Future of the Australian carbon price

22 Mar 2013Archived News Climate Change Matters

The announcement by Prime Minister Gillard of the 14 September 2013 Australian federal election date, has thrown the spotlight on Australian climate change policy. Domestically the election will take us down one of two paths: continuation of the fixed carbon price until 1 July 2015 and then movement to flexible pricing, or the complete repeal of the carbon price and implementation of the Direct Action Plan under a new Coalition government.
 

While the way forward for carbon pricing under the current Labor Government is well established with few surprises likely, there has been less focus on what Australia might expect under a Coalition Government.

What is clearly outlined in the Coalition climate change policy is that they will take immediate and concrete steps to repeal the carbon price. The Coalition’s “Plan to abolish the carbon tax” states, in no uncertain terms, that the Coalition will commence the process of repealing the carbon price on Day 1 of their term.

Timing for repeal of the carbon price

Amendment or repeal of legislation in Australia is a complicated process, generally taking place over a number of parliamentary sittings. Whilst Energetics is not in a position to provide legal advice, or speculate on future domestic politics, industry should be aware of the following major factors likely to impact the timing of the carbon price repeal.

The election outcome

A Coalition victory at the coming election may take one of two forms: majority in both houses or majority in the lower house with the ALP/Greens maintaining control in the Senate. Under these outcomes there are three possible routes for repealing the legislation:

  1. Passing of the legislation with Coalition majority in both houses. If the Coalition gains majority in both houses they may wait until elected Coalition senators commence their term from 1 July 2014. Majority in both houses will ensure a smooth legislative process. Note however, that this approach does not align with the Coalition’s statement to repeal the carbon price immediately.
  2. Passing of the legislation with Coalition majority in only the lower house. The preferred option of the Coalition. This approach assumes that if the Coalition forms government in the lower house, but is unable to establish a majority in the Senate, ALP senators will respect the mandate of the Australian public and approve any repeal of the carbon price legislation. In this instance the Coalition would be in a position to meet their proposed timeframes.
  3. Double dissolution. If the legislative amendments repealing the carbon price are blocked by the Senate twice then a Coalition Government may recommend dissolution of both houses. Double dissolution processes are time consuming with a minimum three months tabling of the rejected bills a second time, and then an election for the House and the whole of the Senate. This is a high risk route for both the Government and the Opposition.

Legislative construct

The other major impacting factor on the repeal of the carbon price is the complicated construct of the Clean Energy legislation. There are 17 pieces of legislation making up the package, providing for industry assistance, changes to taxation brackets, and increases in household payments intended to act as compensation for many Australian households.

Prior to repealing the carbon price, the Coalition will need to consider the entirety of the legislative package, including other pieces that will need to be repealed.  Alternatively they need to assess the impacts of repealing the carbon price in isolation.
 

What happens after the repeal?

If a Coalition Government is elected, and the carbon price repealed, the Direct Action Plan, announced in 2011 mandates for the implementation of a $2.5 billion Emissions Reduction Fund (ERF). One function of the fund is to facilitate a form of  baseline and credit emissions reduction scheme with individual emissions baselines set for businesses.

Businesses that reduce their emissions below their individual baseline will be able to sell the “abatement” to the Government. The price of abatement will be set by the Government in consultation with industry, as opposed to being driven by the market as it would be under the flexible pricing period of the Clean Energy Future carbon pricing scheme.

 

What does this mean for industry?

Liable entities under the National Greenhouse and Energy Reporting (NGER) framework will automatically have an individual baseline set for them based on historical NGER emissions. Entities not currently liable under NGER will be able to “opt-in” to the scheme, and provisions will be made to ensure penalties do not apply to new entrants or business expansion at ‘best practice.’

Limited information is currently available in the Direct Action Plan as to whether individual baselines established for businesses will be based on historical emissions (which will negatively impact businesses increasing their scope of operations), or historical emissions intensity.  Energetics will continue to follow developments and keep you advised through our newsletter. 

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