Chapter 2
Overview of the bills
2.1
As noted at the start of the preceding chapter, the Clean Energy
Amendment Bills make amendments to the CE Act and other acts.
2.2
The most important of these amendments, and those which submissions
focused on, relate to:
- the linking of Australia's CPM with other countries' trading
schemes, including the EU ETS;
- the removal of the floor price and surrender charges on
international permits;
- a new limit of 12.5 per cent on the Kyoto units that Australian
liable entities can use to meet their liability, and a new concept of
'designated limit' that can be applied in the future to specific types of
carbon permits and offsets; and
-
the treatment of natural gas under the CPM.
2.3
In addition, the Clean Energy Amendment Bills also cover:
- consequential changes to the equivalent carbon pricing of liquid
fuels and synthetic greenhouse gases;
- the streamlining of arrangements for relinquished carbon units;
- limits on the issue of carbon units at auction without a
pollution cap in place;
- the content of measurement determinations under the NGER Act; and
- the treatment of GST joint venture operators in the Opt-in
Scheme.
2.4
After a brief overview of each of the bills, the provisions in the
legislation relating to all of the above matters are addressed, under the
heading, 'Effects of the Amendments'.
Overview of each bill
Clean Energy Amendment
(International Emissions Trading and Other Measures) Bill 2012
2.5
The Clean Energy Amendment (International Emissions Trading and Other
Measures) Bill 2012 amends the CE Act to facilitate the linking of the CPM to
the EU ETS; remove the floor price; limit the use of Kyoto units to
12.5 per cent of an entity's liability; provide for the calculation of
an equivalent carbon price that reflects liable entities' cost under the
arrangement; limit advance auctions of carbon permits to no more than three
years in advance of their vintage year, while increasing the volume of advanced
auctioned carbon units; change the treatment of relinquished carbon units; and
allow regulations to be made relating to the treatment of natural gas.
2.6
The bill also amends the Australian National Registry of Emissions
Units Act 2011 (ANREU Act) to enable European allowance units to be held in
the Australian National Registry of Emissions Units (ANREU), and used for
compliance purposes under the CE Act; and in the event that a direct link with
a foreign emissions trading scheme, including the EU ETS, is not possible, to
enable the Clean Energy Regulator to issue Australian-issued international
units (AIIUs) which correspond to foreign emissions units withdrawn from
circulation within the relevant foreign registry, and which can be used for
compliance purposes under the CE Act.
2.7
The bill also amends the Fuel Tax Act 2006 to adjust the
calculation of the equivalent carbon price to ensure that it remains equivalent
to the effective carbon price for liable entities under the CPM.
2.8
The bill also repeals the Clean Energy (International Unit Surrender
Charge) Act 2011, which imposed a surrender charge on eligible
international emissions units.
2.9
Finally, the bill amends the NGER Act to provide the Minister for
Climate Change and Energy Efficiency the power to determine the measurement methods
to adjust the amounts of designated fuels for the purpose of ascertaining
potential greenhouse gas emissions.
2.10
Sections 1, 2 and 3 commence on the date the bill receives the Royal
Assent. Schedule 1, Parts 1 and 3, which make general amendments to the CE Act
and the ANREU Act, will commence on the day after the bill receives the Royal
Assent.
2.11
Schedule 1, Part 2, which makes amendments relating the fuel to the CE
Act and the NGER Act, will commence on 1 July 2013. The amendments to
the NGER Act made by this Part will apply to reports relating to the 2012-13
financial year and all subsequent years.
Clean Energy (Charges—Excise)
Amendment Bill 2012
2.12
The Clean Energy (Charges—Excise) Amendment Bill 2012 will amend the Clean
Energy (Charges––Excise) Act 2011 by repealing the definition of 'eligible
international emissions units' and the methods by which the units are
auctioned, providing that the reserve price is removed. It also provides for
the creation of a legislative instrument by a Minister to set a 'reserve charge
amount' to a specified auction.
2.13
The first schedule in the bill will take effect at the same time as Part
1 of Schedule 1 to the Clean Energy Amendment (International Emissions
Trading and Other Measures) Act 2012. The remainder of the bill will take
effect the day the Act receives the Royal Assent.
Clean Energy (Charges—Customs)
Amendment Bill 2012
2.14
The Clean Energy (Charges—Customs) Amendment Bill 2012 will amend the Clean
Energy Charges––Customs) Act 2011 consistent with the provisions of the
Clean Energy (Charges—Excise) Amendment Bill 2012.
2.15
The first schedule in the bill will take effect at the same time as Part
1 of Schedule 1 to the Clean Energy Amendment (International Emissions
Trading and Other Measures) Act 2012. The remainder of the bill will take
effect the day the Act receives the Royal Assent.
Excise Tariff Amendment (Per-tonne
Carbon Price Equivalent) Bill 2012
2.16
The Excise Tariff Amendment (Per-tonne Carbon Price Equivalent) Bill
2012 will change the treatment of the liquid fuels, by applying the new 'per-tonne
carbon price equivalent' in place of the average carbon unit auction price.
2.17
Schedule 1 takes effect immediately after the commencement of Part 1 of
Schedule 1 to the Clean Energy Amendment (International Emissions Trading
and Other Measures) Act 2012. All other sections of the bill take effect
the day that Act receives the Royal Assent.
Ozone Protection and Synthetic
Greenhouse Gas (Import Levy) Amendment (Per-tonne Carbon Price Equivalent) Bill
2012
2.18
The Ozone Protection and Synthetic Greenhouse Gas (Import Levy)
Amendment (Per-tonne Carbon Price Equivalent) Bill 2012 amends the Synthetic
Greenhouse Gas (Import Levy) Act 1995 to repeal the definition of
'benchmark average auction charge' and introduce a 'per-tonne carbon price
equivalent'. It provides that the per-tonne carbon equivalent is applied to the
import of synthetic greenhouse gas.
2.19
The first schedule will take effect immediately after the commencement
of Part 1 of Schedule 1 to the Clean Energy Amendment (International
Emissions Trading and Other Measures) Act 2012. All other sections of the
bill take effect the day that Act receives the Royal Assent.
Ozone Protection and Synthetic
Greenhouse Gas (Manufacture Levy) Amendment (Per-tonne Carbon Price Equivalent)
Bill 2012
2.20
The Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy)
Amendment (Per-tonne Carbon Price Equivalent) Bill 2012 amends the Ozone
Protection and Synthetic Greenhouse Gas (Manufacture Levy) Act 1995 to repeal
the definition of 'benchmark average auction charge' and introduce a 'per-tonne
carbon price equivalent'. It provides that the per-tonne carbon equivalent is
applied to the manufacture of synthetic greenhouse gas.
2.21
The first schedule will take effect immediately after the commencement
of Part 1 of Schedule 1 to the Clean Energy Amendment (International
Emissions Trading and Other Measures) Act 2012. All other sections of the
bill take effect the day that Act receives the Royal Assent.
Clean Energy (Unit Issue
Charge—Auctions) Amendment Bill 2012
2.22
The Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012 amends
the Clean Energy (Unit Issue Charge—Auctions) Act 2011 to remove the
requirement for a minimum auction reserve price.
2.23
Schedule 1 takes effect at the same time as Part 1 of Schedule 1 to the Clean
Energy Amendment (International Emissions Trading and Other Measures) Act 2012.
The remainder of the bill takes effect the day that Act receives the Royal
Assent.
Effects of the amendments
Linkage of Australian CPM to
international markets, including EU ETS
2.24
The Clean Energy Amendment Bills allow for the linking of the Australian
carbon pricing mechanism with overseas emissions trading schemes, including the
EU ETS.
2.25
The CE Act currently allows eligible international emissions units to be
surrendered to meet liabilities under the CPM after 1 July 2015. Some units
issued under the Kyoto Protocol have already been defined as eligible
international emissions units in the CE Act. Under the linking arrangement with
the EU ETS, European allowance units will be able to be used for compliance
under the CPM from 1 July 2015.
2.26
As the Explanatory Memorandum explains, amendments to the ANREU Act
ensure that links to other countries' schemes can occur, even in the event
it is not possible to implement a direct registry link. Indirect linking may be
given effect by the Government issuing AIIUs to holders of an ANREU account,
where these units are backed by foreign emissions units. The Government has
also been given powers to open and operate an overseas registry account and to
alter the way in which AIIUs are managed in the ANREU as circumstances require.[1]
Removal of the floor price and the
surrender charge on international units
2.27
Under the linked arrangement, the floor price will no longer operate in
the first three years of the flexible price period. As the Explanatory
Memorandum explains, this will facilitate the convergence of the EU and
Australian carbon prices.[2]
2.28
This will be achieved by removing the requirement for a minimum auction
reserve price for the years 2015-16, 2016-17 and 2017-18; and by removing the
requirement for a surrender charge on eligible international emissions units by
repealing the Clean Energy (International Unit Surrender Charge) Act 2011.
2.29
The Minister may still determine an auction 'reserve charge amount' to
enhance price discovery at auctions. The Explanatory Memorandum explains that:
...a reserve charge amount can serve to counteract bid
shading (that is, bidding an amount which is less than the amount that the
participant believes that the unit is worth) or collusion by auction
participants by minimising the potential gains from such behaviour. When there
is a secondary market for carbon units, the reserve charge will ensure that the
clearing price of the auction does not significantly diverge from the secondary
market price.[3]
Kyoto units and 'designated limits'
2.30
As the Explanatory Memorandum explains:
...the Government may, through regulations, introduce
additional or alternative quantitative limits on the use of eligible
international emissions units. This will provide the Government the flexibility
to respond to changing international circumstances as needed.[4]
2.31
In order to support a stable market and investment environment, the Government
has also made a commitment to provide at least three years’ notice ahead of the
introduction of a new designated limit or change to an existing limit.[5]
The treatment of natural gas
2.32
The Explanatory Memorandum indicates that under the current provisions
of the CE Act concerning emissions embodied in natural gas, there is the
potential for certain commercial arrangements to lead to situations where
liability may not be captured. It further states that the amendments proposed
will provide greater flexibility around how the supply and use of natural gas
is treated under the CE Act, and 'help to maintain competitive neutrality by
supporting the complete coverage of natural gas under the carbon pricing
mechanism.'[6]
2.33
Under the existing CE Act, liability applies to a liable entity for a
facility where natural gas is used. Alternatively, the liability can apply for
a natural gas supplier when they supply natural gas to a person and the natural
gas is withdrawn from a natural gas pipeline for use. The CE Act also enables
the Obligation Transfer Number to apportion liability between suppliers and end
users.
2.34
The amendments provide that where the existing direct emitter or natural
gas supply provisions of the CE Act do not apply, regulations may set out
specific circumstances in which liability would arise for a supplier or end
user of natural gas. 'Own-use notifications' and 'follow-up notifications' are
mechanisms intended to enable suppliers to identify when the gas they supply is
applied to a person's use. This will allow suppliers to determine where
liability applies. Regulations may modify the definition of supply for the
purpose of the new provisions and determine when supply occurs to facilitate
their application.
2.35
The Explanatory Memorandum explains that these provisions:
...are intended to apply to specific commercial arrangements
in the natural gas sector. In general, they are not intended to cover natural
gas used at large gas consuming facilities as liability would ultimately arise
from the direct emitter provisions. Furthermore, the amendments are not
intended to apply to small end users, such as households, as they obtain gas
through generic supply arrangements which give rise to liability for a supplier
under section 33 of the CE Act.[7]
2.36
The regulation would be a legislative instrument for the purposes of the
Legislative Instruments Act 2003 and is a disallowable instrument.
Setting the equivalent carbon price
on liquid fuels and synthetic greenhouse gases
2.37
The bills also update the approach to calculating the equivalent carbon
price on liquid fuels and synthetic greenhouse gases from 1 July 2015. The
updated approach will ensure that the equivalent carbon price closely tracks
the carbon price faced by liable Australian entities.
Treatment of relinquished units
2.38
The Government has decided that there will no longer be auctions of
relinquished carbon units. Instead, if a carbon unit is relinquished, it will
be cancelled, and a new carbon unit will be auctioned.[8]
Amendments to the auction scheme
2.39
The bills include technical amendments to enhance the auction of carbon
permits.
2.40
Under the Clean Energy package, a carbon auction limit was established
to limit the amount of units from a compliance year that can be auctioned in an
earlier year. This limit is aimed at preventing over-allocation before the
pollution cap is known for a given compliance year.
2.41
The amendments increase the limit on advance-auctioned carbon units to
40 million units for carbon units whose vintage is 2015-16 that are
auctioned in 2013‑14, and 20 million units for other advance auctions
where there is no carbon pollution cap number for that year. The Explanatory
Memorandum indicates that the final details of the auction arrangements are
determined by the legislative instrument under section 113 of the CE Act which
is expected to be made in early 2013 after further consultation with industry.
Measurement determinations under
the NGER Act
2.42
Technical amendments to the CE Act and the NGER Act provide the Minister
with the power to determine methods to measure amounts of designated fuels for
the purpose of ascertaining potential greenhouse gas emissions.
Treatment of GST joint venture
operators in the Opt-in Scheme
2.43
Minor amendments to the CE Act clarify the treatment of GST joint
venture operators in the Opt-in Scheme.'
Scrutiny of Bills Committee
2.44
The Senate Scrutiny of Bills Committee, in its Alert Digest number 12 of
2012, noted that Schedule 1, item 79, proposed subsection 123A(1) of the CE Act
would grant the Government the power to make legislative instruments to
introduce one or more designated limits on eligible international emissions
units. The committee noted that there is a guarantee from the Government to
provide at least three years notice before new limits are to be introduced, or
changes to existing designated limits are due to take effect. The Committee
questioned whether this reference could be inappropriate delegation, as there
is no statutory guarantee that the notice periods will be respected.
2.45
The Senate Scrutiny of Bills Committee also raised concerns about the
operation of proposed subsection 57(2) of the ANREU Act, which provides for
what is referred to as a Henry VIII clause (that is, a clause that enables the
Executive branch of government to modify the operation of primary legislation
passed by the Parliament). The provision in question will enable regulations to
be made which 'modify' the provisions of new Division 3 of Part 4 of the ANREA
Act in relation a specified class of AIIUs. [9]
2.46
The committee draws these concerns to the attention of the Government.
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