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Carbon Estimation Errors to Cost Businesses $872k

The latest version of the Carbon Pricing Mechanism’s ‘Liable Entities Public Information Database’ (LEPID) dated 17 January 2014, shows that estimation errors have cost six liable entities over $872,000 in additional carbon costs.

Under the legislation organisations could choose to apply 75% of the previous year’s emissions from liable facilities, or use their own methodology to estimate. Where their methodologies have proven incorrect, an ‘estimation error unit shortfall charge’ must, and subsequently has, been applied by the Clean Energy Regulator (CER). The shortfall charge is 30% on top of every carbon unit due, bringing the cost to $29.90 per tonne of carbon from the $23 normally applicable for the 2012/13 year.

Another eight liable entities have had their shortfall charge waived by the CER. These entities were involved in joint ventures, where a legislative technicality meant that joint venture participants would not reasonably use the ‘safe’ method (i.e. using 75 per cent of the previous year’s data). This practically ‘forced’ them to estimate (and run the risk of an estimation error). They have been listed on the LEPID as being subject to an estimation error shortfall charge, however the 30% penalty has been waived.

Three other organisations have been hit with a ‘provisional unit shortfall charge’ for not acquitting the appropriate number of units, and one liable entity has been handed both a provisional and estimation error shortfall charge. 

Errors a Small Fraction of Total Units Surrendered

The errors in carbon units estimated and subject to the shortfall penalty equate to only 0.06% of the total eligible emissions units surrendered (includes Australian Carbon Credit Units -from the Carbon Farming Initiative- and the free carbon units under the Jobs and Competitiveness program). The 0.06% error margin excludes the joint venture participants who had their estimation error waived.

Of the 348 liable entities currently listed on the LEPID, only 2.6% have been handed an estimation error, or provisional unit shortfall charge.

The CER can waive an Estimation Error and a Late Payment Penalty, but not a Provisional Unit Shortfall Charge.

It is important for liable entities to understand what the CER can and can’t do with regards to estimation error and provisional shortfall charges. As discussed earlier, estimation error shortfalls may be waived by the CER, however provisional unit shortfall charges cannot be waived as they are legislated. Liable entities may appeal to the Department of Finance to have any debt waived at the discretion of the Minister. Even if successful they will remain on the LEPID as having a provisional unit shortfall. Our information is that this only occurs in rare circumstances and the likelihood of success would need to be considered prior to making such an application.

Liable entities that are hit with a provisional unit shortfall charge may also be subject to a late payment penalty if payment was not made by 24 June 2013. This becomes particularly important as liable entities may not have recognised a provisional shortfall until the final emissions numbers were submitted in October 2013 or later. This penalty can be applied retrospectively and equates to 20% p.a. of the value of the shortfall charge, applied on a daily basis. Our information from the CER is that late payment penalties from a provisional unit shortfall will be dealt with on a case-by-case basis, although the CER does have the authority to waive these.

 Click here to view the latest version of the LEPID.

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