Bills Digest no. 163 2008–09
Carbon Pollution Reduction Scheme (Consequential
Amendments) Bill 2009
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
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introduced: 14 May
House: House of Representatives
Portfolio: Climate Change and Water
Generally, at the same
time as section 3 of the Carbon Pollution Reduction Scheme Act
2009 (CPRS Act). This particular section commences on the 28th
day after the CPRS Act receives Royal Assent. However, the related
Acts have not themselves first received Royal Assent under by the
28 day, if the CPRS Act does not commence at all. These related
- Australian Climate Change Regulatory Authority Act
- Carbon Pollution Reduction Scheme (Charges Customs)
- Carbon Pollution Reduction Scheme (Charges-Excise) Act
- Carbon Pollution Reduction Scheme (Charges-General)
Act 2009, and
- Carbon Pollution Reduction Scheme (Consequential
Amendments) Act 2009 (this Bill ).
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 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.
commencement conditions for provisions of the CPRS Consequentials
2, Schedule 1 1 July 2011, and
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
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
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
- Australian Securities and Investments Commission Act
- Corporations Act 2001
- Financial Management and Accountability Act 2007
- National Greenhouse and Energy Reporting Act 2007
- Ozone Protection and Synthetic Greenhouse Gas Management
- Renewable Energy (Electricity) Act 2000
- Trade Practices Act 1974
- A New Tax System (Goods and Services Tax) Act
- Income Tax Assessment Act 1936
- Income Tax Assessment Act 1997, and
- Taxation Administration Act 1953.
The background to this Bill can be found in the Library s
Digest on the CPRS Act.
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
The exposure draft legislation for the CPRS, one of which is the
CPRS Consequentials Amendments Bill is also being considered under
broader terms of reference by the Senate Select Committee on
Climate Policy, which is due to report by 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 21 October 2009. Details of the inquiry are
Please refer to the Library s Bills Digest on the Carbon
Pollution Reduction Scheme Bill 2009.
The pros and cons of the proposed Carbon Pollution Reduction
Scheme were extensively discussed in the Library s Bills Digest on
the Carbon Pollution Reduction Scheme Bill 2009.
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.
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.
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
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
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
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
Items 98 to 194 amend the NGER
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
- new section 7B definition of a synthetic
- new section 7C definition of potential
greenhouse gas emissions embodied in an amount of eligible upstream
- 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,
- 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
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
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
Clause 5 of the CPRS Bill defines a provisional
emission number as:
- having the meaning given by Part 3 of that
- 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 section
74B into the NGER Act. This section 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
- foam blowing agents for some thermal insulation
- propellants in some aerosols
- extinguishing agents in some systems, and
- insulation gas in electrical switchgear.
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
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
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
personal or household effects of a passenger, or a member of a
crew, of a
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
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
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
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.
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
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
Clause 5 of the CPRS Bill defines a Kyoto unit
- 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
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
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
As noted above new section
420-10 defines what a registered emission unit is for
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
- provided as a result of reforestation activities (new
- 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
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
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.
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
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.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
16 June 2009
Bills Digest Service
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