Lawyers have been reviewing the details of the Commonwealth Government’s carbon scheme and how it will impact their mining clients.
Supplier contracts and joint ventures will be two areas of interest. “Supplier contracts need to be sophisticated enough to deal with a carbon price. Similarly joint venture clients need to consider whether arrangements allow for an appropriate distribution of costs,” said Tim Hanmore, a partner with McCullough Robertson. However, the fact that co-joint venture parties will now be liable for emissions in direct proportion to the interest they hold represents a significant improvement on the old CPRS - under the CPRS liability was assigned by the government, creating a ‘long and tortuous’ negotiation process between joint venture parties, according to Allens Arthur Robinson partner and energy specialist Grant Anderson.
Despite a A$1.3bn jobs package applicable to 25 mines across Australia, the coal industry also faces the challenge of reducing emissions from coalmines. “Technically abatement of fugitive emissions is hard in the [coal] sector. It’s a matter of developing the technology and enabling those emissions to be measured,” said Anderson. With open cut mines there is no ventilation system allowing for measurement of emissions.
The LNG sector has fared better than coal miners, according to lawyers. The LNG market is expected to grow, competing with coal in the electricity generation market, and will benefit from a 50% compensation rate under the new package. “There’s some upside domestically arising from a carbon tax which will provide [the LNG sector] a leg up in terms of competing with coal in the electricity generating sector,” said Jeff Lynn, a partner with expertise in environmental and natural resources law wtih Blake Dawson. However Australian miners still have to compete with those from jurisdictions that do not have a tax on carbon, such as Iran, Qatar and Russia, potentially charging a higher price, he cautioned.
LNG companies will require clarity on what happens once the five years of assistance under the package ends, “What will happen to the level of assistance after that and once we move to the flexible scheme is not yet clear,” said Lynn. Uncertainty about future carbon costs is another important factor for investor clients, he added. Lawyers also agreed that this is a key consideration for joint ventures in the LNG sector, where deals are worth billions of dollars and investments can be for up to thirty years.
On the renewable energy front, wind generation is still the most cost effective renewable source and will saturate the rest of the market, according to Michael Graves, an energy and infrastructure partner with Allens Arthur Robinson. Long term projects will also receive a kickstart with the help of the A$10bn Clean Energy Finance Corporation helping solar and geothermal energy become viable large scale energy sources. “One of the issues for these companies has been obtaining private finance,” said Graves. He said that a lot of solar technology investment which went off-shore following the CPRS is now coming back. “It’s [also] good that in addition to the carbon price we are actually going to fund these technologies, rather than just being someone who imports them,” he added. Share prices of a number of wave energy and geo-thermal energy companies rose as much as 10% following the announcement.
The large scale funding offered by the package will also boost the renewable sector in particular, with A$5bn allocated to renewable sources. “One of the concerns the greens had long expressed was that the market failed to step up and fund large scale renewable projects,” said Lynn. The fund will allow for major long term investment as loan repayments can be reinvested in new projects. Streamlining the government departments responsible by creating the Australian Renewable Energy Agency (ARENA) will also mean an end to ‘chopping and changing’ regulations governing the sector, according to Lynn.
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