The Federal Government recently announced the Carbon Farming Initiative (CFI) framework, a scheme whereby farmers, foresters and landholders will be able to generate and trade carbon credits to create additional income. The Department of Climate Change and Energy Efficiency (DCCEE) will be receiving submissions on its consultation paper Design of the Carbon Farming Initiative up to close of business on 21 January 2011.
Agriculture and forestry currently account for approximately 23% of Australia's greenhouse gas emissions. The CFI is intended to provide a strong incentive to identify and implement low-cost methods to reduce emissions arising from the agriculture and forestry sectors.
Under the proposed CFI, farmers and landholders will be able to generate credits from projects that reduce greenhouse gas emissions or sequester carbon.
Eligible abatement activities will include reforestation and revegetation, reduced fertiliser and livestock emissions, manure management, reduced soil carbon, savanna fire management (subject to the successful completion of current research) and burning of crop residue, avoided deforestation, reduced rice cultivation emissions and reduced emissions from landfill deposited before 1 July 2011.
Farmers, foresters and landholders will be able to create tradeable carbon credits from the eligible abatement activities and then sell them domestically and internationally. International buyers will include governments with obligations under the Kyoto Protocol, companies with emissions obligations and organisations voluntarily offsetting their emissions. Domestic buyers will include companies with offsetting obligations under state regulations as well as organisations voluntarily offsetting their emissions. Credits can be sold through market exchanges, carbon brokers or directly to buyers. Income tax and GST provisions will apply to the carbon credits.
National Carbon Offset Standard
Under the scheme, only credits that meet the National Carbon Offset Standard (NCOS) are considered suitable to contribute to the scheme. The NCOS requires internationally recognised standards to be met to ensure that any achieved abatement is real and verifiable. The core requirements that must be met under the NCOS are additionality  and permanency. 
The environmental integrity of the CFI scheme will directly affect its success. As a consequence, the government has established the Domestic Offsets Integrity Committee (DOIC). The DOIC is an independent expert panel that will assess proposed methods for use under the CFI scheme and assess whether they meet the NCOS standards. CFI methodology will be developed by DCCEE and the Department of Agriculture, Fisheries and Forestry, as well as private project developers.
Each methodology will be required to outline the abatement activities, procedures to determine baseline emissions, procedures to identify and estimate leakage, measurements, monitoring and reporting requirements. Once approved, the methodologies will become legislative instruments of the CFI legislation. A particular methodology must be approved for a crediting period of three years to ensure continuous improvement of methodologies.
Farmers, foresters and landholders are able to participate in the CFI scheme by obtaining necessary approvals and managing and reporting the project themselves, using a service provider to assist them, or agreeing to have an offset aggregator company undertake the activity on their land.
Projects must be approved by the CFI scheme administrator to be eligible for participation. It is proposed that reporting to the administrator occur annually and during the crediting period, and that the report be independently audited.
The legislation is expected to be put before the Commonwealth Parliament in the first half of 2011, with the scheme proposed to commence on 1 July 2011.
How can DLA Phillips Fox help you?
DLA Phillips Fox can help you navigate your way through the complex issues of the CFI. We can:
- Prepare a submission on your behalf if you wish to comment on the CFI consultation paper.
- Help you understand your obligations and liabilities regarding maintenance of the carbon stock used to generate the credits.
- Familiarise you with the standards that you need to comply with under the NCOS to ensure that your project qualifies for the CFI carbon credits.
 Additionality requires emission abatements to be 'additional' to any emission abatement achieved though ordinary business operations, meaning that a project must result in abatement that would not have occurred without the implementation of the scheme.
 Permanency relates to any offset projects involving the long-term storage of carbon in soil, plants and other carbon sinks and requires the carbon to be captured for at least 100 years to provide genuine removal of carbon from the atmosphere.
© DLA Phillips Fox
DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.