On 15 October 2013, the Government took its first step towards abolishing the carbon pricing mechanism by releasing eight draft repeal bills for consultation. Under the draft bills, the Government proposes to abolish the carbon price from 1 July 2014, grant new powers to the Australian Competition and Consumer Commission, and disband the Climate Change Authority. For businesses, the big issue is the uncertainty around timing - when will the repeal legislation be passed and what are the implications if it is not passed before 1 July 2014?
The repeal bills will be the first item of legislative business when the new Government sits for the first time (expected to be the week beginning 11 November). However, it is unlikely that the repeal bills will be passed whilst Labor and the Greens control the Senate (unless Labor changes its position). It is more likely that the repeal bills will be passed after 1 July 2014, when the balance of power in the Senate shifts to the new independent and minor party Senators.
There are two key implications if the repeal bills are not passed until after 1 July 2014.
First, the carbon price would be abolished retrospectively and, until it is, the scheme would continue to be legally binding. Therefore, for at least part of the 2014/15 compliance year, the scheme would still be in place with no certainty as to whether or when it would in fact be repealed.
Second, as the new Senators have not yet shown their hands on the proposed repeal arrangements, it is not clear whether they will demand changes to those arrangements in return for support for the repeal legislation. Therefore, there is some uncertainty as to what the repeal legislation will look like if/when it is finally passed. Also, it remains to be seen whether the support (or otherwise) for the Government’s proposed replacement scheme, the Direct Action Plan, will have any impact on the progress of the repeal bills through the new Senate.
These uncertainties raise complex issues for liable entities and other businesses. For example, if the repeal legislation has not been passed by 1 July 2014, businesses will need to decide whether to continue to pass carbon costs on to customers. If they don’t, and the scheme is not retrospectively repealed before further carbon costs become payable, they will be caught short. But if they do, and no further carbon costs actually become payable, how should they manage the money that has been collected? These issues are not addressed in the draft repeal bills and will be important considerations when negotiating and drafting new or amended contracts with customers and suppliers.
Also, if the repeal bills are not passed by 1 July 2014, businesses that are paying an equivalent carbon price through reductions in fuel tax credits (and changes in other duties and levies) will continue to pay until the repeal bills are passed. Unlike liable entities, who would not be required to surrender carbon units for the 2014/15 compliance year until 15 June 2015, businesses that are receiving fewer fuel tax credits than previously effectively pay the carbon price when they claim their fuel tax credits (generally quarterly). There is currently no provision in the draft repeal legislation for these businesses to be re-imbursed if the scheme is retrospectively repealed. If this is not rectified, alternative compliance strategies should be explored by affected businesses.
The main draft bill includes new provisions to be inserted into the Competition and Consumer Act 2010 (Cth) concerning price exploitation, price monitoring and false or misleading representations.
First, the draft bill provides that a corporation must not engage in price exploitation in relation to the repeal. Price exploitation is defined to include any supply of a regulated good (currently electricity, natural gas, synthetic greenhouse gas and synthetic greenhouse gas equipment) at a price which is unreasonably high “having regard alone to the carbon tax repeal” (our emphasis) and, somewhat confusingly, even if the supplier’s costs and demand and supply conditions are taken into account.
The proposed penalties for breaching this prohibition are significant – up to $1.7 million for a corporation and $340,000 for an individual.
Second, the draft bill gives the ACCC the power to monitor the prices charged by certain corporations to assess the general effect of repeal. This power applies to the regulated goods (mentioned above), goods supplied by liable entities and any other goods later designated by regulation. The ACCC must report to the Minister on its price monitoring activities.
Finally, the draft bill specifically prohibits a corporation from making false or misleading representations about the effect of the repeal on prices during a one year transitional period. Again, there are significant penalties for breaching this prohibition – up to $1.105 million for a corporation and $221,000 for an individual.
There is currently a lack of detail about the Government’s proposed Direct Action Plan, however what we do know is[i]:
Following consultation on the Terms of Reference, it appears there will be two further rounds of public consultation on the Fund – in late 2013 (after release of the Green Paper on the development of the ERF), and again after the release of the White Paper and exposure draft legislation in early 2014.
[i] This information was sourced from the Coalition’s original release of the Direct Action Plan in 2010 (which the Prime Minister indicated was still current Coalition policy during the 2013 election), as well as in speeches and announcements during the election campaign.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.