Further developments to the carbon tax framework

• Regulations under section 19(b) of the Act for purposes of section 10 for the Trade Exposure Allowance (Trade Exposure Allowance Regulations);
  
• Regulations under section 19(a) of the Act for greenhouse gas emissions intensity benchmarks for purposes of section 11 for the Performance Allowance (GHG Emission Intensity Benchmark Regulations); and
  
• Notice regarding Renewable Energy Premium in respect of Tax Period for purposes of Symbol "B" in the formula contained in section 6(2) of the Act (Renewable Energy Tax Premium Notice).

The Trade Exposure Allowance Regulations and GHG Emission Intensity Benchmark Regulations

We reported on the draft Trade Exposure Allowance Regulations and draft GHG Emission Intensity Benchmark Regulations published for comment in December 2019 here. These have now been published in final form.

The trade exposure allowance permitted under the Act provides some reprieve to entities exposed to international competitiveness. The Trade Exposure Allowance Regulations provide a list of such applicable sectors and/or subsectors with the corresponding trade allowance percentage of that sector in Annexure A. The carbon tax payable by these sectors will be determined by the sum of the GHG emissions for each category, less the allowances for each emissions category (combustion, fugitive, or industrial process). Where a taxpayer undertakes activities in different sectors and therefore potentially faces different trade intensity risk levels simultaneously, a weighted average of the different tax-free allowance levels will be calculated. An alternative approach to calculate the trade exposure allowance is also permitted, where a taxpayer is of the opinion that the sector-based allowance does not accurately reflect the extent of the trade exposure of that taxpayer.

The Act further provides for a performance allowance where a taxpayer has implemented measures to reduce its GHG emissions in respect of a tax period, which is to be calculated against an approved sector or subsector emission intensity benchmark. In other words, taxpayers that perform better than an approved sector or subsector emission intensity benchmark will qualify for a performance allowance. The GHG Emission Intensity Benchmark Regulations set out the emissions intensity benchmarks for the applicable sectors and subsectors in Annexure A, as well as the determination for measured and verified emissions intensity, for purposes of completing the formula prescribed in the Act.

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The above Regulations are both deemed to have come into operation on 1 June 2019 and can accordingly be applied under the current tax return period (as extended by the Covid-19 regulatory framework).

Whether these incentives will be utilised in the face of major emitters, particularly those in monopolised industries, directly passing-through their carbon tax liability to customers remains subject of concern.

The Renewable Energy Tax Premium Notice

Section 6(2) of the Act prescribes the formula for the calculation of carbon tax payable by a taxpayer in respect of the generation of electricity from fossil fuels. The Renewable Energy Tax Premium Notice prescribes the renewable energy premium in respect of any tax period ending on 31 December 2019 for the identified renewable energy sources, for purposes of completing the formula prescribed in the Act.