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Abstract
This thesis seeks to demonstrate that, during the fixed charge years, Divisions 420, 820 and 855 Income Tax Assessment Act 1997 (Cth) ( ITAA 97 ) are inconsistent with the object contained in s 3(a) of the Clean Energy Act 2011 (Cth) ( Clean Energy Act ). Section 3(a) states the Clean Energy Act was enacted to give effect to Australia s obligations under the United Nations Framework Convention on Climate Change ( UNFCCC ) and the Kyoto Protocol. Broadly, the obligations that arise under these agreements are the reduction of greenhouse gas ( GHG ) emissions.
The Clean Energy Act introduces a GHG pricing mechanism commencing 1 July 2012. The mechanism has two distinct phases; the fixed charge years and the flexible charge years. There are three fixed charge years where the price of carbon is statutorily defined and operates like a tax. The mechanism adopts a carbon unit as the basis of operation during both phases.
The thesis identifies that the mechanism introduced by the Clean Energy Act is inconsistent with s 3(a) Clean Energy Act during the fixed charge years due to the unlimited availability of carbon units and the inability to surrender units generated under the Kyoto Protocol. However, as obligations arising under the Kyoto Protocol are limited to the first commitment period (2008-2012), only fixed charge years were considered.
Division 420 of the ITAA 97 was enacted to address the taxation treatment of carbon units. This thesis demonstrates that the operation of Division 420 does not provide an incentive to limit GHG emissions. This is principally due to the favourable taxation treatment of free carbon units. Free carbon units are generated through the Jobs and Competitiveness Program introduced by the Clean Energy Act. Free carbon units are allocated based on the entity s production levels. Therefore, incentives to hold free carbon units are inconsistent with a reduction of GHG emissions.
In addition, this thesis identifies distortions that arise to the operation of Divisions 820 and 855 ITAA 97 resulting from the allocation of free carbon units. For foreign entities, these distortions amplify the favourable taxation treatment when free carbon units are held.