PLANNING FOR CARBON REGULATION: THE AUSTRALIAN EXPERIENCE

• Jurisdiction: United States

Climate Change Law and Regulations: Planning for a Carbon-Constrained Regulatory Environment
(Jan 2015)
CHAPTER 11B
PLANNING FOR CARBON REGULATION: THE AUSTRALIAN EXPERIENCE
Allison Warburton ^*
Partner
Minter Ellison
Brisbane, Australia

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ALLISON WARBURTON is a Partner with Minter Ellison in Brisbane, Australia. Allison is the co-head of Minter Ellison's Australian climate change practice and is a leading private and government sector advisor across the energy, resources, and power generation industries. In 2013, Allison was awarded Best Lawyer in Energy and Resources at Euromoney's "Australasia Women in Business Law Awards," and she is listed as a leading lawyer in independent directories including Best Lawyers and Chambers. Allison has advised on climate change projects and on greenhouse compliance issues since the first legislative measure was introduced in Australia nearly 15 years ago. Her experience includes assisting on the Commonwealth Clean Energy Scheme, Mandatory Renewable Energy Target Scheme, National Greenhouse and Energy Reporting Scheme and Energy Efficiency Opportunities legislation, and Australian Renewable Energy Agency funding. Allison also deals in all aspects of upstream and downstream gas projects including joint operation agreements, farm-ins, transportation, offtake agreements, overlapping tenements, due diligence and LNG projects. Some long-standing clients include Rio Tinto, Anglo Coal, Stanwell Corporation, QGC, Pacific Aluminium, and AGL Energy.

SUMMARY

The defining characteristic of carbon policy in Australia to date has been one of uncertainty.

Although Australia has had a mandatory carbon emissions reporting regime since 2007, Federal Government policy on imposing a carbon price has vacillated with successive changes in political leaders and governments. Australia briefly had a national carbon tax from 2012 to 2014 but that has now been repealed and is being replaced with a voluntary emissions reduction auction scheme.

As well as these federal measures, Australia also has also seen a series of piecemeal state based carbon measures, some of which have come and gone in a period of less than ten years.

For companies operating in emissions intensive and energy intensive sectors, the impact of this ongoing uncertainty has been significant. The obvious impact has been on decisions about investment of capital but there have also been less obvious impacts on operational costs and resourcing levels required to respond to successive changes in carbon regulation.

This paper will consider how Australian businesses have prepared for carbon regulation in an environment of ongoing policy uncertainty. It will include a discussion of:

• how businesses responded to carbon regulation

• how they identified and assessed carbon regulatory risks in their commercial activities

• how they engaged with their industry representative organisations and government on carbon policy and legislation

• what lessons they learned from the experience

• some practical tips for businesses preparing for increased carbon regulation in the USA.

The Australian regulatory experience to date has focussed on mandatory carbon pricing to a much greater extent than other regulatory responses such as adaptation measures and planning controls. Accordingly, this paper will focus on carbon pricing regulation measures but it is noted that planning controls and other adaptation measures are now garnering increased attention in Australia.

BACKGROUND TO THE AUSTRALIAN REGULATORY EXPERIENCE

Australia, like many first world nations, has grappled with its policy response to climate change for well over a decade. The issue is a particularly difficult one for this country, with its relatively

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low population base, an economy that is heavily reliant on fossil fuels, and a range of industries that compete in a global market place. Political parties of both persuasions have struggled to develop carbon policies, which deliver real reductions in emissions but do not place too high an economic burden on industry.

For their part, Australian businesses have since the mid-2000s largely accepted that Australia would move to implement mandatory emissions reduction measures. During this period, many industry groups indicated that they would be willing to accept a carbon price provided they got certainty of policy, to allow them to plan investments going forward, and provided some degree of parity was maintained for those competing in international markets. Australian businesses got a carbon price, but in the end, no certainty.

The policy pendulum

The last decade has delivered the following Australian carbon policy initiatives:

• From the early 2000s, various State and Territory governments began to introduce a range of mandatory emissions reduction measures, some of which have since been discontinued, such as the NSW Greenhouse Gas Abatement Scheme and the Queensland Gas Electricity Certificate Scheme;

• In 2006/7, the State and Territory governments joined forces to introduce a National Emissions Trading Scheme (NETS), but subsequently abandoned the initiative after both major political parties committed to implement a national emissions trading scheme at the Federal level;

• In 2009/10, the Labor Federal Government attempted to introduce the Carbon Pollution Reduction Scheme (versions 1, 2 and 3). It was passed by the House of Representatives, but failed in the Senate several times and never made it into law;

• Later in 2010, the Labor Federal Government, under a new leader, gave a commitment that there would be 'no carbon tax' under that Government (although a trading scheme was not ruled out);

• In 2011, the Labor Federal Government succeeded in introducing the Clean Energy Act 2011, which implemented a mandatory measure comprising an initial fixed levy on carbon emissions across a broad range of industry sectors and a planned transition to a market based emissions trading scheme from mid-2015. This mechanism became colloquially known in Australia as 'the carbon tax' but is referred to in this paper as the Carbon Pricing Mechanism;

• In 2013, the Labor Federal Government, after another change of leader, committed to fast track the Carbon Pricing Mechanism's transition to an internationally linked emissions trading scheme from mid-2014. That proposal did not get legislated ahead of the 2013 Federal election;

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• After a change of government at the 2013 Federal election, the new LNP Coalition Federal Government committed to abolish the Carbon Pricing Mechanism and replace it with an alternate policy under the banner of 'Direct Action';

• In 2014, after much political wrangling, the LNP Coalition Federal Government succeeded in repealing the Carbon Pricing Mechanism and is in the process of implementing new legislation to give effect to its Direct Action policy. The key plank in that policy is the establishment of an Emissions Reduction Fund which will use government funds to acquire carbon abatement through a voluntary auction process. The Direct Action policy will also involve a 'safeguard mechanism' which aims to discourage businesses from increasing their overall level of emissions over time. However, the details of that safeguard mechanism are still being developed and no draft legislation has been released as at the date of writing;

• The Renewable Energy Target, a federal Government program to promote growth in renewable energy generation sources, is also currently under review as to whether it will continue in its current form or have its targets reduced.

With recent commitments by the European Union, the United States of America and China to adopt more stringent emissions reduction targets, Australia now appears to be under increasing international pressure to move beyond its current target of cutting emissions to 5% below 2000 levels by 2020. The Federal Government has said it will review this commitment in 2015, as part of global negotiations regarding international commitments both pre- and post-2020.

Perhaps not surprisingly, there is a degree of exasperation within the Australian business community at the constantly shifting carbon policy agenda.

BUSINESS RESPONSE TO CARBON PRICING REGULATION

Australian businesses have been reporting on emissions and energy production since 2007, under the federal National Greenhouse and Energy Reporting...