Late last week, the Senate passed the Abbott government’s controversial A$2.5 billion Emissions Reduction Fund, the centrepiece of its Direct Action Plan to combat climate change.

Its passage has been accompanied by extensive debate over its ability to meet Australia’s carbon emissions reduction target, particularly when compared with the former Gillard government’s carbon pricing scheme or a market-based mechanism. But might the scheme be subject to a future constitutional challenge?

Direct Action, spending and school chaplains

The Emissions Reduction Fund is an extension of the Carbon Farming Initiative, originally introduced in 2011. It provides competitive grants to organisations that volunteer to reduce their carbon emissions. It is, in essence, a Commonwealth spending scheme.

In 2012 and 2014, Toowoomba man Ron Williams brought two successful challenges to the constitutionality of another Commonwealth spending scheme, the National School Chaplaincy Program. These cases dramatically changed our understanding of the Commonwealth’s spending power, and have important implications for the constitutionality of schemes such as the Emissions Reduction Fund.

In the school chaplaincy cases, the High Court held that – with some exceptions – the Commonwealth requires a valid statutory authorisation to spend money in addition to that provided in normal appropriations/budgetary legislation.

With the exception of creating a new way of funding school chaplains (through grants to the states, which is explicitly authorised in the Constitution), the Commonwealth government appears to have largely ignored the High Court’s decisions and their impact on many of its hundreds of spending programs.

The constitutional validity of the Emissions Reduction Fund

The Commonwealth parliament has no explicit constitutional power to make laws about the environment. Rather, it has indirect powers to make environmental laws through a number of its other powers. But a closer analysis of these powers reveals that the constitutional foundations of the Emissions Reduction Fund are far from certain.

In the 1980s, the Hawke government enacted legislation to protect Tasmania’s southwest wilderness from the state’s hydro-electric dam project. In the landmark Tasmanian Dam Case, the High Court accepted that the Commonwealth may make laws implementing international obligations relating to the environment under its “external affairs power”.

The Carbon Credits (Carbon Farming Initiative) Act 2011 states that the object of the act is to implement the UN Framework Convention on Climate Change and its Kyoto Protocol.

The difficulty for the Emissions Reduction Fund is that the High Court has subsequently explained that to support the enactment of Commonwealth legislation, international obligations must be “sufficiently specific” – that is, they must “direct the general course to be taken”.

This does not bode well for the Emissions Reduction Fund’s reliance on the Climate Change Convention or its Kyoto Protocol. The convention sets out the aspirational objective of stabilising greenhouse gas concentrations to prevent man-made climate change. A number of guiding principles are set out. There are very few concrete obligations, then lots of pretty vague obligations about adopting policies and measures to mitigate climate change and prepare for its impact.

That the convention may not contain specific enough obligations to support Commonwealth legislation combating climate change is not surprising. It was intended to be a framework document, with the binding detail to be provided for in the subsequent protocols.

Under the Kyoto Protocol, Australia is committed to a binding greenhouse gas emission reduction target, with a further commitment to develop and adopt policies and measures to achieve this target. But the Kyoto Protocol does not specify the way parties must reach their emissions target, providing only an indicative list of policies and measures.

One of the difficulties for the Commonwealth in relying upon the Kyoto Protocol to support its legislation is that the protocol leaves such a wide discretion to the parties to determine policies and measures. In Pape v Commissioner of Taxation, two High Court judges rejected that a G20 declaration could support the federal government’s tax bonus legislation, because it was clear that:

… it was for each nation to chart its own course in responding to the circumstances that have arisen.

This same problem would appear to confront the policies and measures that are suggested by the Kyoto Protocol.

AAP/Lukas Coch

Other constitutional bases

The Commonwealth is aware that the Emissions Reduction Fund may not be supported by the Climate Change Convention or its Kyoto Protocol. The amending legislation inserts a new provision, entitled “alternative constitutional basis”. However, none of the possible alternatives provide a strong basis to support the scheme in its entirety.

Three alternative bases are put forward that would, if successful, support the scheme in their entirety. These rely on the Commonwealth’s implied constitutional power to make laws that it alone can make for the benefit of the nation; the power to make laws on “matters of international concern”; and the power to make laws on “matters external to Australia”.

The trouble for the Commonwealth in relation to each of these powers is that the High Court has been reluctant to interpret them expansively. The Emissions Reduction Fund seems unlikely to fall within their scope as it extends into environmental regulation – an area that was traditionally the responsibility of the states.

The alternative basis – and the one most likely to be successful, although it may restrict the operation of the program to a small extent – is the attempt to limit the operation of the act, if necessary, to projects run by trading, financial or foreign corporations (known as “constitutional corporations”), or where abatement is undertaken by such a corporation.

The Commonwealth’s “corporations power” is generally understood to have a very wide operation. The High Court has explained that the power allows the Commonwealth to regulate constitutional corporations and also to create rights and privileges belonging to these corporations.

More recently, in the second school chaplaincy decision, the High Court appears to have reduced the scope of the power. Under this new understanding, the Emissions Reduction Fund, to the extent it simply provides funding to constitutional corporations, and through that funding regulates their activities on a voluntary basis, may fall outside of the scope of the corporations power.

A constitutional patchwork quilt

The remaining attempts to secure the Emissions Reduction Fund’s constitutional validity resemble something of a patchwork quilt, and one that doesn’t quite cover the toes. There are attempts to confine the Emissions Reduction Fund to projects run by the Commonwealth, an authority of the Commonwealth, territories, Commonwealth places, and projects carried out in the course of interstate trade, or international trade.

These are subjects over which the Commonwealth has strong constitutional powers. But even if they are successfully sewn together, they do not support the full operation of the proposed scheme.

Simply because there are doubts about the constitutional validity of Direct Action does not mean that the House of Representatives should refuse to pass the amending legislation. Many innovative federal schemes have been passed in the face of some constitutional uncertainty – for example, the Commonwealth’s 1983 legislation that stopped the building of the Franklin Dam. Rather, these doubts may form the basis of a future constitutional challenge.