Acquittal liability? Look to financial control

By Brad Wylynko and Fleur Newman.

Key Points:
The White Paper provides significantly more flexibility in relation to the allocation of acquittal liability within corporate groups, partnerships and joint ventures than was originally provided under the Green Paper.

Following various submissions by the mining and petroleum industry sectors, the White Paper proposes that in addition to the operational control approach to acquittal liability as set out in the Green Paper, entities may apply to use a financial control approach.

The Green Paper proposed that the allocation of acquittal liability under the CPRS should follow the approach in the National Greenhouse Emissions Reporting Act (NGER Act) by placing acquittal liability with entities which have operational control over covered facilities. Operational control is defined under the NGER Act as the entity which has the power to initiate and implement environment, health, and safety and operating policies. Although this approach provides consistency with the NGER Act, it can cause significant administrative and financial issues in some circumstances.

This is especially apparent in the mining and petroleum industry where operators of covered facilities owned by joint venture participants or partnerships commonly are not a related body corporate of any of those owners. While this may not pose a significant issue in terms of a reporting liability, the intended financial implications of an acquittal liability, without an ability to readily pass those financial consequences back to the owners, posed significant concern.

In recognising this concern, the White Paper provides an option where the scheme regulator may allow entities with financial control over a covered facility to take on scheme liabilities. This will only be allowed, however, where the entity with financial control can demonstrate:

• both the transferee and the transferor agree to the transfer of liability under the scheme
• a single entity takes on scheme obligations for a given facility (that is, multiple parties could not take on obligations for a single covered facility)
• the entity taking on obligations under the scheme agrees to accept responsibility for emissions reporting for that facility
• the entity that is taking on obligations can demonstrate its capacity to obtain information to satisfy its reporting requirements under the NGER Act
• the scheme regulator is satisfied that the entity taking on scheme obligations has the capacity to meet the liability
• the entity taking on the liability is incorporated in Australia; and
• the entity taking on scheme obligations agrees to do so for a minimum of four years.

It is interesting to note that the White Paper also proposes that if the CPRS regulator approves the transfer of acquittal liability, the entity taking on the acquittal liability under the CPRS will also be required to take on the reporting liability for that reporting facility under the NGER Act.

The White Paper also proposes additional flexibility for corporate groups where it may be commercially more appropriate for a subsidiary, rather than a controlling corporation of a corporate group, to take on the acquittal liability under the scheme. In order to do this, the same criteria as noted above must be met, including the requirement that the entity taking on acquittal liability must also take on reporting liability.

The White Paper also details a variety of other flexibility mechanisms in regard to unincorporated joint venture agreements, trusts, partnerships and unincorporated associations in liability for part years.

Combined, these amendments to the CPRS design provide a significantly greater degree of flexibility than was originally proposed in the Green Paper.

For further information, please contact Brad Wylynko and Fleur Newman.