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)

Chapter 2 Amendments relating to gaseous fuels

Outline of chapter

2.1 Chapter 2 describes the following amendments contained in Schedules 1 and 2 to the bill:

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amendments made to the CE Act to bring about mandatory carbon pricing mechanism coverage of emissions from non-transport LPG and LNG from 1 July 2013; and

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amendments to the CE Act related to the coverage of non-transport CNG under the carbon pricing mechanism from 1 July 2012; and

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amendments to the Fuel Tax Act which ensure that fuel tax credit (FTC) entitlements will not be reduced for business use of non-transport gaseous fuels (CNG, LPG and LNG) when those fuels move into the carbon pricing mechanism; and

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amendments to the Fuel Tax Act that also ensure that when the non-transport gaseous fuels move into the carbon pricing mechanism, the agriculture, fishing and forestry industries will become entitled to a FTC equivalent to the amount of the carbon charge that is embedded in the price of the fuel.

2.2 Chapter 2 also describes amendments made by the Clean Energy (Excise Tariff Legislation Amendment) Bill 2012 to the Excise Act and the Excise Tariff Act and amendments made by the Clean Energy (Customs Tariff Amendment) Bill 2012 to the Customs Tariff Act. The amendments ensure 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.

Context of amendments

2.3 LPG, LNG and CNG intended for use in an internal combustion engine for road transport were covered by the fuel tax system from 1 December 2011, when excise and excise-equivalent customs duty was applied to these fuels. Non-transport LPG, LNG and CNG is not currently subject to excise.

2.4 The Clean Energy Legislative Package will apply an effective carbon price to non-transport LPG, LNG and CNG by bringing them into the excise system and applying an automatic partial remission of excise of an amount that would leave excise equivalent to the carbon price applying to LPG, LNG and CNG.

2.5 Application of an equivalent carbon price through the fuel tax system requires excise licensing for LPG and LNG importers, producers and distributors and CNG producers and has rigorous requirements for storage and movement of excisable products. The excise system also requires remission of excise regularly during the year.

2.6 On 11 October 2011, the Government announced that it would consider ways in which gaseous fuels could be covered by the carbon pricing mechanism, consistent with the treatment of liquid fuels. Inclusion of non-transport LPG and LNG in the carbon pricing mechanism provides LPG and LNG distributors and marketers with more flexibility to manage their carbon pricing obligations than the fuel tax system.

2.7 Including non-transport CNG in the carbon pricing mechanism allows the emissions obligation to be placed by default on the supplier of the natural gas from which CNG is produced rather than producers of CNG. As natural gas suppliers will already be managing much more substantial obligations for residential and commercial consumers, any additional burden for those suppliers will be negligible. Non-transport CNG may be included in the carbon pricing mechanism through changes to the excise tariff system.

2.8 The carbon pricing mechanism allows entities to access emission unit markets to discharge carbon pricing liabilities. Inclusion in the mechanism also reduces cash carrying costs associated with meeting obligations under the fuel tax system during the mechanism's fixed price period, with carbon price obligations accounted for once or twice yearly rather than the more frequent requirements of the excise system.

2.9 Inclusion of these fuels in the carbon pricing mechanism is also consistent with the general principle that wide coverage of the mechanism is desirable to maximise opportunities for least-cost emissions abatement.

Summary of new law

Commencement of coverage and transitional arrangements

2.10 Non-transport LPG and LNG will have a carbon price applied under the carbon pricing mechanism from 1 July 2013 in place of the current arrangements. The current arrangements will apply from 1 July 2012 to 1 July 2013 and involve the application of an effective carbon price to non-transport LPG and LNG through the fuel tax system.

2.11 Mandatory coverage of non-transport LPG and LNG under the carbon pricing mechanism will begin on 1 July 2013. This allows time for transitional and compliance arrangements to be carefully considered, developed and implemented. This aligns the treatment of non-transport LPG and LNG with the coverage of liquid fuels by the carbon pricing mechanism. It is also consistent with the Government's original commitment on 11 October 2011 to examine coverage of gaseous fuels.

2.12 Under the carbon pricing mechanism, the point at which excise or customs duty becomes payable (entry into home consumption, generally by the importer, manufacturer or marketer of non-transport LPG or LNG) will be the initial point of liability for emissions resulting from the use of these fuels.

2.13 Regulations made for the CE Act will be able to specify situations in which a person can quote an 'obligation transfer number' (OTN). This will allow a large end user of LPG, LNG or CNG to manage their own liability for emissions from these fuels in specified circumstances. It will also enable businesses that use these fuels as feedstock to avoid paying a carbon price in respect of fuel that does not result in emissions. To bring about coverage of non-transport LPG and LNG under the carbon pricing mechanism, these fuels will not have excise and customs duties applied.

Coverage of non-transport CNG

2.14 To correctly apply the carbon charge on non-transport CNG under the Government's Clean Energy Plan, the exemption from fuel excise or excise equivalent customs duty for non-transport use of CNG needs to be restored from 1 July 2012. Non-transport CNG will instead be subject to the carbon price directly under the carbon pricing mechanism.

2.15 Coverage of non-transport CNG from 1 July 2012 will occur because:

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CNG is produced from natural gas that is already subject to an upstream price under the carbon pricing mechanism. This allows coverage to be implemented relatively simply by removing the requirement for producers of non-transport CNG to pay carbon price equivalent excise duty; and

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some small non-transport CNG producers are not currently required to participate in the excise system, and would be required to install metering equipment to enable their participation in the excise system.

2.16 The requirement for CNG producers to pay excise or customs duty on non-transport CNG will be removed through legislative changes to excise arrangements for CNG producers and the adjustment of administrative arrangements by the ATO. The default point of liability for emissions from non-transport CNG will then rest with the natural gas supplier that supplies the gas from which the CNG is produced.

2.17 CNG producers will have the option of quoting an OTN to their supplier which will enable them to assume mechanism liabilities for the natural gas they use to create CNG. The natural gas supplier would not be able to refuse this transfer of liability.

Off-road use in agriculture, forestry and fisheries activities

2.18 An equivalent carbon price is not applied to off-road fuel use by the agriculture, forestry and fishing sectors. This policy will be continued by allowing non-transport LPG, LNG and CNG users in these industries to claim fuel tax credits which are equivalent to the amount of carbon price even when the fuel is subject to the carbon pricing mechanism and no fuel tax has been paid.

Ongoing coverage of gaseous fuels under the fuel tax system

2.19 Non-transport CNG will be covered by the carbon pricing mechanism from 1 July 2012. From 1 July 2013 non-transport LPG and LNG will move from the effective carbon price under the fuel tax system to being covered by the carbon pricing mechanism.

2.20 Bringing about coverage of non-transport CNG, LPG and LNG under the carbon pricing mechanism requires excluding non-transport CNG, LPG and LNG from excise and customs duties and as a consequence excluding users of non-transport CNG, LPG and LNG from being able to claim FTCs for their use of the fuels.

2.21 A new FTC will be available for the agriculture, fishing and forestry industries. The FTC will be equivalent to the amount of the carbon price that is embedded in the cost of gaseous fuels acquired for non-transport use. This is consistent with the general policy that these industries should not be subject to a carbon price on the fuels acquired for non-transport use.

Comparison of key features of new law and current law

Detailed explanation of new law

Liability under the carbon pricing mechanism

2.22 The bill amends the CE Act to provide that, under the carbon pricing mechanism, a carbon price liability for emissions embodied in non-transport LPG and LNG applies to:

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an importer or reseller of LPG or LNG that enters imported LPG or LNG for home consumption;

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a manufacturer or reseller of LPG that enters domestically manufactured LPG or LNG for home consumption;

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a person that quotes an OTN for a supply of LPG or LNG. [Schedule 2, item 13, sections 36B-36D, CE Act]

2.23 For LPG and LNG, liability under the carbon pricing mechanism applies to potential emissions embodied in the LPG or LNG supplied and not the actual emissions produced at the time the LPG or LNG is combusted. This is because liability generally arises before the LPG or LNG is combusted and emissions are released into the atmosphere. In practice, there is little difference between the actual emissions arising from the combustion of LPG and LNG among different non-transport customers. [Schedule 2, item 13, sections 36B-36D, CE Act]

Definitions

2.24 The bill amends section 5 of the CE Act to replace the term 'liquid petroleum gas' with the term 'liquefied petroleum gas', which is the more commonly used term in the industry. It is also the term used in the Excise Tariff Act 1921 , which sets out whether a fuel type is excisable or whether it is covered by the carbon pricing mechanism. Any references in the NGER Regulations to 'liquid petroleum gas' are to be taken as references to 'liquefied petroleum gas'. [Schedule 1, Part 1, item 5, section 5, CE Act] [Schedule 1, Part 1, item 6, section 5, CE Act]

2.25 LPG and LNG are 'designated fuels' for the purposes of the CE Act and the NGER Act (see Chapter 1 above). [Schedule 1, Part 1, item 4, section 5, CE Act]

2.26 The bill inserts a new definition in section 5 of the CE Act of:

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'gaseous fuel supplier', being a person who supplies LPG, LNG or natural gas; and [Schedule 2, item 3, section 5, CE Act]

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'non-transport combustion', being combustion that does not occur in an internal combustion engine in a motor vehicle or a vessel. [Schedule 2, item 4, section 5, CE Act]

2.27 The new definition of 'gaseous fuel supplier' is created as a collective term for the purposes of applying the OTN provisions of the CE Act, as OTNs will now apply for LPG and LNG, as well as to natural gas.

2.28 The CE Act defines 'taxable fuel' as having the same meaning as in the Fuel Tax Act. The bill amends the definition of 'taxable fuel' in section 5 of the CE Act to provide that it does not cover circumstances covered by paragraph (b) of the definition of 'taxable fuel' in section 110-5 of the Fuel Tax Act (as amended by item 85 of Schedule 2 to the bill). The effect of this amendment is to ensure that 'taxable fuel' fuel includes CNG, LNG and LPG subject to the carbon pricing mechanism because this fuel is excluded from the new definition of 'taxable fuel' in the Fuel Tax Act. [Schedule 2, item 5, section 5, CE Act]

Liability for LPG or LNG

2.29 The bill includes a new Division 3A after Part 3, Division 3 of the CE Act which concerns the coverage under the carbon pricing mechanism of LPG and LNG for non-transport use.

LPG or LNG for non-transport use which is imported

2.30 New section 36B sets out liability for imported LPG or LNG which is intended for non-transport use. A person is liable for potential emissions embodied in LPG or LNG where:

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the LPG or LNG is imported into Australia; and

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the LPG or LNG is entered for home consumption in a financial year that begins on or after 1 July 2013; and

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customs duty is or was payable by the person on the LPG or LNG, but duty is automatically remitted because the LPG or LNG is not for use in an internal combustion engine in a motor vehicle or vessel (that is, the LPG or LNG is for non-transport use); and

•

the LPG or LNG is not exempt under the regulations. [Schedule 2, item 13, new section 36B, CE Act]

2.31 It is intended that the regulations could, for instance, provide an exemption for fuel (typically LPG) which is packaged in small containers for specific applications which use small volumes of fuel (such as soldering). It would not be cost effective to require importers of these products to participate in the mechanism.

LPG or LNG for non-transport use which is manufactured or produced in Australia

2.32 New section 36C of the CE Act sets out liability for LNG or LPG which is manufactured or produced in Australia and is intended for non-transport use. A person is liable for potential emissions embodied in LPG or LNG where:

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the LPG or LNG is manufactured or produced in Australia; and

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the LPG or LNG is entered for home consumption in a financial year that begins on or after 1 July 2013; and

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excise duty is or was payable by the person on the LPG or LNG, but duty is automatically remitted because the LPG or LNG is not for use in an internal combustion engine in a motor vehicle or vessel (that is, the LPG or LNG is for non-transport use); and

•

the LPG or LNG is not exempt under the regulations. [Schedule 2, item 13, new section 36C, CE Act]

2.33 It is intended that the regulations could, for instance, provide an exemption for fuel (typically LPG) which is packaged in small containers for specific applications which use small volumes of fuel (such as soldering). It would not be cost effective to require manufacturers of these products to participate in the mechanism.

LPG or LNG for non-transport use where an OTN is quoted

2.34 New section 36D of the CE Act sets out liability where a person quotes an OTN in relation to a supply of non-transport LPG or LNG. An OTN holder may quote an OTN in relation to a supply of LPG or LNG from a person that has a preliminary emissions number for that supply under s36B or 36C of the CE Act. The OTN holder will assume liability for potential emissions embodied in the supply of LPG or LNG. [Schedule 2, item 13, new section 36D, CE Act] [Schedule 2, item 13, new section 36B, CE Act], [Schedule 2, item 13, new section 36C, CE Act]

2.35 New sections 58AA and 58AB of the CE Act provide that regulations may set out the circumstances in which the quotation of an OTN is required or permitted for supplies of gaseous fuels. An OTN holder must give a written notice to the supplier in circumstances where the acceptance of an OTN quotation is mandatory. The Government proposes that provision will be made for large users of LPG or LNG to assume liability for direct emissions from LPG and LNG. Feedstock users of LPG or LNG would also be permitted to quote an OTN to ensure that they do not pay a carbon price on fuel that is consumed without producing emissions. Other circumstances may also be prescribed. [Schedule 2, item 35, new section 58AA, CE Act] [Schedule 2, item 35, new section 58AB, CE Act]

2.36 The acceptance of an OTN quotation will be mandatory where a quotation is required under the regulations or where quotation is permitted and the conditions specified in the regulations are satisfied. [Schedule 2, Item 36, section 59, CE Act] [Schedule 2, item 52, section 60, CE Act]

2.37 The bill extends the CE Act's provisions concerning the issuance, surrender, cancellation, withdrawal and quotation of OTNs for natural gas supplies to extend these to cover supplies of LPG and LNG. An explanation of the provisions of the CE Act concerning OTNs is set out in paragraphs 1.130 to 1.205 of the Explanatory Memorandum to the Clean Energy Bill 2011. [Schedule 2, item 14, section 40(3)(a), CE Act] [Schedule 2, item 15, section 41(1)(a), CE Act] [Schedule 2, item 16, section 43(2)(a), CE Act] [Schedule 2, item 17, section 45(8), CE Act] [Schedule 2, item 18, section 45(8)-(15), CE Act] [Schedule 2, item 19, section 47, CE Act] [Schedule 2, item 20, section 47(2), CE Act] [Schedule 2, item 21, section 47(2), CE Act] [Schedule 2, item 22, section 48(1), CE Act] [Schedule 2, item 23, section 48(1), CE Act] [Schedule 2, item 24, section 48(1)(a), CE Act] [Schedule 2, item 25, section 48(3), CE Act] [Schedule 2, item 26, section 49(a), CE Act] [Schedule 2, item 27, section 49, CE Act] [Schedule 2, item 28, section 50(a), CE Act] [Schedule 2, item 29, section 51, CE Act] [Schedule 2, item 30, section 52, CE Act] [Schedule 2, item 31, section 53(1)(a), CE Act] [Schedule 2, item 32, section 53(2)(b), CE Act] [Schedule 2, item 33, section 54, CE Act] [Schedule 2, item 34, section 55, CE Act]

2.38 The bill also amends the CE Act provisions concerning the misuse of OTNs and bogus quotation of OTNs to extend them to cover supplies of LPG and LNG. [Schedule 2, item 68, section 63(1), CE Act] [Schedule 2, item 69, section 63(4), CE Act] [Schedule 2, item 70, sections 64(1) and (3), CE Act]

Provisional and preliminary emissions numbers

2.39 New subsections 36B(1), 36B(2), 36C(1), 36C(2), 36D(1) and 36D(2) of the CE Act give rise to preliminary ENs and provisional emissions numbers (PENs) for the purposes of liability for covered emissions embodied in supplies of LPG and LNG under the CE Act. PENs are used to work out an entity's total liability under the carbon pricing mechanism, and therefore the number of eligible emissions units the entity must surrender to avoid paying a unit shortfall charge.

2.40 Each amount of non-transport LPG or LNG for which a person is liable gives rise to a preliminary emissions number (preliminary EN) for the person. A preliminary EN is equal to the amount of greenhouse gas emissions in tonnes of CO2-e embodied in the amount of LPG or LNG imported or manufactured. ^[2] [Schedule 2, item 13, new section 36B(1), CE Act] [Schedule 2, item 13, new section 36C(1), CE Act] [Schedule 2, item 13, new section 36D(1), CE Act]

2.41 Under sections 33, 35 and 36 of the CE Act a person's PEN is the sum of the person's preliminary ENs for the financial year. If the person has one or more PENs for imported or manufactured non-transport LPG or LNG in a financial year, the person is a 'liable entity' for that financial year (see definition of 'liable entity' in section 5 of the CE Act). Entities liable for covered emissions embodied in LPG and LNG must surrender eligible emissions units, or pay a unit shortfall charge, for each tonne of emissions for which they are liable during an eligible financial year. This includes the requirement to make a provisional surrender by 15 June in a fixed price year in respect of the first three quarters of the year or pay a unit shortfall charge. [Schedule 2, item 71, new section 126(7A), CE Act]

2.42 Entities liable for covered emissions embodied in LPG and LNG have obligations to report the calculation of their liability to the CER under sections 15A, 15AA, 22A and 22AA of the NGER Act (see Chapter 1).

No double-counting - LPG and LNG

2.43 Emissions from combustion of LPG or LNG that have been subject to an obligation under new sections 36B or 36C of the CE Act will not generally form part of the direct emissions liability for a facility under Part 3, Division 2 of the CE Act, although they will count towards calculating whether the facility meets thresholds for liability. New subsections 20(12) and (13) ensure that emissions from combustion of LPG and LNG are not counted twice, once for the liable entity for import or manufacture of LPG or LNG under new sections 36B and 36C of the CE Act, and again when combusted at a covered facility. These amounts may be pro-rated if there is a change in control during the year. [Schedule 2, item 7, new subsections 20(12)-(13), CE Act] [Schedule 2, item 8, new subsections 21(8C)-(8D), CE Act] [Schedule 2, item 9, new subsections 22(10)-(11), CE Act] [Schedule 2, item 10, new subsections 23(9C)-(9D), CE Act] [Schedule 2, item 11, new subsections 224(8C)-(8D), CE Act] [Schedule 2, item 12, new subsections 25(7C)-(7D), CE Act]

2.44 If a person quotes an OTN in relation to the supply of the LPG or LNG to a facility, the emissions will form part of the obligations of the facility, and will be netted-out from the obligations of the supplier of the LPG or LNG. This will allow direct emitters to assume liability for emissions from LPG or LNG where they meet any criteria for the quotation of an OTN for LPG or LNG. [Schedule 2, item 7, new subsections 20(12)-(13), CE Act] [Schedule 2, item 8, new subsections 21(8C)-(8D), CE Act] [Schedule 2, item 9, new subsections 22(10)-(11), CE Act] [Schedule 2, item 10, new subsections 23(9C)-(9D), CE Act] [Schedule 2, item 11, new subsections 224(8C)-(8D), CE Act] [Schedule 2, item 12, new subsections 25(7C)-(7D), CE Act]

Netted-out numbers - LPG and LNG

2.45 Where a person receives a supply of LPG or LNG from a supplier that is a liable entity under new section 36B or new section 36C of the CE Act and quotes an OTN to take on liability for that supply, then the quotation will give rise to a netted-out number for the supplier. The netted-out number can be subtracted from the supplier's PEN, reducing the supplier's liability and ensuring that the emissions from the supply of LPG and LNG are not double counted. [Schedule 2, item 13, new section 36B(4), CE Act] [Schedule 2, item 13, new section 36C(4), CE Act]

2.46 The regulations may also specify that a liable entity in relation to import, manufacture or production of LPG and LNG can 'net out' certain amounts of LPG and LNG from their PEN. This allows for 'fine tuning' of a supplier's liability, which addresses specific circumstances where the general rules result in liability being applied in situations when it should not, such as additional cases of double-counting. [Schedule 2, item 13, new section 36B(5), CE Act] [Schedule 2, item 13, new section 36C(5), CE Act] [Schedule 2, item 13, new section 36D(5), CE Act]

Coverage of CNG

2.47 From 1 July 2012 non-transport CNG will be exempt from excise duty or excise equivalent customs duty. Non-transport CNG will be subject to the direct carbon charge under the carbon pricing mechanism and as such will not also be subject to the effective carbon price as imposed via the fuel tax system.

2.48 The fuel tax system refers to the system which imposes excise duty on domestically manufactured fuels and excise equivalent customs duty on imported fuels.

2.49 Previous amendments to the Excise Act and Excise Tariff Act were made by the Clean Energy (Excise Tariff Legislation Amendment) Act 2011 , so as to impose an effective carbon price on non-transport business use of CNG from 1 July 2012. Mirror amendments were also made to the Customs Tariff Act by the Clean Energy (Customs Tariff Amendment) Act 2011 to deal with imported CNG.

2.50 The Clean Energy (Excise Tariff Legislation Amendment) Bill 2012 and the Clean Energy (Customs Tariff Amendment) Bill 2012 will effectively repeal these previous amendments, which were due to take effect from 1 July 2012, and restore the provisions in the Excise Act, Excise Tariff Act and Customs Tariff Act to retain the legislation on CNG as it is currently written. [Section 1] [Section 3]

Amendments to the Excise Act 1901 and the Excise Tariff Act 1921

2.51 The non-transport CNG tariff rate will be removed from the Schedule to the Excise Tariff Act and the consequential amendments made to that Act by Clean Energy (Excise Tariff Legislation Amendment) Act 2011 . As a result, sub-item 10.19D (carbon-rated compressed natural gas) and the associated a rate of duty will no longer appear in the Schedule. [Schedule 1, items 2 to 9 and 13, subsections 3(1), 5(1), section 6H, and the Schedule, Excise Tariff Act]

2.52 As part of the transitional arrangements for the taxation of transport use of CNG, amendments are scheduled to commence over the next three financial years, increasing the rate as contained in sub-item 10.19C. These amendments assumed the presence of sub-item 10.19D and referenced carbon-rated compressed natural gas. The Clean Energy (Excise Tariff Legislation Amendment) Bill 2012 removes these amendments. [Schedule 1, items 10 to 12, the Schedule, Excise Tariff Act]

2.53 The Clean Energy (Excise Tariff Legislation Amendment) Bill 2012 restores section 77HA of the Excise Act, which deals with the concept of CNG that is exempt from excise, is restored to what was set out originally prior to the amendments made by the Clean Energy (Excise Tariff Legislation Amendment) Act 2011 . [Schedule 1, item 1, section 77HA, Excise Act]

Amendments to the Customs Tariff Act 1995

2.54 The Clean Energy (Customs Tariff Amendment) Bill 2012 removes the reference to carbon-rated compressed natural gas and associated rate from Schedule 3 of the Customs Tariff Act and amends other schedules that have references to that item to exclude the reference. [Schedule 1, Part 1, items 1 to 9, Schedules 3,5,6,7 and 8, Customs Tariff Act]

2.55 Subsection 19A(3) of the Customs Tariff Act was intended to provide the means by which changes in the duty rates calculated take into account increases in the effective carbon price over the fixed price period and the move to the floating price were inserted into the relevant schedules. This is no longer required. [Schedule 1, Part 2, items 11 and 12, subsections 19A(3) to (5), Customs Tariff Act]

No double-counting - CNG

2.56 Emissions from the combustion of non-transport CNG at a facility will be counted towards the calculation of the facility's threshold for participation in the carbon pricing mechanism, but will not give rise to an emissions liability, unless the CNG is produced at the facility and a person quotes an OTN in relation to the natural gas used to produce the CNG. [Schedule 1, Part 1, item 8, new section 20(10)-(11), CE Act] [Schedule 1, Part 1, item 9, new section 21(8A)-(8B), CE Act] [Schedule 1, Part 1, item 10, new sections 22(8)-(9), CE Act] [Schedule 1, Part 1, item 11, new section 23(9A)-(9B), CE Act] [Schedule 1, Part 1, item 12, new section 24(8A)-(8B), CE Act] [Schedule 1, Part 1, item 13, new section 25(7A)-(7B), CE Act]

2.57 Non-transport CNG will be removed from coverage under the customs and excise systems by legislative changes to excise arrangements for CNG producers and the adjustment of administrative arrangements by the ATO. As non-transport CNG will no longer be subject to any duty under the Customs Tariff Act or the Excise Tariff Act, it will no longer be excluded from coverage in the carbon pricing mechanism under section 30(2) of the CE Act.

2.58 In general this will result in liability defaulting to the supplier of the natural gas that is used to produce non-transport CNG, with that supplier likely to pass through the cost of compliance with the carbon pricing mechanism in the price of natural gas supplied to the CNG producer. However, the CNG producer would also be able to quote an OTN under section 58 of the CE Act to directly assume liability for the gas used if it wished to.

2.59 In situations where an OTN is not quoted for natural gas used to produce CNG, the emissions from combustion of CNG do not give rise to a direct emissions liability. Otherwise the CNG user would face the carbon price twice, once from the price pass-through from the natural gas supplier, and a second time through the direct emissions obligations for the combustion of the CNG. However, in cases where an OTN is quoted for natural gas used to produce CNG, and the emissions from that CNG count towards a direct emissions liability, the person who quotes the OTN will be able to net-out the number from its emissions obligations to eliminate double counting. [Schedule 1, Part 1, item 15, new section 35(6A), CE Act]

Treatment of non-transport LPG, LNG and CNG under fuel tax arrangements

2.60 New section 41-35 of the Fuel Tax Act will provide a general exclusion for users of CNG, LPG and LNG fuels that are subject to the carbon pricing mechanism from entitlement to claim FTCs. [Schedule 2, item 78, section 41-35, Fuel Tax Act]

2.61 Whether a particular gaseous fuel is subject to the carbon pricing mechanism is set out by reference to the CE Act. Broadly, if the fuel is subject to a PEN under the CE Act then no FTCs can be claimed.

2.62 CNG will be taken to be subject to the carbon pricing mechanism if a person has a PEN for a financial year and the PEN is attributable to the supply of natural gas used to manufacture or produce the CNG. [Schedule 2, item 79, subsection 42A 5(3), Fuel Tax Act]

2.63 Similarly, LPG and LNG will be taken to be subject to the carbon pricing mechanism if a person has a PEN for a financial year and the PEN is attributable to the import, manufacture or production of the LPG or LNG. [Schedule 2, item 79, subsection 42A-5(4), Fuel Tax Act]

2.64 Broadly, under the CE Act, a PEN represents the emissions which give rise to a liability under the carbon pricing mechanism.

Gaseous fuels and the agriculture, fishing or forestry industries

2.65 The agriculture, fishing and forestry industries will become entitled to a FTC equivalent to the amount of the carbon charge that is embedded in the price of gaseous fuels. Subdivision 43-B of the Fuel Tax Act (which commences on 1 July 2012) defines those industries. [Schedule 2, item 76, section 2-1, Fuel Tax Act] [Schedule 2, item 77, subsection 41-15(1), Fuel Tax Act] [Schedule 2, item 79, section 42A-5, Fuel Tax Act] [Schedule 2, item 80, section 43-1, Fuel Tax Act]

2.66 Where a person acquires one of the gaseous fuels and that fuel has been subject to the carbon pricing mechanism within the meaning of new subsections 42A-5(3) or (4) of the Fuel Tax Act then the person will be entitled to a FTC. The existing rule that a person must acquire the fuel for use in carrying on an enterprise and be registered for the GST to obtain a FTC operates in this situation.

Amount of FTC

2.67 In broad terms the amount of the FTC is the amount by which a FTC will otherwise be reduced by the 'carbon reduction'. The carbon reduction for all fuels is the equivalent of the carbon charge on the fuel had the fuel been subject to the carbon charge. [Schedule 2, item 81, subsection 43-5(1 ), Fuel Tax Act] [Schedule 2, item 82, subsections 43-5(4) and (5), Fuel Tax Act] [Schedule 2, item 85, section 110-5, paragraph (a) of new definition of ' taxable fuel', Fuel Tax Act]

2.68 The amount of the carbon reduction will be based in 2012-13, 2013-14 and 2014-15 on a carbon charge of $23.00 per tonne, $22.15 per tonne and $25.40 per tonne respectively. From 1 July 2015, the FTC carbon reduction will be based on the preceding six-month average carbon unit auction price. The average auction price used on 1 July 2015 will be for the preceding six-month forward permit auctions. For subsequent periods the average price used will be for the actual six-month period.

2.69 The new FTCs will be adjusted in the same way.

Example 2.1 Adjusting FTCs

Huey undertakes qualifying agricultural activities and qualifies for FTCs. He acquires 210 litres of LPG to use for heating a remotely sited shearing shed during the 2013-14 financial year. Huey would be entitled to a FTC credit for the amount of LPG (210 litres) times the carbon reduction for LPG for 2013-14 (3.864 cents per litre).

Rounding calculation for the FTC carbon reduction

2.70 The bill makes a technical amendment to section 43-8 of the Fuel Tax Act to ensure the carbon reduction is correctly rounded to three decimal places of a cent in all circumstances. [Schedule 2, item 83, subsection 43-8 (1), Fuel Tax Act] [Schedule 2, item 84, subsection 43-8 (1A), Fuel Tax Act]

Application and transitional provisions

Clean Energy Legislation Amendment Bill 2012

2.71 The provisions in Schedule 2 of the bill will commence on the latest of:

•

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

•

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

•

immediately after the commencement of Schedule 1 to the bill. [Section 2]

2.72 CNG that has been supplied will have a PEN in respect of that supply from the beginning of the 2012-13 financial year and so there will be no FTC reductions for CNG acquired from the beginning of that year. The new FTC for the agriculture, fishing and forestry industries' use of CNG will also commence from the beginning of the 2012-13 financial year.

2.73 LPG and LNG will only have PENs when the fuel is entered into home consumption from the 2013-14 financial year. Consequently there will be FTC reductions for those gaseous fuels for the 2012-13 financial year but not beyond. The new FTC for the agriculture, fishing and forestry industries' use of LPG and LNG will also not commence until the beginning of the 2013-14 financial year.

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

2.74 The amendments to the Excise Tariff Act 1921 and the Excise Act 1901 commence on 1 July 2012, immediately after the commencement made by the amendments contained in the Clean Energy (Excise Tariff Legislation Amendment) Act 2011 . [Section 2]

2.75 The amendments to sub-item 10.19C are taken to commence immediately after the relevant amendments made by the Excise Tariff (Taxation of Alternative Fuels) Act 2011 commence. [Section 2]

2.76 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. They also apply to goods imported before 1 July 2012 but not entered into home consumption until on or after 1 July 2012. [Section 2]

Consequential amendments

2.77 Schedule 2 to the bill includes consequential amendments to give effect to the substantive amendments set out in Schedule 2 dealing with coverage of gaseous fuels under the carbon pricing mechanism. These amendments generally ensure that appropriate references are included in provisions that allow for the administration of the carbon pricing mechanism to ensure that the coverage of gaseous fuels is included. [Schedule 2, item 37, section 59(2), CE Act] [Schedule 2, item 38, section 59(2), CE Act] [Schedule 2, item 39, section 59(3), CE Act] [Schedule 2, item 40, section 59(3), CE Act] [Schedule 2, item 41, section 59(3), CE Act] [Schedule 2, item 42, section 59(3), CE Act] [Schedule 2, item 42, section 59(4), CE Act] [Schedule 2, item 43, section 59(4), CE Act] [Schedule 2, item 44, section 59(4), CE Act] [Schedule 2, item 45, section 59(4), CE Act] [Schedule 2, item 46, section 59(5), CE Act] [Schedule 2, item 47, section 59(5), CE Act] [Schedule 2, item 48, section 59(5), CE Act] [Schedule 2, item 50, section 59(7), CE Act] [Schedule 2, item 51, section 59(8), CE Act] [Schedule 2, item 53, section 60(2), CE Act] [Schedule 2, item 54, section 60(2), CE Act] [Schedule 2, item 55, section 60(3), CE Act] [Schedule 2, item 56, section 60(3), CE Act] [Schedule 2, item 57, section 60(3), CE Act] [Schedule 2, item 58, section 60(4), CE Act] [Schedule 2, item 59, section 60(4), CE Act] [Schedule 2, item 60, section 60(4), CE Act] [Schedule 2, item 61, section 60(4), CE Act] [Schedule 2, item 62, section 60(5), CE Act] [Schedule 2, item 63, section 60(5), CE Act] [Schedule 2, item 64, section 60(5), CE Act] [Schedule 2, item 66, section 60(7), CE Act] [Schedule 2, item 67, section 60(8), CE Act] [Schedule 2, item 72, section 228(1)(a), CE Act] [Schedule 2, item 73, section 262(1)(f), CE Act] [Schedule 2, item 74, section 262(1)(g), CE Act] [Schedule 2, item 75, section 262(1)(i), CE Act]