Carbon update: Pricing perils and project opportunities

Environment eBulletin - 10 July 2014

Summary

Now that the new financial year is underway, organisations should be aware of changes to Federal climate change legislation that may affect their business in 2014/2015.

The key change is the repeal of national climate change regulation (which most of us know as "the carbon tax"). This is to be replaced with a new emissions reduction fund (ERF).

As a result of the change, there are potential pitfalls for organisations to be aware of, particularly around pricing of goods and services between 1 July 2014 and the date of repeal of the carbon tax. Although there is currently some confusion about how and when the repeal of the national climate change legislation will happen, the legislation is intended to have retrospective effect from 1 July 2014 onwards. Therefore, it is important that organisations plan for the changes now. There are also continuing legal obligations for emissions and energy reporting, and greenhouse gas management, which organisations must continue to comply with.

Planning for the changes to climate change legislation could give your organisation a competitive advantage, especially for those who could profit from participation in the new funding opportunities under the ERF.

The Federal government is also currently conducting a review of Australia's Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 and related legislation, so if your business uses, manufactures or imports synthetic greenhouse gases, such as SF6, the review may provide an opportunity for you to shape the legislation that directly affects your organisation.

 

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Regulatory risk: compliance with carbon pricing

The key change for business is the repeal of the clean energy legislation that underpins the carbon tax. The proposed repeal of that legislation is designed to ensure that the carbon tax is abolished from 1 July 2014.

On repeal, organisations will no longer have to comply with the purchase and acquittal of emissions credits under the carbon tax scheme. In addition, the industry assistance provided under the Jobs & Competitiveness Program, the Energy Security Fund and the Steel Transformation Plan will cease.

The repealing legislation is intended to have retrospective effect from 1 July 2014 onwards. There will be a gap, however, between 1 July 2014 and the repeal date in which businesses must price their goods and services, without certainty over the repeal date. This creates potential confusion, with risks of under or over pricing.

Overpricing and, indeed, any pricing decisions carry significant risks, as the Australian Competition & Consumer Commission has been specifically tasked to pursue organisations that deliberately or even inadvertently mislead customers about their pricing or attempt to make windfall gains as a result of the carbon tax repeal. As such, any organisation that prices goods and services with a carbon component should develop a strategy to ensure compliance with the changing regime. This is particularly true for entities in the energy and waste sectors whose existing price model reflects a carbon component attributable to carbon tax compliance.

It's important to remember that in spite of the changes to the clean energy legislation, many compliance obligations will continue as normal, such as obligations under the National Greenhouse and Energy Reporting Act (NGERS).

 

Opportunity: Emissions Reduction Fund

In addition to navigating compliance on pricing and reporting, your organisation should consider what opportunities may arise through participation in the ERF, as this is the central mechanism for emissions reductions in the Australian Government's Direct Action Plan. The ERF is intended to satisfy Australia's international emissions reduction obligations by procuring emissions reduction credits directly from Australian businesses, organisations and individuals.

ERF funding will be open to any proposal that meets certain preconditions and can promise to deliver emissions reductions within the required timeframe. If you are interested in participating, your organisation should start by identifying existing and pipeline projects in areas such as energy efficiency improvement, small projects that could be aggregated under one method, or parcels of land that may support a land-based project.

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Opportunity: Ozone management legislation review - consultation ends 18 July 2014

 Australia's Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 and related Acts are currently under review.

Organisations that import, manufacture or use synthetic greenhouse gases, such as SF6, know that the compliance regime is complex and, at times, inconsistent. If your business is affected by this legislation, you may wish to use the opportunity of the review to shape future legislation by providing feedback on the scheme.

The Department of Environment invites written submissions on the Terms of Reference for the review from all interested businesses and members of the community. Submissions close on 18 July 2014.

 

Bottom line for risk or environment managers

  • Understand your interim and ongoing compliance obligations with regard to NGERs, and competition and consumer laws and seek legal advice if you are unsure of your obligations at any point in time.
  • Develop and implement a strategy for pricing goods and services and communicating price changes to customers.
  • Implement financial systems to enable compliance on pricing and make provision for claims and refunds as necessary.
  • Explore opportunities to participate in the ERF through energy efficiency projects or land-based projects.
  • Consider making a submission on the Terms of Reference for the current review of the ozone protection and synthetic greenhouse gas management legislation.

Author
Gabrielle Guthrie, Senior Associate

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All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

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