Introduction

As a new financial year begins we have a new Minister for Climate Change, the Honourable Mark Butler, the Government has committed to broadening the land sector coverage under the Kyoto Protocol, various Carbon Farming Initiative (CFI) guidance documents have been revised and we are continually seeing more projects being declared, more methodology determinations being made and more Australian Carbon Credit Units (ACCUs) being issued.

This legal update provides a brief summary of the main changes in the CFI space since our last update in April 2013.

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

What a difference one year makes!

As at 1 July 2013, 68 projects had been approved under the CFI and a total of 1,750,179 ACCUs had been issued (that is, the CFI has driven abatement of more than 1.7 million tonnes of CO2-e). This is a significant expansion, given that at the same time last year no projects were approved and no ACCUs had been issued.

Amendments to the CFI Regulations

The ‘Exposure Draft Regulations’1 which we outlined in our previous two CFI legal updates, which can be found here, have now been made into law by the Carbon Credits (Carbon Farming Initiative) Amendment Regulation 2013 (No. 1) (Amendment Regulation). The Amendment Regulation came into force on 21 May 2013.

In response to stakeholder feedback, the Amendment Regulation made various changes to the Exposure Draft Regulations, including amendments to clarify many of the definitions and amendments to more precisely define and limit the new activities added to the positive list.

The Amendment Regulation added the following new activities to the positive list:

  1. small-scale farm forestry plantations;
  2. protection of native forest on freehold or leasehold land;
  3. passive oxidation of landfills through the use of biofilters or biocovers; and
  4. human induced regeneration of native vegetation through the creation of waterponds.

Kyoto ACCUs can be issued again

The Amendment Regulation also extended the ‘Kyoto abatement deadlines’ to enable the Clean Energy Regulator (Regulator) to issue Kyoto ACCUs to eligible Kyoto projects again (rather than Non-Kyoto (eligible) ACCUs which have been issued for the last 6-12 months).

The original Kyoto abatement deadlines were set to enable reporting under the first commitment period of the Kyoto Protocol and the amendment reflects the Australian Government’s decision to commit to the second commitment period of the Kyoto Protocol (2013-2020).

The Regulator can now issue Kyoto ACCUs for eligible Kyoto projects if the reporting period for the project ends:

  1. for emissions avoidance projects, on or before 30 June 2020; and
  2. for Kyoto Protocol compatible sequestration projects, on or before 31 December 2020.

New exposure draft CFI Amendment Regulation

The Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (Department) has released further proposed amendments to the Carbon Credits (Carbon Farming Initiative) Regulation 2011.

The Exposure Draft of the Carbon Credits (Carbon Farming Initiative) Amendment (Additionality Test and Other Measures) Regulation 2013 (Draft Amendment Regulation) proposes to add the following activities to the positive list:

  1. feeding fats or oils to livestock that are pasture-grazed year-round;
  2. feeding nitrate supplements to any livestock;
  3. pyrolysis of livestock manure;
  4. use of selective breeding to improve livestock feed use efficiency; and
  5. the establishment of long rotation hardwood plantations.

Expanded scope of land-based activities which can generate Kyoto ACCUs

The Draft Amendment Regulation also proposes to expand the types of projects which are considered to be a ‘Kyoto offsets project’ under the CFI and therefore eligible to generate the more valuable Kyoto ACCUs.

This proposed amendment reflects the Australian Government’s announcement to account for cropland management (including the storage of carbon in agricultural soils), grazing land management and revegetation during the second commitment period of the Kyoto Protocol.

Although the technical guidelines which will clarify what types of activities will (or more specifically, will not) be considered a ‘Kyoto offsets project’ will not be published until August 2013, it is expected that the following activities, amongst others, will soon be able to generate the more valuable Kyoto ACCUs:

  1. enhancing soil carbon;
  2. applying biochar to agricultural soils; and
  3. restoring Australia’s rangelands.

Please note, however, that Kyoto ACCUs will only be able to be issued for these new types of activities for abatement generated on or after 1 January 2013 (that is the start of the second commitment period of the Kyoto Protocol) and will be subject to any necessary amendments to the positive list and development of applicable methodology determinations.

Non-Kyoto Carbon Fund abolished

In line with the Australian Government’s announcement to expand the types of land-based activities which can generate Kyoto ACCUs and “in recognition of the weaker demand in voluntary markets and the potential for the adoption of broader land sector coverage in the future”, the $250 million CFI Non-Kyoto Carbon Fund has been abolished.

Revised Regulatory Baseline Guidelines for landfill gas projects

Over the past 12 months we have been closely involved with the Department in the development of a revised version of the Guidelines for Calculating Regulatory Baselines for Legacy Waste Landfill Methane Projects (May 2013) (Regulatory Baseline Guidelines). The Regulatory Baseline Guidelines have been approved by Parliamentary Secretary D’Ath and are expected to be available on the Department’s website shortly.

The Regulatory Baseline Guidelines supplement the two methodology determinations relating to the capture and combustion of legacy waste2 by providing guidance for determining the ‘regulatory baseline’ for a project (that is, the proportion of methane that is required to be captured or destroyed to meet regulatory requirements). The ‘regulatory baseline’ is used to determine whether the project passes the regulatory additionality test and to determine the baseline for the project.

The Regulatory Baseline Guidelines broadly provide that ‘regulatory requirements’ may be contained in state or territory legislation, guidelines for waste management and landfills set by state and territory environmental regulators, landfill licences, or in environmental or development approvals and include both:

  1. qualitative requirements to capture, control, manage or limit landfill gas, methane, odour or greenhouse gases; and
  2. quantitative requirements, such as an allowable methane concentration.

In addition, the Department is updating the CFI landfill methane regulatory baseline calculator to reflect the provisions of the revised guidelines

New Methodologies

Since our last legal update, eight new methodology determinations have been made.

The following are new methodology determinations:

  1. Carbon Credits (Carbon Farming Initiative) (Enclosed Mechanical Processing and Composting Alternative Waste Treatment) Methodology Determination 2013, can be used by projects which divert mixed solid waste to a composting alternative waste treatment plant, in situations where the waste would otherwise have entered a landfill facility, is legacy waste and is processed to manufacture biobased products or to stabilise the waste.
  2. Carbon Credits (Carbon Farming Initiative) (Avoided Deforestation) Methodology Determination 2013, can be used by projects which protect native forest for which there was a clearing consent issued before 1 July 2010, which provides that clearing is permitted for the purpose of converting the native forest to cropland or grassland.
  3. Carbon Credits (Carbon Farming Initiative) (Quantifying Carbon Sequestration by Permanent Mallee Plantings using the Reforestation Modelling Tool) Methodology Determination 2013, applies to the establishment of a permanent planting of one or more mallee species on land that receives 600 millimetres of annual rainfall or less and was non-forested land for at least 5 years before commencing the CFI project.
  4. Carbon Credits (Carbon Farming Initiative) (Reforestation and Afforestation—1.2) Methodology Determination 2013, is slightly different to the Reforestation and Afforestation 1.1 methodology determination in that it provides alternative methods for estimating root biomass, modifies plot requirements for sampling and refines the stratification requirements.

The following are amended versions of earlier methodology determinations:

  1. Destruction of methane generated from manure in piggeries 1.1,3 is an amended version of the earlier methodology determination Carbon Farming (Destruction of Methane Generated from Manure in Piggeries) Methodology Determination 2012.
  2. Reforestation Afforestation 1.1,4 is an amended version of the earlier methodology determination Carbon Credits (Carbon Farming Initiative) (Reforestation and Afforestation) Methodology Determination 2013.
  3. Savanna Burning 1.1,5 is an amended version of the earlier methodology determination Carbon Farming (Reduction of Greenhouse Gas Emissions through Early Dry Season Savanna Burning) Methodology Determination 2012.
  4. Human-Induced Regeneration of a Permanent Even-Aged Native Forest 1.1,6 is an amended version of the earlier methodology determination Carbon Credits (Carbon Farming Initiative) (Human Induced Regeneration of a Permanent Even-Aged Native Forest) Methodology Determination 2013.

Project proponents using the existing methodology determinations can choose to continue using that methodology determination or apply to be registered under the updated version.