Chapter 1 - Introduction
Referral of the bills
On 20 September 2012, the Selection Committee referred the following
bills to the House of Representatives Standing Committee on Economics (the
committee) for inquiry and report:
- Clean Energy
Amendment (International Emissions Trading and Other Measures) Bill 2012;
- Clean Energy
(Charges—Excise) Amendment Bill 2012;
- Clean Energy
(Charges—Customs) Amendment Bill 2012;
- Excise Tariff
Amendment (Per-tonne Carbon Price Equivalent) Bill 2012;
- Ozone Protection and
Synthetic Greenhouse Gas (Import Levy) Amendment (Per-tonne Carbon Price
Equivalent) Bill 2012;
- Ozone Protection and
Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Per-tonne Carbon Price
Equivalent) Bill 2012; and
- Clean Energy (Unit
Issue Charge—Auctions) Amendment Bill 2012.
These bills will be referred to as the Clean Energy Amendment Bills in
Origins of the bills
In November 2011, the Australian Parliament passed the Clean Energy
Legislative Package. The package introduced a carbon pricing mechanism to
reduce Australia's carbon pollution and move to a clean energy future. The
design of the Government’s climate change plan has been the subject of
considerable public debate and policy development. The Joint Select Committee on
Australia’s Clean Energy Future Legislation examined the package in 2011 and
noted that ‘the science of climate change and climate change mitigation policy
have been subject to extensive review and inquiry’.
The Australian Government announced on 10 July 2011 that its plan to
address climate change would include putting a price on carbon. Australia will
move from a fixed carbon price to an emissions trading scheme. The price of
each tonne of carbon pollution commenced at $23 on 1 July 2012 for a fixed three
year period. From 1 July 2015, a cap and trade emissions trading scheme will
come into effect.
In the Government’s initial plan, the carbon price mechanism was to
include a price floor of $15 a tonne to commence on 1 July 2015, and rise at
four per cent in real terms each year. This would mean that the carbon price
could not fall below that level. It was intended ‘to reduce the risk of sharp
downward movements in the price, which could undermine long‑term
investment in clean technologies’. The Clean Energy
Legislative Package made provision to ‘implement the price floor by combining a
minimum auction reserve price for domestic carbon units with a surrender charge
for international units’. It was intended that the
surrender charge would be based on the estimated international price for a unit
class and the floor price.
In January 2012, the Department of Climate Change and Energy Efficiency (DCCEE)
sought public comment on its discussion paper Price floor for Australia’s
carbon pricing mechanism: Implementing a surrender charge for international
units. The discussion paper covered four options for implementing the
surrender charge on international units.
On 28 August 2012, in a joint media release, the Australian Minister for
Climate Change and Energy Efficiency, the Hon Greg Combet AM MP, and the
European Commissioner for Climate Change, Ms Connie Hedegaard, announced
linking the Australian and the European Union emissions trading schemes.
The European Union Emissions Trading System (EU ETS) commenced operation
in 2005 and is a mandatory scheme that covers the 27 member states of the
European Union (EU), and Norway, Iceland and Liechtenstein.
It is planned that a full two-way link for carbon emissions trading should
commence by 1 July 2018, which would allow businesses in Australia and Europe
to use carbon units from either scheme to comply with their respective carbon pollution
obligations. In the interim period, from 2015 Australian businesses will be
able to use EU allowances to meet their obligations under the Australian scheme.
The Minister announced that:
To facilitate linking, the Australian Government will make
two changes to the design of the Australian carbon price. These are that:
- the price floor will
not be implemented
- a new sub-limit will
apply to the use of eligible Kyoto units. While liable entities in Australia
will still be able to meet up to 50 per cent of their liabilities through
purchasing eligible international units, only 12.5 per cent of their
liabilities will be able to be met by Kyoto units.
The result of these arrangements is that Australia’s carbon price will
reflect that in the EU ETS and be consistent with at least 30 other countries.
The seven bills referred to the committee build on the existing Clean
Energy legislative framework and according to the Explanatory Memorandum:
The amendment bills package makes provision for the linking
of the Australian carbon pricing mechanism with overseas emissions trading
schemes, including the EU ETS. The amendments are designed to enable the
Government to make and implement arrangements to link with a variety of
schemes, and are therefore designed to provide appropriate flexibility for the
Government in implementing these technical arrangements.
Provided below is an overview of the amendments and the
Overview of the amendments
The proposed amendments related to linking with overseas emissions
trading schemes, include:
- the use of eligible international
emissions units for compliance under the carbon pricing mechanism;
- registry amendments
to facilitate indirect linking;
- removal of the price
- equivalent carbon
pricing for liquid fuels and synthetic greenhouse gases.
Other amendments include:
- advance auctions of
- changes to the
treatment of relinquished carbon units;
- changes related to
measuring and adjusting amounts of fuels to ascertain potential greenhouse gas
- changes to the
treatment of some natural gas supply and use arrangements; and
- changes to the Opt-in
Scheme eligibility test.
Financial impact of the amendments
The Explanatory Memorandum stated that the amendments ‘are not
anticipated to have a financial impact’. The 2012-2013 Budget set
out carbon price projections based on Treasury modelling in the Strong
Growth, Low Pollution report. According to the Explanatory
... there would be no impact on domestic carbon prices of
establishing a partial link to the EU ETS under these interim arrangements.
This is because the international carbon price is projected to be above the
price floor and because the projections assume a single international unit
price and do not distinguish between Kyoto unit and European allowance unit
When addressing possible market price differences between Australian
units and EU and Kyoto units, the Explanatory Memorandum stated:
On balance, the advantages of providing liable entities with
access to another secure source of international units, greater effective assistance
to recipients of free permits and reduced administrative complexity outweigh
Overview of the bills
Clean Energy Amendment (International Emissions Trading and Other Measures)
The Clean Energy Amendment (International Emissions Trading and Other
Measures) Bill 2012 will amend the Clean Energy Act 2011 to:
- facilitate linking
Australia’s emissions trading scheme and the EU ETS;
- remove the floor
price for carbon units;
- limit the use of
Kyoto units to 12.5 per cent of an entity’s liability;
- provide for the
calculation of an equivalent carbon price that reflects liable entities’ cost
of compliance under the arrangement;
- prevent units being
issued at auction more than three years in advance of their vintage year (the
first year from which the unit can be surrendered);
- change the treatment
of relinquished carbon units, by cancelling a relinquished carbon unit rather
than transferring it to the Commonwealth relinquished units account—the
Regulator will issue a new carbon unit if the vintage year is a flexible charge
- allow regulations to
be made to determine how specific circumstances relating to the supply and use
of natural gas are treated.
The amendments will also increase the limit on ‘advance auctioned’
carbon units from 15 million to 20 million to be auctioned in the financial
year before their vintage year, if no carbon pollution cap has been set for
that vintage year. In 2013-2014, up to 40 million carbon units of the 2015‑2016
vintage can be auctioned if no carbon pollution cap has been set for 2015-2016.
The bill also amends the Australian National Registry of Emission
Units Act 2011 to:
- enable European
allowance units to be held in the Australian National Registry of Emissions
Units (ANREU), and used for compliance purposes under the Clean Energy Act; and
- in the event that a
direct link with a foreign emissions trading scheme, including the EU ETS, is
not possible, to enable the Clean Energy Regulator to issue Australian-issued
international units which correspond to foreign emissions units withdrawn from
circulation within the relevant foreign registry, and which can be used for
compliance purposes under the Clean Energy Act.
The Clean Energy Legislation Package provided that gaseous fuels would
be subject to an equivalent carbon price through the fuel tax system. The bill
amends the Fuel Tax Act 2006 to adjust the calculation of the equivalent
carbon price to ensure that it remains equivalent to the effective carbon price
for liable entities under the carbon pricing mechanism.
These amendments aim to ensure that the equivalent carbon price applied
to liquid fuels and synthetic greenhouse gases will reflect the impact of
quantitative limits on the surrender of eligible international units.
The Explanatory Memorandum stated:
In making these changes, it is also necessary to ensure that
the equivalent carbon price paid by users of liquid fuels and synthetic
greenhouse gases is more clearly reflective of the carbon price under the
linking arrangements. To this end, the application of an equivalent carbon
price is amended in the Fuel Tax Act, the Excise Tariff Act, the SGG (Import)
Act and the SGG (Manufacture) Act to introduce a new concept: the ‘per-tonne
carbon price equivalent’.
The other significant amendment in the bill is to repeal the Clean
Energy (International Unit Surrender Charge) Act 2011, which imposes a charge
for surrender of an eligible international emissions unit during the eligible
financial years from 2015 to 2017. The references to the surrender charge in
the CE Act will also be removed. These changes will remove the price floor completely
from the Clean Energy Legislative Package.
The bill also amends the National Greenhouse and Energy Reporting Act
2007 (NGER Act) to provide the Minister for Climate Change and Energy
Efficiency the power to determine the measurement methods and to adjust the
amounts of designated fuels for the purposes of ascertaining potential
greenhouse gas emissions.
Sections 1, 2 and 3 commence on the date the bill receives the Royal
Assent. Schedule 1, Parts 1 and 3, which make general amendments to the ANREU
Act and the CE Act, will commence on the day after the bill receives the Royal
Schedule 1, Part 2, which makes amendments relating to fuel to the CE
Act and the NGER Act, will commence on 1 July 2013. The amendments to the NGER
Act made by this Part apply to reports relating to the 2012‑2013
financial year and all subsequent years.
The other related bills make minor and technical amendments to give
effect to the substantive changes outlined above. These six related bills do
not contain any substantive provisions of their own.
These bills will be covered briefly below.
Clean Energy Charges Excise and Customs Bills
The Clean Energy (Charges—Excise) Amendment Bill 2012 and the Clean
Energy (Charges—Customs) Amendment Bill 2012 amend the Clean Energy
(Charges–Excise) Act 2011 and Clean Energy (Charges–Customs) Act 2012,
respectively, to facilitate the removal of the price floor.
These bills repeal the definition of ‘eligible international emissions
unit’ and make changes to the ‘reserve charge amount’ in relation to auctions
for emissions units, removing the requirement for a minimum auction reserve
charge. The changes include providing that the Minister may determine, by
legislative instrument, the reserve charge amount in relation to a specified
The first schedule in both bills will take effect at the same time as Part
1 of Schedule 1 to the Clean Energy Amendment (International Emissions
Trading and Other Measures) Act 2012. The remainder of the bills take
effect the day the Act receives the Royal Assent.
Excise Tariff Amendment (Per-tonne Carbon Price Equivalent) Bill 2012
The Excise Tariff Amendment (Per-tonne Carbon Price Equivalent) Bill
2012 amends the Excise Tariff Act 1921 to introduce the new category of
‘per-tonne carbon price equivalent’ and set the parameters for its calculation.
This provides that the per-tonne carbon price equivalent, instead of the
average carbon unit auction price, is applied to liquid fuels.
Schedule 1 takes effect immediately after the commencement of Part 1 of
Schedule 1 to the Clean Energy Amendment (International Emissions Trading
and Other Measures) Act 2012. All other sections
of the bill take effect the day that Act receives the Royal Assent.
Ozone Protection and Synthetic Greenhouse Gas Import and Manufacturing levy
Synthetic greenhouse gases listed under the Kyoto Protocol have an
equivalent carbon price applied through the Ozone Protection and Synthetic Greenhouse
Gas Management legislation.
The Ozone Protection and Synthetic Greenhouse Gas (Import Levy)
Amendment (Per-tonne Carbon Price Equivalent) Bill 2012 amends the Ozone
Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995. The Ozone Protection
and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Per-tonne Carbon
Price Equivalent) Bill 2012 amends the Ozone Protection and Synthetic
Greenhouse Gas (Manufacture Levy) Act 1995.
The amendments in these bills repeal the definition of ‘benchmark
average auction charge’ and introduce a ‘per-tonne carbon price equivalent’.
They provide that the per-tonne carbon equivalent is applied to the import and
manufacture of synthetic greenhouse gas.
The effect of the amendments is to adjust the calculation of the
equivalent carbon price to ensure that it remains clearly equivalent to the
effective carbon price for liable entities under the scheme.
The first schedule in both bills will take effect immediately after the
commencement of Part 1 of Schedule 1 to the Clean Energy Amendment
(International Emissions Trading and Other Measures) Act 2012. All other
sections of the bills take effect the day that Act receives the Royal Assent.
Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012
The Clean Energy (Unit Issue Charge—Auctions) Amendment Bill 2012 amends
the Clean Energy (Unit Issue Charge—Auctions) Amendment Act 2011 to
remove the requirement for a minimum auction reserve price.
Schedule 1 takes effect at the same time as Part 1 of Schedule 1 to the Clean
Energy Amendment (International Emissions Trading and Other Measures) Act 2012.
The remainder of the bill takes effect the day that Act receives the Royal
On 31 August 2012, the Government released the document Implementing
links to overseas emissions trading schemes – Draft legislation.
It included the draft legislation of the Clean Energy Legislation Amendment
(International Emissions Trading and Other Measures) Bill 2012 and the six
related bills. The purpose of this document was to inform stakeholders about
the implementation of the Government’s commitment to link Australia’s scheme
with the EU ETS, as announced on 28 August 2012, and to also provide a
legislative framework to link to other overseas emissions trading schemes in
The Government indicated that the legislation would be introduced in the
2012 Spring Parliamentary sitting period, and provided stakeholders with the
opportunity to comment on the draft legislation.
The Government held several public consultation sessions, including in
Sydney, Melbourne and Canberra, and received 20 submissions on the draft
Objective and scope of the inquiry
The objective of the review is to scrutinise whether the bills in their
current form will deliver their policy intent. In referring the bills, the
Selection Committee stated:
REASONS FOR REFERRAL/PRINCIPAL ISSUES FOR CONSIDERATION:
The domestic economic implications of abolishing the floor
price and linking the emissions trading scheme to the EU scheme.
The purpose of this report is to identify and address matters
surrounding the provisions of the Clean Energy Amendment Bills 2012. This
report does not canvass the broader policy questions around the merits of a
carbon price, which have been the subject of widespread public debate, or the
existing clean energy laws, which were scrutinised by the Joint Select
Committee on Australia’s Clean Energy Future Legislation.
The report focuses on the provisions of the amendment bills, and in particular,
upon the four central outcomes proposed by the bills, namely:
- the linking of
Australia’s carbon trading scheme with international schemes, including the EU
- the removal of the
- the limits placed on the
use of international carbon units to discharge an emitter’s liability; and
- the treatment of
natural gas supply and use.
Conduct of the inquiry
Details of the inquiry were placed on the committee’s website. A media
release announcing the inquiry and seeking submissions was issued on Friday, 21
Twelve submissions and two exhibits were received. They are listed at
A roundtable public hearing was held in Canberra on Thursday,
27 September 2012. A list of the witnesses who appeared is in Appendix B.
The submissions and transcript of evidence are available on the committee’s
website at: http://www.aph.gov.au/house/committee/economics/index.htm.