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Client Update: Liquid fuels opt-in scheme

14 December 2012

In brief: The Federal Government has made regulations to establish a liquid fuels opt-in scheme that will allow entities to opt their liquid fuel use into the carbon pricing scheme, rather than face indirect carbon liability through reduced fuel tax credits for their fuel acquisitions. Partner Grant Anderson and Lawyer Albert Yu report.

Background

As discussed in our earlier Focus: Carbon price scheme becomes law - what to do next, emissions from the combustion of certain liquid fossil fuels are excluded from the carbon pricing scheme. Instead, an effective carbon price is imposed on the use of those fuels, through a reduction in the fuel tax credits that can be claimed for their acquisition. In this way, an indirect carbon price is applied to:

  • liquid fuels for business transport (other than in the agriculture, forestry and fisheries industries), including liquid fuels used in the domestic aviation, shipping and rail sectors; and
  • liquid fuels used for non-transport purposes (eg diesel used for power generation).

The liquid fuels opt-in scheme is a scheme under which entities that use liquid fossil fuels may opt their fuel use into the carbon pricing scheme instead of it being subject to the carbon-related fuel tax credit reduction. This is an alternative that is likely to appeal to liquid fuel users during the floating price phase of the carbon pricing scheme, to the extent those users can acquire carbon permits for surrender under the scheme at a cheaper price than the amount of the fuel tax credit reduction that would otherwise apply to their fuel use. Where fuel use is opted into the liquid fuels opt-in scheme, the designated opt-in person (DOIP) for that fuel use will be liable for the embodied emissions in that fuel.

The liquid fuels opt-in scheme is established by the Clean Energy Amendment Regulation 2012 (No 7) (Cth), which amends the Clean Energy Regulations 2011 (Cth). The scheme will commence on 1 July 2013, and will apply to liquid petroleum fuels such as petrol and diesel. However, it will not apply to liquefied petroleum gas, liquefied natural gas and compressed natural gas, as these are subject to other carbon pricing scheme liability mechanisms (see our Focus: Gaseous fuels and carbon pricing).

How fuel may be opted in

Fuel may be opted into the liquid fuels opt-in scheme for a financial year in any of the following circumstances:

  • Where the fuel is acquired, manufactured or imported by an entity that is a liable entity under the Clean Energy Act 2011 (Cth), or by an entity that has operational control over, that is a participant in a designated joint venture that has, or that holds a liability transfer certificate for, an above-threshold facility, provided that:
    • the amount of the fuel used (or likely to be used) by the entity contains 25,000tCO2-epa or more of embodied emissions; and
    • the entity is either entitled to fuel tax credits in relation to that fuel or is a member of a GST group that is entitled to those fuel tax credits.

In such a case, the entity will be eligible to be the DOIP, and the amount of the fuel that may be opted into the liquid fuels opt-in scheme is the amount that is for the use of the entity for the purposes of the entity's enterprise.

  • Where the fuel is acquired, manufactured or imported by members of a GST group, provided that the amount of the fuel used (or likely to be used) by the GST group contains 25,000tCO2-epa or more of embodied emissions. In such a case, the representative member of the GST group will be eligible to be the DOIP, and the amount of the fuel that may be opted into the liquid fuels opt-in scheme is the amount that is for the use of the GST group for the purposes of the GST group.
  • Where the fuel is acquired, manufactured or imported by participants in a GST joint venture, provided that the amount of the fuel used (or likely to be used) by the GST joint venture contains 25,000tCO2-epa or more of embodied emissions. In such a case, the joint venture operator of the GST joint venture will be eligible to be the DOIP, and the amount of the fuel that may be opted into the liquid fuels opt-in scheme is the amount that is for the use of the GST joint venture for the purposes of the GST joint venture.
  • Where the fuel is acquired, manufactured or imported by any other individual entity, provided that:
    • the amount of fuel used (or likely to be used) by the entity contains 25,000tCO2-epa or more of embodied emissions; and
    • the entity is either entitled to fuel tax credits in relation to that fuel or is a member of a GST group that is entitled to those fuel tax credits.

In such a case, the entity will be eligible to be the DOIP, and the amount of the fuel that may be opted into the liquid fuels opt-in scheme is the amount that is for the use of the entity for the purposes of the entity's enterprise.

DOIP

In order to be declared to be a DOIP with effect from a particular financial year, an entity must apply to the Clean Energy Regulator on or before the 31 March preceding that financial year, and must have consents to act as the DOIP from each member of the GST group (where the intending DOIP is the representative member of the GST group), each participant in the GST joint venture (where the intending DOIP is the joint venture operator of the GST joint venture) or the representative member of the GST group (where the intending DOIP is a member of a GST group and is not itself entitled to the relevant fuel tax credits). Where a new member or participant subsequently joins the GST group or GST joint venture, the DOIP must provide the Clean Energy Regulator with the consent of that entity to the DOIP being the DOIP.

An entity that consents to the DOIP being the DOIP is deemed to guarantee, on a joint and several basis, the payment by the DOIP of any unit shortfall charge (or associated late payment penalty) that may become payable by the DOIP.

A DOIP must provide a report to the Clean Energy Regulator by 14 July of each financial year1, which (among other things) demonstrates the continued eligibility of it to be the DOIP and to opt the relevant fuel use into the liquid fuels opt-in scheme, identifies the entities that are entitled to fuel tax credits in relation to that fuel, and identifies the members of the GST group or the participants in the GST joint venture (if relevant). A DOIP must also keep records of all information that is provided to the Regulator for five years, and must notify the Regulator of any changes in the identity of any entity that is entitled to fuel tax credits for the fuel, of the DOIP becoming subject to external administration, or of changes to the DOIP's identifying information, within 14 days of that change or event.

The declaration of an entity as a DOIP remains in effect until the DOIP notifies the Clean Energy Regulator that it wishes to opt out of the liquid fuels opt-in scheme (which it may do for a financial year, provided that it notifies the Regulator on or before the preceding 31 May) or until the Regulator revokes that declaration. The Regulator may revoke a declaration where the DOIP ceases to be eligible to be the DOIP or to opt the relevant fuel use into the liquid fuels opt-in scheme, fails to lodge the required annual report, fails to pay any unit shortfall charge within 30 days of it becoming due, becomes subject to external administration or fails to provide a requisite consent.

Footnotes
  1. Excluding the first financial year for which the person is a DOIP.

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