House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Climate Change and Energy Efficiency, the Hon Greg Combet AM MP and the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Background

Clean Energy Legislation Amendment Bill 2012

The Clean Energy Legislation Amendment Bill 2012 makes amendments to the CE Act, the ANREU Act, the CFI Act, the Fuel Tax Act and the NGER Act. These amendments cover:

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matters raised during the passage of the Act about which the Government made commitments to examine alternative approaches; and

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minor and technical changes.

The Clean Energy Legislative Package implements the carbon pricing mechanism for Australia to reduce carbon pollution. Legislation in the package links the carbon price to the CFI and to credible schemes overseas. The Package provides assistance to households and industry which will help households with the impact of the carbon price, support jobs, protect the competitiveness of emissions-intensive trade-exposed industries and support energy security.

Further detail about the policy context of the Clean Energy Legislative Package is set out in the Explanatory Memorandum for the Clean Energy Bill 2011.

The amendments to the CE Act make changes to the liquid fuel Opt-in Scheme in Part 3, Division 7 which alter the criteria that a person must meet in order to be declared a designated opt-in person for the purposes of the Opt-in Scheme and also impose notification and reporting requirements for persons subject to an obligation under the Scheme. The CE Act and the NGER Act are changed to amend the definition of 'carbon dioxide equivalence' so that it applies to fuels which are eligible for the Opt-in Scheme.

The bill amends provisions in the NGER Act that allow persons to nominate who has operational control of a facility when it is not clear who has operational control of that facility. 'Operational control' is a central principle used to determine who has responsibility for the emissions of a facility which is covered by the carbon pricing mechanism.

During passage of the Clean Energy Legislative Package in 2011, the Government committed to considering the coverage of gaseous fuels in a similar manner to the way in which large liquid fuel users may opt-in to the scheme. This responded to issues raised by the gaseous fuels industry in the final report of the Joint Select Committee on Australia's Clean Energy Future Legislation. Since then, the Government has consulted extensively with participants in the gaseous fuels sector to develop a new approach to coverage. This will allow greater flexibility for LPG, LNG and CNG suppliers when meeting carbon pricing liabilities.

To implement the changes requested by the gaseous fuels industry, the bill amends the CE Act and the Fuel Tax Act to reflect changes in coverage arrangements for gaseous fuels. From 1 July 2013, a carbon price will be applied to non-transport liquid petroleum gas and liquefied natural gas through the carbon pricing mechanism rather than through fuel tax arrangements. Emissions attributable to compressed natural gas will be covered by the carbon pricing mechanism, rather than by fuel tax arrangements, from 1 July 2012.

The bill amends the CFI Act to extend the timing for methodology determinations to be backdated. The CFI Act established the CFI, a carbon offsets scheme that credits abatement in the land sector. Because CFI projects must be conducted in accordance with a methodology determination, projects that seek to be backdated must also be in accordance with a backdated methodology. The amendment to backdating provisions for methodologies will ensure that existing offsets projects can transition to the CFI as originally intended.

The bill also amends the CFI Act to ensure that CFI projects have all required regulatory approvals in place before they can receive credits. It also simplifies the process of finalising methodology determinations by removing a requirement that the Domestic Offsets Integrity Committee (DOIC) publish on its website matters incorporated by reference in determinations. The explanatory material for methodology determinations will contain a description of the incorporated material and indicate how it may be obtained.

The bill amends the ANREU Act to increase the amount of time during which the CER may defer giving effect to a transfer instruction from 48 hours to five whole business days. The bill also amends the ANREU Act to make provision for conditions restricting or limiting the operation of certain accounts to apply in prescribed circumstances.

The bill amends the ARENA Act and the CER Act to provide for the sharing of relevant and appropriate information between the CEFC and ARENA and the CEFC and the CER in specified circumstances.

Clean Energy (Customs Tariff Amendment) Bill 2012 and Clean Energy (Excise Tariff Legislation Amendment) Bill 2012

The Clean Energy (Customs Tariff Amendment) Bill 2012 and Clean Energy (Excise Tariff Legislation Amendment) Bill 2012 make amendments to the Excise Act, the Excise Tariff Act and the Customs Tariff Act. The amendments provide that, from 1 July 2012, CNG used for non-transport purposes will not be subject to the effective carbon price through the fuel tax system so that it may be covered by the carbon pricing mechanism.

Date of effect:

Clean Energy Legislation Amendment Bill 2012

Sections 1, 2 and 3 commence on the day the bill receives the Royal Assent.

Schedule 1, which makes various amendments to the CE Act, the ANREU Act and the NGER Act, commences on the later of the day after the bill receives the Royal Assent or immediately after the commencement of Part 2 of Schedule 1 to the Clean Energy (Consequential Amendments) Act 2011 .

Schedule 2, which makes various changes to the CE Act and the Fuel Tax Act, commences on the latest of:

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the start of the day after the bill receives the Royal Assent; and

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immediately after the commencement of Schedule 1 to the Clean Energy (Fuel Tax Legislation Amendment) Act 2011 ; and

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immediately after the commencement of Schedule 1 to the bill.

Schedules 3 and 4, which deal with amendments to the CFI Act and the ANREU Act, take effect the day after the bill receives the Royal Assent.

Schedule 5, which deals with changes to the Clean Energy Finance Corporation Act 2012 , takes effect at the same time as section 3 of that Act commences.

Clean Energy (Customs Tariff Amendment) Bill 2012 and Clean Energy (Excise Tariff Legislation Amendment) Bill 2012

The amendments to the Excise Tariff Act and the Excise Act commence on 1 July 2012, immediately after the commencement made by the amendments contained in the Clean Energy (Excise Tariff Legislation Amendment) Act 2011 .

The amendments to subitem 10.19C are taken to commence immediately after the relevant amendments made by the Excise Tariff (Taxation of Alternative Fuels) Act 2011 commence.

The amendments to the Customs Tariff Act commence on 1 July 2012, immediately after the commencement made by the amendments contained in the Clean Energy (Customs Tariff Legislation Amendment) Act 2011 . That is, they will apply to goods that were imported on or after 1 July 2012. It also applies to goods imported before 1 July 2012 but not entered into home consumption until on or after 1 July 2012.

Proposal announced:

The Acts which make up the Clean Energy Legislative Package passed the Senate on 8 November 2011 and variously received the Royal Assent in late November and early December 2011.

The measures in the Clean Energy Legislative Package are based on the announcement on 10 July 2011 and the publication of Securing a clean energy future: The Australian Government's climate change plan .

On 11 October 2011, the Government announced that it would consider changes to give effect to alternative coverage of gaseous fuels under the carbon pricing mechanism. The Minister for Climate Change and Energy Efficiency said in the House of Representatives that:

'[a] number of companies in the consultation process have also expressed interest in having liquid petroleum gas included in the carbon pricing mechanism. The government is open to considering this in a similar manner to the way in which large liquid fuel users may opt into the scheme and we will consult on options for achieving it. No amendments however are proposed in relation to this at this time.' ^[1]

The Government announced the approach to coverage of gaseous fuels by the carbon pricing mechanism as part of the 2012-2013 Budget on 8 May 2012, having earlier informed industry participants.

During the public exposure period for the Package, industry stakeholders expressed a desire to manage their carbon liability for fuels under the carbon pricing mechanism instead of paying the equivalent carbon price through fuel tax arrangements. This arrangement was given effect through the Opt-in Scheme set out in Part 3, Division 7 of the CE Act.

Those amendments in the bill which make minor and technical amendments concern the operation of measures previously announced as part of the Clean Energy Legislative Package and, therefore, have not been the subject of any further specific announcements.

Financial impact:

Summary of regulation impact statement

Coverage of gaseous fuels - Regulation impact on business

Impact:

The Regulation Impact Statement (RIS) for carbon pricing mechanism coverage of non-transport gaseous fuels (LPG, LNG and CNG) is available at http://ris.finance.gov.au. The RIS was prepared by DCCEE and has been assessed as adequate by the Office of Best Practice Regulation.

Main points:

The current approach to carbon pricing coverage of non-transport LPG and LNG through the excise system would impose additional excise compliance costs for LPG and LNG suppliers. It would also increase cash carrying costs and reduce flexibility for suppliers to meet emissions obligations compared to coverage under the carbon pricing mechanism.

The current approach to carbon pricing coverage of non-transport CNG under the excise system would require up to 50 non-transport CNG producers that had not previously been participants in the excise system to install metering equipment to enable excise participation, potentially curtailing expansion and use of CNG by small producers. CNG producers would also face increased cash carrying costs and reduced flexibility to meet obligations relative to the mechanism.

On balance the advantages of reducing compliance costs and providing greater flexibility for liable entities in the sector to meet carbon pricing obligations warrant the inclusion of non-transport LPG and LNG in the carbon pricing mechanism. A mandatory approach to coverage is preferable to a voluntary opt-in approach as it would reduce the complexity of the carbon price and associated administration and compliance costs. It is expected to apply to around 10 entities.

Carbon pricing mechanism coverage of LPG and LNG should commence from 1 July 2013, as earlier commencement (from 1 July 2012) would create substantial risks that implementation agencies would have insufficient time to develop detailed systems for carbon pricing mechanism coverage and adequately test these with industry stakeholders.

Coverage of non-transport CNG under the carbon pricing mechanism is preferred as it will reduce compliance costs for small producers and reduce administrative costs for the Government relative to excise system coverage. The carbon pricing mechanism also provides greater flexibility for CNG producers to choose whether or not to directly manage their carbon pricing obligations.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Clean Energy Legislation Amendment Bill 2012, No. 2012

Clean Energy (Excise Tariff Legislation Amendment) Bill 2012, No. 2012

Clean Energy (Customs Tariff Amendment) Bill 2012, No. 2012

These bills are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview of the bills

These bills amend:

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the CE Act, to ensure that there is no double counting of CNG under the carbon pricing mechanism established by the Act, to amend the regulation-making powers dealing with administrative arrangements and eligibility requirements in relation to the Opt-in Scheme for liquid fuels, to provide for the coverage of gaseous fuels by the carbon pricing mechanism from 1 July 2013, and to make certain other minor technical amendments;

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the NGER Act, in relation to the nomination of the person who is to be taken to have operational control of a facility when two or more persons could have such control, and to make certain other minor technical amendments;

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the Fuel Tax Act, to make consequential amendments in relation to the taxation treatment of gaseous fuels covered by the carbon pricing mechanism;

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the CFI Act, to extend the backdating arrangements for methodology determinations, to remove the publication requirement in relation to the text of any materials incorporated by reference in a methodology determination, and to provide for CFI coverage to be conditional on projects obtaining all necessary regulatory approvals before Australian carbon credit units are issued in relation to a project;

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the ANREU Act, to create a regulation-making power to impose restrictions or limitations on the operation of certain Australian National Registry of Emissions Units accounts, and to increase the period of time within which the CER can defer giving effect to a transfer instruction;

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the ARENA Act, to enable the disclosure of information to the Clean Energy Finance Corporation; and

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the Excise Act, the Excise Tariff Act and the Customs Tariff Act. The amendments provide that, from 1 July 2012, CNG used for non-transport purposes will not be subject to the effective carbon price through the fuel tax system so that it may be covered by the carbon pricing mechanism.

Human rights implications

The bills variously engage the following human rights:

Rights of equality and non-discrimination

The Clean Energy Legislation Amendment Bill 2012 amends the NGER Act to enable two or more persons who might otherwise have 'operational control' of a facility to nominate one of them as the person who is to be taken to have 'operational control' of the facility for the purposes of the NGER Act and, if the facility is not a facility of a joint venture, the CE Act. The person with 'operational control' of a facility has certain reporting obligations under the NGER Act and certain liabilities for greenhouse gas emissions from the facility under the carbon pricing mechanism established by the CE Act. The Bill provides that if any of these persons is a foreign person (being an individual who is not ordinarily resident in Australia, a corporation incorporated outside of Australia, a body politic of a foreign country, or a trust where the majority of trustees are covered by any of these categories) and if any of these persons is not a foreign person, then a foreign person cannot be nominated.

The amendment replaces existing provisions dealing with the nomination of a person who is to be taken to have operational control of a facility. The main difference between the existing provisions and the new amended provisions relates to the timing of the nomination. The Bill continues the existing requirement that a foreign person not be nominated if a non-foreign person is available to be nominated.

The Clean Energy Legislation Amendment Bill 2012 thus continues the existing provision for different treatment of persons depending on their national origin.

The amendment does not prevent foreign persons from operating or being engaged in the operation of facilities in Australia or otherwise exercising their property or other rights in Australia. Rather, the amendment identifies persons who can voluntarily assume obligations and liabilities under the NGER and CE Acts. The rationale for preferring the nomination of non-foreign persons over foreign persons is that non-foreign persons are more likely to have assets in Australia and are more likely to be amenable to the enforcement of relevant obligations and liabilities under the NGER and CE Acts. The amendment, and its rationale, is therefore considered compatible with the rights of equality and non-discrimination.

Privacy and reputation

The Clean Energy Legislation Amendment Bill 2012 amends the CE Act to extend the existing provisions in relation to the OTN (Obligation Transfer Number) Register to gaseous fuel suppliers. The OTN Register is maintained by the CER and is open to public inspection. The Clean Energy Legislation Amendment Bill 2012 requires the CER to publish on the Register the following information about a gaseous fuels supplier: its name, address, contact details, Australian Business Number (ABN) and, if its willingness to accept quotations of OTNs, in cases where acceptance is not mandatory, is subject to conditions-those conditions. This mirrors the arrangements in relation to natural gas suppliers.

The listing of gaseous fuels suppliers serves two main purposes. First, it assists users of gaseous fuels to find a supplier who may be willing to accept their OTN quotation. It also provides the CER with a list of suppliers who wish to be notified of any changes to the OTN Register, such as when an OTN is cancelled, surrendered, when the name of an OTN holder changes, or when a new entry is made in the Register. This lowers compliance costs for suppliers as they will be sent up-to-date information on changes to the OTN Register. The amendment, and its rationale, is therefore considered compatible with the right to privacy.

The Clean Energy Legislation Amendment Bill 2012 also amends the NGER Act in relation to the content of the material that must be published by the CER on its website under section 24 of the NGER Act. In particular, it removes the requirement to publish a registered corporation's gross and net energy consumption, and replaces it with a requirement to publish the corporation's net energy consumption only. This helps give effect to one of the objects of the NGER Act, which is to inform the Australian public about greenhouse gas emissions, and energy production and consumption. The amendment does not require the publication of any personal information about an individual, and is considered to be compatible with the right to privacy.

Further, the Clean Energy Legislation Amendment Bill 2012 amends the ARENA Act and the CER Act to enable the disclosure of information to the CEFC. Information can only be disclosed if the disclosure will enable or assist the CEFC to perform or exercise any of its functions or powers. Enabling the disclosure of information in these circumstances is considered to be compatible with the right to privacy.

Conclusion

The bills are compatible with human rights because, to the extent that they may limit those rights, that limitation is reasonable, necessary and proportionate.

Greg Combet

Minister for Climate Change and Energy Efficiency