In LMS Energy Pty Ltd v Clean Energy Regulator [2014] AATA 709, the Administrative Appeals Tribunal (Tribunal) affirmed a decision by the Clean Energy Regulator (Regulator) in relation to the way it calculated Australian Carbon Credit Units (ACCUs) for projects previously accredited under the New South Wales Greenhouse Gas Reduction Scheme (GGAS) costing LMS Energy Pty Ltd (LMS) approximately $3.5 million.

THE CARBON FARMING INITIATIVE

Under the Carbon Farming Initiative (CFI), owners and managers of land can create ACCUs by carrying out greenhouse gas abatement, including for the capture and combustion of landfill emissions from legacy waste. The CFI will remain operational under the Coalition government’s Direct Action Plan which has recently been passed by the Senate.

THE FACTS

LMS is a proponent for seven landfill gas projects. These projects were accredited and approved abatement activities under GGAS until its closure on 30 June 2012. These projects have since been declared eligible offsets projects under s 27 of the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CFI Act) and attract carbon credits under the CFI.

The case centred on the interpretation of s 18(3) of the CFI Act and regulation 2.5 of the Carbon Credits (Carbon Farming Initiative) Regulations 2011 (Cth) (CFI Regulations) in relation to the calculation of unit entitlements for the seven projects under the CFI. The purpose of these legislative provisions is to avoid the double counting of abatement.

LMS had obtained carbon credits known as NSW Greenhouse Gas Abatement Certificates (NGACs) under GGAS and an issue arose as to how many additional carbon credits were to be awarded under the CFI Act with respect to unclaimed abatement.

The methodologies used to calculate NGACs under the GGAS and ACCUs under the CFI differ. Whilst a lower number of ACCUs would be generated than NGACs if an equivalent amount of methane is destroyed, the current market value of ACCUs is higher than that of NGACs.

THE PARTIES’ ARGUMENTS

To overcome the double counting of abatement, the Regulator argued that the legislation provides that the deduction of NGACs from LMS’ ACCU entitlement should occur on a one-to-one basis.

In contrast, LMS argued that the number of NGACs issued under the GGAS should be translated into an equivalent number of ACCUs given that both schemes employ different methodologies with the result being that an NGAC is the equivalent of 0.68 of an ACCU. LMS contended that this amount for each NGAC should be subtracted from its ACCU entitlement rather than a one-for-one deduction.

If LMS’ construction was to be preferred, this would result in an entitlement of approximately $3.5 million.

FINDINGS

Deputy President Bean found in favour of the Regulator. In arriving at this decision, it was noted:

  • The Explanatory Statement that accompanied the Clean Energy (Consequential Amendments) Bill 2001 which introduced regulation 2.5 supported a construction that the reduction of LMS’ ACCU entitlement is reduced by ‘the number of units issued under another scheme’
  • The intention to convert non-CFI credits into CFI credits is not deployed in the relevant Regulations
  • The relevant Regulations are focused on informing the Regulator of the number of credits that have been issued and generated under another scheme.

Deputy President Bean recognised that it would have been advantageous for LMS to have translated the number of NGACs into an equivalent ACCU given they had already received NGACs. However, this would result in potentially inequitable outcomes given that the CFI Act and CFI Regulations apply to all prescribed non-CFI schemes, some of which may result in a more generous allocation of carbon credits. Deputy President Bean also stated that the situation for LMS had arisen because it chose to transition to the CFI scheme rather than seek credits under the GGAS which was still available to them.

LESSONS

This case is most relevant in situations where entities may have obtained carbon credits under a now closed state-based scheme and now wish to claim unclaimed abatement under the CFI. Such entities should be mindful that the calculation of carbon credits may differ significantly between the two schemes which could result in potential losses in revenue.