Implementing Direct Action – when and how?

Following the successful election of the Coalition and effective change of government on 7 September, Australian business can expect to be subject to the Direct Action plan climate change policy. Whilst the publicly stated position is to repeal the Clean Energy Future package from day one, and commence the introduction of Direct Action, business should factor in considerable delays to any major climate change legislative reform in Australia.

Timing for repeal of the c​arbon price

The earlier piece published by Energetics advised of three possible scenarios that will impact upon the timeframes associated with the Coalition’s repeal of the Clean Energy Future legislative package and associated carbon pricing mechanism. Based on the election outcome, this paper considers which of the scenarios for repeal is the most likely.

The election outcome and the balance of power

Saturday’s election outcome has resulted in a Coalition majority in the lower house only. The election has surprised with the strong showing of new minor parties, with up to eight Senate representatives. The ALP and the Greens retained 35 seats between them.

The Greens have publicly stated their opposition to the repeal of the Clean Energy Future package and its replacement by the Direct Action plan. They will not support the repeal of the Clean Energy Future legislation based on the “mandate of the Australian” population. The ALP have also dismissed the mandate of the people claim, and remain firm in their support of the Clean Energy Future legislation.

What does this mean for repeal?

The Coalition has stated that they will take immediate and concrete measures to repeal the carbon price on Day 1 of their political term. The pre-election timetable put forward was overly ambitious and has already been cast into doubt. The repeal of the carbon price is likely take considerably longer.

From now until 1 July 2014, Labor and the Greens will control the Senate. After this date, the Coalition will need the agreement of at least six of the eight minor party representatives to repeal the Clean Energy Future legislation and implement Direct Action.

The stance of many of these minor players on climate change is uncertain, and subject to change based on individual priorities.

An alternative option for the Coalition is to call a double dissolution. If the legislative amendments repealing the carbon price are blocked by the Senate twice then a Coalition Government may recommend a double dissolution of both houses. Double dissolution processes are time consuming with a minimum three month requirement between the two Senate rejections, and then a second election.

Based on this assumption, the earliest that the carbon price may be repealed is July 2014, but this is heavily dependent on any deals the Coalition is able to make with minor parties in the Senate.

Legislative construct

The other major complication to the repeal of the Australian 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.

Whilst the Coalition has stated that they will not repeal any aspects of the Clean Energy Future legislation package related to changes in the taxation rates, they have committed to repealing all other features of the legislative package including industry assistance.

Energetics also believes that irrespective of the date that the Clean Energy Future package is repealed, the associated Regulations can only cease to apply on the first June 30 after the repeal.

Introduction of Direct Action

The stated timeframes associated with the introduction of Direct Action are similarly narrow, with a 100 day period allocated for consultation and the design of Direct Action.

The Direct Action White Paper process will start within 30 days of the election, with consultation between Days 60 and 100. The drafting of legislation is to start by Day 100.

The goal is to commence the new scheme by 1 July 2014, subject to the successful passage of legislation through Parliament.

The Direct Action process is intended to run concurrently with the repeal of the carbon price, but may be impacted by an early repeal of the carbon price.

What are the major risks?

Following the election outcome, some of the uncertainty around how business should plan for carbon policy in Australia has lessened, however it has not been extinguished.

The key risks associated with wholesale changes to climate change action policy in Australia are:

  • Repeal of the Clean Energy Future package is likely to be difficult and delays can be expected.
  • The time associated with implementing Direct Action may be far lengthier than anticipated.
  • Negotiations with new minor parties in the Senate will be critical to ensure the passage of legislation to repeal the Clean Energy Future package and to implement Direct Action.

Be prepared

Business should understand the stated timeframes associated the repeal of carbon price and introduction of Direct Action, whilst also incorporating the possibility of delays into internal risk management processes.

A clear position on Direct Action, including the establishment of emissions baselines, will be necessary to ensure effective consultation in the short time allocated.

Until the Clean Energy Act has been formally repealed, and Direct Action introduced, industry should continue to factor in the associated uncertainty, and include at least a nominal carbon price into business decisions.

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