6] LNG is also used as an industrial chemical and for electricity generation.[7]
• CNG—used as a transport fuel, although its use is currently limited to certain vehicles such as 'some bus fleets, street sweepers and garbage collection vehicles', rather than cars.[8] CNG is also used as a fuel for forklifts and off‑road mining vehicles.[9]

1.8        Under current arrangements (i.e. prior to the commencement of the carbon price), the excise and customs duty regimes provide a remission or exempt entirely non-transport LPG, LNG and CNG. To account for emissions from these fuels, from 1 July 2012 the arrangements included in the Clean Energy Legislation Package[10] will apply an effective carbon price to these gaseous fuels, when they are intended to be used for non-transport purposes, through the fuel tax system rather than the carbon pricing mechanism. The effective carbon price is brought about through an automatic partial remission of excise and excise-equivalent customs duties, to leave the amount equivalent to the carbon price applying to LPG, LNG and CNG.[11]

1.9        The bills propose to change these arrangements so that:

• between 1 July 2012 and 30 June 2013, non-transport LPG and LNG will  have a carbon price applied through the fuel tax system, however from 1 July 2013 the carbon price will be applied through the carbon pricing mechanism; and
• a carbon price will be applied to non‑transport CNG from 1 July 2012 through the carbon pricing mechanism, rather than the fuel tax system.

1.10      The Customs Tariff Amendment Bill and Excise Tariff Legislation Amendment Bill give effect to the amendments related to the treatment of gaseous fuels outlined above.

Rationale for the amendments

1.11      The Joint Select Committee on Australia's Clean Energy Future Legislation, the parliamentary committee established to examine the Clean Energy Legislation Package in 2011, explored the application of the carbon price to liquid petroleum gas. LPG Australia, the peak industry body for the LPG industry, highlighted that while electricity and natural gas were included in the carbon pricing mechanism, LPG was not:

Senator MILNE: I want to start with the issue of stationary energy and the competition issue that you set out, where your gas is treated as an excise. Therefore, you have two issues, as I see it. One is cash flow issues because you have to pay an excise on a regular basis; whereas your competitors in other stationary energies do not have to pay their liability until the following February. Your second issue is that, because it is an excise, you do not have the opportunity when we go to a trading market in 2015 to purchase international credits and hedge your liability. Are they essentially the two issues you are trying to draw our attention to in relation to stationary energy?

Mr Neilson: Yes, but I think there is another one as well. There is a flow-on cost that occurs in that exercise because, while we are excluded from the litigation and controlling our carbon costs, the complexity of us remaining in an excise scheme is that we are up for a massive reconciliation program with the Australian Taxation Office to handle our transport excise and then on top of that we have got a carbon excise that we have to try to deal with. We deliver thousands and thousands of cylinders and we would have to reconcile each invoice back. It just does not make sense. How we operate in New Zealand is that when we purchase the product and we put it in our storage we pay the carbon tax on that, so we already know what our obligation is in terms of carbon. Under this current regime we would be doing that and all we would simply do is we would adjust that balance with the transport excise and deduct it from the carbon cost. They are the two main things. What will happen is that by remaining in this current mechanism our costs for our consumer will actually increase. So not only do we impair the original consumer but I think we also impair the take-up of a fuel that can provide an enormous contribution to abatement.[12]

1.12      The Joint Select Committee recommended:

That the Government examine the proposals made by LPG Australia concerning the treatment of LPG under the mechanism and, where appropriate, refine the provisions to ensure that a carbon price is most efficiently applied to all uses of LPG.[13]

1.13      As part of the debate on the Clean Energy Legislation Package in the House of Representatives, the Minister for Climate Change and Energy Efficiency noted the recommendation of the Joint Select Committee and stated that:

A number of companies in the consultation process have also expressed interest in having liquid petroleum gas included in the carbon pricing mechanism. The government is open to considering this in a similar manner to the way in which large liquid fuel users may opt into the scheme and we will consult on options for achieving it. No amendments however are proposed in relation to this at this time.[14]

1.14      The provisions of the bills which relate to the coverage of gaseous fuels in the carbon pricing mechanism were announced in the 2012–13 Budget,[15] and represent the government's response to this recommendation of the Joint Select Committee.

1.15      The Regulation Impact Statement outlines some of the benefits that the amendments will provide for the industry. It notes that inclusion in the excise regime would impose additional compliance and cash carrying costs, as well as reduced flexibility for suppliers in how they can meet their emissions obligations compared to coverage under the carbon pricing mechanism:

Coverage under the fuel tax arrangements generally requires the settlement of excise returns on a weekly basis with an additional 6 days provided beyond the weekly excise period to enable suppliers to reconcile invoices issued during that week and finalise settlement. By comparison, submission of reports and settlement of liabilities under the carbon pricing mechanism would occur twice for each year of the mechanism's fixed price period (2012–13 to 2014–15) and once for each year of the mechanism's flexible price periods (2015–16 and onwards).[16]

1.16      The Regulation Impact Statement also notes compliance costs associated with the excise system, particularly for certain non-transport CNG producers that would have to install metering equipment under the excise system, as well as concern that the current arrangements might impact competitiveness of non-transport gaseous fuels:

... gaseous fuels suppliers will not have access to the flexibility in meeting emissions obligations provided by the ability to purchase units on international and domestic markets available under the carbon pricing mechanism.

These differences, relative to carbon pricing mechanism coverage, will potentially create marginal distortions affecting the competitiveness of non‑transport gaseous fuels when compared with other non-transport fuels over the longer term.[17]

Amendments to the Opt-in Scheme

1.17      Division 7 of Part 3 of the Clean Energy Act provides for the regulations to prescribe an opt-in-scheme. Under the scheme, a person can choose to have certain emissions from specified liquid fuels covered directly under the carbon pricing mechanism instead of paying an equivalent carbon price through the fuel tax system. The scheme is intended to minimise administrative costs for affected businesses.[18]

1.18      The Legislation Amendment Bill further defines the criteria that a person must meet to be declared a 'designated opt-in-person' by providing that, for the purposes of the Clean Energy Act, membership of GST groups and GST joint ventures cannot change during a financial year. This is intended to prevent these groups from changing membership to opt-out of the carbon pricing mechanism for selected amounts of fuel.[19]

1.19      The bill also provides for the enforcement of reporting, record-keeping and notification requirements. The current maximum penalty for contraventions is $1.1 million for a corporation or $220,000 for any other person.

Amendments relating to the Carbon Farming Initiative

1.20      Schedule 3 to the Legislation Amendment Bill proposes amendments:

• relating to Carbon Farming Initiative projects approved on the condition that they obtain the necessary regulatory approvals (aimed at removing the risk that proponents could receive Australian carbon credit units prior to obtaining regulatory approval for their project)
• to remove a requirement that the Domestic Offsets Integrity Committee (DOIC) publish matters incorporated by reference in methodology determinations.

Other amendments

Amendments relating to the Australian National Registry of Emissions Units

1.21      These amendments propose to create a regulation-making power to impose restrictions on the operation of certain Australian National Registry of Emissions Units accounts where the Clean Energy Regulator (CER) is not satisfied that the account holder meets the fit and proper person criteria.[20] The amendments also propose to increase the period of time within which the CER can defer giving effect to a transfer instruction (an instruction to transfer a unit to or from a Registry account).This period will be increased from 48 hours to five business days to 'enhance the capacity of the CER to deal with suspicious conduct'.[21]

Amendments to the National Greenhouse and Energy Reporting Act

1.22      A person with 'operational control' of a facility is generally responsible for carbon price liabilities and reporting requirements. A nomination may be made if operational control is not clear. The proposed amendments will allow nominations to last as long as necessary, rather than being required to renew annually.

1.23      Technical amendments regarding the publication of data by the CER to avoid potential confusion by users of the published data are also proposed.

Amendments relating to the Clean Energy Finance Corporation

1.24      Subject to the passage of the Clean Energy Finance Corporation Bill 2012,[22] the Clean Energy Finance Corporation (CEFC) will be a Commonwealth authority with a $10 billion fund dedicated to investing in clean energy.

1.25      The Legislation Amendment Bill proposes amendments to enable the sharing of relevant and appropriate information between the CEFC and the Australian Renewable Energy Agency, and the CEFC and the CER in certain circumstances.

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