Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Minister for the Environment, the Hon Greg Hunt MP and the Treasurer, the Hon J.B. Hockey MP)

Chapter 2 - Consequential amendments concerning emissions and energy reporting, carbon units and the Clean Energy Regulator

Outline of chapter

2.1 Chapter 2 explains amendments to other legislation that remove redundant and irrelevant functions and references, consequential on the repeal of the carbon tax. This legislation existed when the carbon tax was introduced and was used to support the carbon tax and will continue in operation after the repeal of the carbon tax to support the Government's emissions reduction, energy, energy efficiency and other policies. The amendments are:

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amendments to the NGER Act to remove the reporting requirements of entities liable under the CE Act and to make consequential amendments;

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amendments to the ANREU Act to remove carbon units from the Registry, remove architecture allowing for direct or indirect linkages with non-Kyoto emissions trading schemes, and remove references to the CE Act;

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amendments to the Regulator Act to remove the Regulator's functions under the CE Act and to make other amendments consequential on the repeal of that legislation;

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amendments to the ASIC Act and the Corporations Act to cease regulation of carbon units as financial products; and

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amendments to the Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Anti-Money Laundering Act) to cease its application to carbon units.

Context of amendments

National Greenhouse and Energy Reporting Scheme

2.2 NGERS was implemented by the NGER Act and commenced operation in 2008. NGERS introduced a single national framework for reporting and disseminating company information about greenhouse gas emissions, energy production, energy consumption and other information. NGERS will continue to:

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assist Australia to meet its international reporting requirements;

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inform the Australian public; and

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inform the development of Government policy.

2.3 From 2012, the objects of the NGER Act included underpinning the carbon tax, which will be removed.

Australian National Registry of Emissions Units

2.4 The Australian National Registry of Emissions Units (the Registry) is a secure electronic system designed to accurately track the location and ownership of emission units. It was established on an administrative basis in 2008 to support Australia's international climate change obligations. In 2011, the Registry was backed by legislation through the introduction of the ANREU Act, which was amended from 2012 to support the carbon tax. Given that the Registry existed before introduction of the carbon tax it will need to continue to deliver its original functions, supported by the existing legislated framework. These functions include:

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assisting Australia meet its commitments under the Kyoto Protocol; and

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underpinning the operation of the Carbon Farming Initiative.

2.5 With the introduction of the carbon tax, and subsequent decision to link to the European Union Emissions Trading Scheme (EU ETS), a number of amendments were made to the ANREU Act to recognise specific emission units issued under these schemes. To ensure clarity and consistency, references to these units and mechanisms relating to these units will be removed.

Financial regulation and carbon units

2.6 Repeal of the carbon tax will result in the cancellation of all carbon units and it is no longer necessary that they be recognised as financial products. Accordingly, a carbon unit will cease to be a financial product under the ASIC Act and the Corporations Act.

2.7 Transitional arrangements are provided in relation to the application of the ASIC Act and Corporations Act on carbon units issued before the specified date and the form in which the ASIC may vary or cancel an Australian Financial Services (AFS) licence with a carbon unit authorisation.

Comparison of key features of new law and current law

Detailed explanation of new law

National Greenhouse and Energy Reporting Scheme

Removal of requirements relating to liable entities

2.8 Liable entities will not be required to provide reports to the Regulator relating to emissions numbers under sections 22A and 22AA of the NGER Act after reporting requirements for 2013-14 are met. The Main Repeal Bill removes the provisions of the NGER Act that create these obligations and the references to them. [Schedule 1, items 293 to 295, section 22(1)(a)-(b), 22(2)(a)-(b) and Parts 3A and 3D, NGER Act]

2.9 The Main Repeal Bill also removes the requirements in the NGER Act that liable entities apply to the Regulator to be registered, and the obligations of the Regulator to register or deregister a person who has applied, after the end of financial year 2013-14. [Schedule 1, items 288 to 291 and 303, sections 15A, 15AA, 18A, 18B(3)(b) and 25(1), NGER Act]

2.10 Under the existing CE Act and NGER Act, 'liability transfer certificates' allow liable entities to transfer responsibility for reporting under the NGER Act to another person, provided certain conditions are met. As no entities will have liability under the CE Act after 2013-14, this type of transfer mechanism is not required. However, reporting transfer certificates, which provide a similar function for NGER purposes, will continue to function under the NGER Act. The Main Repeal Bill removes the provisions in the NGER Act relating to liability transfer certificates - including applications, reporting and accounting. [Schedule 1, items 287, 292 to 295 and 298 to 304, sections 13(4), 19(1)(note 4), 22(1)(a)-(b) and 22(2)(a)-(b), Parts 3A and 3D, sections 24(1AD), (1AE)(a), (1H), (1J), (8), 25(1) and 30(2A), NGER Act]

2.11 The Main Repeal Bill removes from the NGER Act the requirements for large liable entities' emission reports to be audited. These requirements are redundant once the carbon tax is repealed. However, the pre-submission audit requirement remains in place for 2013-14. Further, the auditing arrangements that existed prior to the introduction of the carbon tax will continue to apply. [Schedule 1, item 310, section 74AA, NGER Act][Schedule 1, item 337]

2.12 The Main Repeal Bill removes the obligation in the NGER Act for the Regulator to publish information related to reports submitted by liable entities. However, the publication obligations (as set out in section 24 of the NGER Act) that existed prior to the introduction of the carbon tax will continue to apply. A consequential amendment is also made to section 25 of the NGER Act to remove the ability for reporters to request that information related to reports submitted by liable entities not be published. [Schedule 1, items 297 and 303, sections 24(1AA) and 25(1), NGER Act]

Transitional provisions

2.13 Despite the repeal of the definitions and sections of the NGER Act detailed above, the Main Repeal Bill preserves key NGER Act provisions relating to registration, reporting and record keeping so that liable entities can meet their 2013-14 obligations. These transitional NGER Act provisions are necessary because obligations relating to 2013-14 must be met during 2014-15, after the aspects of the NGER Act that relate to the CE Act have been repealed on 1 July 2014. [Schedule 1, item 337]

2.14 For example, this means that reports under section 22A of the NGER Act relating to 2013-14 are due by 31 October 2014, despite the fact that that section is repealed from 1 July 2014. Definitions and measurement provisions required for entities to submit those reports also continue. [Schedule 1, item 337] Audit requirements in section 74AA of the NGER Act will continue to apply for reports relating to 2013-14. [Schedule 1, item 337]

Removal of reporting obligations of 'persons' other than corporations

2.15 The Main Repeal Bill amends the NGER Act to transfer most of the obligations placed on 'persons' throughout the Act to 'group entities'. This is because, ongoing reporting obligations only apply to constitutional corporations and members of their groups and will not extend to 'persons' more generally.

2.16 A 'group entity' is a new term defined as a corporation that is a member of a controlling corporation's group. A 'member' has the meaning given by section 8(2) of the NGER Act, and includes the controlling corporation and its subsidiaries. These new terms are required to replace the defined term 'person', which is not required after repeal of the CE Act. [ Schedule 1, item 214, section 7, NGER Act]

2.17 The application of the NGER Act to persons other than constitutional corporations was required to underpin the operation of the CE Act. The terms 'person' and 'persons' where they remain in the NGER Act, have the general meaning given to them by the Acts Interpretation Act 1901. [Schedule 1, items 224, 243, 246, 248, 250, 251, 253, 255 to 258, 261 to 266, 269, 272, 276, 278 to 279 and 286, sections 7, 11(1), 11A, 11B and 13(2) and (3), NGER Act]

2.18 With the introduction of the carbon tax, the NGER Act was amended to include the concept of 'non-group entity', which is a person who is not a member of a controlling corporation's group. The term 'non-group entity' was used to expand specific provisions to account for a person who is not a member of a controlling corporation's group. The term is used in provisions relating to:

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facility declarations;

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declarations of operational control; and

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auditing.

2.19 The Main Repeal Bill removes all references to 'non-group entity' as these entities do not have ongoing obligations under the NGER Act and are not relevant after repeal of the carbon tax. [Schedule 1, item 220, section 7, NGER Act]

2.20 The Main Repeal Bill repeals sections 54A and 55A of the NGER Act, which allowed non-group entities to request the Regulator to declare a facility or operational control over a facility. Only corporations may have a facility or operational control declared by the Regulator. [Schedule 1, items 237, 244, 252, 259, 280 and 305-309, sections 7, 54A, 55A, 56(j) and 56(k)-(l), NGER Act]

2.21 The Main Repeal Bill also removes references to non-group entities from the auditing provisions for certain entities. These auditing provisions will continue to apply to the responsible member under transfers made under section 22X of the NGER Act. [Schedule 1, items 311 and 312, sections 74B(1) and 74C(1), NGER Act]

2.22 Section 22X of the NGER Act allows a controlling corporation to transfer reporting obligations for a facility to a 'group entity', where that group entity has operational control over the facility. It allows entities flexibility in their reporting arrangements and allows them to reduce their reporting burden. The Main Repeal Bill removes the reference to liability transfer certificates in this section, which is redundant following repeal of the CE Act. This reporting transfer mechanism will continue to operate in relation to group entities with operational control. [Schedule 1, item 296, section 22X(1)(a), NGER Act]

Changes to provisions relating to 'operational control'

2.23 The term 'operational control' is fundamental in determining the entity that has the legal obligation to report under the NGER Act. The term was adopted under the CE Act for the purposes of assigning liability under the carbon tax. An entity has 'operational control' over a facility under sections 11, 11A and 11B of the NGER Act, where the entity has the authority to introduce and implement operating, health and safety and environmental policies in relation to the facility. In certain circumstances, entities can nominate the group entity with operational control over a facility to the Regulator.

2.24 The Main Repeal Bill removes the requirement for nominations of operational control to be made in relation to interim emissions numbers and fixed charge years. Interim emissions numbers and fixed charge years are only relevant to the carbon tax and these nomination provisions are no longer required. The Main Repeal Bill also removes references to joint ventures from the operational control nomination section as these are only relevant to the operation of the carbon tax. [Schedule 1, item 267, section 11B(7), NGER Act] [Schedule 1, items 270 to 277, sections 11B(15)-(19) and 11B(15)(b)-(c) and 11B(17)(b)-(c), NGER Act]

2.25 As a consequence of removing reporting obligations for persons other than constitutional corporations, the operational control test for trusts is no longer relevant and all references are removed. [Schedule 1, items 221, 247, 281 and 307, sections 7, 11(4), 11C and 56(aab), (aa), (ga) and (gb), NGER Act]

2.26 The Regulator may cancel a person's nomination for operational control over a facility if they have an unsatisfactory compliance record. The Main Repeal Bill amends the definition of 'unsatisfactory compliance record' to remove contraventions of the CE Act from the list of prescribed actions. [Schedule 1, items 282 to 284, sections 11D(1)(c), (e)-(f) and (i)-(j), NGER Act]

Changes to definitions

2.27 After the repeal of the carbon tax, certain definitions included in the NGER Act reference the definitions set out in section 5 of the CE Act, which will no longer exist. As a result new definitions for these terms are included in section 7 of the NGER Act to ensure their continued operation in the context of the NGER Act. These include definitions for 'carbon dioxide equivalence', 'foreign country' and 'foreign corporation'. [Schedule 1, items 204, 211 and 212, section 7, NGER Act]

2.28 The Main Repeal Bill introduces the term, 'designated financial year', which means a financial year that begins on 1 July 2012 or any later financial year. This term replaces the term eligible financial year, which was inserted as part of the introduction of the carbon tax. To provide clarity and remove any potential for unintended consequences, all references to 'eligible financial year' are replaced with 'designated financial year'. [Schedule 1, items 205, 207, 249, 260 and 268, section 7, NGER Act]

2.29 The Main Repeal Bill removes a number of definitions and measurement provisions from sections 7, 7B, 7C and 10 of the NGER Act because they are redundant, having been included solely for the purpose of underpinning the reporting and measurement of liabilities under the carbon pricing mechanism. [Schedule 1, items 206, 208 to 210, 213, 215 to 220, 222 to 232, 234, 238 and 241, sections 7, 7B and 7C, NGER Act]

Administrative amendments

2.30 The NGER Act will no longer have the object of underpinning the CE Act. Accordingly, the Main Repeal Bill removes this object from section 3 of the NGER Act. [Schedule 1, items 196 to 198, section 3, NGER Act]

2.31 As a consequence of the CE Act being repealed, references to the CE Act in the NGER Act are redundant. The Main Repeal Bill removes these references. [Schedule 1, items 199, 233, 235, 236, 239, 240, 242, 245, 254, sections 4(1), 7A(1), 8(1), 9(1), 10(1), 10(3), 11(1), 11(3) and 11A(2), NGER Act]

2.32 With the introduction of the carbon tax, section 4 of the NGER Act was amended to include the constitutional powers underpinning the CE Act. With the repeal of the CE Act, these additional powers are no longer required. The Main Repeal Bill amends the constitutional basis of the NGER Act to remove reference to those powers that supported the CE Act. [Schedule 1, items 199 to 200, sections 4(1)-(2), NGER Act]

2.33 The Main Repeal Bill also amends the NGER Act provision dealing with the relationship between the NGER Act and State and Territory laws to return it to its pre-CE Act form. Section 5(2) was added to the NGER Act to ensure that the Act excluded State and Territory laws which required reporting of greenhouse gas emissions by most of the legal persons covered by the CE Act (and who were required to report under the NGER Act). It will not be needed once the CE Act is repealed and reference to greenhouse gas emissions is reinstated in section 5(1). [Schedule 1, items 201 to 203, section 5, NGER Act]

Australian National Registry of Emissions Units

Removal of carbon units

2.34 The repeal of the carbon tax will involve cancellation of all carbon units, as these units will not need to exist after repeal of the carbon tax. The Main Repeal Bill amends the ANREU Act to repeal redundant references to 'carbon units'. [Schedule 1, items 13, 25, 31, 38 to 39, 41, 45, 55, 58 to 60, 64, 71, 72, 78, 79, 80, 82, sections 3, 4, 9(4)(a), 11(5)(b), 15(2)(aa) 26(3)(a)(ia), 27(3B)(c), 28A(1)(aa), 28B(1)(aa), 28D(5)(ii), 61A and 64, ANREU Act]

2.35 The amendments made by the Main Repeal Bill to the ANREU Act will commence on 1 July 2014. [clause 2]

2.36 However, carbon units will remain in existence until the 'designated carbon unit day' on Monday, 9 February 2015 (or a later day as specified by the Regulator) so that they can be used to satisfy liabilities for the 2013-14 eligible financial year. For that reason, the Main Repeal Bill provides that the ANREU Act in its unamended form continues to operate in relation to carbon units issued before the designated carbon unit day. This is a transitional arrangement, designed to support the finalisation of carbon tax liabilities for 2012-13 and 2013-14. [Schedule 1, item 332]

Removal of other references to the CE Act

2.37 The Main Repeal Bill makes consequential amendments to the ANREU Act to remove references to the CE Act and provisions of that Act. [Schedule 1, items 13, 15, 16, 22, 25, 26, 29, 31, 37, 40, 48, 51, 54, 58 to 59, 63, 67 to 70, 72 and 73, sections 3, 4, 14A, 17(1A), 19(3B), 22(4B), 27(3B), 28A(4)(aa), 28B(11), 28C(17)(aa), 28D(5)(b) and 28D(16(aa), ANREU Act]

Removal of capacity to link to non-Kyoto markets

2.38 The Registry will no longer need the capacity to record trade in units that are not Kyoto units. The category of 'prescribed international unit' was intended to encompass a broad range of non-Kyoto international emissions units to facilitate trade in those units. As this category is no longer needed, the definition of prescribed international unit will be removed. [Schedule 1, item 30, section 4, ANREU Act]. The Main Repeal Bill provides for references to the term to be removed from the ANREU Act. [Schedule 1, items 13, 18-19, 23, 32 to 34, 38, 42 to 44, 46 to 47, 52 to 53, 56 to 57, 61 to 62, 65 to 66, 68 to 69, 75 to 76, 79, 81, 87 to 89, sections 3, 4, 9(4)(a), 15(2)(d), 16(2)(b)(ii), 16(5), 16(7)(b), 21, 22(4A)(a), 26(3)(iii), 28A(1), 28B(1), 28B(11), 58, 63 to 63G, 64 and 82, ANREU Act]

2.39 Operational provisions allowing the Regulator to facilitate trade in prescribed international units will be removed. [Schedule 1, item 74, Part 4, ANREU Act]

2.40 The Main Repeal Bill removes other Regulator functions necessary to give effect to trading instructions relating to prescribed international units, for example to make entries for prescribed international units on the Registry or to transfer prescribed international units between accounts. [Schedule 1, items 36 and 49, sections 4, 17(3) and 50 to 53, ANREU Act]

Removal of capacity to link to international emissions trading schemes

2.41 To facilitate linking with other international emissions trading schemes, including the EU ETS, the definition of 'prescribed international units' included European Union Allowances (EUAs) and Australian Issued International Units (AIIUs). With the repeal of the carbon tax, it follows that linking to other emissions trading schemes will not proceed. Definitions and provisions that were inserted into the ANREU Act to achieve that outcome are no longer required and will be removed. [Schedule 1, items 14, 17, 20, 21, 24, 27 to 29, 83 to 86 and 90 to 91, sections 4, 48A, 66, 79(1), 82 and 86A and Parts 6A and 6B, ANREU Act]

2.42 As there will be no EUAs or AIIUs held in the Registry, the Main Repeal Bill removes anti-fraud and oversight arrangements relating to EUAs and AIIUs as they are redundant. [Schedule 1, items 35 and 84, sections 4 and Parts 6A and 6B, ANREU Act]

Clean Energy Regulator

Change in the role of the Regulator

2.43 Under section 12 of the Regulator Act, the Regulator has the functions conferred on it by a climate change law or another Commonwealth law. Sections 43 and 44 of the Regulator Act provide the Regulator with the power to disclose protected information for the purpose of a climate change law, including the Clean Energy Legislation.

2.44 The Main Repeal Bill removes the Clean Energy Legislation from the definition of 'climate change law' as a consequence of the repeal of that legislation. [Schedule 1, item 97, section 4, Regulator Act] [Schedule 1, item 95, sections 3, 4 and 41(3)(a), Regulator Act]

2.45 The Main Repeal Bill also updates the simplified outline of the Regulator Act and the objective of the Regulator to take account of the changed functions of the Regulator. [Schedule 1, item 95 and 101, sections 3 and 4, Regulator Act]

2.46 These amendments take effect on 1 July 2014. [clause 2]

2.47 The Regulator will need to perform functions under the Clean Energy Legislation in its preserved form and to disclose protected information for the purposes of that legislation. A transitional provision continues the existing definition of 'climate change law' to ensure that these things can happen. It also deems the definition to include the repeal legislation so that the Regulator can perform functions under those laws and disclose protected information for the purposes of those laws. [Schedule 1, item 333]

Other consequential amendments

2.48 Other consequential amendments to the Regulator Act are:

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to remove a reference to consistency with the objects of the CE Act in the provision authorising the Minister to give directions to the Regulator; [Schedule 1, item 103, section 41(3)(a), Regulator Act]

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to transfer definitions currently contained in the CE Act to the Regulator Act because they are required for the continued operation of the Regulator Act after repeal of the carbon tax. The relevant definitions are 'Climate Change Convention', 'international climate change agreement', 'greenhouse gas', and 'international agreement'; and [Schedule 1, items 96, 98, 99 and 100, section 4, Regulator Act]

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to remove references in the Regulator Act to 'prescribed international units', consistent with the removal of the concept from the ANREU Act. [Schedule 1, items 102 and 104, sections 4 and 49(1)(z), Regulator Act]

Financial regulation and carbon units

ASIC Act Amendments

2.49 The Main Repeal Bill removes references to 'carbon units' in the ASIC Act, which means that a carbon unit ceases to be a financial product from a date specified in the legislation. [Schedule 1, items 92 and 93, sections 12BAA(7)(ka) and 12BAB(1)(g), ASIC Act]

2.50 A new Part 20 to the ASIC Act is inserted to provide transitional provisions to ensure that carbon units issued before the designated carbon unit day continue to be regulated as financial products. [Schedule 1, item 94, Part 20, ASIC Act]

2.51 'Designated carbon unit day' has the same meaning as in Schedule 1, Part 3 of the Main Repeal Bill, that is, 9 February 2015, or a later day as specified by the Regulator. [Schedule 1, item 94, section 295, ASIC Act]

2.52 Carbon units issued prior to the designated carbon unit day will continue to be subject to the ASIC Act. For example, up until the designated carbon unit day, carbon units will continue to be subject to the consumer protection provisions provided for in the ASIC Act. [Schedule 1, item 94, section 296, ASIC Act]

Corporations Act amendments

2.53 The Main Repeal Bill removes references to 'carbon units' in the Corporations Act which has the effect of a carbon unit ceasing to be a financial product from the date specified in the legislation. [Schedule 1, items 105 and 106, sections 9 and 764A(1)(kaa), Corporations Act]

2.54 The Main Repeal Bill inserts a new Part 10.23 into the Corporations Act to provide transitional arrangements relating to removal of carbon units as a financial product and ensure that carbon units issued before the 'designated carbon unit day' continue to be regulated as financial products. [Schedule 1, item 107, Part 10.23, Corporations Act]

2.55 'Designated carbon unit day' has the same meaning as in the Main Repeal Bill, that is, 9 February 2015, or a later day as specified by the Regulator. [Schedule 1, item 107, section 1542, Corporations Act]

2.56 Carbon units issued prior to the designated carbon unit day will continue to be subject to the Corporations Act. For example, up until the designated carbon unit day, carbon units will continue to be subject to the financial services laws under the Corporations Act. [Schedule 1, item 107, section 1543, Corporations Act]

2.57 Where ASIC varies a condition of an AFS licence and that variation only has the effect of removing a carbon unit authorisation, section 914A(3), (4) and (5) of the Corporations Act does not apply. Primarily, ASIC is not required to give the licensee the opportunity to appear, or be represented at a hearing before ASIC or to make a submission to ASIC in relation to the removal of the carbon unit authorisation. [Schedule 1, item 107, section 1544, Corporations Act]

2.58 ASIC will have the ability to cancel an AFS licence that only has authorisations in respect of carbon units. Where ASIC cancels an AFS licence, ASIC is not required to provide a statement outlining the reasons for the cancellation (which is required under section 915G of the Corporations Act when a licence is ordinarily cancelled) because the question of cancellation is a purely factual one, rather than a discretionary decision, and should have no adverse effect on the licence holder. However, affected licensees will continue to have the ability to apply to have ASIC's actions reviewed by the Administrative Appeals Tribunal or the court system. [Schedule 1, item 107, sections 1545 and 1546, Corporations Act]

2.59 In order to vary a condition of an AFS licence or cancel a licence as a result of carbon units ceasing to be a financial product, it will not be necessary for a licensee to apply to ASIC for this to occur - ASIC will have the ability to take such action without an application from the affected licensee.

Removal of carbon units from money laundering legislation

2.60 Security and anti-fraud measures introduced to address the risk of money laundering through trading in carbon units will no longer be needed after carbon units are cancelled.

2.61 References to carbon units in the Anti-Money Laundering Act will be removed. This will have the effect of ending the requirement for financial institutions to report on trade in carbon units to the Australian Transaction Reports and Analysis Centre (AUSTRAC). [Schedule 1, items 10 to 12, sections 5 and 6(2) (paragraph (baa) and (d) in table item 33), Anti-Money Laundering Act]

2.62 The amendments to the Anti-Money Laundering Act will commence on 1 July 2014. [clause 2] However, carbon units will remain in existence until the 'designated carbon unit day' on 9 February 2015 (or a later day specified by the Regulator) so that they can be used to satisfy liabilities for the 2013-14 eligible financial year. For that reason, the Main Repeal Bill also makes transitional provision that the Anti-Money Laundering Act in its unamended form continues to operate in relation to carbon units issued before the designated carbon unit day. [Schedule 1, item 331, sections 5 and 6(2) (paragraph (baa) and (d) in table item 33), Anti-Money Laundering Act]