In November 2009, the Australian Government announced modifications to the proposed Carbon Pollution Reduction Scheme (CPRS) to create a domestic offsets program (Program) (see our Legal Update 24 November 2009). These modifications were put forward as proposed amendments to the pre-existing CPRS bills. Under the Program, eligible domestic offset projects will generate free Australian emissions units (AEUs) that can be used by liable entities to offset their liabilities under the CPRS.
In order to generate free AEUs, a project will need to be declared by the Australian Climate Change Regulatory Authority (Authority) to be an eligible domestic offsets project.
To be eligible, a domestic offsets project will need to be covered by and comply with a domestic offsets project methodology determination. Only projects carried out in Australia will be eligible and it is intended that the Program will not take effect (and that no applications in relation to the Program can be made) until 1 July 2011, which is the proposed start date of the CPRS.
A Domestic Offsets Integrity Committee (Committee) will be established. One of its primary functions will be to advise the Climate Change Minister about matters relating to the making and amendment of domestic offsets project methodology determinations. Domestic offsets project methodology determinations will be subject to consultation.
A domestic offsets project methodology determination is required to be consistent with the domestic offsets project methodology principles. These principles include the project meeting certain integrity requirements, which include:
- that the removal or reduction of greenhouse gas emissions is measureable and capable of being verified
- 'additionality': that the project would not have been proposed or carried out in the absence of the issue of free Australian emissions units in accordance with the domestic offsets program
- 'permanence': if the project involves removal (or reduction by storage), that the removal (or reduction) is not likely to be reversed in whole or part
- 'leakage': that the removal or reduction of greenhouse gas emissions will not be offset by emissions outside the project
- such other requirements that may be specified in the regulations.
What kind of projects may be eligible?
To be eligible, a project will have to abate emissions from sources that are counted towards Australia's international commitments and are not covered by the CPRS. Currently, these sources are:
- non carbon dioxide emissions from:
- manure management
- fertiliser use
- burning of savannas and agricultural residues
- rice cultivation
- emissions from deforestation
- legacy emissions: emissions from waste that is deposited prior to commencement of the CPRS in landfill facilities that are above the threshold for scheme participation
- emissions from landfill facilities that closed before 1 July 2008
- emissions from de-commissioned coal mines.
Emissions reduction by other means (such as biosequestration of greenhouse gases as soil carbon) will initially be covered only by the voluntary offsets market through implementation of the National Carbon Offset Standard (NCOS) (see our legal update ). It is intended that as abatement from other sources becomes internationally recognised, this abatement will be transitioned into the CPRS.
The fact that a project reduces emissions from both CPRS-uncovered and CPRS-covered sources will not preclude offsets being created in relation to the uncovered source.
Additionality is likely to be a contentious issue, particularly given the complex web of existing mitigation policies and programs, each of which has its own objectives, criteria and life spans.
The task of determining whether a project is "additional" will be left to the Committee. There is no assurance that existing approaches (such as Greenhouse Friendly" and methodological tools produced by the UNFCCC) will be adopted by the Committee, although common sense suggests that existing approaches will be influential.
The details: regulations and discretions
There is little detail in the legislative scheme for the Program, with many matters left to regulations and the Domestic Offsets Integrity Committee.
Regulations will be able to set not just procedural matters, such as the form of applications and required information, but also substantive details, such as the matters to be considered by the Authority in assessing an application and additional 'integrity requirements'.
The Committee is central to the Program and notably independent. A declaration is required to receive AEUs, a project methodology determination will be the key to obtaining a declaration, and the Climate Change Minister may only make or amend a determination in accordance with the advice of the Committee.
There is no provision for the Minister to give directions to the Committee, and only limited legislative constraints placed on the Committee. The Committee is required to assess the costs and benefits of making a determination. It is also limited indirectly by preconditions to the Minister making or amending a determination. The most important of these preconditions is the requirement that a determination or an amendment to a determination must not be inconsistent with the domestic offsets project methodology principles. The Committee must also consider submissions in relation to draft determinations.
The Committee is required to publish a draft work program and priorities, with public submissions invited. It is envisaged that, while members of the public will be able to suggest methodologies, the Committee will have control over its work program and decide which proposed methodologies get assessed when.
The independence of the Committee is intentional, with the Supplementary Explanatory Memorandum noting that the limits on the Minister's powers to make and amend determinations are intended "to prevent the Minister from being lobbied on the methodological details".
The establishment of the Program is obviously dependent upon the CPRS bills being passed by Parliament, however, those undertaking activities in the eligible sectors may wish to consider potential opportunities now to benefit once the Program commences. If you would like further advice about the Program or the CPRS more generally, please contact a member of our Australian Climate Change team.
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.