Carbon repeal's cost? All in the timing

The Abbott government has announced in documents released late yesterday that they will let the carbon price, or tax, run its course for this financial year, but has made the bold pronouncement that:

In the end, both the newly elected Labor leader Bill Shorten and the Greens have made it clear they won’t pass the repeal bills. So the reality is, come the new compliance year beginning July 1, the carbon price will still be the law of the land. This, of course, has participants in the carbon market scratching their heads as to how this might all work out in practice, and what firms should do in the interim period until Abbott manages to get the repeal bill through the new Senate. The can of worms this throws up are explored in a piece we’ve published today by Elisa de Wit, a partner with law firm Norton Rose Fulbright.

Still, there are two things strongly in the government’s favour:

1. It looks as though it has the numbers in the new Senate to pass repeal of the carbon price (as explained in the article, Carbon price now appears dead, October 3).

2.  Even if the carbon price was still the law for a few months after July 1 next year, the regulator doesn’t really force big emitters, such as electricity generators, to pay any kind carbon tax for emissions released during 2014-15 until June 2015 with final surrender of permits in February 2016. But there is one notable exception, which is refrigerant gases used in refrigerators and air-conditioners. These may be small in tonnage, but are potent warming gases, thousands of times more potent than CO2, so pay a hefty levy. The regulator would be obliged to force importers of these gases and products like air-conditioners which contain the gases, to pay a levy at the time they are imported into Australia until such time as repeal is passed.

But things get really tricky for the government if they don’t manage to repeal the carbon price through the new Senate by September next year. That’s because in September the Clean Energy Regulator is bound by the existing legislation to hand out free permits to the brown coal generators (plus Redbank power station) and will also hand out a large proportion of free permits to emissions-intensive trade exposed industries. The problem is that the regulator is also bound by the law to pay these polluters a little over $24 per permit if they wish to cash them in, a quirk in the legislation I explained last week (Carbon pricing’s poison pill, October 10). Given that the government has said it won’t make firms obligated to pay the carbon price for the 2014-15 compliance year, these polluters could cash in all of their free permits, safe in the knowledge they won’t need them. This could cost taxpayers several billion dollars.

If repeal drags out beyond September, then the government really needs to think long and hard about whether it might just be easier to let the carbon price run its course of another full compliance year.

So if the Motoring Enthusiasts’ Ricky Muir and the DLP’s John Madigan were clever, they could use negotiations over this repeal bill to extract some extremely good concessions out of the government for their special interests. There are unlikely to be many opportunities like this where the government will be so desperate and so dependent on their votes. In the end, the election of Muir and Madigan was a fluke of bizarre preference deals and neither will see a second term. Rejecting repeal will not hurt their re-election chances because they don’t have any chance of being re-elected. This is probably the best chance they’ll ever have to achieve something. 

The government may be able to swiftly kill off the carbon price shortly after July 1 next year, avoiding any mess. But both Muir and Madigan’s interests are served in making the government beg. God only knows what this might throw up.

CORRECTION: An earlier version of this article said that the carbon price regulator did not require polluters to surrender carbon permits to comply with obligations for the 2014-15 year until February 2016. However during the fixed price period of the carbon price there is an interim surrender point in June 2015 as well as a final compliance requirement in February 2016.