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It should be noted that the name of this Bill as introduced
on 22 October 2009 is actually the Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2009. This Bill is not identical
to the earlier Bill of the same name which was first introduced in the
House of Representatives on 14 May 2009. However it is identical to the
Bill (which included amendments made by the Government in the House of
Representatives on 4 June 2009) which was negatived by the Senate on 13
August 2009.
The addition of the reference ‘[No. 2]’
has been made by the Department of the House of Representatives Table
Office to indicate that the Bill is introduced for a second time.
Bills Digest no. 49 2009–10
Carbon Pollution Reduction Scheme (Consequential Amendments) Bill
2009 [No. 2]
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill 2009 [No. 2]
Date introduced: 22 October 2009
House: House of Representatives
Portfolio: Climate Change and Water
Commencement: Generally, at the same time
as section 3 of the Carbon Pollution Reduction Scheme Act 2009
(CPRS Act).[1] This
particular section commences on the 28th day after the CPRS Act receives
Royal Assent. However, if the related Acts have not themselves first received
Royal Assent by the 28th day, if the CPRS Act does not commence at all.
These related Acts[2] are:
- Australian Climate Change Regulatory Authority Act 2009
- Carbon Pollution Reduction Scheme (Charges – Customs) Act 2009
- Carbon Pollution Reduction Scheme (Charges-Excise) Act 2009
- Carbon Pollution Reduction Scheme (Charges-General) Act 2009, and
- Carbon Pollution Reduction Scheme (Consequential Amendments) Act
2009 (this Bill ).
Certain items do not commence at all if Schedule 1 to the
National Greenhouse and Energy Reporting Amendment Act 2009 commences
before Schedule 3 to the CPRS Act. The provisions of the proposed Carbon
Pollution Reduction Scheme (Consequential Amendments) Act 2009 (CPRS
Consequentials Act) whose commencement is affected by this particular
condition are:
- Item 64B of Schedule 1, and
- Item 66 of Schedule 1.
Other commencement conditions for provisions of the CPRS
Consequentials Act are:
- Part 2, Schedule 1 – 1 July 2011, and
- Part 3, Schedule 1 – the latter of the commencement of section 3
of the CPRS Act and immediately after the commencement of Schedule 1
of the National Greenhouse and Energy Reporting Amendment Act 2009.
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading speech
can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills
have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
This Act amends various existing Commonwealth legislation
as a consequence of the passing of the main legislation implementing the
Government’s Carbon Pollution Reduction Scheme referred to above as the
CPRS Act. This latter Act is currently before Parliament. The following
legislation is affected by the CPRS Consequential Amendments Bill:
- Anti-Money Laundering and Counter Terrorism Financing Act 2006
- Australian Securities and Investments Commission Act 2001
- Corporations Act 2001
- Financial Management and Accountability Act 2007
- National Greenhouse and Energy Reporting Act 2007
- Ozone Protection and Synthetic Greenhouse Gas Management Act 1989
- Renewable Energy (Electricity) Act 2000
- Trade Practices Act 1974
- A New Tax System (Goods and Services Tax) Act 1999
- Income Tax Assessment Act 1936
- Income Tax Assessment Act 1997, and
- Taxation Administration Act 1953.
The Carbon Pollution Reduction Scheme (Consequential Amendments) Bill
2009 (the original Bill) was first introduced into Parliament on
14 May 2009 as part of the 11-Bill Carbon Pollution Reduction Scheme (CPRS)
package of legislation. Along with the other CPRS Bills, the original
Bill was passed by the House of Representatives on 4 June, but negatived
in the Senate on 13 August 2009.
The content of the current Bill, now titled the Carbon Pollution Reduction
Scheme (Consequential Amendments) Bill 2009 [No. 2], is virtually
identical to the original Bill. As such, this Digest is largely unchanged
from the Digest produced
in June for the original Bill, with the exception of a brief comment on
the only substantive change made to the original Bill.[3] For commentary on recent developments regarding
the proposed CPRS, including the reintroduction of the CPRS Bills, see
relevant sections in the revised Digest on the Carbon Pollution Reduction
Scheme Bill [No. 2] 2009.
The proposed measures are based on the above mentioned Government White
Paper entitled ‘Carbon Pollution Reduction Scheme: Australia’s Low Pollution
Future’ released by the Government on 15 December 2008. A link to that
document is here.
The Senate Standing Committee on Economics completed its inquiry and
report on the Exposure Draft of the Carbon Pollution Reduction Scheme
Bill 2009 and related Bills, one of which is the CPRS Consequentials Amendments
Bill on 16 April 2009. Details of the inquiry are at http://www.aph.gov.au/Senate/committee/economics_ctte/cprs_09/info.htm
.
The exposure draft legislation for the CPRS, one of which is the CPRS
Consequentials Amendments Bill was also considered under broader terms
of reference by the Senate Select Committee on Climate Policy, which reported
on 15 June 2009. Details of this inquiry are at http://www.aph.gov.au/SENATE/committee/climate_ctte/index.htm
.
The Senate Select Committee on Fuel
and Energy’s terms of reference also include inquiry into the impact of
an emissions trading scheme on the fuel and energy industry. The Committee
released an interim report on 7 May, before its final report due by 30
March 2010. Details of the inquiry are at http://www.aph.gov.au/SENATE/committee/fuelenergy_ctte/index.htm
.
Please refer to the Library’s Bills Digest on the Carbon Pollution Reduction
Scheme Bill 2009 [No. 2].
The pros and cons of the proposed Carbon Pollution Reduction Scheme are
extensively discussed in the Library’s Bills Digest on the Carbon Pollution
Reduction Scheme Bill 2009 [No. 2].
Likewise, the position of the various political groups, as of the date
of publication, are discussed in the Library’s Bills Digest on the Carbon
Pollution Reduction Scheme Bill 2009 [No. 2].
The financial impact of the proposed Carbon Pollution Reduction Scheme
is outlined in the Library’s Bills Digest on the Carbon Pollution Reduction
Scheme Bill 2009 [No. 2].
Item 1A inserts a new definition of ‘eligible emissions unit’
into the Anti-Money Laundering and Counter-Terrorism Financing
Act 2006 (AML/CTF Act). An eligible emissions unit is defined
in Clause 5 of the Carbon Pollution Reduction Scheme Bill 2009
(CPRS Bill) as an Australian emissions unit (AEU) or an eligible international
emissions unit. These are emission units that are able to be surrendered
by liable entities under the proposed Carbon Pollution Reduction Scheme
(CPRS) to acquit their responsibilities under that scheme.
Briefly, an AEU is an emission unit issued by the proposed Australian
Climate Change Regulatory Authority (the Authority). Eligible international
emissions unit are certain emissions units arising from the operation
of the ‘flexible mechanisms’ (such as the clean development mechanism)
set up under the Kyoto Protocol to the United Nations Framework Convention
on Climate Change. They may include other non-Australian sourced emissions
units at a later date as the CPRS develops. The Library’s recent Bills
Digest on the Carbon Pollution Reduction Scheme Bill 2009 contains further
details on the Kyoto Protocol, flexible mechanisms and the above-mentioned
Convention.
Item 1C will amend the AML/CTF Act so that an agent of a person
acting as an agent of another person acquiring or disposing of an eligible
emissions unit has to verify the identity of their principal.
Item 1 amends the Australian Securities and Investment Commission
Act 2001 so that both and AEU and an eligible international emissions
unit are financial products for the purposes of this Act. Amendments
in Item 2 mean that providing a service in respect of these units
is not the provision of a financial service for the purposes of this Act.
Item 6 amends the Corporations Act 2001 so that both an
AEU and an eligible international emissions unit are financial products
for the purposes of this particular Act.
Items 13 to 66 amend the National Greenhouse and Energy
Reporting Act 2007 (NGER Act) so that previous references to the Greenhouse
and Energy Data Officer (Officer) in this Act now refer to the Australian
Climate Change Regulatory Authority. All the functions exercised by this
Officer would now be exercised by the Authority.
Items 68 to 83 amend the Renewable Energy (Electricity)
Act 2000 so that the functions of the Renewable Energy Regulator under
this Act would be exercised by the Authority.
Items 87 to 97 of this Schedule contain provisions that
allow the transition of functions in relation to the CPRS, reporting of
greenhouse gas emissions under the NGER Act and renewable energy to the
Authority. Note in particular that under item 93, definitions of
‘Office of the Renewable Energy Regulator’, ‘protected document’, ‘protected
information’ and ‘Regulator’ will continue to apply despite the repeal
of the those provisions in the Renewable Energy (Electricity) Act 2000.
Item 96 also provides that if before the commencement of this item,
if the accounts were described by specific terms and designated by particular
authorities, they will have be considered effective under the new Act.
Items 98 to 194 amend the NGER Act.
Item 101 inserts new subsection 3(2) so that one of the
formal objectives of the NGER Act is to underpin the CPRS Act by imposing
various registration, reporting and record-keeping requirement.
Item 109 repeals existing section 6 of the NGER Act and inserts
new sections 6, 6A, 6B, and 6C into
that Act. These provisions define where this Act applies. In addition
to the existing provisions new section 6A ensures that the NGER
Act applies to Australia’s continental shelf. New section 6B ensures
that the NGER Act will also apply to the Joint Petroleum Development Area,
between East Timor and Northern Australia.
Items 111 to 145 amend section 7 NGER Act so that the various
definitions of terms used in the amended Act are updated.
Item 146 inserts new sections 7A, 7B, 7C
and 7D into the NGER Act. These amendments are vital for the operation
of the CPRS Act. Briefly, these amendments define the following terms
for CPRS Act purposes:
- new section 7A – definition of a greenhouse gas
- new section 7B – definition of a synthetic greenhouse gas
- new section 7C – definition of potential greenhouse gas emissions
embodied in an amount of eligible upstream fuel,
-
the term eligible upstream fuel is defined in Clause 5 of the CPRS
Bill to include a wide range of solid, liquid and gas fuels that may
be supplied from either a producer (such as a coal mine) or importer
(such as an oil company) through to the consumer, and
- new section 7D carbon dioxide equivalence of potential greenhouse
gas emissions embodied in an amount of eligible upstream fuel.
These definitions are vital for the operation of Part 3
and Part 11 of the CPRS Act.
The CPRS operates on the basis of individual facilities. Item 151
amends existing subsection 9(1) of the NGER Act so that the definition
of a facility contained in this subsection applies to the CPRS Bill.
In the first instance liability under the CPRS rests on the person or
entity that has operational control over a facility (this liability may
pass to other parties under the CPRS – particularly the entity with financial
control over a facility). Item 172 inserts new sections 11A,
11B and 11C into the NGER Act to clarify which entity has
operational control over a facility if two or more parties satisfy the
criteria in existing section 11 of this Act for determining who controls
a facility.
Item 173E inserts new sections 15A, 15B and 15C
into the NGER Act. These sections require various persons or entities
to register under this Act. These entities or persons are:
- a person or entity who was, or is, liable under the CPRS for the current
eligible financial year, and/or
- a person or entity who, in the current eligible financial year, supplied
an amount of eligible upstream fuel or synthetic greenhouse gas to another
person, and that person quoted an ‘obligation transfer number’ (OTN)
to the supplier.
An ‘eligible financial year’ is defined in Item 5 of the CPRS
Bill as a financial year beginning on 1 July 2011 or later financial year.
It follows that the ‘current eligible financial year’ is simply a current
financial year that starts after this date.
An OTN is defined in Clause 5 of the CPRS Bill as a number issued
under either Clause 44 or 45 of that Bill. Briefly,
these numbers allow a suppliers’ liability for greenhouse gas emissions
embedded in eligible upstream fuels or synthetic greenhouse gases to be
transferred to the recipient of these materials.
Item 181 inserts new sections 22A to 22F in the
NGER Act that require liable entities, OTN holders, fuel suppliers and
holders of liability transfer certificates to report to the Authority
and to keep records of such reports. Broadly, these reports are to be
provided in the specified form and contain information that will allow
the Authority to determine the emissions for which the entity or person
is responsible under the CPRS scheme.
Maximum penalties for contravention of these requirements are 2000 penalty
units ($220,000) for individuals and 10 000 penalty units ($1.1 million)
for other entities.
Item 184 requires the Authority to publish information sourced
from these reports on its website, especially the provisional emissions
number applying to a particular liable entity.
Clause 5 of the CPRS Bill defines a provisional emission number
as:
- having the meaning given by Part 3 of that Bill, and
- the meaning given by new sections 11B and 11C of the
NGER Act.
Briefly, the provisional emissions number in Part 3 of the CPRS
Bill is the amount of greenhouse gases emitted by a liable entity. New
subsections 11B(7) and 11C(7) of the NGER Act define this
number in terms of a formula that expresses this number in terms of emissions
per liable person for those emissions.
This information has to be published by 28 February following the end
of the relevant eligible financial year.
An efficient emissions trading market runs on accurate and timely information.
This particular provision is a significant contribution to the provision
of that information.
Item 194 inserts new sections 74AA-74C into the NGER Act
to strengthen the compliance aspects for the NGER Act.
For example, under new section 74AA, a person who is a liable
entity for a particular financial year, is required to provide a report
under new section 22A, and whose gross emissions exceed the relevant level
specified in regulations, will be subject to a mandatory audit process.
A failure to comply with the audit requirements carries a civil penalty,
in the case of a corporation, of up to 1,000 penalty units ($110 000).
New section 74B enables the Authority to require a non-group entity
(individual) who they suspect of not complying with that Act to appoint
a registered greenhouse and energy auditor. Further, this section gives
the Authority the power to require that an audit of the non-group’s operations
be carried out by that appointed auditor.
New section 74C of the NGER Act allows the Authority to appoint
a greenhouse gas and energy auditor without the need to hold a suspicion
of non-compliance.
The synthetic greenhouse gases are hydrofluorocarbons (HFCs), perfluorocarbons
(PFCs) and sulphur hexafluoride (SF6). These gases have a much
greater global warming potential per tonne than carbon dioxide (CO2)
(ranging from 1000 to 23 000 times more potent over a 100–year timeframe).
Emissions of many of these gases have been rapidly increasing, as they
are used as substitutes for ozone–depleting substances controlled under
the Montreal Protocol. They are used or produced in numerous industrial
processes, mainly as:
- refrigerants for refrigeration and air conditioning equipment
- foam–blowing agents for some thermal insulation applications
- propellants in some aerosols
- extinguishing agents in some systems, and
- insulation gas in electrical switchgear.[4]
Item 199 inserts a definition of sulphur hexafluoride into section
7 of the Ozone Protection and Synthetic Greenhouse Gas Management Act
1989 (Ozone Act). This gas is one of the six greenhouse gases controlled
by the Kyoto Protocol and is covered by the CPRS scheme. Effectively this
gas is now included in the controls imposed by the Ozone Act.
Item 203 inserts new section 9A into the Ozone Act which
exempts synthetic greenhouse gases that are part of another manufactured
product, from regulation under that Act. Thus where these gases are part
of another manufactured product they are not covered under the CPRS scheme.
Item 217 inserts new section 46A into the Ozone Act that
requires manufacturers, importers and exporters of synthetic greenhouse
gases to give a report to the relevant Minister within 15 days of the
end of the relevant quarter in which these action took place, if:
- such actions were not in circumstances covered by regulations made
under paragraph 13(1A)(b) of the Ozone Act, and
- in the case of an importer the above criteria did not apply and the
import was not covered by paragraph 68(1)(d) of the Customs Act 1901.
There is no requirement for the Minister to make these reports available
to the Parliament.
Paragraph 13(1A)(b) of the Ozone Act allows the manufacture, import and/or
export of synthetic greenhouse gases, where it takes places in these circumstances,
to be prescribed in regulations.
Paragraph 68(1)(d) covers goods that are accompanied or unaccompanied
personal
or household effects of a passenger, or a member of a crew, of a ship
or aircraft.
Thus, amounts of synthetic greenhouse gases covered by the Ozone Act
imported as personal luggage are covered by the provisions of the Ozone
Act. Given the very high unit value of some of these gases it may have
been possible to profitably import an amount of these gases as personal
luggage and not had these imports covered by this Act, or regulated by
the CPRS Scheme, but for this particular provision.
Item 1 of Schedule 2 inserts subsection 9-10(3B)
into the A New Tax (Goods and Services Tax) Act 1999 (GST Act).
The effect of this amendment is that the supply of an eligible emissions
unit of a Kyoto Unit is a supply of a personal property right under tax
legislation and therefore subject to the Goods and Services Tax (GST).
Briefly, liability for GST arises where a registered business supplies
goods or services to its customers. The GST is imposed at the rate of
10 per cent. Typically, it is included in the price paid by the recipient
of the goods and services. The supplier must account for the amount of
GST to the Australian Taxation Office.
If the recipient of goods or services is a registered business entity,
it will normally be able to claim a credit for the amount of GST it has
paid, provided it holds a tax invoice. This credit — called an input tax
credit — is offset against any GST on goods or services that the recipient
supplies to its own customers.[5]
The application of GST to AEUs and Kyoto units is controversial. The
following comment from the Taxation Institute explains some of the major
concerns:
The GST is proposed to be applied to trading in emissions
units. This approach is based upon the mistaken belief that an emissions
unit is akin to any other business input (eg a piece of steel) and that
consistency of treatment with other inputs is more important than any
compliance costs imposed on consumers. The Government also believes
that the reduction in compliance costs to the community in respect of
the trading of emission permits “. . . would undermine the objective
of meeting Australia’s emissions reductions in a cost-effective way
by providing a preferential GST treatment for emissions units relative
to pursuing other ways of reducing emissions”. However, loading the
cost of emissions permits with inefficient and distortionary compliance
costs only reduces the efficiency of the Carbon Pollution Reduction
Scheme (CPRS). It should be the market price of the units that
encourages other ways of reducing emissions not compliance costs.
The problem is that an emissions unit will not be
traded like a piece of steel, where an order is sent to a supplier,
who some days later, delivers the steel. Rather, due to the design of
the scheme which discourages holding of emission units, the trades will
occur in high volumes (with in excess of 460 million permits available
to be traded), electronically, in split seconds by traders in a market
not dissimilar to the stock exchange or the futures market. Currently,
those finance trading markets do not apply GST to dealings in marketable
securities such as shares and options.[6]
Clause 5 of the CPRS Bill defines a Kyoto unit to mean:
- an assigned amount unit (AAUs)
- a certified emissions reduction unit (CER)
- and emissions reduction unit (ERU)
- a removal unit (RU), or
- a prescribed unit issued in accordance with the Kyoto rules.
The first four of these units arise under the current Kyoto
Protocol. AAUs will not be accepted for CPRS purposes. An unlimited number
of CERs will be accepted for CPRS purposes. However, some conditions apply
to the acceptance of ERUs and RUs for CPRS purposes. The last dot point
refers to any future type of unit issued under the Kyoto Protocol, or
its successor.
Items 3 and 4 insert a reference to the definition of an
eligible emission unit and a Kyoto Unit in the CPRS Bill, into section
195-1 of the GST Act.
Item 6 ensures that an eligible emission unit and a Kyoto unit
are not ‘real property’ for GST purposes.
Item 10 inserts new section 70-12 into the
Income Tax Assessment Act 1997 (ITAA97). The effect of this new
section is that a registered emissions unit is not trading stock for taxation
purposes. This does not mean that these units cannot be traded.
A registered emissions unit is defined in new section
420-10 (see Item 19 of Schedule 2) as either an eligible
emissions unit or a Kyoto Unit for CPRS purposes that is entered in the
relevant register maintained by the Authority.
Section 70-10, ITAA97 defines trading stock as anything produced, manufactured
or acquired that is held for purposes of manufacture, sale or exchange
in the ordinary course of a business. As noted above, this category does not include the
holding of a registered emissions unit. The special rules applying to
the taxation treatment of trading stock in the income tax legislation
do not apply to these units. The following noted amendments however do
establish a taxation regime applying to registered emissions units.
Item 15 inserts section 104-205 into the ITAA97.
This section defines a new CGT event K1 in relation to an international
emissions unit and defines the amount of capital gain or loss in relation
to that unit.
Item 45 inserts the definition of the term international emissions
unit into sub-section 995(1) ITAA97. Briefly, this term is defined as:
- (a) a Kyoto unit (see above discussion) or
- (b) a non-Kyoto international emissions unit.
Clause 5 of the CPRS Bill defines this latter term
to be either (a) a prescribed unit issued in accordance with an international
agreement (other than the Kyoto Protocol) or (b) a prescribed unit issued
outside Australia under a law of a foreign country. An example of the
latter units are the emissions permits issued under the European Union
Emissions Trading Scheme. For the moment, these latter units are not accepted
for CPRS purposes.
Item 17 inserts section 118-15 into the ITAA97. This new
section exempts capital gains and capital losses made from a registered
emissions unit from the capital gains tax provisions of this Act. However,
this does not mean that income and losses from this source are not assessed
at all (see Item 19 following).
Item 19 of this Schedule inserts new Part 3-50
into the ITAA97. Generally, this Part sets out the taxation arrangements
for gains or losses arising from the acquisition and disposal of registered
emissions units.
As noted above new section 420-10 defines what a
registered emission unit is for taxation purposes.
New section 420-15 allows the deduction of expenditure
incurred in becoming a holder of registered emissions units, except where:
- they were provided free of charge to the holder under the Emissions
Intensive Trade Exposed assistance program or assistance to the coal
fired power generators (new subsection 420-15(3))
- provided as a result of reforestation activities (new subsection
420-15(4)
- provided as a result of the destruction of synthetic greenhouse gases
(new subsection 420-15(5)), or
- if the sale proceeds of that unit would not be assessable for taxation
purposes (new subsection 420-15(6)).
The expenses incurred in ceasing to hold a registered emission
unit are also deductible under new section 420-42.
New section 420-25 includes the gross amount received on
the disposal of a registered emission unit in a person’s or entity’s assessable
income. As noted earlier, the expenditure incurred in becoming the holder
of these units, as well as disposing them, is tax deductible.
The increase and decrease in the value of registered emissions units
held over an income year, is also included in a person’s or entity’s taxable
income under new section 420-45.
This approach is unusual. Usually, a person or entity would have either
the gains or losses arising from the disposal of an asset assessed only
when that asset was sold. The proposed measure in this section would include
the unrealised gains or losses of registered emissions units held over
an income year in the entity’s assessable income. The unrealised gains
would be assessable, but not representative of a real increase in the
entity’s income for that period. This may lead to the entity paying tax
on assessed income they have, in fact, not yet realised.
Concluding
comments
One of the key foundations of any emissions trading scheme is the accurate
collection and dissemination of information on emissions and liability
for those emissions. Without this information liability entities, and
the regulators, cannot accurately administer such schemes. The proposed
changes in the CPRS Consequentials Bill require the collection and dissemination
of this information. If the CPRS scheme is to commence the amendments
in this Bill are essential to its successful operation.
Further, this Bill sets out the taxation treatment of gains and losses
arising from the acquisition, holding and disposal of registered emissions
units. Again, these are vital legislative provisions and must proceed
through Parliament if the main CPRS Bill also passes through Parliament.
Leslie Neilson
29 October 2009
Bills Digest Service
Parliamentary Library
© Commonwealth of Australia
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