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Carbon pricing mechanism

 

Deliverable: Administration of the carbon pricing mechanism.

Snapshot

The carbon pricing mechanism puts a price on Australia’s carbon pollution. It was introduced by the Clean Energy Act 2011 and applies to Australia’s largest carbon emitters.

Under the carbon pricing mechanism, liable entities must report and pay for the carbon emissions they produce each year. They must purchase and surrender one carbon unit for each tonne of carbon dioxide–equivalent emissions. This covers approximately 60 per cent of Australia’s carbon emissions, including emissions from electricity generation, stationary energy, landfills, wastewater and industrial processes and from fugitive emissions.

The carbon pricing mechanism covers a selection of large business and industrial facilities. It does not directly cover the vast majority of Australian businesses, including smaller businesses, or households.

In 2012–13, the Clean Energy Regulator built and managed systems and processes to administer the carbon pricing mechanism, with a strong focus on making it easy for clients to comply with their obligations.

Reporting and progressive surrender of units

Liable entities with an interim emissions number or numbers for the 2012–13 financial year were required to report and surrender sufficient carbon units to meet their progressive liability by the progressive surrender deadline of 17 June 2013. A liable entity’s progressive liability is equal to 75 per cent of their estimated emissions for the financial year. Those that do not meet the deadline incur a unit shortfall charge. Information on the numbers and types of units surrendered by liable entities and shortfall charges was added to the Liable Entities Public Information Database during the progressive surrender period.

The Clean Energy Regulator provided significant education and training support to clients in the lead-up to and during this period. As a result, 100 per cent of liable entities known to be required to report met their reporting obligations on time and 99.74 per cent of liability was acquitted by the progressive surrender deadline. Only four entities were in shortfall at 30 June 2013. Table 3.2 summarises the outcomes of the first progressive surrender period.

Table 3.2: Results of the first progressive surrender period
Item Result
Interim emissions numbers reported 259
Percentage of liability acquitted on time 99.74
Total ACCUs surrendered 1,703,125
Total eligible emissions units surrendered (including ACCUs) 212,412,521
Total unit shortfalls 552,648

Liable Entities Public Information Database

The Clean Energy Regulator published the Liable Entities Public Information Database on its website, updating the database as new information became available: for example, where liability was transferred to another entity. A total of 377 entities were listed on the Liable Entities Public Information Database at 30 June 2013.

Establishing point of liability

The management of carbon liability is a primary consideration for the Clean Energy Regulator’s carbon pricing mechanism clients. Under the Clean Energy Act 2011, measures are available to enable clients to transfer or manage liability in different ways. For direct emitters, these include Liability Transfer Certificates that transfer liability for a facility from one liable entity to another, and a range of practical options for joint ventures.

During the year, the Clean Energy Regulator managed applications and nominations to allow liable entities to manage their liability appropriately. An Obligation Transfer Number is used to transfer carbon price liability for the potential greenhouse gas emissions embodied in an amount of natural gas, liquefied petroleum gas, or liquefied natural gas supplied from a gaseous fuel supplier to the recipient of that gas.

Under the Clean Energy Act 2011, the Clean Energy Regulator is required to maintain the Obligation Transfer Number Register (OTN Register). The OTN Register, which is published on the Clean Energy Regulator website, contains information regarding current and previous Obligation Transfer Number holders, as well as gaseous fuel suppliers that have requested to be entered. At 30 June 2013, 134 Obligation Transfer Number holders were listed on the OTN Register.

Liquid fuel Opt-in Scheme

During 2012–13, changes were made to the clean energy legislation to allow large users of specified taxable liquid fuels to choose to manage their carbon price liability through the carbon pricing mechanism, rather than through the fuel tax or excise systems administered by the Australian Taxation Office. This is known as the liquid fuel Opt-in Scheme.

The liquid fuel Opt-in Scheme commenced operation on 1 July 2013; however, large fuel users were able to apply to the Clean Energy Regulator during 2012–13 to become designated opt-in persons. Designated opt-in persons are able to manage taxable fuel liabilities and have the same obligations as other liable entities under the carbon pricing mechanism. By 30 June 2013, 26 applicants had been declared designated opt-in persons for the 2013–14 financial year.

Australian National Registry of Emissions Units

The Clean Energy Regulator administers the Australian National Registry of Emissions Units, an online electronic system originally designed to meet one of Australia’s commitments under the Kyoto Protocol. The protocol requires each country with an emission reduction target to establish a national registry to ensure the accurate accounting of the issuance, holding, transfer, acquisition, cancellation, retirement and carry-over of eligible Kyoto units.

In addition to this international function, the Australian National Registry of Emissions Units supports the issuance, holding, transfer and relinquishment of ACCUs issued under the Carbon Farming Initiative and the purchase and surrender of carbon units issued by the Clean Energy Regulator.

Organisations or individuals that have an emissions liability or wish to hold (own) or transact in (transfer, cancel, surrender or relinquish) Kyoto units, ACCUs or carbon units are required to have an Australian National Registry of Emissions Units account.

The Australian National Registry of Emissions Units has been developed and implemented using the technical and security standards required of all the protocol national registries. This ensures compliance with the international emissions unit trading framework established under the protocol.

During 2012–13, the Australian National Registry of Emissions Units was enhanced to allow liable entities to purchase units and surrender units to acquit their liabilities. The Liability Management Module manages purchase and surrender transactions by interfacing with the Clean Energy Regulator’s financial management information system for payments and the Australian National Registry of Emissions Units for unit management. The module also supports transactions under the buy-back facility.

Unit buy-back

As part of the carbon pricing mechanism, the Jobs and Competitiveness Program provides ongoing assistance to entities that face high carbon costs and are constrained in their capacity to pass through costs in global markets. The program issues free carbon units to eligible applicants.

Liable entities with free carbon units issued through the industry assistance programs during a fixed-charge year can request the Clean Energy Regulator to cancel the units in exchange for payment of a buy-back amount. The buy-back facility is designed to give flexibility to help entities manage their liabilities.

The Clean Energy Regulator bought back 30,780,303 units in 2012–13, for a total of $706,593,258.

Feature: Jobs and
Competitiveness Program

The Clean Energy Regulator has issued around 89 million free carbon units, worth $2 billion, to businesses in the most emissions-intensive industries in the economy that are highly exposed to international competition—either in their export markets or from importers.

The assistance is provided through the Jobs and Competitiveness Program. Introduced as part of the Clean Energy Future plan, the program is designed to shield some industries from the full impact of the carbon price, while rewarding businesses in those industries that reduce their emissions relative to the industry benchmark.

The program supported these industries with assistance covering around 80 per cent of their emissions in 2012–13. The amount of support provided will reduce in each successive year, providing an incentive for industries to contribute to keeping Australia on track to reduce overall emissions consistent with the Australian Government’s 2020 targets.

The free carbon units issued through the Jobs and Competitiveness Program have been used in various ways. A total of 53 million units were surrendered to meet a carbon price liability in June 2013, while 30 million were sold back using the buy-back facility.

Interestingly, a little more than a third of the free units were traded in the secondary market before being surrendered or sold back. By creating a market for these units, Australia’s major banks and other financial institutions provided businesses with a range of options for managing their financial positions.


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