This very strange sentence appears on page one of the carbon tax repeal consultation paper:

“The government will not extend the carbon tax beyond 2013-14, even if the Parliament does not pass the carbon tax repeal bills until after 1 July 2014.”

In this very likely scenario, is the federal government proposing the law of the land should be ignored? That would put liable businesses in an odd position, especially with the example before them of Clive Palmer flouting the carbon tax law already.

To his credit Prime Minister Tony Abbott is talking tough with Palmer, who will be in the box seat sharing the balance of power in the Senate from July 1 next year, and who has an unpaid carbon tax liability of some $7 million for 2012-13 and is presumably racking up a similar liability this year.

Palmer is so loose it is possible to imagine his own carbon tax bill becoming a talking point as he wields make-or-break influence in the looming Senate negotiations over the repeal.

Speaking to Crikey, Climate Institute CEO John Connor warns of a “cascading illegality” if other liable entities decide they will take the government at its word and plan not to pay the tax from July 1.

Environment minister Greg Hunt does not want to countenance a scenario in which Labor fails to support repeal, dodging repeated questioning on the issue on ABC Radio’s AM program this morning:

“We’re getting way ahead of ourselves. It is designed to take effect under every circumstance from the evening of 30 June 2014. We cannot take away the tax without legislation being passed, but this legislation is designed for every circumstance.”

But if Labor and the Greens do stick to their guns, and the government doesn’t have the numbers in the Senate until July 1, there will need to be some retrospective mechanism to give effect to a promise that the 2015 fiscal year will be carbon tax-free.

That opens up a complete can of worms, especially for the electricity companies that have forward contracts in the wholesale electricity market that already factor in a carbon price, and for retailers that could have to pay the tax, pass it through to customers and then refund them later — all the time, as Bernard Keane reports, with the competition watchdog on their back. The big energy companies say they need at least six months from the date the repeal legislation actually passes to comply.

Liabilities of roughly $6 billion are up in the air in 2014-15, going by figures from the Carbon Market Institute, a non-profit group that represents emitters liable under the carbon tax framework. In the first year of the carbon tax, 2012-13, there was $3.2 billion paid in carbon tax and free permits issued worth another $3.3 billion.

Norton Rose partner Elisa de Wit, who commentates for Climate Spectator today, told Crikey the easiest solution would be to allow the carbon tax to run for its third compliance year, in 2014-15. But that would be politically unacceptable.

It’s one thing to kill off the carbon tax but there are going to be major headaches for business if the government insists on trying to do it so fast.