Australia: The Carbon Farming Initiative is legislated

Last Updated: 14 September 2011
Article by Elisa de Wit, Damon Jones and Florence Riviere

On 23 August 2011 the Federal Parliament passed the legislation required to implement the Carbon Farming Initiative (CFI). The CFI is a carbon offset scheme designed to allow abatement activities from the land sector to generate carbon credits which can be used in the domestic and international compliance and voluntary carbon markets. For details of the CFI, please refer to our previous legal updates:

The following three Bills were passed:

  • The Carbon Credits (Farming Initiative) Bill 2011 (CFI Bill)
  • The Carbon Credits (Consequential Amendments) Bill 2011
  • The Australian National Registry of Emissions Units Bill 2011.

A number of amendments to the CFI Bill were made during the Senate debate.
These amendments included:

  • allowing for the Minister to decide to exclude certain kinds of projects on the basis of expectations of significant impact on agricultural access
  • allowing non-exclusive (in addition to exclusive) native title right holders to hold "eligible sequestration rights" and conduct projects under the CFI
  • reducing the threshold for the exclusion of certain kinds of projects in relation to which there is a "material risk" (rather than a "significant risk") that the kind of project might have an adverse impact on various matters (such as agricultural access), and
  • increasing the requirements for the Domestic Offsets Integrity Committee (DOIC) to publish certain information.

Now that the legislation has passed, the CFI will commence on 1 January 2012. The CFI's future has been awarded a degree of additional certainty by the Coalition's confirmation that it does not intend to repeal the CFI if it gains power at the next election.

The CFI complements the Government's Carbon Price Mechanism (CPM) which is expected to be tabled in the Federal Parliament next week. The CPM is crucial to the success of the CFI as it will strongly influence the demand for the carbon credits created under the CFI (to be known as Australian Carbon Credit Units (ACCUs)). Specifically, two key elements of the CPM package will drive significant demand:

  • compliance (Kyoto type) ACCUs will be eligible in the CPM for up to 5 per cent of a liable entity's compliance in the fixed price period (2012-15) and for up to 100 per cent of compliance from 1 July 2015 (when the flexible price period of the CPM commences), and
  • a fund of AUD$250 million will be set up to purchase voluntary (non-Kyoto type) ACCUs which cannot be used for compliance in the CPM. This will occur over six years starting in 2012/13.

Draft regulations in relation to the CFI were released on 16 August 2011 and are open for consultation until 16 September 2011. These regulations set out two lists, known as the positive list and the negative list. The positive list outlines projects which will be deemed additional to business as usual and therefore automatically qualify as projects able to participate in the CFI, provided they are not required to be undertaken as a matter of law.For example, the positive list includes the establishment of permanent environmental and mallee plantings, a range of land management and improvement activities, and the capture and combustion of methane from waste deposited in a landfill facility before 1 July 2012. The negative list outlines project types that are excluded from participating in the CFI, such as the planting of known weed species and the cessation or avoidance of the harvest of a plantation forest.

Regulations relating to other aspects of the schemes including eligibility requirements are yet to be released, but are expected before the end of the year given the 1 January 2012 start date.

CFI methodologies will also have a key role in defining the CFI landscape as they set out the rules for implementing and monitoring sequestration and abatement activities and generation of carbon credits under the scheme. A number of draft methodologies have been through public consultation processes and are currently with the DOIC for consideration. These include methodologies for Savanna Burning, the Capture and Combustion of Landfill Gas, Environmental Plantings, Feral Animal Management and Destruction of Methane from Manure. Other methodologies (for example, sequestering carbon in soil) are still being developed.

With the commencement of the CFI less than four months away, now is a good time to start actively examining opportunities and considering project activities that may be eligible to participate in the CFI and generate revenue through the creation of ACCUs. This will be particularly relevant for potential participants in the farming, forestry, land management and landfill sectors. It is also important that other potential market participants, advisers and intermediaries understand the opportunities associated with the CFI and incorporate these into their planning for 2012 and beyond.

Norton Rose is currently working with a range of clients to help them understand the CFI legal framework and the potential commercial opportunities arising from the scheme.

We have also been appointed by the Carbon Market Institute (CMI), in conjunction with RAMP Carbon, to develop practical information on the CFI for the CMI's networks and the market more generally. The first output of this work has been released by the CMI today and is an Introduction to Participation in the Carbon Farming Initiative. We will be developing a more extensive Guide for Business for the CMI in coming months, which will explore all aspects of the CFI in detail and provide the information necessary to undertake projects under the scheme.

If you are interested in hearing more about the CFI and its opportunities, we will be holding a number of breakfast briefings in mid-October. Further details will be circulated shortly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Elisa de Wit
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