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Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment Bill 2011

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2010-2011

 

 

 

 

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

 

 

OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS (IMPORT LEVY) AMENDMENT BILL 2011

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

(Circulated by authority of the Parliamentary Secretary for Sustainability and Urban Water, Senator the Hon Don Farrell)



 

OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS (IMPORT LEVY) AMENDMENT BILL 2011

 

OUTLINE

 

The Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment Bill 2011 (the Bill) is part of the Clean Energy Legislative Package, which sets up the carbon pricing mechanism (the mechanism) as part of the Government’s climate change plan, as set out in Securing a clean energy future: the Australian Government’s climate change plan

The full policy context and background to the mechanism are set out in the explanatory memorandum for the Clean Energy Bill 2011. A description of the bills which will introduce the mechanism is set out below. 

Table 1: The Clean Energy Bill 2011 and related bills

Main bill

The Clean Energy Bill 2011 creates the mechanism. It sets out the structure of the mechanism and process for its introduction. These include:

•        entities and emissions that are covered by the mechanism;

•        entities’ obligations to surrender eligible emissions units;

•        limits on the number of eligible emissions units that will be issued;

•        the nature of carbon units;

•        the allocation of carbon units, including by auction and the issue of free units;

•        mechanisms to contain costs, including the fixed charge period and price floors and ceilings;

•        linking to other emissions trading schemes;

•        assistance for emissions-intensive trade-exposed activities and coal-fired electricity generators;

•        monitoring, investigation, enforcement and penalties;

•        administrative review of decisions; and

•        reviews of aspects of the mechanism over time.

Statutory bodies

The Clean Energy Regulator Bill 2011 sets up the Regulator, which is a statutory authority that will administer the mechanism and enforce the law.

The responsibilities of the Regulator include:

•        providing education on the mechanism, particularly about the administrative arrangements of the mechanism;

•        assessing emissions data to determine each entity’s liability;

•        operating the Australian National Registry of Emissions Units (the Registry);

•        monitoring, facilitating and enforcing compliance with the mechanism;

•        allocating units including freely allocated units, fixed charge units and auctioned units;

•        applying legislative rules to determine if a particular entity is eligible for assistance in the form of units to be allocated administratively, and the number of other units to be allocated;

•        administering the National Greenhouse and Energy Reporting System (NGERS), the Renewable Energy Target (RET) and the Carbon Farming Initiative (CFI); and

•        accrediting auditors for the CFI and NGERS.

 

The Climate Change Authority Bill 2011 sets up the Authority, which will be an independent body that provides the Government with expert advice on key aspects of the mechanism and the Government’s climate change mitigation initiatives.

The Government will remain responsible for carbon pricing policy decisions.

This Bill also sets up the Land Sector Carbon and Biodiversity Board which will advise on key initiatives in the land sector.

Consequential amendments

The Clean Energy (Consequential Amendments) Bill 2011 makes consequential amendments to ensure:

•        NGERS supports the mechanism;

•        the Registry covers the mechanism and the CFI;

•        the Regulator covers the mechanism, the CFI, the Renewable Energy Target and NGERS;

•        the Regulator and Authority are set up as statutory agencies and regulated by public accountability and financial management rules;

•        that emissions units and their trading are covered by laws on financial services;

•        that activities related to emissions trading are covered by laws on money laundering and fraud;

•        synthetic greenhouse gases are subject to an equivalent carbon price applied through existing regulation of those substances;

•        the Regulator can work with other regulatory bodies, including the Australian Securities and Investments Commission (ASIC), the Australian Competition and Consumer Commission (ACCC) and the Australian Transaction Reporting and Analysis Centre (Austrac);

•        the taxation treatment of emissions units for the purposes of GST and income tax is clear; and

•        the Conservation Tillage Refundable Tax Offset is established.

Procedural bills

Those elements of the mechanism which oblige a person to pay money are implemented through separate bills that comply with the requirements of section 55 of the Constitution .

These bills are the Clean Energy (Unit Shortfall Charge—General) Bill 2011 , Clean Energy (Unit Issue Charge - Fixed Charge) Bill 2011 , Clean Energy (Unit Issue Charge - Auctions) Bill 2011, Clean Energy (Charges—Excise) Bill 2011, Clean Energy (Charges—Customs) Bill 2011 , Clean Energy (International Unit Surrender Charge) Bill 2011 , Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment Bill 2011 and Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment Bill 2011 .

Related bills

Other elements of the Government’s Climate Change Plan are being implemented through other legislation. These are:

•        the Clean Energy (Excise Tariff Legislation Amendment) Bill 2011 and the Clean Energy (Customs Tariff Amendment) Bill 2011 , which imposes an effective carbon price on aviation and non-transport gaseous fuels through excise and customs tariffs;

•        the Clean Energy (Fuel Tax Legislation Amendment) Bill 2011 , which reduces the business fuel tax credit entitlement of non-exempted industries for their use of liquid and gaseous transport fuels, in order to provide an effective carbon price on business through the fuel tax system; and

•        the Clean Energy (Household Assistance Amendments) Bill 2011 , Clean Energy (Tax Laws Amendments) Bill 2011 and the Clean Energy (Income Tax Rates Amendments) Bill 2011, which will implement the household assistance measures announced by the Government on 10 July 2011. These bills amend relevant legislation to provide payment increases for pensioners, allowees and family payment recipients and provide income tax cuts and establish new supplements for low- and middle-income households. 

 

The Bill needs to be read in the context, in particular, of the Clean Energy Bill 2011 and the amendments that will be made to the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Ozone Act) by the Clean Energy (Consequential Amendments) Bill 2011 (the Consequential Amendments Bill).

 

Policy objectives

 

The Bill amends the Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995 (the Import Levy Act) to apply an equivalent carbon charge to the import of synthetic greenhouse gases (SGGs) (comprising hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride (SF 6 )) and equipment which contains SGG (SGG equipment). The carbon charge component will be in addition to the existing levies which currently apply to the import of SGGs and the import of ‘pre-charged equipment’ (which includes equipment containing ozone depleting substances (ODS) (ODS equipment) as well as SGG equipment).

 

The amendments will also allow the import of SGGs, and equipment that contains SGGs, to be exempted from the levy, or the carbon charge component of the levy, in appropriate circumstances. For example, the Minister may exempt licensees by written notice from the carbon charge component when satisfied that the SGG to be imported is to be used in medical equipment or the manufacture of medical equipment.



Proposal announced

 

The measures are based on the Government’s announcement of its Clean Energy Future Plan on 10 July 2011 as set out in Securing Australia’s clean energy future: the Australian Government’s climate change plan .

 

Regulation Impact Statement



The Regulation Impact Statement (RIS) for the mechanism, entitled Australia’s plan for a clean energy future , is available at http://ris.finance.gov.au . The RIS was prepared by the Department of Climate Change and Energy Efficiency and has been assessed as adequate by the Office of Best Practice Regulation.

 

Financial Impact Statement

 

The financial impact statement is included in the explanatory memorandum for the Clean Energy Bill 2011.



 

OZONE PROTECTION AND SYNTHETIC GREENHOUSE GAS (IMPORT LEVY) AMENDMENT BILL 2011

 

NOTES ON CLAUSES

 

Clause 1 - Short title

 

1.              Once enacted, the short title of the Bill will be the Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment Act 2011 .

 

Clause 2 - Commencement

 

2.              The table in this clause sets out when the Bill’s provisions commence.

 

3.              Sections 1 to 3 and anything else in the Bill not elsewhere covered by the table will commence on the day that the Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment Act 2011 receives Royal Assent.

 

4.              Schedule 1 will commence on 1 July 2012. However, if section 3 of the Clean Energy Act 2011 does not commence before 1 July 2012, then the provisions contained in Schedule 1 do not commence at all.

 

Clause 3 - Schedule(s)



5.              Clause 3 is a formal provision specifying that each Act specified in the Schedule to the Bill be amended as indicated by the Schedule.



SCHEDULE 1 - AMENDMENTS

 

Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995

 

Item 1 - Title

 

6.              Item 1 changes the long title of the Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995 (the Import Levy Act) to reflect that the Act now imposes new separate levies on the import of SGGs, ODS equipment and SGG equipment.

 

Item 2 - After section 2

 

7.              This item inserts a new section 2A in the Import Levy Act which defines a series of new terms that are used in the Bill. The terms ‘benchmark average auction charge’, ‘carbon unit’, ‘fixed charge year’, ‘flexible charge year’, ‘issue’ and ‘vintage year’ will have the same meaning as in the Clean Energy Act 2011 . These new terms are used in the calculation of the carbon charge component of the levy. An additional term defined by section 2A is ‘medical equipment’. This term is used in new section 3A and, for avoidance of doubt, it includes ‘a pharmaceutical product’ (see item 3 below for further information).

8.              This item inserts section 2B of the Act, which provides that for the purpose of the Import Levy Act, the carbon dioxide equivalence of an amount of SGG is the amount of the SGG multiplied by the value specified in the regulations for that kind of SGG. However, as the Ozone Act manages SGGs that are not currently listed under the Kyoto Protocol (and therefore not subject to the carbon price mechanism), subsection 2B(2) clarifies that the carbon dioxide equivalence of SGG that is not a greenhouse gas is zero. A greenhouse gas has the same meaning as in the National Greenhouse and Energy Reporting Act 2007 .

9.              The carbon dioxide equivalency is the global warming potency of a particular substance in comparison to carbon dioxide. For example the carbon equivalence of HFC-134a is 1300 which means its effect on the climate is 1300 times greater than carbon dioxide. The carbon dioxide equivalence of an amount of SGG is used in the calculation of the carbon charge component of the levy. 

Item 3 - After section 3

10.          Item 3 inserts a new section 3A in the Import Levy Act which imposes a levy on the imports of SGGs. Synthetic greenhouse gas or SGG is defined in subsection 7(1) of the Ozone Act (as amended by the Consequential Amendments Bill) to mean an HFC, a PFC or sulfur hexafluoride.

11.          Subsection 3A(1) provides that the levy will be payable if a person has a controlled substances licence to import SGGs and the licensee imports SGG during a quarter during which the licence is in force. A ‘controlled substances licence’ (defined in subsection 13A(2) of the Ozone Act) allows the import, manufacture or export of hydrochlorofluorocarbons (HCFCs), methyl bromide or SGGs. The levy imposed under subsection 3A(1) only applies to the import of bulk SGGs under a controlled substances licence.

12.          Subsection 3A(2) clarifies that the import levy applicable to SGGs does not apply to the import of SGG in the circumstances prescribed for the purposes of paragraph 13(1A)(b) of the Ozone Act. The effect of prescribing circumstances for the purposes of paragraph 13(1A)(b) is that a controlled substances licence is not required for the bulk import of the SGG. The consequence of this is that the import levy (including the carbon charge component) is not payable. Currently, the only circumstance that has been prescribed for the purposes of paragraph 13(1A)(b) of the Ozone Act is the import of SGGs for use in the production or casting of magnesium.

13.          Subsection 3A(3) clarifies that the import levy applicable to SGGs does not apply to the import of SGG that is to be used for a purpose prescribed by the regulations. However, before regulations can be made for the purposes of subsection 3A(3), the Minister must be satisfied that it would be either impracticable to impose levy on the import of SGG that is to be used for a purpose prescribed by the regulations or a purpose prescribed by the regulations is a medical, veterinary, health or safety purpose (subsection 3A(12)). 

 

14.          Subsection 3A(4) provides that the import levy applicable to SGGs does not apply to the import of SGG if the SGG is imported for the purpose of destruction of that SGG and the conditions specified in the regulations are satisfied. This provision is essential to ensure that there are no impediments to Australia continuing to destroy SGGs on behalf of other countries in the region. Australia has the only approved destruction facilities in the region and has destroyed ODS and SGGs from New Zealand and some Pacific Island countries.

15.          Subsection 3A(5) clarifies that the import levy applicable to SGGs does not apply to the import of SGG in circumstances where the SGG is contained in ODS equipment or SGG equipment. Item 8 inserts new sections 4A and 4B which impose an import levy on SGG equipment and ODS equipment, respectively. It should be noted that the carbon charge component does not apply to ODS equipment.

16.          Subsection 3A(6) provides that where a licensee is granted a licence for only a part of a quarter (subsection 7(1) of the Ozone Act defines a quarter as any three month period commencing on the first day of January, April, July or October), then the levy will only be payable for any controlled substance imported during the period that the licensee held a licence.

17.          Subsection 3A(7) provides that the amount of the levy to be imposed is to be ascertained in accordance with the formula specified in the subsection. The two parts of the formula reflect the component relating to the carbon charge (number of tonnes of the carbon dioxide equivalence of the SGG x applicable charge ) and the component reflecting the existing licence levy (number of tonnes of the SGG x prescribed rate ). The total levy imposed on the import of the SGG will be the amount determined by the addition of these two separate components.

18.          The applicable charge will be dependent on whether it is in a fixed charge year or a flexible charge year. In the fixed charge year the ‘ applicable charge ’ will be the per unit charge applicable under the Clean Energy Act 2011 for the issue of a carbon unit with a vintage year of that fixed charge year. For the first three years of the carbon charge the ‘ applicable charge ’ will be:

·          $23.00 in 2012-13;

·          $24.15 in 2013-14; and

·          $25.40 in 2014-15.

In a flexible charge year, the ‘ applicable charge ’ will be the benchmark average auction charge under the carbon charge mechanism for the previous financial year. The Department of Sustainability, Environment, Water, Population and Communities (the department) will publish on its internet site the applicable charge for each financial year to provide licensees with this information directly.

19.          The effect of this amendment is that an importer of SGGs will be subject to a carbon charge which equates with the liability that the importer would have incurred if the importer was a liable entity and had been responsible for an equivalent quantity of greenhouse gas emissions under the Clean Energy Act 2011.

20.          Subsection 3A(8) provides that the maximum amount of the prescribed rate of the levy is $165 per tonne. This maximum amount is consistent with the current levy amounts.

21.          Subsection 3A(9) enables the Minister to determine that a licensee is exempt from paying the carbon charge component (calculated in accordance with the formula set out in subsection 3A(10)) of the levy where the Minister is satisfied that the SGG is to be used in medical equipment, used in the manufacture of medical equipment, is to be used in a product or equipment prescribed for the purposes of paragraph 8D(1)(c) of the Ozone Act, is to be used in the manufacture of a product, or in equipment, specified in an instrument in force under paragraph 8D(1)(d) of the Ozone Act, or is to be used for a purpose prescribed by the regulations. In making a determination under subsection (9), the Minister must have regard to matters specified in the regulations (see proposed subsection 3A(11)).  

22.          Before regulations can be made for the purposes of paragraph 3A(9)(b)(v), the Minister must be satisfied that it would be either impracticable to require payment of the carbon charge component of the amount of levy imposed on the import of SGG that is to be used for a purpose to be prescribed by the regulations or a purpose prescribed by the regulations is a medical, veterinary, health or safety purpose (subsection 3A(13)).

23.          The effect of this amendment is that a licensee, subject to this Ministerial determination, will not have to pay the carbon charge component of the levy, but will still be required to pay the component reflecting the existing levy. An example of the exemptions contemplated under this provision is pharmaceutical inhalers (e.g. asthma inhalers) which use SGGs as a propellant. This exemption is also intended to provide the same treatment for situations where the gas is imported to be used in, or used to manufacture, SGG equipment and comparable equipment imports have been exempted under paragraphs 8D(1)(c) or (d) of the Ozone Act.



Item 3A - Section 4 (heading), Item 4 - Paragraph 4(1)(a), Item 5 - Subsection 4(2), Item 6 - Subsection 4(3), Item 7 - Paragraph 4(5)(b)

24.          Items 3A to 7 amend section 4 and are required as a consequence of Item 8 which inserts a new section 4A (setting out the levy payable for SGG equipment) and a new section 4B (setting out the levy payable for ODS equipment). 



Item 8 - After section 4

25.          Item 8 inserts a new section 4A in the Import Levy Act which imposes a levy on the import of SGG equipment. The Consequential Amendments Bill amends the Ozone Act to insert a definition of SGG equipment in new section 8D of the Ozone Act. SGG equipment is defined as equipment, or a product, that contains a substance that is an HFC, a PFC or sulfur hexafluoride.  

26.          Subsection 4A(1) provides that the levy will be payable if a person has an ODS/SGG equipment licence to import SGG equipment and the licensee imports SGG equipment during a quarter during which the licence is in force. An ‘ODS/SGG equipment licence’ means a licence that is referred to in subsection 13A(5) of the Ozone Act. This type of licence allows the licensee to import SGG equipment.

27.          Subsection 4A(2) clarifies that the import levy applicable to SGG equipment does not apply to the import of SGG equipment where the SGG equipment is prescribed by the regulations or specified in a legislative instrument made by the Minister. The effect of this is that no ODS/SGG equipment licence would be required for the import of the SGG equipment, and the levy (including the carbon charge component) is not payable. For clarity, pursuant to subsection 4A(8) a legislative instrument made under paragraph (2)(b) may only be in effect for a maximum period of 12 months after it is registered on the Federal Register of Legislative Instruments.

28.          Subsection 4A(3) clarifies that the import levy applicable to SGG equipment does not apply to the import of SGG equipment in circumstances where the import is prescribed for the purposes of paragraph 13(6A)(b) of the Ozone Act. Paragraph 13(6A)(b) provides for equipment to be prescribed by the regulations where the equipment is for private or domestic use. The effect of this is that no ODS/SGG equipment licence would be required for the import of that equipment or product, and the levy (including the carbon charge component) is not payable.

29.          Subsection 4A(4) provides that where a licensee is granted a licence for only a part of a quarter (subsection 7(1) of the Ozone Act defines quarter as any three month period commencing on the first day of January, April, July or October), then the levy will only be payable for any SGG equipment imported during the period that the licensee held a licence.

30.          Subsection 4A(5) provides that the amount of the levy to be imposed is to be ascertained in accordance with the formula specified in the subsection. The two parts of the formula reflect the component relating to the carbon charge (number of tonnes of the carbon dioxide equivalence of the SGG x applicable charge ) and the component reflecting the existing licence levy (number of tonnes of the SGG x prescribed rate ). The total levy imposed on the import of the SGG will be the amount determined by the addition of these two separate components.

31.          The applicable charge will be dependent on whether it is in a fixed charge year or a flexible charge year. In the fixed charge year the ‘ applicable charge ’ will be the per unit charge applicable under the Clean Energy Act 2011 for the issue of a carbon unit with a vintage year of that fixed charge year. For the first three years of the carbon charge the ‘ applicable charge ’ will be:

·          $23.00 in 2012-13;

·          $24.15 in 2013-14; and

·          $25.40 in 2014-15.

In a flexible charge year, the ‘ applicable charge ’ will be the benchmark average auction charge under the carbon charge mechanism for the previous financial year. The department will publish on its internet site the applicable charge for each financial year to provide licensees with this information directly.

32.          The effect of this amendment is that an importer of SGG equipment will be subject to a carbon charge which equates with the liability that the importer would have incurred if the importer was a liable entity and had been responsible for an equivalent quantity of greenhouse gas emissions under the Clean Energy Act 2011. However, for the purposes of the calculation of SGG under subsection 4A(5), subsection 4A(7) provides that SGG that is used, or for use, for a purpose prescribed by the regulations should be disregarded. However, before regulations can be made for the purposes of subsection 4A(7), the Minister must be satisfied that it would be either impracticable to work out an amount of levy by reference to a SGG that is used, or for use, for a purpose to be prescribed by the regulations, or a purpose prescribed by the regulations is a medical, veterinary, health or safety purpose (subsection 4A(9)).

33.          Subsection 4A(6) provides that the maximum amount of the prescribed rate of the levy is $165 per tonne. This maximum amount is consistent with the current levy amounts.

34.          Item 8 also inserts a new section 4B which imposes a levy on the import of ODS equipment. The current prescribed levy rate will continue to apply to ODS equipment however this provision is required as the equipment name is to be changed under the Ozone Act. The Consequential Amendments Bill amends the Ozone Act to insert a definition of ODS equipment in new section 8C. ODS equipment is defined to mean ‘air-conditioning equipment or refrigeration equipment, that contains a substance that is an HCFC or, but for section 9, would be an HCFC’. 

35.          Subsection 4B(1) provides that the levy will be payable if a person has an ODS/SGG equipment licence to import ODS equipment and the licensee imports ODS equipment during a quarter during which the licence is in force. An ‘ODS/SGG equipment licence’ means a licence that is referred to in subsection 13A(5) of the Ozone Act. This type of licence allows the licensee to import ODS equipment.

36.          Subsection 4B(2) clarifies that the import levy applicable to ODS equipment does not apply to the import of ODS equipment where the import is prescribed for the purposes of paragraph 13(6A)(b) of the Ozone Act. Paragraph 13(6A)(b) provides for equipment to be prescribed by the regulations where the equipment is for private or domestic use. The effect of this is that no ODS/SGG equipment licence would be required for the import of the ODS equipment and the levy (including the carbon charge component) is not payable.

37.          Subsection 4B(3) provides that where a licensee is granted a licence for only a part of a quarter (subsection 7(1) of the Ozone Act defines quarter as any three month period commencing on the first day of January, April, July or October), then the levy will only be payable for any ODS equipment imported during the period that the licensee held a licence.

38.          Subsection 4B(4) provides that the maximum amount of the prescribed rate of the levy is $3,000 per ODP tonne for HCFCs. This maximum amount is consistent with the current levy amounts. ‘ODP tonne’ is defined in section 10 of the Ozone Act as the quantity of HCFC that results from multiplying its mass in tonnes by its ozone depleting potential.



As an example , if the gas were HCFC-22, with an ozone depleting potential of 0.055 the maximum levy would be calculated as follows:



A company imports one tonne of HCFC-22 into Australia. The total charge payable would be $165, calculated as follows:



1 (tonne of HCFC-22) x 0.055 (ozone depleting potential of HCFC-22) = 0.055



0.055 (1 tonne of HCFC-22) x $3000 (prescribed  rate for ODS) = $165



39.          For clarity, section 4B(5) provides that section 9 of the Ozone Act does not apply for the purposes of this section.

Item 9 - Section 5

40.          This item amends section 5 to make consequential amendments expanding the scope of the regulations that may be made by the Governor-General to sections 3A, 4, 4A or 4B.



Item 10 - Application of amendments

41.          This item provides for the application of those sections amended as a result of this Bill.

42.          Subsection 10(1) provides that section 3A of the Import Levy Act (as amended) applies in relation to the import levy on SGGs during the quarter beginning on 1 July 2012 or a later quarter.

43.          Subsection 10(2) provides that the amendments to section 4 of the Import Levy Act relating to imports under a controlled substances licence (other than the import of a substance contained in ODS/SGG equipment) will apply in relation to the import of a substance during the quarter beginning on 1 July 2012 or a later quarter.

44.          Subsection 10(3) provides that section 4A of the Import Levy Act (as amended) which relates to the import of SGG equipment, will apply in relation to the import of SGG equipment during the quarter beginning on 1 July 2012 or a later quarter.

45.          Subsection 10(4) provides that section 4B of the Import Levy Act (as amended) which relates to the import of ODS equipment, will apply in relation to the import of ODS equipment during the quarter beginning on 1 July 2012 or a later quarter.