Joint Ventures under the Clean Energy Package

The package of legislation to implement the carbon pricing mechanism (also called the carbon tax) was introduced into the Federal Parliament on 13 September 2011.

The Clean Energy Bill 2011 (Cth) sets out rules for determining who is liable to pay the carbon price. For a joint venture, the liable entity for a facility that emits covered greenhouse gases above the liability threshold will be:

• the participants in the joint venture, if it is a designated joint venture;  and if not
• the person with operational control of the facility.¹

The terms "facility" and "operational control" are defined in the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act). The NGER Act is to be amended by the Clean Energy (Consequential Amendments) Bill 2011 (Cth) (Consequential Amendments Bill).

What is a joint venture?

The joint venture rules will only apply to unincorporated joint ventures. The term "joint venture" will be defined to mean "an unincorporated enterprise carried on by 2 or more persons in common otherwise than in partnership". This replaces the current definition under the NGER Act which omits the word "unincorporated". Nonetheless this new definition reflects the interpretation adopted in guidelines to the current NGER Act published by the Department of Climate Change.²

Incorporated joint ventures will be subject to the usual rules. An incorporated joint venture with a facility that emits covered greenhouse gases above the liability threshold will need to identify the person with operational control by applying the non-joint venture rules in the NGER Act.

Operational control

The test for operational control is in section 11 of the NGER Act. The section is to be amended by the Consequential Amendments Bill, but the substance of the test remains unchanged. The test requires identification of authority to introduce and implement operating, health and safety and environmental policies (section 11 authority). Section 11 is also subject to a declaration being made by the regulator under section 55 or section 55A.

Once amended, the operational control provisions in the NGER Act will apply to unincorporated joint ventures as follows (assuming that no section 55 or section 55A declaration has been made):

• where one person has section 11 authority, that person has operational control;
• where two or more persons have section 11 authority and one has greater authority to introduce and implement operating and environmental policies, that person has operational control; and
• where two or more persons have section 11 authority but none has greater authority and the facility is the facility of a joint venture, one of those persons needs to be nominated and the nominated person is taken to have operational control.

The provisions distinguish between operational control for the purposes of the NGER Act and operational control for the purposes of the Clean Energy Bill. The Clean Energy Bill in turn defines operational control by reference to the NGER Act.

Carbon pricing mechanism liability

Turning to the carbon pricing mechanism in the Clean Energy Bill, the general rule is that operational control over a facility determines liability. The general rule is displaced for designated joint ventures. There are two types:

• the mandatory designated joint venture, which corresponds to the third category above (that is, two or more persons have section 11 authority but none has greater authority), provided that no section 55 or section 55A declaration is in place;  and
• the declared designated joint venture, which is available to the first two categories above, subject to passing the joint venture declaration test for the facility (as explained below) and other declaration requirements. A joint venture satisfying these requirements may apply to be declared.

Joint ventures that are not designated joint ventures will be subject to the usual rules for determining liability.

Joint venture declaration test

The joint venture declaration test is in clause 67 of the Clean Energy Bill. A joint venture passes the joint venture declaration test in relation to a facility if:

• the joint venture has the facility; and
• the participants in the joint venture are parties to an agreement that deals with the facility; and
• the facility is operated exclusively for the joint venture by a person (who may be a participant in the joint venture); and
• none of the participants in the joint venture is an individual; and
• the joint venture is not a mandatory designated joint venture.

The Bill sets out the application procedure including the requirements for operator consent to the application.

Even where the joint venture declaration test is passed, the Clean Energy Regulator³ must refuse an application if it is not satisfied that the applicants have, and are likely to continue to have (in the words of clause 70) the capacity, the access to information and the financial resources necessary for them to comply with obligations that will be imposed if the declaration is made. The Regulator can also refuse an application where a joint venture participant does not have a "satisfactory record of compliance". Regulations may set out additional requirements that need to be satisfied before the Regulator can make the declaration.

Participating percentage

Where there is a designated joint venture, liability under the carbon pricing mechanism is shared among the joint venture participants in accordance with their respective participating percentages.

The participating percentage is determined by a declaration made by the Regulator, either on application by the joint venture participants or on the Regulator's own initiative. The default position under the legislation is for the participating percentage to reflect each participant's share of the output of the joint venture, whether in terms of goods or services. Where the joint venture is not operated on that basis, the participating percentage will be determined by rules to be set out in regulations. However in all cases the Regulator can reach a different determination if the Regulator is satisfied that another percentage would equally well, or better, represent the way in which the economic benefits from the facility are shared among the participants.

Registration and reporting

The NGER Act remains the source of the obligations to register and report emissions, both for the purposes of the NGER Act and to underpin the carbon pricing mechanism. 

Mandatory designated joint ventures will also need to notify their status under the Clean Energy Act.