Professional
Updates
ENVIRONMENT LAW
Government releases Carbon
Pollution Reduction Scheme
exposure draft legislation
By Grant Anderson, Partner, Allens Arthur Robinson
• Responsibility for ‘executive officers’ to
ensure compliance or risk personal
liability; compliance programs to form
defence against liability
• Corporations Act to be amended to
recognise emissions units as financial
products
•
• Emissions trading regime to be overseen
by Australian Climate Change
Regulatory Authority
•
O
n 10 March 2009, the Federal Government
released exposure draft legislation for its
proposed Carbon Pollution Reduction Scheme
(CPRS). While the draft legislation is extensive and
submissions on it are due by 14 April, it closely
mirrors the proposals put forward by the
government in its White Paper, Australia’s Low
Pollution Future, released on 15 December 2008.
This article briefly describes the package of
legislation and particular points of interest arising
from it. It then looks at the registry arrangements
and the information disclosure requirements that
will facilitate carbon trading.
CPRS legislation package
The draft legislation comprises six bills.
• The Carbon Pollution Reduction Scheme Bill
(CPRS Bill) contains the principal components
of the scheme and implements the proposals
set out in the White Paper.
• The Australian Climate Change Regulatory
Authority Bill establishes the Australian
Climate Change Regulatory Authority. This
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body is to administer the CPRS and to assume
the functions of both the Greenhouse Energy
and Data Officer under the National Greenhouse
and Energy Reporting Act 2007 (NGERA) and the
Office of the Renewable Energy Regulator
under the Renewable Energy (Electricity) Act
2000.
The Carbon Pollution Reduction Scheme
(Consequential Amendments) Bill makes a
number of amendments to associated
legislation, including the NGERA, corporations
legislation and tax legislation.
The Carbon Pollution Reduction Scheme
(Charges — General) Bill, the Carbon Pollution
Reduction Scheme (Charges — Excise) Bill and
the Carbon Pollution Reduction Scheme
(Charges — Customs) Bill which, for
constitutional reasons, are structured as
separate bills to cater for the possibility that
the amounts payable for Australian Emissions
Units (AEUs) at auction or under the five-year
transitional price cap constitute a tax, customs
duty or excise duty. It is unlikely that the
CPRS does actually impose a tax and these
bills may be regarded as being proposed out of
an abundance of caution.
The government plans to introduce these bills
into Parliament in May 2009, with their passage
being achieved in June 2009 and the CPRS
commencing in 2010.
CPRS liability of unincorporated joint
ventures
Under the NGERA and the CPRS, liability to report
greenhouse gas emissions and to surrender AEUs
respectively is generally imposed on the ultimate
Australian holding company (or ‘controlling
corporation’) of the group that has ‘operational
control’ over the relevant facility.1 Where an
unincorporated joint venture (as opposed to an
operator of that joint venture) has operational
control over such a facility, the joint venturers will
be obliged to jointly nominate one of their
Emissions-intensive trade-exposed
number to be the responsible entity under the
activities
NGERA and the CPRS.2
The CPRS Bill contains little of the detailed
The effect of such a nomination is that the
framework that is necessary to support the
nominated joint venturer (or its controlling
provision of assistance to emissions-intensive
corporation, if there is one) will be liable to report
trade-exposed activities. However, the
the joint venture’s greenhouse gas emissions (and
commentary that accompanies the CPRS Bill
energy production and consumption) under the
reiterates the principal White Paper proposals
NGERA and to surrender the
regarding this assistance scheme, and
AEUs required to cover the joint
these are expected to be incorporated
venture’s greenhouse gas
in regulations (rather than
‘Executive officers’ of a
emissions under the CPRS.
legislation).
If no nomination is made,
company that fails to
On 18 February 2009, the
not only will all the joint
government released a guidance paper
venturers be subject to a
comply with certain
that requested industry participants to
pecuniary penalty, but they will
provide it with information required
requirements under
also each be liable to fulfil the
for the government to determine the
reporting and AEU surrender
the CPRS may incur
eligibility of activities for assistance on
obligations attaching to the joint
the basis that they are emissionspersonal liability
venture’s activities. While the
intensive and trade-exposed. The
commentary accompanying the
where they knew that
information given in response to this
draft legislation suggests that
guidance paper will also be taken into
(or were reckless or
liability under the CPRS will be
account in formulating the
apportioned among the joint
negligent as to
regulations.
venturers, this is not reflected in
the draft legislation (although it
Anti-avoidance measures
whether) the
will be incorporated in the final
The CPRS Bill contains broad anticontravention would
legislation). However there is a
avoidance provisions, which apply
strong argument that such
occur, were in a
with effect from 15 December 2008
liability should in fact be
and are directed at entities that
position to influence
apportioned as between joint
structure their activities in such a way
venture participants on the basis
the company’s
as to fall below the applicable liability
of their participating interests in
thresholds for the purpose of avoiding
the joint venture, rather than
conduct, and failed to
liability under the CPRS.4
equally.
take reasonable steps
Requiring the nomination of
Officers’ liability
one joint venturer who is to
to prevent the
‘Executive officers’ of a company that
assume the joint venture’s entire
fails to comply with certain
contravention.
CPRS and NGERA liability is a
requirements under the CPRS may
substantial change from the
incur personal liability where they
existing NGERA provisions,
knew that (or were reckless or
which are designed to encourage, but not compel,
negligent as to whether) the contravention would
joint venturers to nominate a responsible entity as
occur, were in a position to influence the
the reporting entity.3
company’s conduct, and failed to take reasonable
Transfer of costs and liabilities
steps to prevent the contravention.5 For these
purposes an ‘executive officer’ is defined to mean
The CPRS Bill does not provide for the pass
a director, chief executive officer, chief financial
through of carbon costs, but does provide for
officer or secretary of the company. A compliance
limited statutory mechanisms under which CPRS
program will be an important part of establishing
liabilities (and therefore costs) can be transferred
an executive officer’s defence against such
by a liable entity. These mechanisms take the
liability.6
form of a liability transfer certificate, under which
a liable entity can transfer its CPRS liability either
Amendments to the NGERA
to a subsidiary or to an unrelated entity that has
The NGERA will be amended in a number of
financial control over the emitting facility, and an
respects so as to complement and support the
obligation transfer number scheme, under which
CPRS; for example, by accommodating both
a supplier of fossil fuels can transfer its CPRS
onshore and offshore carbon capture and storage
liability to a purchaser of those fuels.
activities.
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Professional
Updates
ENVIRONMENT LAW continued
However, there will also need to be extensive
amendments to the regulations and measurement
determination that have already been made under
the NGERA. In addition, the government has yet
to draft amendments to the NGERA to
accommodate matters such as the reporting
obligations and thresholds for facilities to which a
liability transfer certificate applies.
Amendments to other legislation
Both the Corporations Act 2001 and the Australian
Securities and Investments Commission Act 2001 will
be amended to recognise AEUs and eligible
international emissions units as ‘financial
products’ and therefore make them subject to
financial services regulation under those Acts.
However, the government acknowledges that
the application of the financial services regime to
these units will need to be amended to
accommodate both their peculiar characteristics
and associated compliance issues. The
government will develop these amendments in
consultation with stakeholders.
Emissions registry and trading
AEUs will be issued by the Australian Climate
Change Regulatory Authority (ACCRA), with each
such AEU being allocated a unique identification
number and referable to a particular year (its
‘vintage year’) (except where an AEU is being
borrowed, an AEU can only be surrendered to
cover greenhouse gas emissions emitted in its
vintage year or a later year). To be issued an AEU,
a person must have an account in the electronic
National Registry of Emissions Units so that the
ACCRA can issue AEUs to that person by making
an entry for that AEU in the person’s Registry
account. The holder of an AEU can then transfer
that AEU by giving the ACCRA an electronic
instruction to transfer the AEU to another person
(who must also have a Registry account so that
the AEU can be transferred to that account).7
The CPRS legislation will not of itself establish
a market in which AEUs can be traded, although
it provides for the regulation of such markets by
classifying AEUs as ‘financial products’ (see
above). While trading in AEUs is an important
component of a cap and trade scheme such as the
CPRS, the necessary markets (whether they are
bilateral as in the case of over-the-counter markets
or multilateral as in the case of exchange-based
markets) are expected to develop naturally as a
result of the number of AEUs on issue being less
than the greenhouse gas emissions that need to be
covered.
However, the provision of timely and accurate
information is critical for such markets to operate
efficiently. A contribution to this is the electronic
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A P R I L 2 0 0 9 K E E P I N G G O O D C O M PA N I E S
Liable Entities Public Information Database,
which will contain details of each entity that is
liable under the CPRS, including the greenhouse
gas emissions (in tonnes of carbon dioxide
equivalent) for which the entity must surrender
AEUs or eligible international units, its unit
shortfall (if any) for a year, any penalty payable by
the entity in respect of a unit shortfall, and the
number and type of units the entity surrenders
each year to meet its CPRS obligations.
The ACCRA must also publish separately:
• a list of the names and contact details of
Registry account holders
• AEU auction information, including prices
paid and quantities sold
• the number of AEUs issued under the five-year
transitional price cap
• details of the recipients of free AEUs under the
emissions-intensive trade-exposed assistance
scheme, under the coal-fired electricity
generation assistance scheme, and for
reforestation and synthetic greenhouse gas
destruction (including the total number and
vintage of AEUs issued for these purposes)
• the number of banked and borrowed AEUs
that are surrendered each year and
• details of Kyoto units recorded in the Registry.
In addition, where a corporate group (or other
entity) holds five per cent or more of the AEUs of
a particular vintage (or ceases to hold that
amount), the controlling corporation of the group
(or that other entity) must notify the ACCRA
which will then publish that notice.
This information is in addition to that which
is available under the national greenhouse and
energy reporting scheme.
Grant Anderson can be contacted on (03) 9613 8928
or via email at [email protected].
Notes
1
The main exception to this approach is upstream fossil
fuel suppliers who, while not combusting that fuel and
emitting greenhouse gases, are nevertheless liable to
surrender AEUs to cover those emissions except to the
extent that liability has been transferred to purchasers of
that fuel under the obligation transfer number scheme
2
Partnerships are treated in the same way as
3
See also Barton C, 2008, ‘NGER — contract law and
unincorporated joint ventures
responsibility for reporting’, Keeping good companies,
Vol 61 No 2, pp 107–109
4
CPRS Bill, clauses 23 and 30
5
CPRS Bill, clause 324
6
CPRS Bill, clause 325
7
AEUs that are required to be surrendered to meet an
obligation under the CPRS must likewise be surrendered
by an electronic instruction given to the ACCRA G