The Carbon Price Mechanism (CPM) has been operating for a few months now. There is a good familiarity with the obligations under this legislation (we hope), but is there a similar familiarity with the consequences of a failure to comply with the obligations set out in the Clean Energy Act 2011? The Act sets out a range of new obligations, and the Clean Energy Regulator has a broad set of powers – and there are costs for failing to comply.
In this article we review the Clean Energy Regulator's powers, the penalty provisions imposed by the Clean Energy Act 2011 and examine how these penalties may be applied.
If the Regulator believes that a person has information or a document relevant to the operation of the Act it may give the person written notice to provide to the Regulator the document or information (section 221). A failure to comply with such a notice may attract a civil penalty.
Regulations have been enacted under section 227 requiring the maintenance of records. Records including documents and materials supporting applications to the Regulator for:
an obligation transfer number (section 38(1));
to be an approved person (section 56(2));
the declaration of a joint venture (section 68(2));
a participating percentage determination (section 74(2)); and
a liability transfer certificate, corporate group or financial control (section 81(2) or section 85(2)),
must be retained for five years. A failure to do so may attract a civil penalty.
The Regulator has the power to engage inspectors (section 230). These inspectors may investigate and determine whether or not the Clean Energy Act has been complied with. The investigative powers extend to entering premises with consent or with a monitoring warrant issued by a magistrate pursuant to section 245.
Liability of executive officers
A director, CEO, CFO or secretary of a body corporate may be liable and attract a civil penalty where there is a contravention of the Act by the organisation and the relevant officer knew of the contravention or was reckless or negligent as to whether the contravention would occur. The officer must have been in a position to influence the conduct of the organisation with respect to that contravention, but have failed to take steps to prevent the contravention.
Civil penalty orders
There are 34 civil penalty provisions in the Clean Energy Act. Thirteen of these are continuing contraventions which means that the obligation to do the required action continues and a new contravention is committed each day until the action is done (section 263). Contravention of these provisions attracts financial penalties and it is not necessary for the Regulator to prove any intention (section 262(2)).
If the Federal Court is satisfied on the application of either the Regulator or the Commonwealth Director of Public Prosecutions that there has been a breach of one the civil penalty provisions, it may impose a pecuniary penalty. The pecuniary penalties that may be imposed on a body corporate by the Court range from $55,000 for a failure to inform the Clean Energy Regulator of a change in name or address for an entity which is a body corporate listed on the Obligation Transfer Number Register within 28 days (section 47(1)(b)), to $1.1 million for most other contraventions including, for example, failure to comply with reporting and record-keeping requirements under the Jobs and Competitiveness Program (section 151(1) and (2)).
The Regulator may, independently of the Court, issue an infringement notice for a breach of the Act or regulations. Such notices are generally issued in respect of less serious offences. The Regulator can impose a penalty equivalent to 20% of that which may be imposed by the Court for an offence by issuing an infringement notice (section 267). Payment of the infringement notice has the effect of discharging any liability for the breach and prevents the Regulator from taking any further action with respect to the alleged contravention.
The Act creates numerous specific criminal offences. For example, it is a criminal offence to enter into a scheme to avoid the payment of a short fall charge. Liable entities that do not surrender a sufficient number of carbon units or eligible emissions units for covered emissions in a compliance year are liable to pay a short fall charge. It is also a criminal offence to commit a fraud in relation to carbon units. A person who obtains any carbon units in a fraudulent manner may be ordered to relinquish these units, and may also face criminal sanctions. Various terms of imprisonment may be imposed pursuant to the Commonwealth Criminal Code.
Failure to answer questions or produce documents in circumstances where an inspector is authorised by a monitoring warrant to enter a premises is a criminal offence and may attract imprisonment of up to 6 months.
The Regulator may accept an undertaking that a person will take specified action or will refrain from taking specified action in order to comply with the Act (section 278). If a Court is satisfied that there has been a breach of any such undertaking the Court may make orders, including that compensation be paid to any person who has suffered loss or damage as a result of the breach.
Other regulatory bodies
The Regulator works in close partnership with the ACCC, ATO, AUSTRAC and Department of Sustainability, Environment, Water, Population and Communities. This includes sharing of relevant information, intelligence gathering, and referring matters to the Federal Police or the Commonwealth Department of Public Prosecutions, for example, in cases of fraud that may involve carbon units.
What does this mean to you?
The Regulator has produced a document, Compliance, Education and Enforcement Policy, which indicates that in order to achieve compliance, the Regulator initially intends to educate, engage and provide support to ensure that market participants do not inadvertently fail to meet obligations.
This is not unusual with new statutory schemes. However, responsibility for complying with these laws rests with the individual or organisation and contraventions will be dealt with. The Regulator has discretion in its management of these issues, but the seriousness of contraventions will inform the approach it takes.
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