Earning carbon credits through environmental plantings requires strict methodologies and monitoring, however provides certain new economic opportunities for farmers and land managers who take steps to reduce carbon pollution or increase carbon storage on the land.
For this reason any attempts to rationally quantify the effects are noteworthy. In parallel there are published warnings of multiple risks involved, which shouldn’t be neglected.
General remarks on Methodology Determinations under the Australian Carbon Farming Initiative
The Australian Carbon Farming Initiative (CFI) is a voluntary carbon offsets scheme under the Australian Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) that enables the crediting of greenhouse gas abatement in the land sector. Greenhouse gas abatement is achieved by either reducing or avoiding emissions or by removing carbon from the atmosphere and storing it in soil or trees.
Eligible offsets projects generate Australian carbon credit units that can be sold to other individuals and businesses wanting to offset their own greenhouse gas emissions. Credits for abatement recognised under Australia’s Kyoto accounts can be sold to companies with liabilities under the carbon pricing mechanism.
Abatement activities are undertaken as offsets projects which must be covered by and undertaken in accordance with a methodology determination. Methodology determinations under the Australian CFI scheme are made by way of ministerial legislative instrument. The purpose of a methodology determination is to establish procedures for estimating abatement (emissions reductions and sequestration) and project rules for monitoring, record keeping and reporting on abatement.
Among such legislative instruments is the Carbon Farming (Quantifying Carbon Sequestration by Permanent Environmental Plantings of Native Species using the CFI Reforestation Modelling Tool) Methodology Determination 2012 (the Methodology Determination), which sets out the detailed rules for implementing and monitoring a sequestration offsets project under the CFI that sequesters carbon in permanent plantings of trees on land that has been cleared or partially cleared for at least five years, or on which a known weed species is present and must be cleared.
An environmental plantings offsets project will lead to the establishment of permanent plantings of native trees in order to sequester carbon dioxide from the atmosphere and store it in the tree biomass and debris. Ancillary benefits from an environmental planting may include the enhancement of biodiversity, alleviation of dryland salinity, reduced wind and/or water erosion and, in limited circumstances, shade and shelter for livestock.
To establish a project under the CFI a person must be a recognised offsets entity. A person (who may be an individual, a body corporate, a trust, a corporation sole, a body politic or a local governing body ) can only be recognised as an offsets entity if the person meets the criteria set out in the CFI Act and Carbon Credits (Carbon Farming Initiative) Regulations 2011.
Following recognition, a recognised offsets entity being the project proponent wanting to implement the Methodology Determination can make an application to the Australian Clean Energy Regulator (the Regulator) to have their project declared eligible, which can generate Australian carbon credit units. Recognised offsets entities will need an account in the Australian National Registry of Emissions Units (ANREU) in order to receive Australian carbon credit units generated through their offsets projects and sell them to other account holders.
Offsets projects that are undertaken in accordance with the Methodology Determination and approved by the Regulator can generate Kyoto or non-Kyoto Australian Carbon Credit Units (ACCUs) that can be sold to:
- Australian companies that must pay the carbon price established under the Clean Energy legislation;
- overseas entities that pay a carbon price; and
- businesses in Australia and overseas wanting to offset their own carbon pollution.
A project applying this methodology could be a Kyoto or a non-Kyoto offsets project, or may be made up of a combination of both Kyoto and non-Kyoto activities.
The issue whether a project is a Kyoto or non-Kyoto offsets project is determined by the Regulator prior to declaring an eligible offsets project.
Research for potential investors:
1. To hold ACCUs or other Australian emissions units an account must be opened in the ANREU.
2. It is necessary to verify whether the project is listed on the Register of Offsets Projects in order to know that the project has been declared to be an eligible offsets project under the CFI Act and check information on the number of ACCUs issued thereto. The Register also provides other useful information on the location of the project, on the project proponent (the person responsible for undertaking the project), whether the declaration is subject to a condition, and that all relevant regulatory approvals must be obtained before the end of the crediting period. If a project is not listed on the Register, the project has not been declared to be an eligible offsets project under the CFI Act. However, the Clean Energy Regulator may be currently assessing whether the project should be declared an eligible offsets project. Projects undergoing assessment are not listed on the Register.
3. Verification of the abatement methodology that applies to project.
4. The Regulator warns potential investors in CFI projects to be aware of:
- claims of unrealistic minimum returns on investment;
- claims that returns are government guaranteed;
- claims that the Australian Government will buy Australian carbon credit units for a fixed price;
- claims that the five per cent risk of reversal buffer for projects that store carbon in vegetation limits the liability of project owners and investors from events such as bushfires that affect the amount of carbon in the forest.
5. The Regulator also underlines that it is important to understand that:
- the price of Australian carbon credit units is not fixed;
- the Australian Government does not provide any guarantee that it will purchase Australian carbon credit units, or that it will make such a purchase at a particular price or that investor returns are guaranteed;
- third parties with liabilities under Australia’s carbon pricing mechanism might buy Australian carbon credit units if doing so is more cost-effective than undertaking abatement within their own operations, or acquiring carbon units at the fixed price for the relevant financial year, or to meet corporate sustainability goals. These parties are not obliged to buy Australian carbon credit units to discharge their liability under the carbon price mechanism;
- during the fixed price period (1 July 2012-30 June 2015) the value of Australian carbon credit units eligible to be used under the carbon pricing mechanism may trade around the fixed price for carbon units for the relevant financial year. However, this price is not guaranteed. Australian carbon credit units sold into voluntary markets are expected to trade at a discount;
- in the flexible price period, post July 2015, the value of Australian carbon credit units may vary significantly from prices realised during the fixed price period;
- there is no guarantee that all prospective Carbon Farming Initiative project applications will be eligible under the CFI Act 2011 or that eligible CFI projects will realise a given quantity of Australian carbon credit units over a particular timeframe;
- the risk of reversal buffer does not insure project proponents against the potential loss of income following a disturbance or for the costs of re-establishing carbon stores. The risk of reversal buffer insures the entire Carbon Farming Initiative scheme against residual risks that cannot be managed by the other permanence arrangements. These include temporary carbon losses associated with a disturbance event such as bush fire and long term losses that may result from a proponent failing to re-establish carbon stores and relinquish Australian carbon credit units.