As the parliamentary debate on repealing the Clean Energy Future package starts, in rancorous fashion, the Department of the Environment has released a host of submissions on the draft repeal bill.
The BCA submission recommends the government take into consideration that companies will require at least three months once the legislation is passed to amend the range of contracts that they have in place.
The BCA also wants amendments to the parts of the repeal legislation dealing with additional powers for the ACCC to address areas of ambiguity around what the ACCC should consider when considering price exploitation and what constitutes “unreasonably high”.
The legislation should include provisions to deal with the situation where goods and services such as refrigerant stock are sold after the repeal of the CPM, which had been purchased with a carbon cost component included.
Even more complex is the waste sector, where landfill loads have been charged with a carbon price built in on their long emissions tail, which will no longer be charged. The Australian Landfill Owners Association submission says: "As the landfill carbon tax is derived from an annual waste ‘decomposition’ model and cannot be extrapolated from previous data, ALOA does not support the implementation of the repeal other than at the end of a full compliance year."
Should the repeal be delayed beyond July 1, as is looking likely due to opposition from the Greens and delaying tactics from Labor, the BCA says businesses will have to contend with a number of complexities due to the retrospective legislation.
A range of contracts will need to be revisited and revised. Companies, for example, that have used the Australian Financial Markets Association’s Carbon Addendum may have contracts that contain very precise trigger clauses for scheme termination.
The application of backdating of a decision to remove compliance obligations mid-way through the compliance year (e.g. backdating to 1 July 2014) could potentially disrupt legal contractual arrangements for cost pass-through or create unintended windfall gains between businesses operating in a particular sector.
Companies with contracts that have flow-through effects in pricing such as those in bilateral power purchase agreements which have fixed the customer’s price as a carbon-inclusive price, with the retailer accepting the risk of movements in input costs and consequently needing to continue to pass this through to consumers, will need to determine how to address the impact of retrospective legislation.
Many contracts contain a “Change of law” clause that prevents the amending of clauses within the contract until such time as the change in law has been enacted. This effectively means contract renegotiation cannot be undertaken until after any repeal legislation is passed.
Given the number and complexity of the contracts in place, the process to review and amend contracts will take time and due to the nature of the “Change of Law” clauses, companies are suggesting it could take a minimum of three months to amend carbon pass-through clauses within their businesses.
The repeal legislation should include a period of grace to allow companies to renegotiate contracts of at least three months following the passage of the legislation and they should not be penalised in that time.
Other submissions
The Australian Industry Group has warned the pass through of savings following repeal may not be as large or as fast as expected. Businesses in the manufacturing, construction and services sectors estimated an average increase of around 14.5% in their energy costs, but any price reduction is complicated by other costs pressures on energy and the complexity of energy contracts, including hedging arrangements by electricity retailers.
The Minerals Council of Australia fully supports the repeal of a scheme it says imposed $1.2 billion a year in costs on the industry. While at it, it also calls for other energy requirements to be simplified.
"Further streamlining of NGERS is required as it places an expensive burden through its particular construction and onerous reporting requirements. Emissions and energy reporting should allow more flexibility for companies in the way that they report with greater reliance on a self-assessment approach, similar to the approach adopted under taxation laws," it said.
"This burden flows into other subsidiary policies that need to be reconsidered after several years of operation, such as the Energy Efficiencies Opportunities program."
