Ding Dong the Tax is Dead
IN THE LOBBY: It certainly didn’t take very long for industry-focused interest groups to cheer as loudly as they could upon hearing the carbon tax had finally been repealed.
First out of the blocks was the Chamber of Minerals and Energy of Western Australia (CME), which scorned what it described as the months of post-election obstruction by the opposition and minor parties as it heralded the new Senate in finally repealing the carbon tax.
The CME said the removal of the tax was the first steps to restoring the resources sector’s international competiveness.
“The carbon tax repeal marks a significant milestone in delivering on the Abbott Government election commitment to abolish unnecessary taxes and realise the resource sectors true economic potential,” CME chief executive Reg Howard-Smith said.
“The imposition of the world’s highest fixed price on carbon has placed a significant cost burden on Western Australian resource projects.”
According to the CME the carbon tax was last year solely responsible for placing a burden on $1.2 billion on the mining industry across the country.
An impost, the group declared, that was not faced by Australia’s mineral export competitors.
The CME insinuate the high costs faced by the resource when doing business in Australia.
Imposed costs on industry, such as the carbon tax, it maintained, has worsened our international competitiveness.
“The next item of business for the Senate should be the swift repeal of the Minerals Resource Rent Tax,” Howard-Smith intoned.
“It has been both inefficient and ineffective while adding a significant compliance and regulatory burden to industry.”
Not to be outdone the Australian Petroleum Production & Exploration Association (APPEA) also hoisted banners and popped party favours upon hearing the news.
“Today’s repeal of the carbon pricing mechanism is significant as it removes a cost facing Australian LNG exporters competing in global markets; one that does not exist for our international competitors,” APPEA chief executive David Byers said.
“Wood Mackenzie forecasts that by 2025, LNG demand within the Pacific Basin alone, will outstrip supply from existing or committed LNG projects by 160 million tonnes.
“Surging LNG demand in Asia presents an enormous opportunity for Australia.”
Byers was also concerned about rising development costs, which he said raise doubts about the attractiveness of continued investment in Australian projects.
“While initiatives are being taken within the industry to address cost competitiveness, it is good to see policy action that removes costs for trade-exposed producers,” Byers continued.
“APPEA supports a national climate change policy that delivers emissions reduction at least cost while recognising the greenhouse benefits that flow from a prosperous and vibrant natural gas industry.”
However, a more controlled release from Deloitte said that although the carbon tax has been repealed, the country’s emission obligations will not simply vanish into thin air.
What the result will be, according to Delloite lead partner for sustainability Paul Dobson is there will be little change for business in the short-term.
“While many companies might breathe an immediate sigh of relief, the bottom line is that this issue is not going away,” Dobson warned.
“As the government looks to implement its Direct Action policy and the Emission Reduction Fund (ERF), there will be an increased focus on emission reduction projects and activities including energy efficiency.
“With this in mind companies need to develop a strategic approach to these sustainability issues aligned with their business strategy to accommodate the changing policy landscape.”
Mr Dobson indicated that following the carbon tax repeal, there will be three immediate considerations for business:
To manage the long tail of compliance imposed by the carbon tax;
Prepare for the Direct Action policy and Emission Reduction Fund; and
Recognise that reporting through the National Greenhouse and Energy Reporting (NGER) scheme will remain in place.
The carbon tax will not miraculously disappear overnight, but instead will hang around leaving a long tail of compliance for companies to deal with.
Dobson explained the even though it is back-dated to 1 July 2014, companies still have reporting obligations in October 2014 with final payments due in February 2015 and non-compliance penalties will continue to apply.
“Businesses need to make sure they report their liable emissions accurately for the year ended 30 June 2014 and comply with audit requirements as well as ‘true-up’ their free permits,” Dobson said.
“In addition, companies should review their contractual arrangements, pricing and supply-chains to ensure that the effect of the carbon pricing removal flows through appropriately – particularly in the energy sector.”
Dobson pointed to a white paper and draft legislation the government has released on its Direct Action policy centre piece, the Emission Reduction Fund (ERF).
The precise timing of the introduction of all elements of the ERF remain uncertain at present, Dobson believes it is likely we will see the commencement of its key components in the latter part of 2014.
The ERF will operate through three key elements:
Crediting emission reductions: crediting eligible reduction and abatement projects and activities;
Purchasing emission reductions: auctions to purchase emission reductions at the lowest cost; and
Safeguarding emission reductions: baselines for large facilities to safeguard emissions reductions across the economy at large.
There are a wide range of emissions reduction and abatement projects that companies will be able to consider under the ERF.
Activities may include upgrading commercial buildings; improving the energy efficiency of industrial facilities; capturing landfill gas; reducing coal mine waste gas; reforesting and vegetating marginal lands.
“Organisations should start reviewing their activities and consider potential projects and determine how to best take advantage of the ERF and the potential funding on offer,” Dobson said.
“Planning should start now so that organisations can be in position to have registered projects for participation in the first round of auctions, in the second half of this year.”
It is also important for businesses to note the National Greenhouse and Energy Reporting regime will remain in place for all large companies.
Organisations will still be required to continue to report their carbon emissions, energy consumption and energy production.
The NGER data is to be used as part of the safeguarding mechanism under the ERF going forward.
“Despite the political debate around the carbon tax and the best mechanism to achieve carbon reductions, there is bipartisan agreement to reduce emissions (5 per cent below 2000 levels by 2020),” Dobson reminded everybody.
“While it will be challenging to navigate the changing regulatory environment, organisations should focus on the opportunities presented by emission reduction and energy efficiency projects in order to extract business benefits and at the same time contribute to Australia’s carbon reduction targets.”