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)

General outline and statements

Background

Repealing the carbon tax

The Australian Government has a clear commitment to repeal the carbon tax to:

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boost Australia's economic growth, increase jobs and enhance Australia's international competitiveness;

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remove the cost of living pressures on households resulting from the carbon tax;

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remove the cost pressures faced by business as a result of the carbon tax; and

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remove unnecessary, burdensome and costly regulation.

The Government is implementing its commitment to remove the carbon tax through seven Bills (together the 'Carbon Tax Repeal Bills') that will repeal the legislation imposing the carbon tax. The repeal legislation does this by:

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abolishing the carbon pricing mechanism;

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removing the equivalent carbon price imposed through the fuel tax credit system, through excise and excise equivalent customs duties, and through synthetic greenhouse gas (SGG) levies;

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making arrangements for the management of the last financial year in which the carbon tax will apply (2013-14) and the collection of any outstanding carbon tax liabilities; and

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providing new powers to the Australian Competition & Consumer Commission (ACCC) to ensure that all cost savings arising from carbon tax repeal are passed on to consumers.

Carbon tax reduction obligations

Repealing the carbon tax will reduce wholesale electricity and gas prices, reduce the cost of taxable fuels for off-road use, and reduce the cost of SGGs, such as those used for refrigeration and air conditioning. These cost reductions will flow through to businesses in the form of lower input costs and to households through lower energy bills and cheaper retail prices. Provisions in the Carbon Tax Repeal Bill amend the CC Act to insert provisions that are directed at ensuring that all cost savings for suppliers are passed on to consumers through lower prices. To ensure compliance with these provisions, the CC Act is amended to provide stiff penalties for entities that fail to comply.

The Carbon Tax Repeal Bills replace the 2013 Carbon Tax Repeal Bills have been rejected twice by the Senate.

Clean Energy Legislation (Carbon Tax Repeal) Bill 2014 and related Bills

The Clean Energy Legislation (Carbon Tax Repeal) Bill 2014 (the Main Repeal Bill) repeals the legislation that establishes the carbon pricing mechanism, namely:

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Clean Energy Act 2011;

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Clean Energy (Charges-Customs) Act 2011;

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Clean Energy (Charges-Excise) Act 2011;

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Clean Energy (Unit Issue Charge-Auctions) Act 2011;

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Clean Energy (Unit Issue Charge-Fixed Charge) Act 2011; and

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Clean Energy (Unit Shortfall Charge-General) Act 2011.

In addition, four technical bills provide for removal of the equivalent carbon price through excise and excise equivalent custom duties and the SGG levies.

The abolition of other carbon tax-related initiatives are to be done by other Bills that are not part of the Carbon Tax Repeal Bills, namely:

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the abolition of the Climate Change Authority (CCA) through the Climate Change Authority (Abolition) Bill 2013 [No. 2];

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the abolition of the Clean Energy Finance Corporation through the Clean Energy Finance Corporation (Abolition) Bill 2014; and

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the cancellation of carbon tax related income tax cuts that were legislated to commence on 1 July 2015 through the Labor 2013-14 Budget Savings (Measures No.1) Bill 2014.

The Carbon Tax Repeal Bills, included in this Explanatory Memorandum, provide, in summary, that:

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2013-14 was the last financial year to which carbon tax applied; although the Parliament will not pass the Carbon Tax Repeal Bills until after 1 July 2014, they will operate to repeal the tax retrospectively from that date;

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liable businesses and other entities must meet all carbon tax liabilities incurred up to 30 June 2014 under the carbon pricing mechanism, the fuel tax credit system, excise or excise equivalent customs duties, or SGG levies;

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liable businesses and other entities must pay their final carbon tax compliance obligations at the next payment time under the current legislated arrangements;

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industry assistance provided under the Jobs & Competitiveness Program (JCP) and the Energy Security Fund has continued in 2013-14 for the purpose of meeting carbon tax liabilities, but has now ceased;

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the ACCC will have new powers to monitor prices and take action against businesses that attempt to exploit other businesses and consumers by not passing all of their cost savings that are directly or indirectly attributable to the carbon tax repeal or by making false or misleading claims about the effect of the carbon tax repeal on prices;

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the Steel Transformation Plan Act 2011, which provided carbon tax related assistance to steel industry businesses, will be repealed and the assistance will cease;

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the funding for the Australian Renewable Energy Agency (ARENA) will be adjusted;

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the conservation tillage tax offset, which was introduced at the same time as the carbon tax, will be removed; and

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businesses and other entities with a carbon tax liability are obliged to comply with current carbon tax compliance and reporting arrangements for as long as those arrangements remain law.

The Clean Energy Regulator (the Regulator), the Australian Taxation Office (ATO), the Australian Customs & Border Protection Service (Customs) and the Department of the Environment (the Department) will have the necessary powers to collect any outstanding carbon tax liabilities for 2012-13 and 2013-14 for as long as is necessary.

Businesses and other entities are obliged to comply with legislated obligations for as long as those obligations remain law.

The structure of the broader carbon tax repeal package is explained in Table I.

Date of effect:

Clean Energy Legislation (Carbon Tax Repeal) Bill 2014

Sections 1, 2 and 3 and anything in the Main Repeal Bill not elsewhere covered in section 2 commence on the day the Main Repeal Bill receives the Royal Assent.

Schedule 1, Parts 1 and 2, which repeal the CE Act and the CE Charges Acts and make consequential amendments resulting from their repeal, commence on 1 July 2014.

Schedule 1, Part 3, Divisions 1 to 4, which provide transitional provisions necessary to wind up the carbon tax and provisions to allow the final compliance process to occur and enable the payment and future enforcement of carbon tax liabilities relating to 2012-13 and 2013-14, commence on 1 July 2014.

Schedule 1, Part 3, Division 5, which stops carbon unit auctions from being conducted, cancels any auctioned units (with refunds) and ends the requirement for regulations relating to carbon pollution caps and price ceilings if the legislation is enacted before 1 July 2014, commences on the day the Main Repeal Bill receives the Royal Assent.

Schedule 1 Part 4, which includes provisions to finalise industry assistance, commences on:

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1 July 2014, if the Main Repeal Bill receives the Royal Assent before 30 June 2014; or

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the day after the Main Repeal Bill receives the Royal Assent.

Schedule 2, which includes provisions to prohibit carbon tax-related price exploitation and false or misleading representations, and to give the ACCC additional price monitoring powers, commences on the later of:

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the day after the Main Repeal Bill receives the Royal Assent; and

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1 January 2014.

Schedule 3, which repeals the conservation tillage tax offset, commences the day after the Main Repeal Bill receives the Royal Assent.

Schedule 4, which repeals the Steel Transformation Plan Act 2011, commences on 1 July 2014.

Schedule 5, which amends the funding for the ARENA, commences the day the Main Repeal Bill receives the Royal Assent.

True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2014

Sections 1 and 2 and anything in the Bill not elsewhere covered in section 2 commence on the day the Bill receives the Royal Assent.

All other sections commence at the same time that Part 4 of Schedule 1 to the Main Repeal Bill commences.

True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2014

Sections 1 and 2 and anything in the Bill not elsewhere covered in section 2 commence on the day the Bill receives the Royal Assent.

All other sections commence at the same time that Part 4 of Schedule 1 to the Main Repeal Bill commences

Customs Tariff Amendment (Carbon Tax Repeal) Bill 2014

Sections 1, 2 and 3 and anything in the Bill not elsewhere covered in section 2 commence on the day the Bill receives the Royal Assent.

Schedule 1 commences at the same time that Part 1 of Schedule 1 to the Main Repeal Bill commences.

Excise Tariff Amendment (Carbon Tax Repeal) Bill 2014

Sections 1, 2 and 3 and anything in the Bill not elsewhere covered in section 2 commence on the day the Bill receives the Royal Assent.

Schedule 1 commences at the same time that Part 1 of Schedule 1 to the Main Repeal Bill commences.

Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2014

Sections 1, 2 and 3 and anything in the Bill not elsewhere covered in section 2 commence on the day the Bill receives the Royal Assent.

Schedule 1 commences at the same time that Part 1 of Schedule 1 to the Main Repeal Bill commences.

Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2014

Sections 1, 2 and 3 and anything in the Bill not elsewhere covered in section 2 commence on the day the Bill receives the Royal Assent.

Schedule 1 commences at the same time that Part 1 of Schedule 1 to the Main Repeal Bill commences.

Proposal announced:

The Prime Minister, the Hon Tony Abbott MP, and the Minister for the Environment, the Hon Greg Hunt MP, announced the Government's plan to repeal the carbon tax on Tuesday, 15 October 2013, reflecting the Coalition longstanding and public commitment to this policy.

Financial impact:

The financial impact associated with the repealing the carbon tax is reflected in the Tables 1 and 2 below.

The estimates of the fiscal and underlying cash balance impacts of carbon tax repeal and carbon-related programs have been revised since the carbon tax repeal package was first introduced in 2013.

Regulation Impact Statement

Carbon tax repeal - Regulation impact on business and households

Impact:

The Regulation Impact Statement (RIS) for repeal of the carbon tax was prepared by the Department of the Environment and is summarised below. The entire RIS is provided in Chapter 8.

Main points:

Impacts on Business

The primary impact of repealing the carbon tax on businesses is to reduce the cost of inputs. While the carbon tax is directly applied to a relatively small number of activities and liable entities, the size and importance of these activities means that as these costs are passed on through the economy the carbon tax results in an increase in input costs for the majority of businesses. The main driver of these cost increases is the impact of the carbon tax on energy prices - primarily electricity and gas.

Within the services sector, the production of electricity (particularly coal-fired electricity) was most heavily affected and should benefit most from the repeal of the carbon tax. In the mining sector, coal mining would be the major beneficiary. In the manufacturing sector, producers with emissions- or energy-intensive activities that were unable to access carbon tax-related assistance would be the main beneficiaries of repeal. There would be minimal impact on dwelling ownership.

The removal of the carbon tax is expected to reduce annual ongoing compliance costs for liable entities by $85.3 million per annum. The avoided costs fall into two categories: administrative costs (including remaining abreast of changes in carbon pricing legislation, meeting recording and reporting obligations, negotiating contracts for carbon price pass-through, and discharging emissions liabilities) and substantive costs (emissions verification costs for large emitters).

Impact on Households

Household costs will be lower than they otherwise would be under a $25.40 carbon price. Recent modelling by the Australian Treasury suggests that the removal of the carbon tax in 2014-15 will reduce the Consumer Price Index by around 0.7 percentage points than it otherwise would be in 2014-15. This is based on the currently legislated fixed carbon price of $25.40 for 2014-15 and the scope intended by the former government, including fuel use by heavy on-road transport.

Treasury modelling suggests that the removal of the carbon tax in 2014-15 will leave average costs of living across all households (based on existing expenditure patterns) around $10.50 per week (or around $550 over the year) lower than they would otherwise be in 2014-15.

Statement of Compatibility with Human Rights

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

Clean Energy Legislation (Carbon Tax Repeal) Bill 2014
True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2014
True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2014
Customs Tariff Amendment (Carbon Tax Repeal) Bill 2014
Excise Tariff Amendment (Carbon Tax Repeal) Bill 2014
Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2014
Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2014

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 Carbon Tax Repeal Bills

The Carbon Tax Repeal Bills repeal the carbon tax. The carbon tax is imposed in a variety of ways:

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an obligation on large emitters of greenhouse gases, natural gas suppliers and liquefied petroleum gas (LPG) and liquefied natural gas (LNG) importers, manufacturers and suppliers (liable entities) to pay a unit shortfall charge if they do not buy and surrender eligible emissions units (mostly carbon units issued by the Commonwealth) in accordance with the CE Act and the CE Charges Acts;

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a reduction in the fuel tax credits paid for marine, rail and off-road taxable fuel use by business (Fuel Tax Act 2006);

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an increase in excise duty and excise equivalent customs duty on aviation fuel (Excise Tariff Act 1921, Customs Tariff Act 1995); and

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a levy on import and manufacture of synthetic greenhouse gases and equipment (Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995, Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Act 1995, Ozone Protection and Synthetic Greenhouse Gas Management Act 1989).

The Carbon Tax Repeal Bills repeal, with effect from 1 July 2014, all of the provisions in the various Acts that impose carbon tax liabilities and make consequential and transitional amendments. This includes provisions to continue processes and publications under the CE Act until liabilities that arise before 1 July 2014 are satisfied and to cancel any carbon units held by a person once they are no longer needed for this purpose.

The True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2014 and the True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2014 impose a levy on persons who were over-allocated free carbon units as industry assistance in the 2013-14 financial year and would have had their 2014-15 allocation reduced if the carbon tax had remained in force.

The Carbon Tax Repeal Bills also repeal the provisions of the National Greenhouse and Energy Reporting Act 2007 (NGER Act) and the Australian National Registry of Emissions Units Act 2011 (ANREU Act) that deal with reporting emissions and registering emissions units for the purposes of the CE Act and, in essence, return those Acts to their pre-carbon tax form.

The Carbon Tax Repeal Bills also repeal provisions of other Acts that deal with the tax treatment of carbon units and their regulation as financial products.

The Carbon Tax Repeal Bills also amend the Competition and Consumer Act 2010 (CC Act) to prohibit carbon tax-related price exploitation and false or misleading representations following the carbon tax repeal. It also provides the ACCC with additional price monitoring powers.

Human rights implications

Right to privacy

The Main Repeal Bill may marginally engage the right to privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR). Article 17 prohibits unlawful or arbitrary interferences with a person's privacy. It provides that persons have the right to the protection of the law against such interference. An interference with privacy will not be arbitrary if it is not inconsistent with the provisions, aims and objectives of the ICCPR and reasonable in the circumstances. Reasonableness, in this context, incorporates notions of proportionality to the objectives sought to be achieved.

The Carbon Tax Repeal Bills remove almost all requirements that persons provide information to the Commonwealth for the purpose of administering the provisions of the Acts which impose the carbon tax, and that the Regulator publish information related to the carbon tax on its website.

However, the Main Repeal Bill continues, until 30 June 2015, the requirement that the Regulator publish information about liable entities on its website (Schedule 1, item 323, table item 58). It also continues, until 30 June 2015, the requirement that the Regulator publish the OTN (obligation transfer number) Register and the list of surrendered and cancelled OTNs (Schedule 1, item 323, table items 12 and 13), both of which relate to transfer of liability in the natural gas supply chain.

The publication requirements are continued transitionally to allow liable entities and others (for example, recipients of natural gas supplies) to have access to information relevant to reporting and finalisation of liabilities for 2013-14, to allow disclosure to the public of the extent of unit shortfall charges for the year (as in previous years) and to provide public information relevant to the exercise of the price exploitation and price monitoring powers of the ACCC (which will also expire on 30 June 2015).

To the extent that an individual's right to privacy is affected by the Main Repeal Bill, the impact is not arbitrary. It is reasonable, necessary and proportionate to the achievement of the legitimate objectives of repealing the carbon tax and making appropriate transitional provisions for that purpose.

Property rights

The Main Repeal Bill extinguishes rights to hold carbon units (Schedule 1, item 327). Carbon units are personal property (CE Act, section 103). However, item 327 does not engage the relevant human rights obligations.

The cancellation provisions do not involve discrimination on any ground or denial of access to the courts. Indeed, if the cancellation of a person's carbon units results in the acquisition of their property on other than just terms contrary to section 51(xxxi) of the Constitution and the Commonwealth refuses to pay compensation to the person, the person has a right to bring proceedings to recover compensation (Schedule 1, item 345D).

In any case, it is not envisaged that the cancellation provision in item 327 of Schedule 1 to the Main Repeal Bill will need to operate. Other provisions will cancel carbon units either in the normal course of finalising 2013-14 liabilities or with a refund for the price paid for the units.

First, item 323 of Schedule 1 to the Main Repeal Bill allows existing processes to operate so that carbon units will be cancelled in the circumstances in which they would have been cancelled even if the carbon tax had not been repealed:

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Liable entities will acquire fixed charge carbon units to satisfy their 2013-14 liability in the usual way and the units will be cancelled immediately on purchase in the usual way to satisfy 2013-14 liability (CE Act, section 100(7)).

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Free 2013-14 carbon units will have been issued and dealt with in the usual way and, in the unlikely event that they are not used to satisfy someone's 2013-14 liability, they will be cancelled under the existing provisions in the usual way (CE Act, section 115).

Secondly, in the event that auctions are held in 2014 and someone buys units at an auction, a person who holds such a unit on the fifth day after Royal Assent is given to the Main Repeal Bill will be paid the amount paid for the unit at auction (Schedule 1, item 343A).

Civil Penalties

Schedule 2 to the Main Repeal Bill contains provisions which prevent a corporation from engaging in price exploitation in relation to the carbon tax repeal (Schedule 2, item 3, section 60C, CC Act) and from making false or misleading representations concerning the effect of the carbon tax repeal (Schedule 2, item 3, section 60K, CC Act). The existing pecuniary penalty regime (section 76 of the CC Act) is modified so that it applies to contraventions of these prohibitions (Schedule 2, items 5, 6 and 7). While the prohibitions are directed at corporations, rather than individuals, individuals could become liable for a pecuniary penalty either through the operation of section 6 of the CC Act (Schedule 2, item 2), which extends the operation of the CC Act to individuals in the circumstances described in that section, or on the basis that the individual has aided or abetted a corporation's contravention of these prohibitions (section 76(1)(c); section 76(1)(d) and (e) might also be relevant). It is not anticipated that the direct extension of the prohibitions to individuals through the operation of section 6 of the CC Act will be significant.

Pecuniary penalties are civil, rather than criminal penalties, and the civil standard of proof applies. Having regard to the nature and severity of the penalty, however, it is accepted that the penalties should be regarded as criminal penalties for the purposes of human rights law, including Article 14 of the ICCPR.

Article 14(2) of the ICCPR provides that a person is entitled to be presumed innocent until proved guilty according to law. Ordinarily, this would require that the case against the person be demonstrated to the criminal standard of proof. The criminal standard of proof is not applied in relation to pecuniary penalty proceedings. Nevertheless, this is compatible with Article 14(2) because the pecuniary penalty provisions have a long and well-litigated history, and it has not been shown that the failure to apply the criminal standard of proof has resulted in injustice. Indeed, the courts have on numerous occasions indicated that the gravity of the allegations being tested in the court will be taken into account, and that the graver the allegation, the greater the strictness of proof that will be required. In particular, more than just 'inexact proofs, indefinite testimony or indirection references' will be required (see, for example, Australian Competition and Consumer Commission v TF Woolam & Sons Pty Ltd (2011) 196 FCR 212 at [8]).

In any event, the pecuniary penalty provisions are directed primarily at corporations, rather than individuals. If it is unnecessary to apply the criminal standard of proof in relation to corporations, it would be inappropriate to apply a different standard of proof to individuals, who would ordinarily only be liable to the extent that they had aided or abetted the contravening conduct of a corporation. Further, unlike corporations, individuals have access to the defences set out in section 85 of the CC Act (Schedule 2, item 15), which allows a court to relieve the individual of liability if it is satisfied that the individual has acted honestly and reasonably and, having regard to all the circumstances of the case, ought fairly to be excused.

It is also relevant that the pecuniary penalty provisions are but one of a number of enforcement provisions provided in the CC Act, which include infringement notices (Schedule 2, item 3, Division 5, Part 5, CC Act), injunctions (Schedule 2, items 9 and 10, section 80, CC Act), orders limiting prices or requiring refunds of money (Schedule 2, item 11, section 80A, CC Act), non-punitive orders (Schedule 2, items 16, 17 and 18, section 86C, CC Act), compensation orders (Schedule 2, items 19, 20, 21, 22 and 23, section 87 CC Act) and declarations (Schedule 2, item 26, section 163A CC Act). The amendments made by the Main Repeal Bill tap into the existing pecuniary penalty regime, and do not create a new regime.

Article 14(3)(g) of the ICCPR provides that a person has the right 'not to be compelled to testify against himself or to confess guilt' in criminal proceedings. Nothing in the Main Repeal Bill is inconsistent with this requirement. Indeed the information-gathering powers applicable to the prohibitions provide that an individual is excused from giving information or producing a document on the ground that the information or document might tend to incriminate the individual or expose the individual to penalty (Schedule 2, item 3, 60H(5), CC Act).

Article 14(7) of the ICCPR provides that no one is to be liable to be tried or punished again for an offence of which she or he has already been finally convicted or acquitted. Nothing in the Main Repeal Bill is inconsistent with this requirement. In particular, criminal proceedings cannot be brought for substantially the same conduct that gave rise to the civil proceedings.

Right to work and the right to an adequate standard of living

The Main Repeal Bill includes consequential amendments to remove carbon units from the definition of a financial product under the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Corporations Act 2001 (Corporations Act) (Schedule 1, items 92, 93, 105 and 106). The effect of this is that Australian financial services (AFS) licensees will no longer be able to operate a business and derive revenue with respect to carbon units from the designated carbon unit day. The Australian Securities and Investments Commission (ASIC) will have the ability to vary a licence to remove a carbon unit authorisation or cancel a licence where the only authorisation the licensee holds is with respect to carbon units.

The amendments allow ASIC to vary a licence without providing the licensee the opportunity to be heard by ASIC and to cancel a licence without providing reasons for the cancellation (these requirements would ordinarily be necessary before ASIC could take action) (Schedule 1, items 94 and 95). These requirements were removed as the question of variation or 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 via the Administrative Appeals Tribunal or the court system.

The amendments to the ASIC Act and the Corporations Act may marginally engage in the right to earn a living through work and the right to an adequate standard of living as AFS licensees will no longer be able to trade in carbon units (Articles 6 and 11 of the International Covenant on Economic, Social and Cultural Rights. However, the specific amendments are merely consequential to the removal of the carbon tax and are necessary for consistency in the law and to maintain an up-to-date AFS licensing register.

Licensees will only be affected to the extent they hold a carbon unit authorisation - any other authorisations they hold in relation to other financial products will not be impacted.

Conclusion

The Carbon Tax Repeal Bills are compatible with human rights because the only potential limitations on human rights that the Carbon Tax Repeal Bills impose relate to the right to privacy and criminal process rights and they are reasonable, necessary and proportionate in achieving the Bills' legitimate policy objectives of repealing the carbon tax and making appropriate transitional provisions for that purpose.

Greg Hunt
Minister for the Environment