In the lead up to the 2013 election, the Coalition promised to repeal the carbon tax and take direct action on climate change. Agribusiness expected to benefit from both reforms. Firstly, the repeal of the carbon tax would reduce costs. Secondly, direct action would offer the opportunity to invest in areas such as carbon farming. With the Abbott government now more than a year old, let’s take stock of what has become of the promises.
On 17 July 2014 the government succeeded in repealing the carbon tax and backdated its effect to 1 July 2014. The government predicted that the repeal would result in the average energy costs for Australian businesses being lower than they otherwise would be in 2014-15. In the agribusiness sector, this was likely to be achieved through reduced direct and indirect costs.
The important thing to remember is that costs being lower than they otherwise would be is quite a different concept to energy costs actually falling. While the introduction of the carbon tax in 2009 coincided with a surge in energy prices, a 2012 Senate inquiry found that increased spending on network infrastructure (the so-called ‘gold plating of the network’) was responsible for much of the price jump. Indeed, Treasury estimates suggest that 51 per cent of the average energy bill is spent on network costs. So while the repeal of the carbon tax may see a reduction in energy prices, they are unlikely to return to pre-2009 levels.
Importantly, electricity and gas retailers are required by law to prepare a written statement that sets out an estimate of the costs saving attributable to the removal of the carbon tax. The ACCC is responsible for ensuring that all savings are passed along the chain.
The former Labor government created the Carbon Farming Initiative in 2011 as part of its action to address climate change. Carbon farming involves storing carbon in vegetation and soil through changes in agricultural practice and land management, with carbon farmers receiving carbon credits according to changes in the carbon levels of their soil. The credits can be onsold to businesses to reduce their carbon emission liabilities or to market themselves as ‘carbon neutral’.
The carbon tax repeal, however, cast a shadow over the future of carbon farming in Australia. Until late 2014 it appeared that both the market for carbon and the mechanism for pricing carbon units would be dismantled.
Carbon farmers were thrown a lifeline, though, in the form of amendments to the government’s direct action plan. The amendments, negotiated by independent Senator Nick Xenophon and the Palmer United Party, included:
- a safeguard mechanism to ensure that net emissions from major polluters do not exceed specified levels, with penalties for non-compliance
- neutral treatment of international carbon credits so that trading in international carbon credits may occur in the future, despite the current government’s position
- an 18 month grace period for the Climate Change Authority, during which time it will undertake a study of the effectiveness of emissions trading schemes and make recommendations.
The upshot for carbon farmers is that there may yet be a future for the sale of carbon credits in Australia. The legislation now leaves the door open for future governments to introduce trading in international carbon credits. More importantly, in the near term, carbon farmers will be able to sell their carbon credits through a $2.55 billion Emissions Reduction Fund. The Fund will purchase carbon credits through reverse auctions, with the first auction expected to occur in March 2015. It is worth noting that any new carbon farming projects registered after 1 July 2015 will have to comply with the Emissions Reduction Fund’s new eligibility rules.
Carbon farming remains a complex area. With many of these changes yet to take full effect, advice is recommended for those seeking to comply with the new regulatory framework.
Authors: Stephen Natoli and Michael Howard
William Khong, Partner
T +61 3 9321 9883
Alistair Salmon, Partner
T +61 2 8083 0467
Trent Taylor, Partner
T: +61 7 3135 0668
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed above.