Will Abbott 'axe the tax'?

Whilst few would doubt Tony Abbott’s determination to repeal the carbon pricing legislation, if the Coalition is elected this year, there are certain legal, practical and political impediments to implementing a repeal of the carbon price.

Requirement for double dissolution and associated delays

Given that Labor and the Greens will almost certainly oppose any repeal legislation, Abbott needs to secure a majority in the Senate.  On March 13, 2013, the ABC’s chief election analyst, Antony Green described the scenario as follows:

“The Coalition is highly unlikely to gain enough Senate seats to achieve control of the Senate in its own right. However, if the election can change the composition of the Senate cross-bench, then the Abbott government could achieve its goal of repealing the carbon price legislation, and also find itself a negotiation path on other legislation that avoids having to deal with the Greens and Labor….The election of a WA National and a Katter candidate from Queensland would almost certainly give an Abbott government the numbers to repeal the carbon price legislation.”

If this occurs, then there will be no need for a double dissolution and Australia could find itself without a carbon price shortly after the new senators take their seats (July 1, 2014). However, if these Senate victories do not eventuate for the Coalition in September 2013, a double dissolution would almost certainly be necessary before a Coalition government can pass its repeal legislation.

However any attempt to call a double dissolution faces delays because, to be safe from legal challenge:

1) A Coalition government must wait for the new senators to take their seats in July 2014 before putting its repeal legislation before the Senate; and

2) The Senate needs to vote down the same bill(s) twice with an interval of at least three months between the initial rejection and the second vote (as required by section 57 of the Constitution). The Senate must be afforded a ‘proper opportunity for debate’ on each occasion.

Double Dissolution – the politics

-- Any double dissolution means going back to the polls after the Coalition will have only just regained power following six years of Labor-led government. The Coalition is unlikely to take this step unless it is confident of achieving a more favourable result than it achieves in the September 2013 federal election.

 -- Indications over the past nine months suggest the carbon price has had a limited impact on inflation and the Coalition’s dire predictions of it being a ‘wrecking ball’ to the economy have not been realised. Compensation payments via tax breaks for low income families are also now in operation.

Whilst recent polling indicates that voters remain opposed to the carbon price, this may soften over time. The change in the level of voter support or opposition to the carbon price will dictate the success or failure of any double dissolution.

-- Also the level of support for repeal from business is unclear.  Earlier this month, the manufacturing lobby group, Ai Group called for a move to the emissions trading period rather than scrapping the carbon price in its entirety. This approach might attract increasing support from the business community to the extent that a market-based system (with availability of cheap international permits, no floor price and free allocation of permits for some industries) is more attractive than the Coalition’s current ‘Direct Action’ policy.  Climate Spectator reported last week that Mark Carnegie, a prominent Sydney investment banker, had expressed similar concerns about repealing the emissions trading scheme.

-- A repeal of the Fixed Price Period whilst retaining emissions trading from July 2015 (or another date) might be an available compromise for the Coalition. Whilst it might be a semantic distinction, a Coalition government could also claim that by removing the Fixed Price Period and going to a Flexible Price Period they are still honouring their commitment to repealing the carbon ‘tax’ (as opposed to the emissions trading scheme). 

Potential challenges to repeal legislation

-- Even if the Coalition is successful in ultimately obtaining Senate support for repeal legislation, section 56(xxxi) of the Constitution would make any repeal legislation which resulted in the acquisition of property on unjust terms, subject to challenge on the basis that it is outside the power of Parliament.

-- Shadow Minister for Climate Action, Greg Hunt and some legal commentators  have suggested that repealing the carbon price legislation would be an ‘extinguishment of a proprietary right’ and not an ‘acquisition of property’ within the meaning of section 56 (xxxi).  However, detractors  emphasise that carbon units generated under the scheme (along with prescribed international units proposed to be incorporated into the scheme after July 1, 2015) are expressly stated in the legislation to be ‘personal property’ and are subject to ownership, transfer and other equitable dealings like any other type of property or chattel. Assuming carbon units are ‘property’ (which seems the better view) the more pertinent question is whether any repeal legislation will amount to an ‘acquisition’ of that property and, if so, is it on ‘just terms’.

-- At the time of any likely repeal legislation, liable entities will have already purchased units from the Clean Energy Regulator at $24.15 each, purchased Australian Carbon Credit Units in respect of the Carbon Farming Initiative, received free allocation of permits (which it can sell to others for a price) and perhaps purchased Kyoto units like CERs and European units (known as EUAs) in anticipation of being able to use these from July 1, 2015.

-- In respect of the Australian units, unless compensation is offered or some buy-back system is provided for, arguably this ‘property’ has been ‘acquired’ by the government with an absence of ‘just terms’ because the liable entities have been deprived the opportunity to generate income from the sale of those units.

-- However assuming a European and international carbon market still exists for the sale of Kyoto units and EUAs, then liable entities would be able to offload these credits in those markets and would not be entitled to compensation.

-- Repeal legislation may be implemented without offending section 56(xxxi) of the Constitution, however, lawmakers will need to be careful in their drafting and some compensation may need to be offered before one can be truly confident that it would withstand any challenge.

Implications for business

Notwithstanding the potential for repeal, in light of the above factors, liable entities would be prudent to proceed on the basis that the fixed carbon price may well remain in place for most of the next two years. 

There also remains a potential for the emissions trading scheme to commence operation from July 1, 2015 as per the current legislation, or for this date to be brought forward pursuant to a Coalition government compromise.

Scott Higgins is a Senior Associate and Stephanie Venuti is a solicitor in the Carbon and Clean Energy practice group at Gadens Lawyers.  A more detailed version of this article (with hyperlinks to other related articles) can be found at http://www.gadens.com.au/publications/Pages/The-future-of-the-Australian-carbon-price.aspx