Chapter 2

Views on the bills

Summary

2.1        None of the submissions received by the committee objected to the overall intent of the bills.

2.2        LPG Australia submitted that it supports the 'broad thrust' of the proposed amendments relating to the coverage of gaseous fuels, noting its role in causing the amendments to come about (see the excerpt of LPG Australia's September 2011 evidence to the Joint Select Committee on Australia's Clean Energy Future in Chapter 1). It did, however, raise some concerns about the definition of 'designated fuel', (item 4, schedule 1 to the Legislation Amendment Bill) and the reference to 'entered for home consumption' (item 13, schedule 2 to the Legislation Amendment Bill). LPG Australia also requested that the Australian Taxation Office clarify whether LPG used for forklifts which are primarily used off public roads will be subject to carbon excise from 1 July 2012.[1] Additionally, LPG Australia suggested various amendments to the Explanatory Memorandum.

2.3        Wesfarmers Chemicals, Energy and Fertilisers, whose subsidiary Kleenheat is impacted by the bills, noted its concern about the different dates from which the carbon pricing mechanism, rather than the fuel tax system, would apply to the three gaseous fuels and the possible impact this could have on the LNG industry.

2.4        The National Farmers' Federation (NFF) welcomed the availability of a fuel tax credit for the use of non‑transport LPG, LNG and CNG on an agricultural enterprise.[2] The NFF also raised some broader issues relating to the definition of what constitutes an 'agricultural activity' contained in the Clean Energy (Fuel Tax Legislation Amendment) Act 2011.

2.5        The Climate Change Working Group of the Business Law Section of the Law Council of Australia (CCWG) considers that the proposed amendments relating to the treatment of gaseous fuels implements the government's policy as announced in the 2012–13 Budget.[3] However, as this could be the last opportunity for amendments to the carbon pricing mechanism to be made before it commences on 1 July 2012, the CCWG raised some additional issues with the definition of 'supply' of natural gas contained in section 5 of the Clean Energy Act.

2.6        This chapter considers the issues raised by submitters.

Commencement dates

2.7        The reason for non-transport CNG being covered by the carbon pricing mechanism earlier than LPG and LNG is primarily because it is produced from natural gas (which is already covered by the carbon pricing mechanism) and can be treated as natural gas for the purposes of the mechanism.[4] The Explanatory Memorandum suggests that the delayed coverage of non‑transport LPG and LNG will allow for the necessary transitional and administrative arrangements to be developed and implemented.[5]

2.8        Wesfarmers Chemicals, Energy and Fertilisers noted that the different dates at which the fuels would be covered by the carbon pricing mechanisms 'may be damaging' to the LNG industry:

There is some risk that the different treatment of LNG in particular, compared to CNG and pipeline natural gas, whereby an effective carbon price will be captured through the excise scheme on a monthly basis, will be an impediment to its use in FY13.

For clarity, during FY13, a facility using above a threshold quantity of CNG or pipeline natural gas will have the ability to take direct liability for its carbon emissions from its gas supplier by way of issuing an obligation transfer notice ("OTN"), not pay a direct carbon price during the financial year and then purchase and surrender carbon permits following the financial year to meet this liability. A facility using above a threshold quantity of LNG will have no option other than paying an effective carbon price each month.[6]

2.9        However, providing for the change to the treatment of non-transport LPG and LNG to commence on 1 July 2012 rather than 1 July 2013 would be administratively difficult, a point recognised by LPG Australia:

The changes proposed in these bills would, to the extent they bring stationary energy LPG, LNG and CNG within the [carbon pricing mechanism], prevent these fuels from being disadvantaged relative to their principal stationary energy competitors – natural gas and electricity. For this reason, the gaseous fuels industry would have much preferred LPG and LNG to be brought within the [carbon pricing mechanism] from 1 July 2012, as is proposed for CNG. Nevertheless, LPG Australia acknowledges the Government's argument that there is now insufficient time for it to develop and implement legislation and regulations to do this.[7]

Definition of 'designated fuel'

2.10      The concept of 'potential greenhouse gas emissions' is used to assign liability for emissions before they are produced.[8] The definition of potential greenhouse gas emissions in the Clean Energy Legislative Package only applies to natural gas. The Legislation Amendment Bill proposes to amend this definition so that it applies to designated fuels—either natural gas or taxable fuel (fuels covered by the Opt-in Scheme).[9]

2.11      LPG Australia submitted that:

The Excise Act 1901 defines LPG as 100 per cent propane or as a propane and butane blend. Some customers that use 100 per cent butane are outside the Excise Act 1901 (given definitional issues) and would generate insufficient CO2 to be included in the [carbon pricing mechanism].

LPG Australia considers this definition should be amended as a matter of urgency because there is potential for market distortion by customers purchasing large amounts of butane which is free of both excise and a carbon price and blending it to gain a competitive advantage.[10]

Reference to 'entered for home consumption'

2.12      The phrase 'entered for home consumption' is used to indicate the point at which certain taxes or duties become payable. It is already used in the Clean Energy Act (section 35) and, more generally, in a number of other Acts including the Excise Act, although home consumption is not defined in that Act.

2.13      The Legislation Amendment Bill utilises the phrase in proposed paragraphs 36B(1)(b) and 36C(1)(b).[11] LPG Australia submitted that:

... it might be useful to define "entered for home consumption" in the Act or clarify its meaning in the associated Explanatory Memorandum as being the same as in relation to the Excise Act 1901. At the very least it would be useful for the Explanatory Memorandum to confirm that "entered for home consumption" does not include LPG or LNG moved under bond or that is exported.[12]

2.14      It is not unprecedented for references to goods entered for home consumption being linked to certain Acts; for instance, section 13-5 of the A New Tax System (Goods and Services Tax) Act 1999 refers to goods entered 'for home consumption (within the meaning of the Customs Act 1901)'.

2.15      Returning to the legislation related to the carbon pricing mechanism, a distinction between the use of the phrase in proposed paragraphs 36B(1)(b) and 36C(1)(b) in the bill appears evident. Paragraph 36B(1)(b) relates to preliminary emissions numbers[13] for imported LPG and LNG, whereas paragraph 36C(1)(b) relates to preliminary emissions numbers for LPG or LNG that is manufactured or produced in Australia. Accordingly, section 36B relates to customs duty, whereas section 36C relates to excise duty. Regardless of any benefits in clarifying the application of the phrase, a reference to the Excise Act could be appropriate in relation to proposed section 36C, but may not be for proposed section 36B.

Need for additional amendments prior to the commencement of the carbon pricing mechanism

2.16      As noted earlier, the CCWG of the Law Council of Australia submitted that while a number of terms have been clarified in regulations, it considers that the definition of 'supply' of natural gas in section 5 of the Clean Energy Act requires amendment. The CCWG argues that:

... there remains confusion as to where in a gas supply chain liability arises. In negotiating Gas Sale Agreements and Gas Transmission Agreements, it is important for all parties to be able to determine with certainty who in the gas supply chain has CEA liability so that OTNs (Obligation Transfer Numbers) can be properly quoted, and appropriate reimbursement obligations imposed.

In a number of gas transportation/transmission agreements, title in the transported gas is expressed to transfer from the shipper to the pipeline operator at the inlet flange and then from the pipeline operator to the shipper at the outlet flange. This could be characterised as an "exchange", and therefore a supply that results in the pipeline operator being liable for the embodied emissions in the gas where the shipper withdraws the gas at the outlet flange for use.

This is not really an exchange of gas which the CCWG regards as being intended to attract liability under the CEA – while the molecules of gas that are supplied at the outlet flange are unlikely to be the same molecules that are injected at the inlet flange (due to comingling), this is not the same as X delivering gas to Y at point A in exchange for Y delivering gas to X at point B.[14]

Committee comment

2.17      The issues raised by the CCWG of the Law Council of Australia appear to go beyond the primary purpose of these bills. However, the issues may warrant consideration, and the committee draws them to the government's attention.

Committee view

2.18      The bills principally seek to provide that non-transport gaseous fuels (LPG, LNG and CNG) will be covered by the carbon pricing mechanism rather than being subject to an effective carbon price through the fuel tax system. These amendments follow the deliberations of the Joint Select Committee on Australia's Clean Energy Future and the government's subsequent commitment that it would examine the issue and consult with industry. The measures will reduce the compliance burden on affected suppliers and will increase flexibility for suppliers in meeting their emissions obligations. It is important to recognise that the measures have the support of the gaseous fuels industry.

2.19      The remaining amendments either enable information sharing between the Clean Energy Finance Corporation and other government bodies, or are minor or technical in nature.

2.20      The committee supports the bills. However, during the course of this inquiry, LPG Australia raised some technical issues regarding certain definitions and the interpretation of particular phrases in the bills. The committee has outlined these issues in this report. The committee does not consider that the matters raised would prevent the bills from being passed in their current form. However, the committee draws these concerns to the government's attention and recommends that, if it would not delay the passage of the bills, the government consider and respond to the matters raised to ensure, to the extent possible, that the bills fully meet their objectives and appropriate certainty is provided to the gaseous fuels industry.

Recommendation 1

2.21      The committee recommends that the government consider the definitional and interpretative issues raised by LPG Australia and, if necessary, amend the relevant sections of the bills.

Recommendation 2

2.22      Subject to recommendation 1, the committee recommends that the Senate pass the bills.

 

Senator Mark Bishop
Chair

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