In brief

What’s happened?

The House of Representatives has passed legislation to implement its voluntary carbon scheme, the Carbon Farming Initiative (CFI). The legislation will now be considered by the Senate. It appears likely that the legislation will pass the Senate with the support of the Greens.

What does it mean?

The CFI will allow government backing for tradeable ‘credits’ from Australian land-based actions that reduce or store carbon pollution and meet approved methodologies.

This is beneficial for businesses interested in:

  1. generating and trading in carbon credits, and
  2. managing their carbon footprint and possible carbon price exposure.

The CFI is a step towards the government’s proposed carbon price.

Next steps

The CFI is proposed to commence on 1 July 2011. Detailed regulations are required, but it is not clear that they will be ready in time. Methodologies are being developed, but further work is required.

We would be pleased to meet with you to discuss the implications for your business of the CFI and moves towards an Australian carbon price.

Who needs to know?

This article is relevant to you if your business is:

  1. interested in:
    • generating and dealing in carbon offsets, or
    • offsetting its carbon emissions and green marketing, or
  2. likely to be exposed to a carbon price (including if your business has significant direct emissions or electricity or other energy consumption).

How will the CFI work?

This diagram1 summarises how the CFI will operate:

Click here to view the diagram.

Possible types

The CFI aims to enable the crediting of a wide range of land-sector activities, potentially including:

  • reforestation and revegetation (backdated to 1 July 2010)
  • reduced methane emissions from livestock
  • reduced fertiliser emissions
  • manure management
  • reduced emissions or increased sequestration in agricultural soils (soil carbon)
  • savanna fire management
  • avoided deforestation
  • burning of stubble/crop residue
  • reduced emissions from rice cultivation, and 
  • reduced emissions from landfill waste deposited before 1 July 2011.  

Eligibility

Individual projects will need to be declared eligible by the CFI Administrator. For this to occur they must be:

  • located in Australia
  • not involve clearing of native forest
  • ‘additional’, determined by lists to be included in the regulations. Draft positive/negative lists have been released.2 The draft positive list includes projects that have been assessed as additional under the Greenhouse Friendly Program 
  • not excluded by the regulations, which can occur if there are potential adverse impacts on water availability, biodiversity, employment or local communities
  • supported by acceptable carbon sequestration rights/land interests, and
  • covered by an accepted methodology.

Methodologies

Methodologies will be approved by the Commonwealth Minister for Climate Change, following assessment and recommendations by the Domestic Offsets Integrity Committee (DOIC).

It is anticipated that a suite of methodologies will be developed by the Department of Climate Change and Energy Efficiency (DCCEE) and the Department of Agriculture, Fisheries and Forestry, including for:

  • reforestation, forest management and native forest protection
  • savanna fire management
  • landfill gas recovery
  • manure management
  • management of methane from livestock, and 
  • soil carbon and biochar.

Project proponents will also be able to develop their own project-based methodologies.

Three draft methodologies have been prepared to date and are under consideration by the DOIC, with consultation until 30 June 20113:

  • savanna burning
  • capture and combustion of landfill gas, and
  • management of large feral herbivores (camels) in the Australian rangelands.

The first two were developed by the DCCEE, the third by a private proponent.

This leaves a number of key methodologies still to be proposed and then approved. It appears that this will not occur prior to 1 July 2011.

Connection to a carbon price

There is a general business expectation that CFI backed credits will be acceptable under the government’s proposed carbon price mechanism, with liable emitters able to surrender CFI credits in respect of their emissions liability.

However, the final proposed details of the carbon price mechanism are yet to be released, including to what extend CFI credits will be acceptable. The likely outcome is uncertain, as the Greens, who are key to the final detail negotiations, have indicated they want offsets acceptable for the carbon price to be limited.

Legal issues

A number of legal issues may be relevant, including:

  • ensuring appropriate land tenure/carbon sequestration rights and associated interests are in place, and
  • that agreements for the trade or supply of credits are effectively drafted, including to cover the transition to a carbon price.