Opt-in Scheme for Liquid Fuels - Regulations Finalised

19 Dec 2012Archived News Climate Change Matters

The Opt-in Scheme under the Clean Energy Act allows liable entities and large users of liquid petroleum fuels (e.g. diesel, petrol, aviation fuel) to take on an emissions liability for that fuel under the carbon pricing mechanism rather than paying the equivalent carbon price “indirectly” through the fuel tax or excise systems.  The amendment to the Clean Energy Regulations that introduces the Opt-in Scheme regulations was recently passed by Parliament.

 Who should opt-in? 

  1. Energetics has determined that a large liquid fuel user (who is not already a liable entity) should consider opting-in where the annual spend on liquid fuels is approximately $10 million or higher.
  2. Liable entities under the Clean Energy Act with significant liquid fuel consumption should opt-in.

What are the benefits?

The benefits of “opting-in” are expected to include:

  • Cash flow benefit – the carbon liability for the fuel consumed only needs to be paid at the end of the year (75% in June and the remainder by the following February) whereas you pay the carbon price as you go via the fuel tax or excise system; and
  • Market benefit – the carbon price paid via the fuel tax or excise system will be based on the fixed permit price in the initial period and then an average market price after that.  By taking on and managing your own liability, there should be an opportunity to acquire lower priced permits (e.g. permits generated under the Carbon Farming Initiative, international permits or auctioned permits when the fixed price period ends).

What are the costs and what do I have to do?

The most significant cost of opting-in will be the time for an internal or external resource to carry out the reporting and compliance activities and manage the carbon liability.  However, where an organisation is a liable entity, these activities will already be happening and the additional cost, marginal. In this instance, the liable entity should consider whether their liquid fuel usage is significant enough to provide the potential savings to justify the time and effort required to register for the scheme and demonstrate eligibility.

  • Large liquid fuel users that are not liable entities will need to establish systems for compliance and managing the carbon liability.  All businesses will need to ensure that their liquid fuel data is collated, reconciled, robust and auditable.
  • Liquid fuel data reconciled with fuel tax rebate and accounting.
  • Register to opt-in by 31 March 2013.
  • Register as a liable entity (if not already registered).
  • Register on the Australian National Registry of Emissions Units (if not already registered) in order to be able to acquire and acquit carbon permits.

Key points from the Regulations

  • The Opt-in Scheme starts on 1 July 2013.  Organisations wishing to register as a “Designated Opt-in Person ” (DOIP) must have applications submitted to the Clean Energy Regulator by 31 March 2013.  
  • There are two thresholds for participation.  You must either already be a liable entity under the Clean Energy Act or use liquid petroleum fuels with potential emissions (i.e. the emissions that would result from combustion of that fuel) of greater than 25,000 tonnes of carbon dioxide equivalent.  For diesel consumption, this equates to usage of over 9.3 million litres per year.
  • A DOIP is “locked in” to the scheme for a minimum of one whole financial year, unless the Regulator determines you are ineligible or otherwise non-compliant and makes a decision to exclude you.
  • There will be paperwork involved – forms to apply to be a DOIP, forms to vary the opt-in amount (i.e. where a member(s) leaves the GST group), forms to opt-out of the scheme, liable entity consent forms and annual reports.  All records need to be kept for 5 years.
  • The DOIP must give an annual report to the Regulator by 14 July after each financial year, reporting on the opt-in amount and what was included in the opt-in amount.
  • The Regulator will report the opt-in amount to the Commissioner for Taxation and Chief Executive Officer of Customs who are responsible for administering the carbon price via the fuel tax and excise systems respectively.
  • A DOIP can opt-out of the scheme by 31 May of the year before you want to opt-out.  For example, if you want to opt-out as of 1 July 2014, you need to have notified the Regulator by 31 May 2014.

1 In this instance a “person” is not an individual.  The legislation uses the word “person” to describe an entity that is a member or representative of a GST group or a GST joint venture and specifically excludes individuals from applying to become a DOIP.

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