During the 2013 Federal election, the Coalition committed to repealing the ‘Carbon Tax’ legislated under the Clean Energy Act 2011 (Cth) and to replace it with a new climate change policy: the Direct Action Plan (DAP) and its centre-piece program the Emissions Reduction Fund (ERF).

The Government has introduced and passed the Carbon Tax repeal bills successfully in the House of Representatives, but the repeal bills have been held up in the Labor dominated Senate. However, it is widely expected that when the newly elected Senators commence their term on 1 July, there will be a sufficient level of support in the Senate to pass the necessary bills to repeal the Carbon Tax.

INTRODUCING THE DIRECT ACTION PLAN

It is less clear whether or not there will be enough support for the Government to successfully introduce the DAP and ERF because even after 1 July multiple minority political parties will hold the balance of power in the Senate.

In any event, the Government is pressing on with its proposed agenda. It has been extensively consulting with industry stakeholders through a series of discussion papers, including the White Paper (released on 27 April 2014) on specific design features to ensure the DAP and ERF deliver genuine emissions reductions and streamlined administration.

OPERATING THE EMISSIONS REDUCTION FUND

The ERF is proposed to be built around a streamlined process to purchase carbon emissions reductions at the lowest cost across the economy. This will be done through a ‘reverse auctioning mechanism’. It is proposed that the auctions would start in the second half of 2014 and run quarterly, but (as noted earlier) this is subject to the passage of legislation in the House of Representatives and Senate.

TAPPING INTO THE CARBON FARMING INITIATIVE

A key platform for farmers and pastoralists to get involved in the Government’s program is through the Carbon Farming Initiative (CFI), which was a part of Labor’s clean energy package but has long received bipartisan support from the Coalition. CFI project proponents can undertake certain activities that reduce carbon emissions by either storing the carbon in the land (e.g. in trees or soil) or through emissions avoidance projects (e.g. destruction of methane gases from manure in piggeries). Each project proponent must satisfy scientifically verified regulatory requirements, which are set out in legislative instruments called ‘methodology determinations’. For each tonne of carbon dioxide equivalent emissions either avoided or stored in the land, project proponents may generate one Australian Carbon Credit Unit (ACCU), which may be sold in the carbon market or (once established) to the Government under the ERF.

AGRICULTURAL METHODOLOGIES

There are currently five approved agriculturalbased methodology determinations, including:

  • „„destruction of methane generated from manure in piggeries
  • „„destruction of methane generated from dairy manure in covered anaerobic ponds
  • „„destruction of methane generated from piggeries using engineered bio digesters
  • „„reducing greenhouse gas emissions by feeding dietary additives to milking cows, and
  • „„reduction of greenhouse gas emissions through early dry season savannah burning.

There are several other agricultural-based methodologies currently under review.

TOWARDS STORING CARBON IN SOIL

There was an important development for some farmers earlier this year in the soil carbon space. The Government amended the CFI regulations to add sequestration (i.e. storage) of carbon in soils to the list of activities that are eligible to produce ACCUs – otherwise known as the ‘positive list’.

The Commonwealth Department of Environment then released a draft methodology proposal that specifically applied to soil carbon storage projects and grazing systems for consultation (which finalised in early May). The public submissions must be considered by experts before proceeding to final Ministerial determination. Under the proposed methodology, projects may be carried out on land that is either under permanent pasture or that is converting to permanent pasture as part of the CFI project.

The proposed methodology would require CFI project proponents to estimate the level of carbon storage by measuring specific changes in soil carbon stocks as set out in the methodology. Included in the methodology is a prescriptive process for soil sampling and analysis.

If the methodology determination is approved, then it may offer some farmers and pastoralists an opportunity to add an additional revenue stream to their business, especially those looking to change practices on a grazing property through techniques that increase the carbon content in soil, such as cell grazing. The value of the ACCUs for sale will depend on the price derived either from the demand in the carbon market or under the ERF.

WATCH THIS SPACE

The Government has indicated a willingness to open the carbon market using the ERF to additional industries. On this basis, all agribusinesses should maintain a watching brief on the CFI and the DAP to ensure opportunities are not missed.

The government released draft legislation as an exposure draft for public consultation on 9 May 2014. The consultation period ended on Friday, 23 May 2014.