Bills Digest No. 99, 2016–17
PDF version [672KB]
Sophie Power
Science, Technology, Environment and Resources Section
18 May 2017
Contents
Purpose of the Bill
Structure of the Bill
Background
The Carbon Farming Initiative and the
Emissions Reduction Fund
Carbon credits
What are sequestration offsets
projects?
Savanna fire management
Committee consideration
Environment and Communications
Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Amendments to consent requirements
Stakeholder views on consent
Eligible interests in exclusive
possession native title land
Varying sequestration projects
Net total number
Varying the project area
Transferring between offsets project
types
Crediting periods
Variation of conditional declarations
Date introduced: 23
March 2017
House: House of
Representatives
Portfolio: Environment
and Energy
Commencement: The
day after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at May 2017.
Purpose of
the Bill
The purpose of the Carbon Credits (Carbon Farming
Initiative) Amendment Bill 2017 (the Bill) is to amend provisions in the Carbon Credits
(Carbon Farming Initiative) Act 2011 (the CFI Act) relating to
the process for crediting greenhouse gas emissions reductions
under the Emissions Reduction Fund, primarily to facilitate savanna fire
management projects in Northern Australia.
Structure
of the Bill
The Bill contains one schedule, divided into four parts:
- Part
1 amends provisions relating to the consent requirements for emissions-avoidance
projects
- Part
2 clarifies the consent rights of certain government ministers for projects
conducted on exclusive possession native title land
- Part
3 contains amendments relating to the variation of sequestration offsets projects
and
- Part
4 contains amendments to allow the variation of regulatory approval or consent
conditions for eligible offsets projects.
Background
The Carbon
Farming Initiative and the Emissions Reduction Fund
The CFI Act was first enacted in 2011 to establish
a voluntary carbon offsets scheme known as the Carbon Farming Initiative (CFI).
The CFI allowed farmers and land managers to register projects and earn carbon
credits through eligible carbon abatement activities which stored or reduced
greenhouse gas (GHG) emissions on land. This included activities such as
improved farming and landfill management practices as well as sequestration
activities (that is, activities that store carbon in soil or plants).[1]
The CFI was originally designed to complement the former
ALP government’s carbon
pricing mechanism.[2]
However, following the repeal of the carbon price in July 2014,[3]
the CFI Act was amended in 2014 to implement the ‘Emissions Reduction
Fund’ (ERF).[4]
The 2014 amendments to the CFI Act effectively expanded the range of
activities eligible to earn carbon credits, allowing the registration of
projects from all sectors of the economy. In addition, the amendments
established a system whereby the government can purchase those carbon credits
(primarily via auction). These carbon credits are known as Australian Carbon Credit Units (ACCUs).[5] ACCUs represent one tonne
of carbon dioxide equivalent (CO2-e)[6]
net abatement achieved by eligible activities (through either emissions reductions
or carbon sequestration). Projects that were already registered under
the CFI transitioned automatically to the ERF on its commencement on 13
December 2014.[7]
The ERF is now the central component of the Government’s
climate change policy, designed to reduce Australia’s greenhouse gas emissions.[8]
In short, the ERF is a voluntary scheme designed to provide
financial incentives for businesses, landholders and communities to reduce GHG emissions.
Under the ERF, the Government purchases greenhouse gas abatement, quantified by
ACCUs, through an auction process administered by the Clean Energy
Regulator (CER).
The first five auctions held under the ERF
have resulted in the purchase of 189 million tonnes CO2-e in
emissions reductions at an average price of $11.83 per tonne. Of the $2.55 billion allocated to the ERF, $2.2
billion has now been spent, leaving $300 million remaining.[9] Further funding for the
ERF will ‘be considered in future budgets’.[10] More broadly, the
Commonwealth Government is currently reviewing Australia’s climate change
policies, including the ERF.[11]
Carbon credits
Before a project can participate (or bid) in
an ERF auction, it must be eligible[12] and registered[13] with the CER. The process for crediting emissions reductions is a key
element of the ERF. The CER issues ACCUs for greenhouse gas abatement
activities from registered projects. The number of ACCUs issued is determined based
on emissions
reduction methods, which are legislative instruments setting out the rules
for estimating the GHG reductions from different activities. Once
ACCUs have been issued they can be purchased by the Government through the
Emissions Reduction Fund or sold to organisations that wish to offset their
emissions. Projects are credited under the ERF for a single defined crediting
period, which is the period of time over which a project can create ACCUs. In
general, emissions reduction projects have a crediting period of seven years
and sequestration projects will have a crediting period of 25 years (see
further below).[14]
As noted above, the Clean Energy
Regulator is responsible for administering the ERF,
including registering eligible projects, running auctions, managing contracts
and issuing ACCUs.[15]
The Department of the Environment and Energy is responsible for developing new emissions
reduction methods, made through ‘methodology determinations’.[16]
What are sequestration
offsets projects?
Carbon abatement under the ERF comes in two forms as
described in the CFI Act. Emissions avoidance offsets projects receive
credits for activities that avoid greenhouse gases from being released into the
atmosphere. Once emissions have been avoided, there is a permanent saving and such
projects can leave the ERF at any time.[17]
Sequestration refers to the permanent storage of carbon in
the landscape, in trees, soil, or dead organic matter. Sequestration offsets
projects generate abatement by removing carbon dioxide from the atmosphere and
storing it as carbon, for example, in plants as they grow. Examples of
sequestration activities include reforestation and revegetation.[18]
Sequestration offsets projects receive credits for carbon dioxide that is
stored in the landscape and should represent long-term storage of carbon in
vegetation or soil. These projects are therefore subject to permanence
obligations under the ERF and are required to choose either a 25-year or a
100-year permanence period. If the 25-year option is chosen, there is a 20 per
cent reduction in the number of ACCUs issued for the project. This reduction is
in addition to the five per cent risk of reversal buffer (a total reduction of
25 per cent).[19]
A ‘risk
of reversal buffer’ also applies to all sequestration projects, which reduces
the carbon abatement achieved during a reporting period by five per cent.[20]
If they leave the ERF before the end of their permanence period, sequestration
projects need to hand back any credits issued over the life of the project.[21]
Savanna fire management
One method for reducing emissions under the
ERF that is particularly relevant to this Bill is savanna fire management.[22]
Savanna fire management projects aim to avoid greenhouse gas emissions by
undertaking early, dry season burns to reduce the numbers, size and intensity
of wild fires in the late dry season in northern Australia (these later fires
emit more greenhouse gas emissions than lower intensity early fires).[23]
The Government is currently proposing to develop a new method to credit both
the avoided emissions from early dry season burning as well as the increase in
the storage of carbon in dead organic matter, which would be the first method
to credit both the storage of carbon and avoidance of emissions in the same
project.[24]
The Government is proposing to revoke the existing Carbon Credits (Carbon
Farming Initiative—Emissions Abatement through Savanna Fire Management)
Methodology Determination 2015.[25]
The Explanatory Memorandum to the Bill states:
Consultation on the new methodology determinations has
highlighted a number of elements of the [CFI] Act which are an unnecessary
impediment to participation in both the existing methods and the new proposed
method to credit the storage (sequestration) of carbon and avoidance of
emissions.[26]
As such, many of the amendments in the Bill ‘seek to
address those impediments in a manner which will also assist other projects to
store carbon in the landscape’.[27]
Committee
consideration
Environment
and Communications Committee
The Bill was referred to the Senate Environment and
Communications Legislation Committee for inquiry.[28]
The Committee received 13 submissions and reported on 9 May 2017.[29]
Further details are available at the inquiry homepage.
The Committee’s majority report recommended that the Bill
be passed. However, ALP Senators wrote a dissenting report, raising concerns in
relation to the proposed amendments to consent requirements in Part 1 of
Schedule 1 of the Bill. The Australian Greens’ additional comments raised similar
concerns. These concerns, along with comments made in submissions to the
inquiry, are discussed in further detail later in this Digest.
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of
Bills had no comment on the Bill.[30]
Policy
position of non-government parties/independents
In their dissenting report in the
Senate Committee report on the Bill, ALP Senators recommended that the Bill not
be passed in its current form, given their concerns in relation to amendments
to consent requirements in Part 1 of Schedule 1 of the Bill (see further ‘Key
issues and provisions’ for an explanation of these provisions).[31]
ALP Senators expressed deep concern that ‘the Government has used remedying a
so‑called drafting error to remove consent rights for emission avoidance
offset projects from native title holders’.[32]
ALP Senators recommended that the Bill ‘explicitly include a requirement for
project proponents to obtain the consent of native title holders prior to the registration
of the project’.[33]
ALP Senators indicated that the ALP has prepared a ‘second reading amendment to
protect native title holders from having their consent requirements removed’.[34]
At the time of writing, this amendment was not publicly available.
ALP Senators were broadly supportive of the remaining
amendments proposed in the Bill, which they considered ‘will improve the
functioning of Australia’s carbon credit system’.[35]
The Australian Greens have also expressed concern about
the amendments to consent requirements in the Bill, and more broadly about the
‘differential treatment of native title claimants compared with determined
native title holders’ in the Bill.[36]
The Australian Greens recommended that item 1 of Part 1 of Schedule 1 be
removed from the Bill, and that further consultation with Aboriginal and Torres
Strait Islander peoples be carried out in relation to item 2 of Schedule 1 of
the Bill.[37]
Position of major interest groups
The Cape York Land Council, the Kimberley Land Council,
and Law Council of Australia have raised concerns with the proposed amendment
relating to consent requirements in Part 1 of Schedule 1 of the Bill.[38]
These issues are discussed in further detail in the ‘Key issues and provisions’
section of this Digest.
Other submissions made by ERF participants generally
supported the Bill, including the proposed changes to consent requirements. For
example, Corporate Carbon Advisory considered that the ‘amendments seek to
remove impediments within the [CFI] Act that would otherwise hamper the
abatement potential from savanna projects’.[39]
The Australian Wildlife Conservancy noted that five of its
carbon abatement projects were affected by the unintended introduction of the
consent requirements in 2014, which had prevented them from receiving carbon
credits due on those projects. The Australian Wildlife Conservancy also
supported the other changes proposed by the Bill, noting that ‘the process of
setting up and reporting on abatement projects is already onerous, and it is
important that the ability to claim for sequestration introduces as few extra
difficulties as possible’.[40]
Financial
implications
According to the Explanatory Memorandum, the Bill has no
financial implications.[41]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The Government
considers that the Bill is compatible.[42]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights
considered that the Bill does not raise human rights concerns.[43]
Key issues
and provisions
Amendments
to consent requirements
As noted earlier in this Digest, before a
project can earn ACCUs under the CFI Act, a project
must be eligible and registered with the CER. The process
and criteria for the CER to make a declaration that a project is an ‘eligible
offsets project’ are set out in Part 3 of the CFI Act. In particular, section
27 provides for the CER to declare a project to be an eligible offsets project,
subject to certain criteria. Section 28A then provides that the declaration
must be subject to a condition requiring the consent of ‘relevant interest
holders’ in the land in the project area. Under subsection 28A(2), that consent
must currently be obtained before the end of the first reporting period for the
project.[44]
Consent must be in a form approved, in writing, by the CER.[45]
A person is a ‘relevant interest holder’ if they hold an ‘eligible
interest’ in the project area. Section 5 of the CFI Act provides that an
eligible interest, in relation to an area of land, has the meaning given by
sections 43, 44, 45 or 45A. For example, under section 45A, the registered
native title body corporate for an area of native title land holds an eligible
interest in the land.
When the CFI was first initiated, this consent requirement
was contained in paragraph 27(4)(k) of the CFI Act and required
that all eligible interest holders consent only to applications for sequestration
offsets projects.[46]
This consent requirement was limited to sequestration offsets projects because
they were the only projects subject to a ‘permanence’ obligation. A permanence
obligation ensures that stored carbon is maintained for a certain period of
time (see the discussion earlier in this Digest).[47]
When the CFI Act was amended in 2014, paragraph 27(4)(k)
was repealed and section 28A was inserted to maintain the requirement to obtain
consent.[48]
The intention in 2014 was set out in the Explanatory Memorandum:
The current law requires that anyone with an eligible
interest in a sequestration project must give their consent to the project and
this will remain a requirement under the Emissions Reduction Fund.[49]
However, the wording of section 28A as currently drafted
is not limited to sequestration projects. The Explanatory Memorandum to the
current Bill states that ‘an error was introduced in the Act when it was
amended in 2014’, which ‘inadvertently applied the consent requirements’ to all
offsets projects, not just sequestration projects. This means the consent
requirement applies to other projects such savanna fire management projects and
irrigated cotton projects.[50]
These projects are not subject to permanence obligations, and the Explanatory
Memorandum argues that ‘there is no need for the consent of a wide range of
eligible interest holders to be obtained’ and thus such projects have been
‘unintentionally subject to an unnecessary regulatory burden’.[51]
According to the Explanatory Memorandum, a number of
projects have been affected by the consent requirement in section 28A:
As at the beginning of March 2017, over 20 savanna
emissions-avoidance projects are subject to a requirement to obtain these
consents and would benefit from the amendments.[52]
The amendments in items 1 and 2 purport to rectify
this issue, meaning that consent under section 28A would not be required for
emissions avoidance projects. Item 1 of Part 1 of Schedule 1 of the Bill
amends paragraph 28A(1)(a) of the CFI Act to replace the term ‘offsets
project’ with ‘sequestration offsets project’. This means that the obligation
to obtain consent of relevant interest-holders would only apply to sequestration
offsets projects and not to emissions-avoidance projects. The Explanatory
Memorandum notes that, while the consent requirements will not apply, emissions
avoidance projects must still demonstrate that they have the legal
right to carry out the project, ‘which will often necessitate consultation
or agreement from other landholders’.[53]
Item 2 is a transitional provision which would
remove the effect of any conditional declarations requiring the consent of relevant
interest holders for non‑sequestration offsets projects made since the
commencement of the 2014 amendments.
Note that these same provisions were contained in the Omnibus
Repeal Day (Spring 2015) Bill 2015 (Spring Omnibus Bill).[54]
The Explanatory Memorandum to this Bill states that those amendments were
introduced ‘in response to representations from proponents of savanna fire
management projects’.[55]
The Spring Omnibus Bill lapsed at the prorogation of parliament on 17 April
2016. The Explanatory Memorandum to this Bill indicates that, during consultation
in November 2016, savanna fire management proponents had reiterated the
need to remove the requirement for consent for savanna fire management from the
CFI Act.[56]
Stakeholder
views on consent
The positions of ALP Senators and the Australian Greens in
relation to these amendments were discussed earlier in this Digest. These were
a response to concerns raised in submissions to the Senate inquiry into the
Bill. Although the Government argued that items 1 and 2 are effectively
correcting a drafting error made in 2014, several stakeholders were opposed to
these amendments.
The Cape York Land Council, for example, strongly objected
to the proposal to amend section 28A to remove the requirement to impose a
condition related to the consent of Aboriginal land holders and native title
holders.[57]
The Cape York Land Council suggested that the requirement should be retained,
and a review conducted of the CER’s enforcement of the ‘legal right’ and
‘eligible interest holder consent’ provisions in the CFI Act.[58]
Similarly, the Law Council of Australia considered that
‘the impact of removing a consent right for Indigenous interest holders is a significant
issue’, given that activities such as savanna fire management have a clear
capacity to interfere with Indigenous people's rights and interests in areas of
their traditional country:
... consent should be required for any land-based project that
may interfere with their rights and interests. In effect, this applies to both
sequestration projects (due to permanence obligations), but also emissions
avoidance projects that may impair /interrupt co-existing rights and interests.[59]
The Law Council further suggested:
If the eligible interest holder consent requirement is
removed from a sub-set of area-based offset projects, it will be incumbent on
native title holders and their representative bodies to monitor registration of
ERF projects and challenge a potential proponent's legal right to undertake a
project on an ad-hoc basis.[60]
The Law Council considered that there ‘should be no change
to the nature of consent requirements under the CFI Act ahead of the
Australian Government’s climate change policy review’, but that, at a minimum,
the Bill should be amended to empower the Regulator to require consent or
engagement as a discretionary condition with respect to emissions avoidance
projects.[61]
In contrast, ERF participants, such as Corporate Carbon
Advisory, Consolidated Pastoral Company and the Australian Wildlife Conservancy
were supportive of the proposed changes to consent requirements in their
submissions to the Senate inquiry into the Bill. For example, Consolidated
Pastoral Company (CPC) submitted that, it will ‘meet fully its obligations to
properly engage with Registered Native Title Body Corporates (RNTBC) and all
other stakeholders’.[62]
However, at the same time, CPC suggested that ‘the current consent requirements
are a significant impediment to advancing its savanna emissions avoidance
project’, particularly ‘the cost and time to obtain consent’ from traditional
owners, which it estimated at over $100,000 and between 12 to 18 months. CPC concluded:
While this process should be undertaken, it should not be an
impediment to the CPC Savanna project being issued ACCUs from a project which
has barely generated only enough ACCU's to break even from 2016. In summary,
the consultation process would render the CPC project financially unviable with
no guarantee of success.[63]
The Australian Wildlife Conservancy advised that it
currently had six registered carbon abatement projects, five of which were
affected by the drafting error in the 2014 amendments. The Conservancy noted
‘this has prevented us from receiving the carbon credits due to us on those
projects for 2015 and 2016’, and ‘therefore it is not only important to correct
the errors, but to make the corrections apply retrospectively to existing
projects’.[64]
The Department of the Environment and Energy reiterated in
its submission that ‘it was never the intention that projects that avoid
emissions, such as savanna fire management projects under current methods,
would require consent from third parties’ as they do not impose long term legal
obligations.[65]
The Department explained that ‘projects that fail to obtain these consents risk
being revoked, and consequently will not be able to reduce emissions and earn
revenue’. The Department advised that ‘over 20 registered savanna fire
management projects’ are subject to unintended requirements to obtain consent
from third parties and that ‘the Bill needs to take effect by July 2017 to
avoid contracted projects being revoked’.[66]
It is unclear from the Department’s submission exactly how many of the 20
projects have actually failed to obtain the required consent, although the Law
Council of Australia’s submission suggests that 12 savanna fire management projects
awarded ERF contracts remain subject to eligible interest holder consents.[67]
Eligible
interests in exclusive possession native title land
As noted above, under the CFI Act, consent must be
given by all ‘relevant interest holders’ in the land in an offsets project area.
Under paragraph 28A(1)(c), relevant interest holders are those who hold an
‘eligible interest’ in the project area or areas. Section 5 of the CFI Act
provides that an ‘eligible interest’, in relation to an area of land, has the
meaning given by sections 43, 44, 45 or 45A. Subsections 44(4) and 45(2) provide
that, if the area of land is Crown land, the eligible interest holder is the
Crown lands Minister in the relevant state or territory.[68]
This means that the relevant Crown lands Minister needs to give consent in
relation to an offsets project on Crown land.
Items 3 and 4 of the Bill propose to amend sections
44 and 45 of the CFI Act to clarify that relevant state and territory Crown
lands ministers may only have an eligible interest in certain land where that
land is not exclusive possession native title land and not land rights land.
The Explanatory Memorandum states that this reflects the
original intention of the CFI Act:
The 2011 Act expressed a clear intention that those with
determined exclusive possession native title should not need the consent of a
State, Territory or Commonwealth Minister to participate in the scheme. Items
3 and 4 of Schedule 1 to this Bill remove any doubt that State and
Territory Government Crown lands Ministers and Commonwealth Ministers responsible
for land rights legislation do not have consent rights for projects conducted
on exclusive possession native title land ...[69]
This amendment was welcomed by the Law Council of
Australia and the Kimberley Land Council because it would provide clarity ‘that
Crown land Ministers do not have eligible interest consent rights with respect
to exclusive possession native title land’.[70]
Varying sequestration
projects
Net total
number
In certain circumstances, project proponents relinquish ACCUs
to the CER. This includes, for example, where a sequestration offsets project
is voluntarily terminated (section 32), or where a project is revoked by the
CER (sections 89, 90 and 91).
In these circumstances, the project proponent has to hand
back the same number of ACCUs that were issued for the project.[71]
This number is referred to as the ‘net total number’ of ACCUs issued in relation
to an eligible offsets project. Section 42 of the CFI Act provides a
formula for determining the ‘net total number’ of ACCUs issued in relation to
an eligible offsets project. Currently, this formula provides that the ‘net
total number’ is the number of ACCUs issued, minus any ACCUs previously required
to be relinquished.
Item 6 of the Bill proposes to replace section 42
with a new formula to calculate the ‘net total number’ of ACCUs. Under the new
formula, ‘net total number’ will be calculated by counting the total number of
ACCUs issued, minus any ACCUs issued for emissions avoidance activities, minus
ACCUs relinquished.
The terms used in the formula will also be defined. In
particular, ‘units relinquished’ will be defined to mean:
- the
total number of ACCUs relinquished in order to remove an area from a project area
(under section 29, as proposed to be amended by the Bill: see ‘varying the
project area’ below)
- comply
with a sequestration related requirement under Part 7 of the CFI Act[72]
or
- to
apply a specified methodology determination to the project (under section 130).
As the Explanatory Memorandum states, this will ensure a
sequestration project’s net total liability under the scheme does not include
credits for emissions avoidance or credits that have already been relinquished.
The Explanatory Memorandum further suggests that ‘without this amendment there
would be a significant impediment to the uptake of the proposed savanna
sequestration method’.[73]
As noted earlier, this proposed savanna sequestration method would allow carbon
credits to be earned for both emissions avoidance and stored carbon. The
Explanatory Memorandum gives the following example to explain the need for this
change:
For example, a savanna sequestration project may have been
issued 300,000 sequestration and 100,000 emissions avoidance credits in 2017.
Under the current legislation, it would have a net total number of 400,000.
After the amendments, the net total number would be 300,000. Therefore, to exit
the scheme only 300,000 ACCUs would need to be relinquished rather than
400,000. The 100,000 credits issued for emissions avoidance are retained by the
project because those emissions have been permanently avoided.[74]
The proposed new definition of ‘net total number’ would also
reduce the complexities involved in varying the size of a project area (as discussed
below).[75]
Varying the
project area
Section 29 of the CFI Act enables regulations or
legislative rules to be made empowering the CER to vary a declaration of an
eligible offsets project in relation to the project area or areas on
application by the project proponent. This provision was designed to allow
areas of land to be added or removed from a project.[76]
However, the Explanatory Memorandum suggests that ‘it is currently very
difficult to remove part of a sequestration project if credits have been issued
for that area’.[77]
Item 5 of the Bill would amend section 29 to
specifically allow the regulations or legislative rules to deal with the
situation where a declaration is varied to remove part of a project area. In
particular, new paragraph 29(3)(l) would allow the rules or regulations to make
provision for a determination by the CER of the net total number of ACCUs issued
in relation to the area to be removed and for conditions to be met relating to
those ACCUs.
According to the Explanatory Memorandum this amendment will
‘make it easier for a proponent to voluntarily remove an area of land from
their project and ensure carbon credits required to be returned to the
Government only relate to the area of land being removed’.[78]
In particular, the rules will ‘deal with how the estimation of this net total
number will be undertaken given the potential difficulties in recalculating crediting
for periods in the past for a subset of a project previously reported on as a
whole’.[79]
Arguably, section 29 already allowed for the rules and
regulations to do this as subsection 29(1) provides a broad power to make rules
and regulations empowering the CER to vary a declaration in so far as it
identifies the project area or areas. Subsection 29(3) lists matters that the
rules and regulations may make provisions for, but subsection 29(4) provides
that this list does not limit the regulation-making power. Nevertheless, this
amendment would provide clarity in relation to the breadth of the regulation
making power.
Climate Friendly, a carbon farming project developer,
supported the amendments to facilitate the remove of parts of projects,
describing them as ‘of critical importance’. Climate Friendly considered that
these amendments will provide ‘increased flexibility to adjust projects over
time while maintaining scheme integrity’ and remove unnecessary administrative
burdens on project participants.[80]
Transferring between offsets project types
The Bill also contains a number of amendments designed to facilitate
the transfer of projects between emissions avoidance and sequestration projects.
As noted earlier in this Digest, sequestration projects
are subject to permanence obligations.[81]
When initially enacted, the CFI scheme provided for a 100-year permanence
period, meaning that the project needed to be maintained on a net basis for 100
years. This requirement was amended with the introduction of the ERF in 2014 to
allow proponents of sequestration projects to nominate a 100- or 25-year
permanence period when they apply to register their project.[82]
At the same time, section 31A was inserted into the CFI Act to provide
that the CER cannot vary the permanence period following the CER’s declaration
of the project ‘as this would create complexity calculating credits’.[83]
Item 15 proposes to amend section 31A to clarify
that the section only applies to sequestration offsets projects, which are, in any
case, the only projects subject to permanence periods. Item 16 would then
add a proposed subsection 31A(3) to provide that the CER would not be prevented
from removing a declaration relating to a permanence period if the project is
no longer a sequestration offsets project (proposed paragraph 31A(3)(a)).
Under proposed paragraph 31A(3)(b), the CER would also not be prevented
from making a different declaration in relation to the permanence period if the
project becomes a sequestration offsets project at a later date.
The Explanatory Memorandum states that ‘this will allow
the Clean Energy Regulator to remove a declaration relating to a permanence
period for projects which have transitioned from a sequestration offsets
project to an emissions-avoidance offsets project’.[84]
In particular, these amendments ‘will facilitate transfer of projects to the
proposed savanna sequestration method that credits both emissions avoidance and
sequestration’.[85]
Items 21 to 24, 26 and 27 also contain
amendments designed to facilitate the transfer of projects. Section 128 of the CFI
Act allows a project proponent to request the CER to change the approved methodology
determination applicable to their project. Item 21 would insert a
requirement that, where such a request would result in the project becoming a
sequestration offsets project, the proponent must also specify in their request
whether the project should be treated as either a 100-year permanence project
or a 25-year permanence project.
Section 130 of the CFI Act then provides the CER may
approve a request to change the methodology applicable to a project if
satisfied that the project is covered by the relevant methodology determination.
Item 22 would amend section 130 to clarify that the CER must not approve
the transfer of projects between emissions avoidance and sequestration projects
unless the CER is satisfied of certain additional matters. In particular, before
a project can become a sequestration project, the written consent of all
eligible interest holders (see the earlier discussion on this topic) is
required under proposed paragraph 130(3)(c).[86]
Under proposed paragraph 130(3)(b), if a project moves to an emissions
avoidance project, sequestration credits must be relinquished. In addition, item
23 inserts a new paragraph 130(4A)(aa) which would require the CER
to amend the project declaration to remove conditions relating to permanence
and consent.
Crediting periods
Under the ERF, projects are registered for a specific
crediting period. The crediting period is the period of time over which a
project can create ACCUs. In general, the crediting period for emissions
avoidance offsets projects is seven years, while sequestration projects have a
crediting period of 25 years. Methodology determinations can also specify
crediting periods of different lengths, including periods longer than 25 years.[87]
However, an issue has been identified in relation to some provisions of the CFI
Act which may be problematic for sequestration projects with a permanence
period of 25 years and a crediting period longer than 25 years.
For example, section 89 currently provides that the CER
may require a proponent to relinquish a specific number of ACCUs where their
sequestration offsets project has been revoked by the CER. However, the
application of this section is limited. In particular, where the revoked
project’s declaration has been varied to add one or more project areas, section
89 only applies if the period that has passed since the last variation is
shorter than the permanence period for the project (see paragraph 89(1)(e)).
Where the revoked project’s declaration has never been varied to add one or
more project areas, section 89 only applies if the period that has passed since
first ACCUs were issued for the project is shorter than the permanence period
for the project (see paragraph 89(1)(d)). In short, this means that if
crediting periods longer than 25 years were to be implemented for particular
sequestration projects, the current Act ‘would operate so that permanence
obligations could not be enforced for projects which took this option along
with a 25-year permanence period’.[88]
Thus these provisions may create issues for sequestration
projects with a permanence period of 25 years, if their crediting period is
longer than 25 years. Items 17 to 20 of the Bill propose to
address this issue by ensuring that relinquishment requirements and carbon
maintenance obligations still apply to projects where the crediting period
extends beyond a 25-year permanence period.
Item 17 would amend paragraphs 89(1)(d) and (e) to
provide that section 89 also applies in these situations if the crediting
period, or the last of the crediting periods, for the project has not yet ended.
Items 18 to 20 of the Bill contain similar amendments to sections
90, 91 and 97 of the CFI Act. According to the Explanatory Memorandum, these
amendments will facilitate consideration of longer crediting arrangements for
savanna sequestration projects.[89]
In particular, these amendments ‘will provide flexibility to extend the
crediting period of savanna sequestration projects without providing credits to
projects that are not subject to enforcement of their permanence obligations
relating to those credits’.[90]
Section 167 of the CFI Act provides for a register
of eligible offsets projects to be maintained and made publicly available on
the CER’s website. Section 168 sets out the information that must be provided
in that register. Item 25 would amend section 168 to require the
end date of a project’s crediting period to be included in the register.
Variation
of conditional declarations
Before a project can be declared an eligible offsets
project under the CFI Act, the CER must generally be satisfied that the
project proponent has obtained all regulatory approvals, such as Commonwealth,
state or territory planning and environmental approvals. If the relevant
regulatory approvals have yet to be obtained, section 28 of the CFI Act
provides that the CER can issue a declaration that is conditional on the
project obtaining these approvals before the end of the project’s first reporting
period.[91]
Section 28A further provides that the CER’s declaration may also be subject to
a condition requiring the consent of relevant interest holders before the end
of the first reporting period for the project.
Section 31 then provides for regulations or legislative
rules to be made to empower the CER to vary a declaration by removing conditions
imposed under section 28 and 28A. However, the regulations or rules cannot
empower the CER to vary a declaration unless:
- the
project proponent has applied to the CER to vary the declaration to remove the
relevant condition (paragraph 31(3)(a)) and
- the
CER is satisfied that the condition has been met (paragraph 31(3)(b)).
Item 29 of the Bill proposes to amend paragraph
31(3)(b) to provide that the relevant rules or regulations cannot empower the
CER to vary a declaration unless the CER is satisfied that all regulatory
approvals have been obtained for the project and the written consent of each
relevant interest‑holder has been obtained.
This will allow the CER to vary a declaration to remove
conditions relating to regulatory approvals or consents of eligible interest
holders ‘where any regulatory approval or consent was obtained after the end of
the first reporting period for the project’.[92]
This amendment is designed to recognise that ‘there are circumstances where
approvals or consents may not be obtained until after that period’.[93]
However, the Explanatory Memorandum does state:
Project proponents are still intended to use all reasonable
endeavours to obtain regulatory approvals or consents before the end of the
first reporting period for the project as required by subsections 28(2) and
28A(2). Failure to do so risks the revocation of the declaration of the project
and no credits may be issued while these conditions are not met.[94]
[1]. See
further A Talberg, ‘The
CFI laid bare’, FlagPost, Parliamentary Library blog, 24 May 2011; A
Talberg, J Gardiner-Garden and J Tomaras, Carbon
Credits (Carbon Farming Initiative) Bill 2011, Bills digest, 5,
2011–12, Parliamentary Library, Canberra, 2011.
[2]. For
further information on the carbon price mechanism, see Clean Energy Regulator
(CER), ‘About
the mechanism’, CER website, 11 May 2015.
[3]. By
the Clean Energy Legislation (Carbon Tax Repeal) Act 2014.
[4]. By
the Carbon
Farming Initiative Amendment Bill 2014.
[5]. CER,
‘Australian
carbon credit units’, CER website, 4 November 2015.
[6]. Carbon
dioxide equivalent or C02-e is a measure of the global warming
potential of a greenhouse gas, based on its ability to absorb heat and its
lifetime in the atmosphere, compared to carbon dioxide.
[7]. Department
of Environment and Energy (DEE), ‘Carbon
Farming Initiative project transition into the Emissions Reduction Fund’,
DEE website. For further information on the changes made in 2014 see Department
of the Environment, The
Carbon Farming Initiative Amendment Bill and the Emissions Reduction Fund,
2014 or K Swoboda, A St John and J Tomaras, Carbon
Farming Initiative Amendment Bill 2014, Bills digest, 23, 2014–5,
Parliamentary Library, Canberra, 3 September 2014.
[8]. The
Commonwealth Government is currently reviewing its climate change policies to ‘take
stock of Australia’s progress in reducing emissions, and ensure the
Government’s policies remain effective’: see further DEE, ‘Review
of Australia’s climate change policies’, DEE website.
[9]. CER,
Fifth
auction brings total abatement to 189 million tonnes, media release, 13
April 2017.
[10]. DEE,
‘About
the emissions reduction fund’, DEE website.
[11]. DEE,
‘Review
of Australia’s climate change policies’, DEE website.
[12]. CER,
‘Eligibility
and newness’, CER website, 1 December 2016.
[13]. CER,
‘Project
and contract registers’, CER website, 5 May 2016.
[14]. Department
of the Environment, The
emissions reduction fund: crediting, Emissions Reduction Fund fact
sheet, Department of the Environment, Canberra, 2014.
[15]. CER,
‘The
role of the clean energy regulator’, CER website, 6 April 2017.
[16]. DEE,
‘Eligible
activities’, DEE website.
[17]. DEE, Savanna consultation: overview, DEE,
Canberra, 2016, p. 1.
[18]. See
further, for example, Department of the Environment, The
emissions reduction fund: storing carbon, 2014.
[19]. CER,
‘Permanence
obligations’, CER website, 31 October 2016.
[20]. CER,
‘Risk
of reversal buffer’, CER website, 21 April 2015.
[21]. DEE, Savanna consultation: overview, op. cit.,
p. 1.
[22]. Carbon Credits (Carbon
Farming Initiative—Emissions Abatement through Savanna Fire Management)
Methodology Determination 2015.
[23]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 2.
[24]. Ibid.,
p. 3.
[25]. DEE,
‘Savanna
fire management draft methods: consultation’, DEE website.
[26]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 3.
[27]. Ibid.
[28]. Senate
Selection of Bills Committee, Report,
4, 2017, The Senate, 30 March 2017, p. 3.
[29]. Senate
Environment and Communications Legislation Committee, Carbon
Credits (Carbon Farming Initiative) Amendment Bill 2017 [Provisions],
The Senate, Canberra, May 2017.
[30]. Senate
Standing Committee for the Scrutiny of Bill, Scrutiny
digest, 4, 2017, The Senate, 29 March 2017, p. 5.
[31]. ALP
Senators, ‘Labour Senators’ Dissenting Report’, Senate Environment and
Communications Legislation Committee, Carbon
Credits (Carbon Farming Initiative) Amendment Bill 2017 [Provisions],
op. cit., pp. 17–20.
[32]. Ibid.,
p. 17.
[33]. Ibid.,
p. 20.
[34]. Ibid.,
p. 18.
[35]. Ibid.,
p. 17.
[36]. Australian
Greens, ‘Additional Comments by the Australian Greens on the Carbon Credits
(Carbon Farming Initiative) Amendment Bill 2017, Senate Environment and
Communications Legislation Committee, Carbon
Credits (Carbon Farming Initiative) Amendment Bill 2017 [Provisions], op.
cit., 9 May 2017, pp. 21–24.
[37]. Ibid.,
pp. 23–24.
[38]. Cape
York Land Council (CYLC), Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 1, 10 April 2017; Kimberley Land Council (KLC), Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 6, n.d.; Law Council of Australia, Submission
to the Senate Standing Committee on Environment and Communications, Inquiry into
the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 9, 12 April 2017.
[39]. Corporate
Carbon Advisory, Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 8, 11 April 2017, p. 1.
[40]. Australian
Wildlife Conservancy (AWC), Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
submission no. 3, n.d., p. 2.
[41]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, p. 5.
[42]. The
Statement of Compatibility with Human Rights can be found at pages 19–20 of the
Explanatory Memorandum to the Bill.
[43]. Parliamentary
Joint Committee on Human Rights, Report,
3, 2017, Canberra, 28 March 2017, p. 17.
[44]. The
relevant reporting timeframes and requirements are set out in section 76 of the
CFI Act. Note also the proposed amendments to the variation of
conditional declarations may affect this requirement, as discussed later in
this Digest.
[45]. CFI
Act, subsection 28A(3).
[46]. Carbon Credits
(Carbon Farming Initiative) Act 2011 (as made).
[47]. Replacement
Explanatory Memorandum, Carbon Credits (Carbon Farming Initiative) Bill
2011, p. 43; see also Explanatory Memorandum, Carbon Credits (Carbon Farming
Initiative) Amendment Bill 2017, p. 7.
[48]. Carbon Farming
Initiative Amendment Act 2014, Schedule 1, items 105 and 115.
[49]. Explanatory
Memorandum, Carbon Farming Initiative Amendment Bill 2014, p. 27.
[50]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 3.
[51]. Ibid.,
p. 8.
[52]. Ibid.,
p. 3.
[53]. Ibid.,
p. 3. See also CER, ‘Legal
right’, CER website, 1 December 2016.
[54]. Omnibus
Repeal Day (Spring 2015) Bill 2015, Schedule 5, Part 1.
[55]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, p. 5.
[56]. Ibid.,
p. 6; see also DEE, ‘Savanna
fire management draft methods: consultation’, op. cit.
[57]. CYLC,
Submission
to the Senate, op. cit., p. 2.
[58]. Ibid.,
p. 3.
[59]. Law
Council of Australia, Submission
to the Senate, op. cit., p. 3.
[60]. Ibid.,
p. 4.
[61]. Ibid.,
pp. 5–6.
[62]. Consolidated
Pastoral Company, Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 2, April 2017, p. 6.
[63]. Ibid.
[64]. AWC,
Submission
to the Senate, op. cit., p. 1.
[65]. DEE,
Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 5, 10 April 2017, p. 3.
[66]. Ibid.
[67]. Law
Council of Australia, Submission
to the Senate, op. cit., p. 5 and Attachment A.
[68]. Note
that section 44 only applies to Torrens system land, while section 45 applies
to Crown land that is not Torrens system land.
[69]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
pp. 3–4; see also p. 9.
[70]. Law
Council of Australia, Submission
to the Senate, op. cit., p. 3; KLC, Submission
to the Senate, op. cit., p. 4.
[71]. CFI
Act, subsection 32(2).
[72]. That
is, for example, where relinquishment is required as the result of providing
false or misleading information (Division 2 of Part 7) or as a result of the
revocation of a sequestration offsets project (Division 3 of Part 7).
[73]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 4.
[74]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
pp. 10–11.
[75]. See
further Explanatory Memorandum, Carbon Credits (Carbon Farming Initiative)
Amendment Bill 2017, p. 11.
[76]. Replacement
Explanatory Memorandum, Carbon Credits (Carbon Farming Initiative) Bill 2011,
p. 31.
[77]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 4.
[78]. Ibid.
[79]. Ibid.,
p. 11.
[80]. Climate
Friendly, Submission
to the Senate Standing Committee on Environment and Communications, Inquiry
into the Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017, submission
no. 7, 11 April 2017, p. 3.
[81]. See
further CER, ‘Permanence
obligations’, CER website, 31 October 2016.
[82]. CFI
Act, paragraph 23(1)(g). Note that items 10 to 13 of the Bill
change the location of the definitions of ‘25-year permanence period’ and
‘100-year permanence period’ in the CFI Act. The changes do not alter
the meaning of these terms.
[83]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Bill 2014, p. 66.
[84]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 14.
[85]. Ibid.,
p. 4.
[86]. Proposed
subsections 130(3A) to (3D) in item 22 then mirror existing
subsections in section 28A as to the form of the consents.
[87]. CFI
Act, section 68.
[88]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 14.
[89]. Ibid.
[90]. Ibid.,
pp. 4–5.
[91]. CFI
Act, section 28.
[92]. Explanatory
Memorandum, Carbon Credits (Carbon Farming Initiative) Amendment Bill 2017,
p. 18.
[93]. Ibid.,
p. 5.
[94]. Ibid.,
p. 18.
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