Carbon Farming Initiative to fill a policy gap

The Government has announced that if re-elected it will introduce a new regime for landholders, the Carbon Farming Initiative. This will encourage farmers to either minimise carbon emissions or maximise carbon sequestration by altering their forestry and agricultural practices. The initiative would fill the policy gap that has existed since the termination of the Greenhouse Friendly scheme in July 2010.

Greenhouse Friendly was initially established as an Australian carbon offset standard with credibility in the voluntary carbon market, but was terminated as part of the Government's planned CPRS introduction. This was to avoid any form of double-counting between the two schemes. Coinciding with the end of the Greenhouse Friendly scheme, the Government introduced the National Carbon Offset Scheme (NCOS) as a carbon offset standard for those sectors not covered by the proposed CPRS.

Importantly, the Government ruled that forestry activities could be included under the proposed CPRS, thus making them ineligible for NCOS. With the delay in any future start date to the CPRS, forestry is no longer included in any scheme, removing incentive for the creation of new Australian forest carbon sinks. Furthermore, Australian forestry credits have hitherto been excluded from the main international voluntary offset standard, the Voluntary Carbon Standard (VCS), because the VCS did not believe that Australian credits in the forestry sector were matched by equivalent compliance units under the Kyoto Protocol to the UNFCCC (again to avoid double-counting).

The Carbon Farming Initiative would go some of the way to remedying these issues. It would fill a policy gap by creating a legitimate platform for farmers and foresters to generate carbon credits. It would also open up the possibility of trading these credits either on the voluntary domestic and international markets, or through the more formal Emissions Trading mechanism established under the Kyoto Protocol. Although the finer details of this policy have not been laid out, it is likely that activities under the Carbon Farming Initiative would also be acceptable under the Kyoto Protocol's Joint Implementation mechanism, which allows developed countries to fund projects in other developed countries in exchange for the resultant carbon credits.

In its policy document the Government has stated that there would be 'no restriction on the number of credits that can be generated'. However, according to the Kyoto Protocol accounting rules, developed nations can only generate offset credits above and beyond their Commitment Period Reserve (CPR), which is equal to 90 per cent of the agreed target. These accounting rules are explained in the Parliamentary Library's publication, The Kyoto Protocol accounting rules.

As the Kyoto Protocol's first commitment period ends in December 2012, the scope of certainty provided by the Emissions Trading mechanism is limited to this short period, until international negotiations lead to any solid ongoing agreement. Domestically, without a national cap on emissions, offset credits are only interesting to those players active in the voluntary market, and because of this, it is likely that demand will remain low. However, the Carbon Farming Initiative would provide a level of certainty that land users require to invest in long-term carbon sequestering activities, such as planned reforestation. It would also provide a smooth transition to any eventual domestic emissions trading scheme.

The Coalition's promise, if elected, is to reinstate the Greenhouse Friendly scheme as part of its Direct Action Plan. This too would provide the basis needed for the forestry sector to continue biosequestration projects, albeit from a different approach, but it would not overcome the issue with the Voluntary Carbon Standard.
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