The Abbott Government introduced the Carbon Farming Initiative (CFI) as part of its Direct Action Plan in 2011. The CFI was designed to cover those sectors of the economy that were not covered by the Rudd/Gillard Governments’ carbon pricing mechanism, by allowing the sectors of agriculture, legacy waste, land use and forestry to generate carbon credits that could be purchased by firms caught by the carbon tax (i.e. electricity generation, and industrial processes) to offset their carbon liability. In this way, the CFI combined with the carbon pricing mechanism extended the carbon price across the Australian economy.
The Abbott Government, of course, promised to repeal the carbon tax once elected, which it eventually did. Now the CFI has been rolled into the Emissions Reduction Fund (ERF). The ERF forms an essential plank of the Abbott Government’s Direct Action Plan to reduce greenhouse gas emissions. In its simplest form the ERF is a $2.5 billion fund, which allows the Government to buy carbon credits from the private sector, thus, encouraging the private sector to invest in carbon abatement projects. The main point of difference of the ERF is that fixed price contracts with the Government of typically seven years are offered, ensuring that the private sector has an interest in investing in carbon abatement projects knowing that they will get a minimum seven year return for the carbon credits generated.
On 1 July 2015, the transition from the CFI to the ERF will be finalised, meaning that if you are planning on seeking approval for a carbon abatement project under the old CFI, you have until the end of the month to have that approved. Otherwise, you will need to apply to have your project assessed under the methodologies provided for by the new ERF.
The main differences in respect of having a carbon abatement project approved under the ERF are:
- CFI projects had to be for a permanent period of 100 years, whereas ERF projects may be 25 years or 100 years (Note: you can change your 100 year project to a 25 year project, however 25 year projects receive 25% less carbon credits to allow for reduced timeframes);
- Under the CFI, the land owner on which the carbon abatement project was located had the rights to any carbon abatement credits. Now under the ERF anyone can own the carbon abatement rights provided the land owner has given permission. Meaning you can run a project on someone else’s land and trade and sell the carbon credits for yourself; and
- Under the CFI you sold your carbon credits to the private sector. Under the ERF you now apply to enter into a contract with the Government to sell your carbon credits to the Government. Meaning you need to bid at auction as to the price you will sell your carbon credits for. Once approved the Government then undertakes to buy those carbon credits for at least seven years.
As of 1 July 2015 all CFI projects automatically become ERF projects, and do not need to be re-registered. However, if you wanted to have your project recognised using the CFI methodologies, then you need to apply to do so prior to 30 June 2015.