Introduction

The newly created Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (Department) has recently proposed additional legislative reforms to the Carbon Farming Initiative (CFI) and has released an exposure draft of the Carbon Credits (Carbon Farming Initiative) Amendment Regulation 2013 (No.  B): Technical Amendments (Draft Regulation).

This legal update provides a brief summary of the main changes proposed by the Draft Regulation.

For an overview of the CFI, please refer to our previous legal updates which can be found here and the Carbon Market Institute (CMI) publication “Implementing the Carbon Farming Initiative: A Guide for Business,” co authored by Norton Rose Australia and RAMP Carbon.  We note that an updated version of the CMI Guide will be released shortly.

Draft Regulation Consultation

The Draft Regulation proposes various amendments to the Carbon Credits (Carbon Farming Initiative) Regulations 2011 (Regulations). Interested parties are invited to make submissions on the Draft Regulation by 17 April 2013. For the full version of the Draft Regulation and the accompanying explanatory statement please visit the Department’s webpage at http://www.climatechange.gov.au/government/submissions/EDR-CFI-Tranch-2-13.aspx.

Native forest protection projects

The Draft Regulation adds the protection of native forests on freehold or leasehold land to the ‘positive list’ which will allow crediting under the CFI for the prevention of clearing/harvesting of areas of native forest that are at imminent risk of being cut down.

To participate, the project must have documentary evidence of intention to clear or harvest and the activity is limited to circumstances where

  • Commonwealth, State or Territory legislation requires documented consent to clear/harvest
  • the application to obtain consent was submitted and received before 1 July 2010
  • the consent to clear/harvest remains valid at the time the project application is lodged, and
  • the documented consent does not require any offsetting of the cleared/harvested area to mitigate any effect from the clearing/harvesting.

The protection of native forest will be excluded if the consent for clearance or harvesting has been granted on the basis that the clearing or harvesting would benefit the environment or was for fire management purposes.  This activity has been added to the ‘negative list’.

The Draft Regulation will provide a carve out from the regulatory additionality test if a State or Territory law implements an agreement between the Commonwealth and a State or Territory Government to establish new reserves or reduce annual native forest harvest and recognises the potential for carbon offset opportunities for the protected areas. 

Waste diversion projects

The Draft Regulation proposes additions to the Regulations relating to the provision of offsets reports and audit requirements, and provides special arrangements for crediting periods.

Waste diversion projects (except those transitioning from Greenhouse Friendly), will have a crediting period of 100 years.  These projects will have simplified reporting requirements.  An audit report will only need to be provided for the first 5 years of the project and after 5 years, a simplified form of offsets report can be provided.

The rationale behind these amendments is that as the total abatement and emissions profile of a waste diversion project will be known, once the project activity (i.e. diversion) has taken place, requiring audit reports to be submitted for the remainder of the project is unnecessary. The last offsets report at the end of the 5 year period will be sufficient to accurately estimate all emissions and avoided emissions for the remainder of the project.

Amendment to ‘negative list’

The negative list currently includes projects required by law on 24 March 2011 (the date when the original bill implementing the CFI Act was introduced), in order to ensure that legislation is not repealed in order to avoid the requirements of the additionality test.  The Draft Regulation extends this provision to exclude projects that were required by law on 24 March 2011, where the legal requirements have been made less onerous, rather than repealed in their entirety.

Exchange conditions for Kyoto units

The Draft Regulation makes technical amendments to the arrangements for exchanging Kyoto ACCUs for Kyoto units.  The effect of the amendments is to ensure that Kyoto ACCUs issued for avoided deforestation projects cannot be exchanged for Kyoto units.  This is because these types of projects cannot be recognised in Australia’s national accounts.

Other technical amendments clarify that Kyoto emission reduction units must be created from the appropriate unit (i.e. assigned amount unit or removal unit) that corresponds to the original abatement activity that was undertaken.

Relinquishment of ACCUs

The Draft Regulation proposes that only international units able to be used under the carbon pricing mechanism (CPM) will be allowed to enter the CFI and vice versa. The idea being that due to the link between the CPM and the CFI, and the ability to use ACCUs to meet CPM obligations, international units should not be allowed to enter the carbon market through the CFI, prior to them being allowed into the market directly through the CPM (i.e. from 1 July 2015 onwards).

Publication of information

The Regulator must keep a Register of Offsets Projects (Register), and a project proponent may request that particular information relating to the environmental and/or community benefits of the project be included in the Register. 

The Draft Regulation proposes that the information must state whether the project has received funding under the Australian Government’s Biodiversity Fund (Biodiversity Fund) and must be supported by evidence demonstrating the information is accurate, for example, a copy of the funding agreement under the Biodiversity Fund.

It is expected that additional acceptable standards, such as those relating to co-benefits for indigenous communities, will be specified in future amendments. 

Conclusion

This Draft Regulation forms part of a wider process that is being undertaken by the Department to reform the CFI (for further information on the other proposed reforms, please visit our previous CFI publication ‘Carbon Farming Initiative – update on recent developments’. It is expected that the changes proposed in this Draft Regulation, and other amending regulations, will be finalised in the first half of 2013.