copyright © 2011 cornwall stodart lawyers enhancing success ®. all rights reserved. carbon tax –...

Copyright © 2011 Cornwall Stodart Lawyers Enhancing Success ®. All rights reserved.

Carbon tax – are you ready?

Gid Meltzer, Partner

Hospital Engineers Australia24 August 2012


Outline of presentation

• 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


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


Emissions per capita

0 10 20 30 40 50 60

Emissions per capita

Australia

Qatar

USA

UK

Sweden

China

Mali


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…


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?


Key principles under the CEF Plan

• Carbon price• Emissions target reduction• Liable entities• Allocation and surrender of permits• Purchasing permits to meet carbon obligations• Greenhouses gases• Excluded sectors• NGER Act


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

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


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


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)


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

• Transitional assistance package

– permits may be allocated– cannot be banked


Covered greenhouses gases

• Carbon dioxide

• Methane

• Nitrous oxide

• Perfluorocarbon


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

• 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


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

Compensation • government to increase tax

free threshold• increased family tax benefits• other benefits/concessions


Determining the impact on your business

Other entities

Direct costs

Indirect costs

Cost of acquiring carbon units

Capital items Gas

Transport fuels Admin and compliance

Electricity Goods and services

Liable entitiesThe big polluters

How carbon intensive is your supply

chain?


Sector by sector impact

Agriculture• Excluded sector• Will benefit from the –

Carbon Farming Initiative

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

Exporters• Indirect price increase• Competitive disadvantage to

overseas competitors



Mining• Direct impact• Costs to increase

significantly • Profits to decline

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



Financial services• may benefit • more people likely to seek

advice

Property• commercial buildings –

energy efficiency ratings• residential buildings –

increased cost of inputs

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.


Types of contracts that might be affected:

• Electricity supply agreements• Gas supply agreements• Construction agreements• Mining agreements• Fuel supply agreements• Transport agreements


Existing contracts

Do your existing contracts allocate carbon costs?

Businesses may seek to rely on:

Price review clauses

MAC clauses

Carbon price

clauses

Change in tax clauses

Change in law 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)


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.’

• 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’


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?


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


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…’

PRICESPROFIT

MARGINSSHARE 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


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


Questions?


Carbon tax – are you ready?

For more information, please contact:

Gid Meltzer, Partnert: +61 3 9608 2118e: [email protected]

copyright © 2011 cornwall stodart lawyers enhancing success ®. all rights reserved. carbon tax –...

Documents

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capped slide

price of carbon set

carbon tax

australian landscape

clean energy plan

sectors nger act slide

market permits