The Carbon Farming Initiative (CFI), Australia's domestic carbon offset scheme has had a slow start with the necessary mechanics for generating Australian Carbon Credit Units (ACCUs) not yet available, notwithstanding that the scheme formally commenced on 8 December 2011. However, steps are moving in the right direction, with another set of regulations having just been released by the Government for comment.
The exposure draft Carbon Credits (Carbon Farming Initiative) Amendment Regulation 2012 (Amendment Regulations) will amend the existing Carbon Credits (Carbon Farming Initiative) Regulations 2011 (see publication - Carbon Farming Initiative open for business), and cover such procedures as preparation of audit reports and applying for a certificate of entitlement (which is the precursor to receipt of ACCUs). This legal update provides an overview of key aspects of the Amendment Regulations. For an overview of the CFI, please refer to the Carbon Market Institute publication " The Carbon Farming Initiative: An Introduction to Participation", co-authored by Norton Rose Australia and RAMP Carbon. For further details of the CFI, please also refer to our previous legal updates:
- The Carbon Farming Initiative is legislated
- Carbon Farming Initiative
- Carbon Farming Initiative legislation tabled
Following is a summary of key aspects of the Amendment Regulations.
Projects are only eligible under the CFI if they are not required to be undertaken by a law of the Commonwealth, State or Territory, as set out in section 41(1)(b) of the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act). The Amendment Regulations outline circumstances where this "regulatory additionality" test does not apply. These include:
- activities which are required to be conducted under a conservation covenant entered into with a government body, and
- a project undertaken to satisfy a legal requirement set out in Commonwealth, State or Territory law to offset greenhouse gas emissions, if a person is using that offsetting to minimise its liability under the Clean Energy Act 2011 (CE Act) - for example, if offsetting of emissions is required as a condition of a planning approval, this offsetting activity can also generate ACCUs, which can be used by a liable entity under the CE Act.
Audit reports must be completed to obtain a certificate of entitlement, which gives the holder the right to receive ACCUs. Audit reports must detail whether the CFI project is in accordance with the relevant methodology for the particular reporting period and must contain a "reasonable assurance" conclusion in accordance with the National Greenhouse and Energy Reporting (Audit) Determination 2009.
Certain projects are exempt from the need for an audit report, namely projects which will abate less than 2,500 tonnes of CO2-e per year, are eligible non-Kyoto projects and where an audit report has already been submitted. However, this exemption will not apply if the project proponent is undertaking more than one project of the same project type, and those projects in combination exceed the 2,500 CO2-e limit.
Certificate of entitlement
The Amendment Regulations specify the information that is required to accompany an application for a certificate of entitlement. In assessing an application for a certificate of entitlement1, the Clean Energy Regulator must be satisfied that carbon offsets credits have not already been issued for the abatement, or the abatement has already been "accounted for", under a prescribed non-CFI offsets scheme2. "Accounted for" includes the following circumstances:
- the abatement has been sold or transferred or used to offset greenhouse gas emissions or discharge liabilities associated with greenhouse gas emissions; or
- an arrangement has been entered into to facilitate the above; or
- an arrangement has been entered into for the sale or transfer of carbon offset credits associated with the abatement.
Of note, it does not matter whether the arrangement is still in place or not.
This provision is important because it means that projects under existing schemes, such as the New South Waste Greenhouse Gas Abatement Scheme or Greenhouse Friendly", which have already received credits under those schemes, cannot apply to have these credits converted to ACCUs. Further if credits or abatement have been presold (for example, in forward contracts), they will also be ineligible. The only exception to this is if the abatement is being used by a liable entity to reduce its liability under the CE Act and the liable entity is required to offset greenhouse gas emissions under a Commonwealth, State or Territory law.
Variation and revocation of declaration of eligible offsets project
Section 27 of the CFI Act sets out the procedure for applying for a declaration that a project is an eligible offsets project, and dictates what matters the Clean Energy Regulator must have regard to in determining whether to make a declaration. It is possible to seek variation of the declaration to amend the project area, project proponent or remove any condition dealing with a requirement to obtain regulatory approvals. The Amendment Regulations specify the requirements for applying for a variation. The Amendment Regulations also specify the requirements for applying to revoke a declaration, in the event that the revocation is voluntary. If the Clean Energy Regulator decides to revoke a declaration, it must give notice of the revocation to the project proponent and provide a 28 day period for submissions.
It is important to note that if a declaration is revoked for a sequestration project, and ACCUs have been issued in respect of that project, the same number of credits must be handed back. Further, the same type of credits must be surrendered (for example, if Kyoto ACCUs were issued for the project, Kyoto ACCUs must be handed back).
In certain circumstances, the project proponent is required to notify the Clean Energy Regulator of a reversal of carbon sequestration. Only significant reversals are required to be notified. The Amendment Regulations provide that a significant reversal takes place if:
- a natural disturbance causes or is likely to cause reversal on at least 5% of the project area (or total project areas) or 50 hectares, whichever area is smaller; or
- the conduct of a person (other than the project proponent) has caused reversal on at least 5% of the project area (or total project areas) or 50 hectares, whichever area is smaller.
Relinquishment requirements apply in circumstances of a significant reversal.
The Amendment Regulations also cover the following:
- specify that Aboriginal land councils may hold eligible interests in land (including both Torrens system land and Crown land);
- make arrangements for the restructuring of eligible offsets projects, such as adjusting the net total number of ACCUs, adjusting crediting periods and adjusting reporting periods;
- confirm that the crediting period for sequestration projects (reforestation projects, and projects that establish forests on land subject to deforestation) is 15 years;
- specify the content that must be provided in offsets reports;
- specify the application requirements for varying methodology determinations;
- transmission of ACCUs by operation of law; and
- record keeping requirements.
The submission period for the Amendment Regulations ends on 26 April 2012. Depending upon the amount and content of submissions received by the Government in relation to the Amendment Regulations, it can be expected that the regulations will be made relatively quickly as the Government is keen for CFI projects to start generating ACCUs and provide a compliance route for liable entities under the CE Act, which introduces the carbon pricing mechanism on 1 July 2012. The recent quarterly report required to be published by the Clean Energy Regulator pursuant to section 161 of the CFI Act record that zero ACCUs were issued in quarter 3 of the 2012 financial year, and it is yet to be seen whether any ACCUs will be issued in quarter 4.
If you would like further detail on any aspect of the CFI, or would like assistance to prepare a submission on the Amendment Regulations, please contact a member of our Climate Change team.
1As at the date of this legal update (10 April 2012), the application form is not yet available on the Clean Energy Regulator's website, but will be available here in due course: http://www.cleanenergyregulator.gov.au/Carbon-Farming-Initiative/Forms-and-calculators/Pages/default.aspx
2Prescribed non-CFI offsets schemes include Greenhouse Friendly", NSW GGAS, ACT GGAS and the Verified Carbon Standard.
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.