Document 4

Minister for Climate Change and Energy Efficiency
Minister for Industry and Innovation

B12/584

The Hon Jason Clare MP
Minister for Justice, Minister for Home Affairs and Minister for Defence Materiel
Parliament House
CANBERRA  ACT  2600

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Dear MiJlfS(/ (/ a10 L, 	
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The European Commissioner for Climate Action, Ms Connie Hedegaard, and I announced on Tuesday 28 August 2012 that Australia and Europe will be linking their emissions trading systems.

To effect the linlc between the two schemes, the Government will introduce the Clean Energy Legislation Amendment (Intemational Emissions Trading and Other Measures) Bill2012 and associated bills into Parliament in the week beginning 17 September 2012.

I am writing to inf01m you that while no changes are proposed to the Customs Tariff Act
1995, the Excise Tariff Amendment (Equivalent Carbon Price) Bill2012 amends the
Excise Tariff Act 1921, to which the Customs Tariff Act 1995 refers.

The amendments to the Excise Tariff Act 1921 ensure that the equivalent carbon price applied to liquid fuels is more clearly equivalent to the effective carbon price faced by liable entities under the carbon pricing mechanism given the linking agreement.

The Department of Climate Change and Energy Efficiency (DCCEE) has consulted with your department to prepare bills to implement the Govenm1ent's policy, as announced with the release of the draft Clean Energy Legislation Amendment (Intemational Emissions Trading and Other Measures) Bill2012 and associated bills on 28 August 2012.

For your reference, please find attached the relevant clause of the Clean Energy Legislation Amendment (International Emissions Trading and Other Measures) Bill2012 (Attachment A), and the relevant clauses the Excise Tariff Amendment (Per-tonne Carbon Price Equivalent) Bi112012 (Attachment B).

To provide for the introduction of the Clean Energy Legislation Amendment Package into Parliament in the week begimling 17 September 2012, I would be most grateful for your response before Friday 14 September 2012.

Parliament House,  Canberra ACT  2600   Tel 02 6277 7920  Fax 02 6273 7330

I have sent a copy o.f  his7etrt;to the Prime Minister for her information.

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GREGCOMBET

copy:   The Ron Julia Gillard MP Prime Minister

Parliament House, Canberra ACT 2600   Tel 02 6277 7920 Fax 02 6273 7330

Attachment A- Clean Energy Amendment (International Emissions  Trading and Other Measures) Bill2012

76  After section 196
Insert:

196A  Per-tonne  carbon price equivalent

(1) Within 7 business days after the end of each designated 6-month period, the Regulator must publish on its website the per-tonne carbon price equivalent for the designated
6-month period.

Note:	For designated 6-montll period, see subsection (18).

Per-tonne carbon price equivalent-basic rule

(2)  The per-tonne carbon price equivalent for a designated 6-month period is to be worked out to 2 decimal places (rounding up if the third decimal place is 5 or more) using the formula:

Total of adju.sted + [[l _  T?ta!of designated]  x Averagcarb?n unit]
reference pnces 	limit percentages	auctwn prtce

where:

average carbon unit auction price means the average carbon unit auction price for the designated 6-month period.

total of adjusted reference prices means the total of the adjusted reference prices for the designated 6-month period.

total of designated limit percentages means the total of the designated limit percentages for the classes of eligible international  emissions units that are subject to designated limits for the financial year in which the designated 6-month period ends.

(3)  Subsection (2) has effect subject to subsection (4).

Per-tonne carbon price equivalent-special rule

(4) If:
(a)  no instrument is in force under subsection (6) at the end of a particular designated
6-month period; or
(b)  the per-tonne carbon price equivalent worked out under subsection (2) for a particular designated 6-month period is greater than the average carbon unit auction price for the designated 6-month period;
the per-tonne carbon price equivalent for the designated 6-month period is equal to the average carbon unit auction price for the designated 6-month period.

Reference prices

(5) If:
(a)  a particular class of eligible intemational  emissions units is subject to a designated limit for a particular financial year; and
(b)  a designated 6-month period ends in the financial year;
Parliament House,  Canberra ACT  2600	Tel 02 6277 7920 Fax 02 6273 7330

then, within 7 days after the end of the designated 6-month period, the Regulator must,
by writing, declare that a specified amount is the refermce price for the class of units for the designated 6-month period.

(6)  The Minister may, by legislative instrument, determine the method that is to be used by the Regulator  in making a declaration under subsection (5). ·

(7) In making a detet mination under subsection (6), the Minister must have regard to:
(a)  prices paid (whether in or outside Australia) for eligible intemational emissions units included in each of the relevant classes of eligible international emissions units; and
(b)  such other matters (if any) as the Minister considers relevant.

(8) In making a declaration under subsection (5), the Regulator must comply with a determination in force under subsection (6).

(9)  The Regulator must publish a copy of a declaration under subsection (5) on the
Regulator's website.

(10)  A declaration made under subsection (5) is not a legislative instrument.

Adjusted reference price

(11)  For the purposes of this section, if there is a reference price for a class of eligible intemational  emissions units for a designated 6-month period, the adjusted reference
price for the class of eligible international emissions units for the designated 6-month period is worked out using the fonnula:

Reference price x Designated limit percentage where:
designated limit percentage means the designated limit percentage for the class of eligible international  emissions units for the financial year in which the designated
6-month period ends.

reference price means the reference price for the class of eligible international emissions units for the designated 6-month period.

Modifications of formula etc.

(12) If:
(a)  there is a reference price for a class of eligible international emissions units for a
designated  6-month period; and
(b)  the reference price is higher than the average carbon unit auction price for the designated  6-month period;
then:
(c)  the adjusted reference price for the class of eligible international emissions uillts for the designated 6-month period is to be disregarded for the purposes of the total of adjusted reference prices component of the formula in subsection (2); and
(d)  the designated  limit percentage for the class of eligible intemational  emissions units for the fmancial year in which the designated 6-month period ends is to be disregarded  for the purposes of the total of designated limit percentages component  of the formula in subsection (2).

(13) If:

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(a)  a class of eligible international emissions units (the principal class) is subject to a designated limit for a particular financial year; and
(b)  there is a class of eligible international emissions units (the secondary class) that: (i) 	is included in the principal class; and
(ii) 	is subject to another designated limit for the financial year;
the designated limit percentage for the secondaty class of eligible international emissions units for the financial year is to be disregarded for the purposes of the total of designated limit percentages component of the formula in subsection (2).

(14)  If:
(a)  a class of eligible international emissions units (the principal class) is subject to a designated limit for a particular financial year; and
(b)  a designated 6-month period ends in the fmancial year; and
(c)  there is a class of eligible international emissions units (the secondary class) that: (i) 	is included in the principal class; and
(ii) 	is subject to another designated limit for the financial year; and
(d)  the reference price for the second my class of units for the designated 6-month period is greater than or equal to the reference price for the principal class of units for the designated 6-month period;
the adjusted reference price for the secondary class of units for the designated 6-month period is to be disregarded for the purposes of the total of adjusted reference prices component of the formula in subsection (2).

(15)  For the purposes of this section, if:
(a)  a class of eligible international emissions units (the principal class) is subject to a designated limit for a particular fmancial year; and
(b)  a designated 6-month period ends in the financial year; and
(c)  there are one or more classes of eligible international emissions units (the
secondary classes) each of which:
(i) 	is included in the principal class; and
(ii) 	is subject to another designated limit for the fmancial year; and (iii)	has a reference price for the designated 6-month period that is less than the reference price for the principal class of units for the designated
6-month period;
the adjusted reference price for the principal class of units for the designated 6-month period is taken to be the amount worked out using the following formula (instead of the amount worked out under subsection (11)):

Reference price   x for principal class

Designated	Total of designated limit percentage _   limit percentages
for principal	for secondaty class		classes

where:

designated limit percentage for principal class means the designated limit percentage for the principal class of units for the financial year.

reference price for principal class means the reference price for the principal class of units fot: the designated 6-month period.

total of designated limit percentages for secondary classes means the total of the designated limit percentages for the secondary classes of units for the financial year.

Parliament House, Canberra ACT 2600   Tel 02 6277 7920 Fax 02 6273 7330

Inte1pretation

(16)  For the purposes of this section, if:
(a)  a pa1ticular class of eligible international emissions units is subject to a designated limit for a particular financial year; and
(b)  a designated limit percentage is applicable to that designated limit;
then:
(c)  the designated limit percentage is taken to be the designated limit percentage for the class of eligible international  emissions units for the financial year; and
(d)  the class of eligible intemational  emissions units is take11to be subject to the designated lhnit percentage.

(17)  For the purposes of this section, listed units form a single class of eligible intemational emissions units.

(18) In this section:

adjusted reference pl'ice:
(a)  has the meaning given by subsection (11); and
(b)  has a meaning affected by subsection (15).

class of eligible intemational  emissions units means: (a)  the class mentioned in subsection (17); or
(b)  a class specified in regulations made for the purposes of subsection 123A(1).

designated 6-month period means:
(a)  the 6-month period ending at the end of May 2015; or
(b)  each later 6-month period ending at the end of May; or
(c)  the 6-month period ending at the end ofNovember 2015; or
(d)  each later 6-month period ending at the end of November.

listed unit has the same meaning as in section 123A.

reference price has the meaning given by subsection (5).

Parliament House,  Canberra  ACT  2600    Tel 02 6277 7920 Fax 02 6273 7330

Attachment B- Excise Turiff Amendment (Per-tonne Cm·bon Price
Equivalent)  Bill2012

Schedule 1-Amendments

Excise Tariff Act 1921

1  Subsection 3(1) (definition of average carbon unit auction price)
Repeal the definition.

2 Subsection· 3(1)
Inse1t:

per-tonne carbon price equivalent for a substitution day mentioned in section 6FA or
6FB means the per-tonne carbon price equivalent that:
(a) is worked out under section 196A of the Clean Energy Act 2011 for the 6-month period ending at the end of:
(i) 	the last May before the substitution day, if it is 1 July (in 2015 ol' a later year); or
(ii) 	the last November before the substitution day, if it is 1 January (in
2016 or a later year); and
(b) is the first per-tonne carbon price equivalent that is· worked out under that section for that 6-month period and published under that section.

3 Subsection 6FA(3)
Repeal the subsection, substitute: (3) The formula is:
Per-tonne carbon price equivalent for the substitution day x 0.0022

Note: 	Per-tonne carbon price equivalent is defined in subsection 3(1).

4 Subsection 6FB(3)
Repeal the subsection, substitute: (3)  The fonnula is:
Per-tonne carbon price equivalent for the substitution day  x 0.0026

Note: 	PeMonne carbon price equivalent is defined in subsection 3(1).

Parliament House,  Canberra ACT 2600    Tel 02 6277 7920 Fax 02 6273 7330