House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Climate Change and Energy Efficiency, the Honourable Greg Combet Am MP

Amendments to the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989

Outline of chapter

6.1 This chapter describes the amendments made by the consequential amendments bill to the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 ( Ozone Act). Complementary amendments will be made by separate amendment bills to the Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995 ( Import Levy Act) and the Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Act 1995 ( Manufacture Levy Act). The amendments to these Acts will provide that the importers and manufacturers of the Kyoto Protocol synthetic greenhouse gases (SGGs), namely, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride (SF6), will be subject to an equivalent carbon charge by way of the existing levy structure under the Ozone Act. Further policy context and background to these changes is set out in the explanatory memorandums for the Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment Bill 2011 (Import Levy Amendment Bill) and the Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment Bill 2011 (Manufacture Levy Amendment Bill).

6.2 This chapter also describes a number of complementary amendments to the Ozone Act including making SF6 a controlled substance and the introduction of an ozone depleting substance (ODS)/SGG equipment licence.

Context of amendments

6.3 The Ozone Act gives effect to Australia's obligations under the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol) and under the United Nations Framework Convention on Climate Change (UNFCCC). The Ozone Act currently places obligations on importers and manufacturers of two SGGs covered under the Kyoto Protocol, namely HFCs and PFCs, which have been introduced by industry as replacements for ODSs that have been or are being phased out under the Montreal Protocol.

6.4 A third Kyoto Protocol SGG, SF6, has not to date been regulated under the Ozone Act.

6.5 These three SGGs represent a small but rapidly growing source of emissions. These gases are often used to replace ODSs that are being phased out under the Montreal Protocol. Accordingly, in order to minimise the compliance costs for the importers and manufacturers of these substances, the existing levy structure under the Ozone Act, rather than the carbon pricing mechanism, will be used to apply the carbon charge to the import and manufacture of these substances. The carbon charge will only be applied to a Kyoto Protocol SGG which contributes to Australia's international emissions reduction obligations. These specific SGGs are those defined as a 'greenhouse gas' under the NGER Act and the NGER regulations.

Summary of new arrangements

6.6 The amendments to the Ozone Act, the Import Levy Act and the Manufacture Levy Act give effect to a number of different key policies:

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The application of the carbon charge to the import and manufacture of SGGs, using the existing levy structure under the Ozone Act.

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The inclusion of SF6 as a controlled substance under the Ozone Act. This will place reporting obligations on importers and manufacturers of this greenhouse gas.

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The introduction of an ODS/SGG equipment licence to replace the existing pre-charged equipment licence. This new licence will cover the import of a broader range of equipment or products which contain a SGG.

Comparison of key features of new law and current law

Application of the carbon charge to the import and manufacture of synthetic greenhouse gases

6.7 The Import Levy Act and the Manufacture Levy Act are amended by the Import Levy Amendment Bill and the Manufacture Levy Amendment Bill, respectively. These amendments apply the carbon charge to the import and manufacture of SGGs and the import of SGG equipment. The carbon charge component will be in addition to the existing licence levies which currently apply to the import and manufacture of SGGs and the import of pre-charged equipment (which is redefined as either ODS or SGG equipment; see below). The operation of these amendments, and further policy context and background, is discussed in greater detail in the explanatory memorandums for the Import Levy Amendment Bill and the Manufacture Levy Amendment Bill. In summary, the carbon charge is imposed by providing that the licence levies for the import and manufacture of SGGs and the import of SGG equipment is determined by regulations in two components: one component reflecting the carbon charge and the other component reflecting the existing licence levy.

6.8 The effect of these arrangements, generally put, is that an importer or manufacturer of SGGs, as well as an importer of SGG equipment, will be subject to a carbon charge which equates with the liability that the importer or manufacturer would have incurred if they were liable entities under the mechanism and had been responsible for an equivalent amount of carbon dioxide emissions under the main bill.

Ozone Protection and SGG Account

6.9 Amendments to section 65C of the Ozone Act also provide that any amounts of the levy which relate to the carbon charge component of the levy are not to be credited to the Ozone Protection and SGG Account but will instead be credited to consolidated revenue. Existing arrangements regarding the crediting of the Account will otherwise remain unchanged . [Schedule 1, Part 2, items 445-448]

Payment and reporting requirements

6.10 Reflecting that the application of the carbon charge to these arrangements will significantly increase the quarterly licence levies required from importers and manufacturers of SGGs, and the importers of SGG equipment, section 69 of the Ozone Act is amended to provide that a licence levy is due and payable at the end of 60 days, rather than the present 15 days, after the end of the quarter to which it relates. Provision is also made for a licensee to seek an extension of this time period upon application to the Minister (or his or her delegate). The provisions dealing with the imposition of interest upon overdue licence levies remain unchanged . [Schedule 1, Part 2, item 449]

6.11 Similar to the existing reporting arrangements, an importer, exporter or manufacturer of SGGs, as well as an importer of ODS or SGG equipment, will be required, under new section 46A, to provide quarterly reports to the Minister, in accordance with the regulations, before the 15th day after the end of each quarter. A person who fails to comply with the requirement commits a strict liability offence . [Schedule 1, Part 2, items 442-442B]

Refund arrangements for exported SGG and SGG equipment

6.12 Reflecting equivalent arrangements under the mechanism in the main bill, importers and manufacturers of SGG, as well as importers of SGG equipment, will be able to apply for the remission or refund of the carbon charge component of any levy paid, when the SGG or SGG equipment, for which the levy has been paid, is exported within 12 months of import or manufacture (or such longer period as is prescribed in the regulations), either by the licensee or a third party purchaser. An application for a refund or remission of the levy may be made with respect to the whole or a part of the levy paid (for example, when only a portion of the SGG for which levy has been paid is exported within 12 months). An application for a refund or remission of levy must be made to the Minister (or his or her delegate) and accompanied by such information and documents as are specified in the regulations. The regulations may require verification by statutory declaration of any statements made in an application.

6.13 Provision is also provided for the regulations to authorise, importers and manufacturers of SGG, as well as importers of SGG equipment, to assign their right, under these provisions, to receive a remission or refund of the carbon charge component of any levy paid to a third party. This will allow greater flexibility in administrative arrangements regarding the appropriate refund or remittal of the carbon charge component when importers or manufacturers have passed this cost on to a third party . [Schedule 1, Part 2, item 450]

Civil Penalties

6.14 Reflecting equivalent provisions in the main bill (see section 252 of the main bill), the maximum pecuniary penalty under the civil penalties regime in the Ozone Act, for the unlicensed import, export or manufacturer of SGGs and the unlicensed import of ODS or SGG equipment will be increased to 2,000 penalty units for an individual and 10,000 penalty units for a body corporate . [Schedule 1, Part 2, items 426, 444]

Scheduling of sulfur hexafluoride (SF6)

6.15 Schedule 1 of the Ozone Act lists those substances to which that Act applies. Parts I to VIII apply to substances listed under the Montreal Protocol, while Parts IX and X list HFCs and PFCs, respectively, which are substances covered under the UNFCCC and Kyoto Protocol. Entities that import or manufacture scheduled substances have obligations to report the quantity and composition of their imports and, in certain cases, to pay levies consistent with the Import Levy Act and the Manufacture Levy Act.

6.16 SF6 is a potent greenhouse gas listed under the Kyoto Protocol. To ensure that importers and manufacturers of SF6 can be identified for the purpose of applying the carbon charge to SF6, it is being included within Schedule 1 of the Ozone Act. To this end, 'Part XI - Sulfur hexafluoride' is added at the end of Schedule 1. This Part only contains SF6 . [Schedule 1, Part 2, item 451]

6.17 Section 7, which defines terms used throughout the Ozone Act, is amended to include a definition of sulfur hexafluoride as 'the substance referred to in Part XI of Schedule 1, whether alone or in a mixture'. Moreover, the definition of SGG is amended so that it refers to 'an HFC, a PFC or sulfur hexafluoride' . [Schedule 1, Part 2, items 421, 422]

6.18 Section 3, which defines the objectives of the Ozone Act, is also amended to put beyond doubt that the controls on the manufacture, import, export and uses of SGG contained within this Act also give effect to Australia's obligations under the Kyoto Protocol . [Schedule 1, Part 2, items 415B-416B, 450A]

Introduction of the ODS/SGG equipment licence

6.19 Currently, importers of refrigeration and air conditioning equipment pre-charged with an HFC or an HCFC refrigerant are required to hold a 'pre-charged equipment licence'. Reflecting the application of the carbon charge to equipment containing SGG, the new definitions of 'ODS equipment' (contained in new section 8C) and 'SGG equipment' (contained in new section 8D) will replace the current definition of 'pre-charged equipment' in the Ozone Act. The new definition of ODS equipment will include air-conditioning or refrigeration equipment that contains an HCFC refrigerant. The new definition of SGG equipment will include any equipment or products that contain an HFC, a PFC or SF6. Under the new definition, an example of the kind of equipment which contains an SGG is fire protection equipment. However, to allow some flexibility in these arrangements, appropriate types of equipment and products, which would otherwise be SGG equipment under the Ozone Act, may be excluded from this definition by way of regulation or a legislative instrument made by the Minister. Unless sooner revoked, however, any such legislative instrument made by the Minister ceases to be operative 12 months after it is registered under the Legislative Instruments Act 2003. [Schedule 1, Part 2, items 417, 423]

6.20 An importer of an equipment or product that includes one of these ODS or SGGs (unless the SGG equipment is excluded by regulation or legislative instrument made by the Minister under new section 8D of the Ozone Act) is required to hold an 'ODS/SGG equipment licence'. This requirement is implemented by the substitution of a new subsection 13(6A) . [Schedule 1, Part 2, items 418, 425]

6.21 New paragraph 13(6A)(b), however, provides that a person is not required to hold an ODS/SGG equipment licence if the equipment imported has been kept by the person, or by a member of the person's household, wholly or principally for private or domestic use and the equipment, or class of equipment, is prescribed by regulation or legislative instrument made by the Minister (see also subsection 13(3) of the Legislative Instruments Act 2003 which permits legislative instruments to specify matters or things by referring to a class, or classes, of matters or things). Any such regulation or legislative instrument may also specify conditions that will need to be satisfied by the importer for any specified equipment to fall within this exemption. For example, the regulations could specify that a person who imports a motor vehicle would not be required to hold an ODS/SGG equipment licence for any ODS and/or a SGG contained in the vehicle (such as in the vehicle's air-conditioning system), on the condition that for 12 months before import, it has been owned or used for private or domestic use by the person.

6.22 Consequentially, references to 'pre-charged equipment' and 'pre-charged equipment licences' in the Ozone Act have been replaced with references to 'ODS equipment' or 'SGG equipment' and 'ODS/SGG equipment licences'. Other sections will be repealed to take account of the new definition . [Schedule 1, Part 2, items 419-420, 425, 427-441]

6.23 Section 9 currently provides an exemption from the definition of 'scheduled substance' for scheduled substances, including SGGs, when contained in manufactured products in certain circumstances. This exemption recognises that it is normally not practical to monitor the imports of these products. Section 9 is amended so that it no longer applies to SGGs. This is to ensure that this provision does not inadvertently exclude types of SGG equipment which should be subject to regulation under the Ozone Act. If appropriate, certain types of equipment and products, which would otherwise be SGG equipment under the Ozone Act, may still be excluded from this definition by way of regulation or a legislative instrument made by the Minister under new section 8D of the Ozone Act . [Schedule 1, Part 2, items 424A-424B]

Disclosure of information

6.24 To aid the Regulator in the exercise of its powers, including monitoring the contribution of SGGs to Australia's overall emissions, the Ozone Act is amended so that the Minister is able to disclose information collected under that Act to the Regulator . [Schedule 1, Part 1, item 194]

Definitions

6.25 A number of existing definitions in the Ozone Act are also amended to provide greater clarity . [Schedule 1, Part 2, items 416A, 420A-420C]