Carbon tax – are you ready?
Gid Meltzer, Partner
Hospital Engineers Australia
24 August 2012
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Outline of presentation
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Legislation and CEF Plan
Sector by sector impact
Determining the impact on your business
Direct and indirect costs
Carbon management plan
– cost pass through
– revenue generating activities
– assistance packages
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Clean Energy Plan
• Commenced on 1 July 2012
• Seeks to secure a clean energy future through 4 main
activities:
– a price on carbon in the economy
– development of renewable energy capacity
– support for increased energy efficiency
– improving the condition of the Australian landscape
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Emissions per capita
M ali
China
Sweden
UK
USA
Qatar
Australia
0
10
20
30
Emissions per capita
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40
50
60
What is the rationale?
• What is the policy objective?
• How is it intended to work?
• How is success determined?
The pass-through of costs is fundamental to the effectiveness of the government’s
policy rationale, which is focused on bringing about behavioural change in
consumers like you…
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By now, all businesses should have…
• Identified their exposure
– direct liability?
– indirect liability?
– which costs will increase?
• Implemented a carbon management plan
– how will we cope with increased costs?
– can we pass them on?
– are there any new revenue streams available to us?
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Key principles under the CEF Plan
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Carbon price
Emissions target reduction
Liable entities
Allocation and surrender of permits
Purchasing permits to meet carbon obligations
Greenhouses gases
Excluded sectors
NGER Act
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Carbon price
Fixed price period
• starts 1 July 2012
• first 3 years (FY 12-13, FY
13-14, FY 14-15)
• $23/tonne in 2012-13
• $24.15/tonne in 2013-14
• $25.40/tonne in 2014-15
• government to sell permits
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Flexible pricing period
• from 1 July 2015
• price of carbon set by market
• permits to be capped
Emissions target reduction
Government has committed to reduce greenhouse gas
emissions* by:
• 5% by 2020
• 20% by 2050
*based on 2000 levels
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Liable entities
• 500 of Australia’s largest polluters
• Obliged to buy and surrender carbon permits
• Facility liability
– emit < 25,000 tonnes of CO2 equivalent emissions
– entity with operational control generally liable
• Covered sectors
– stationary energy, waste, rail, domestic aviation, shipping,
industrial processes, fugitive emissions
– heavy on-road vehicles from July 2014
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Allocation and surrender of permits
• One permit = one tonne of greenhouse gas emissions
• Climate Change Authority
– responsible for setting forward reduction targets
– caps announced 5 years in advance
• Emissions charge
– 1.3 x fixed price (fixed price period)
– 2 x average price (flexible price period)
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Purchasing permits to meet carbon obligations
• Fixed price period
– liable entities will need to
purchase permits to meet their
emissions liability
– cannot be traded or banked
• Flexible price period
– government to issue permits
– can be banked indefinitely
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• Transitional assistance
package
– permits may be allocated
– cannot be banked
Covered greenhouses gases
• Carbon dioxide
• Methane
• Nitrous oxide
• Perfluorocarbon
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Excluded sectors
• Transport
– household transport
– light on-road vehicles
– off-road use by agriculture,
forestry and fishing industries
– gaseous fuels
– ethanol, biodiesel and
renewable diesel
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• Agriculture
• Land
Relationship with NGER Act
• provides emissions data
• reporting obligations based on emissions data
• registered corporations to report
• controlling corporation generally the liable entity
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Tax treatment
Accounting treatment
• similar to current trading
stock rules
• cost of permits generally
deductible but will be
deferred
• revenue from sale of permits
assessable
• exceptions to the above
• no GST
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Compensation
• government to increase tax
free threshold
• increased family tax benefits
• other benefits/concessions
Determining the impact on your business
Liable entities
The big polluters
Other entities
Indirect costs
Direct costs
Cost of acquiring
carbon units
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How carbon
intensive is
your supply
chain?
Capital items
Gas
Transport fuels
Admin and
compliance
Electricity
Goods and
services
Sector by sector impact
Agriculture
• Excluded sector
• Will benefit from the –
Carbon Farming Initiative
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Transport
• Outside the carbon tax
mechanism but will be
affected
• FTCs to be reduced
• Heavy on-road vehicles from
1 July 2014
• Domestic aviation, domestic
shipping, rail transport and
non-transport use of fuels
also affected
Sector by sector impact (cont.)
Tourism
• Domestic tourism industry
already struggling
• Transport operators likely to
increase their costs
• Cost of travel likely to
increase
• May reduce tourist numbers
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Exporters
• Indirect price increase
• Competitive disadvantage to
overseas competitors
Sector by sector impact (cont.)
Mining
• Direct impact
• Costs to increase
significantly
• Profits to decline
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IT
• Large indirect impact
• Extremely electricity
dependent
• Electricity costs will rise
• Input costs for many IT
companies will be similarly
increased
• Consumers will pay more
Sector by sector impact (cont.)
Financial services
• may benefit
• more people likely to seek
advice
Property
• commercial buildings –
energy efficiency ratings
• residential buildings –
increased cost of inputs
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Manufacturing
• likely to be hit hard
• increased cost of inputs
• some assistance to be
provided
Retail
• cost pass through to
consumers
Can’t I just increase my prices and pass my costs on?
Costs cannot be automatically
passed on to consumers.
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Types of contracts that might be affected:
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Electricity supply agreements
Gas supply agreements
Construction agreements
Mining agreements
Fuel supply agreements
Transport agreements
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Existing contracts
Do your existing contracts allocate carbon costs?
Businesses may seek to rely on:
Carbon
price
clauses
Price review
clauses
MAC
clauses
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Change in
law clauses
Change in
tax clauses
New contracts
• Essential to consider carbon cost pass through
• Clauses should be carefully drafted to ensure they
cover all costs
• Businesses should consider:
– the materiality of their carbon costs
– what costs they intend to pass on
– how they calculate these costs
– coverage of the relevant carbon scheme (there are many
under the legislation)
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Example clause
‘If the seller incurs Carbon Costs, imposed as a result of a
Carbon Scheme, the seller may include those costs in
invoices to the buyer and the buyer must pay for these
costs.’
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Carbon Costs: any direct and indirect costs imposed as a result of any Carbon Scheme
Carbon Scheme: includes but is not limited to all Acts and Regulations which form part of the
Clean Energy Legislative Package and any other associated legislation which has been
implemented to assist with the government’s ‘Securing a Clean Energy Future Plan’
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Role of the ACCC
• Responsible for investigating and monitoring impacts of
carbon prices
• Positive duty to safeguard against price exploitation
• Offenders could be faced with:
– substantiation notices
– infringement notices
– civil or criminal penalties
• What is price exploitation?
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Directors
• New legal duties in addition to general director’s duties
• Directors must ensure that companies:
– understand liability under the carbon pricing scheme
– have appropriate measures in place to cope with any
increases in costs
– introduce or consider measures to reduce carbon emissions
– educate staff about compliance with the scheme
– are aware of obligations to report and make disclosures
about the scheme
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Listed companies
Listed Rule 3.1:
‘a listed company must immediately disclose to the ASX
any information that is expected to have a material
effect on the price of its securities…’
PRICES
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PROFIT
MARGINS
SHARE
PRICE
What to do now?
• Carbon management plan
– increased costs
• what is our exposure?
• indirect costs?
• cost pass through?
– new revenue streams
– reducing costs
• reducing use of carbon intensive inputs
• energy efficient practices
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Legal assistance
Consider seeking advice on:
– potential carbon exposure
– existing contracts – cost pass through
– drafting new contracts – effective clauses
– how to reduce costs
– intellectual property issues
– government funding
– greenhouse gas reporting
– director’s duties
– disclosure obligations
Copyright © 2011 Cornwall Stodart Lawyers Enhancing Success ®. All rights reserved.
Questions?
Copyright © 2011 Cornwall Stodart Lawyers Enhancing Success ®. All rights reserved.
Carbon tax – are you ready?
For more information, please contact:
Gid Meltzer, Partner
t: +61 3 9608 2118
e: g.meltzer@cornwalls.com.au
Copyright © 2011 Cornwall Stodart Lawyers Enhancing Success ®. All rights reserved.