Chapter 3


Chapter 3

Promoting co-benefits and avoiding adverse impacts

3.1        In addition to requiring carbon abatement, the Carbon Farming Initiative (CFI) scheme seeks to promote community and environmental benefits associated with eligible projects. These additional community and environmental benefits are known as "co-benefits".[1]

3.2        The bill also contains provisions that seek to prevent adverse impacts associated with the CFI by way of a "negative list" of excluded projects.[2]

3.3        During the course of the inquiry, a number of submitters discussed opportunities for co-benefits. Other submitters expressed concern regarding the negative list and how potential negative impacts of the bill would be monitored.

Optimising community and environmental co-benefits

3.4        The CFI bill encourages projects to demonstrate community and environmental benefits in addition to carbon abatement mandated so that the ACCUs from those projects can attract a premium price in carbon markets. 

3.5        It is the government’s intention that the additionality test 'will enable crediting of activities that improve agricultural productivity or have environmental co-benefits, but which have not been widely adopted'.[3] Project proponents also will be able to have community and environmental "co-benefits" recognised in the Australian National Register of Emissions Units (ANREU):[4]

Project proponents will be able to include environmental and community co-benefits on the Register of offsets projects. The Government will develop a co-benefits index to provide a low-cost, credible standard for co-benefits, which can be recognised easily within the carbon market. This will assist project proponents to obtain a premium for ACCUs from these projects in the voluntary market.[5]

3.6        Mr Andrew Macintosh, Associate Director, Centre for Climate Law and Policy, Australian National University (ANU), recognised the potential for the CFI to create co-benefits by 'incentivising land-based carbon offset activities' and described some potential co-benefits: 'Co-benefits could include improved biodiversity, hydrological and local climate outcomes, reduced land degradation and the generation of tourism opportunities'.[6]

3.7        The Conservation Land Trusts Alliance shared this view:

...we are interested in the principles of healthy landscapes around Australia and we are very keen to see sufficient native vegetation retained, particularly in productive landscapes on private land, for biodiversity to persist. We see strong opportunities for the Carbon Farming Initiative to have co-benefits to assist in that endeavour...[7]

3.8        Mr Michael Kiely, Chairman of the Carbon Farming and Trading Association (CFTA), highlighted numerous co-benefits associated with soil carbon sequestration and farming including:

  • Greater yields and improved yield stability;
  • Greater resilience to drought;
  • Better cycling of nutrients;
  • Increasing land value due to improvements in environmental quality;
  • Cleaner and more reliable water supplies;
  • Reduced flooding due to better water retention and slower run-off;
  • More secure food and water sources;
  • Reduced incidence and intensity of desertification;
  • Increased soil biodiversity;
  • Reduced soil erosion; and
  • Reduced water pollution from pesticides and fertilisers.[8]

3.9        However, the Carbon Farmers of Australia and the CFTA were concerned that '[d]espite its potential role as a bridge to a low carbon future and all the co-benefits, Soil Carbon Solution faces institutional barriers to being traded as an offset'.[9]

3.10      The Wentworth Group of Concerned Scientists (the Wentworth Group) was supportive of the co-benefits index and described it as 'a great innovation'.[10] The Wentworth Group suggested, however, that '[t]he Government explore options for using economic instruments to more fully value co-benefits such as voluntary environmental markets, taxation incentives or stewardship accreditation schemes'.[11]

3.11      Centrefarm Aboriginal Horticulture Ltd was concerned the bill failed to recognise 'legitimate co-benefits to value-add carbon produced on Indigenous lands (title)' and cited this as an impediment to indigenous participation in the CFI.[12] Centrefarm recognised an opportunity for branding Australian Carbon Credit Units (ACCUs) issued for carbon abatement on indigenous land – 'Australian Indigenous Carbon Units' (AICUs) – 'to clearly identify the fact that there are cultural, social and environmental co-benefits from such units, and thus they are worth more in the market place'.[13]

3.12      To this end, Centrefarm Aboriginal Horticulture Ltd described the creation of the Aboriginal Carbon Fund Limited (ACF Ltd) and described the role envisaged for the ACF Ltd:

To engage with the potential afforded Indigenous Australia by the carbon industry and markets, [Centrefarm Aboriginal Horticulture Ltd] established the not-for-profit Aboriginal Carbon Fund Limited...in September 2010.

Ultimately the role of the ACF Ltd should be undertaken by an independent commonwealth Statuary Authority to ensure Indigenous groups, corporate Australia and the general public can acquire carbon credits according to agreed standards and there is a high degree of certainty in the market place.

Currently, the role of the ACF Ltd will be to act as a safe haven for Indigenous groups to engage in carbon markets nationally and internationally. It is envisioned that carbon credits held by ACF Ltd could be sold under an official brand (AICU) and at a premium due to the fact there are cultural, social and environmental co-benefits derived from carbon projects on Indigenous lands. The same principle is currently applied to the Climate, Community and Biodiversity Alliance (CCBA) carbon credits which are the most expensive in the international market place.

The ACF Ltd will operate as a trading house taking a large degree of the risk out of producing carbon from Indigenous land. Acting as an ‘aggregator’ the ACF Ltd will pool carbon from a range of carbon projects over a variety of Indigenous lands, thus ensuring large corporations, small businesses, families and individuals will always receive the legitimate AICU carbon credits they have paid for.

The ACF Ltd will employ staff specialised in carbon research and development, business development, project management and community engagement to provide advice and support to Indigenous groups who wish to become involved in the carbon industry. Access to legal and other professional advice will also be available.[14]

3.13      The participation of indigenous land holders, and specifically non-exclusive native title holders, in the CFI is discussed in Chapter 4. 

Committee comment

3.14      The committee supports the co-benefits index as a mechanism to encourage project proponents to develop projects which have benefits to the community and the environment beyond the benefits associated with carbon abatement and sequestration. Projects which demonstrate co-benefits are themselves likely to benefit by attracting a premium price for their carbon credits in voluntary carbon markets. 

Excluded projects

3.15      The bill contains provisions for a "negative list" of excluded projects which have significant adverse impacts. The negative list will comprise certain types of sequestration or emissions avoidance projects that are excluded from the scheme on the basis of their impact on the availability of water; biodiversity conservation; employment; or the local community.[15]

3.16      Projects which may have a negative impact on the availability of water, biodiversity, employment or the local community may be included on the negative list of excluded projects. Such projects will be ineligible for ACCUs 'because they have a high potential for perverse outcomes'.[16] These perverse impacts may be in the project area proper or in the vicinity of the project. It is the government's intention 'that vicinity may be interpreted broadly, including water resource availability in associated catchments'.[17]

3.17      The government has indicated that the types of projects likely to be on the negative list will be:

  • Projects that involve the complete cessation of harvesting in plantations established for harvest; and
  • Projects that involve clearing existing forests to establish new carbon sequestration plantings.[18]

3.18      Concerns regarding the negative list varied, and included the 'regulatory interference' of such a measure;[19] the discretion afforded the minister when determining the list;[20] and uncertainty about inclusions on the list.[21]

3.19      The forestry industry was opposed to the negative list and described it as 'regulatory interference':[22]

A3P has obvious concerns about the decision to create an exclusion list in the regulations for offset projects. The existence of the “negative list” alters the construct of the CFI, moving it further from a pseudo-market mechanism towards an interventionist Government regulatory tool. Rather than relying on an individual’s or organisation’s assessment of market conditions, the ability to issue outright bans on certain projects necessitates a preliminary weighing up against regulatory restrictions. The requirements that the Minister must take into account include...water availability, conservation of biodiversity, employment and the local community. Most of these are a doubling-up of considerations that projects must take with respect to local natural resource management plans, water policy and other state and local government land use restrictions. It is therefore debatable whether the concept of a negative list has a defensible motive with respect to improving the CFI by ensuring integrity in the market. It seems far more likely that the negative list will encourage sub-optimal land use in some areas because it will inhibit market forces from directing efficient land use decisions – and was designed with this intent.[23]

3.20      Other submitters, such as Mr Andrew Macintosh, Associate Director, Centre for Climate Law and Policy, Australian National University (ANU), and the Australian Network of Environmental Defender's Officers (ANEDO), raised concerns about the discretion afforded to the minister when determining the types of projects which should be on the negative list. Mr Macintosh argued that the negative list:

...is completely dependent on the discretion of the Minister; there is no guarantee of what, how or when projects will be listed. This leaves it open to politicisation and ad hoc decision making. There is also no guarantee that members of the public, including potential project proponents, will be consulted on what is included on the negative list and when. Government decision making can often be significantly improved through real and proper consideration of community views.[24]

3.21      Mr Macintosh suggested an alternative to the negative list by linking the CFI to the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act). He suggested that there is scope to make new regulations under the provision pertaining to the approval of prescribed actions which have an effect on matters of national environmental significance within the EPBC Act. Mr Macintosh argued that 'these regulations would prescribe thresholds for the proportion of regions or bioregions that could be subject to reforestation/revegetation projects'.[25]

3.22      ANEDO claimed the negative list would only be as 'effective as the Minister makes it' and opined there was the potential for projects with negative environmental impacts to go ahead given the only type of projects definitely excluded from participating in the CFI are those that involve clearing of native forest.[26]

3.23      WWF-Australia was supportive, in principle, of the negative list but stated 'its adequacy for protection of the environment cannot be determined until the regulations are prepared and excluded activities determined'.[27] Ms Margaret Blakers of the Green Institute was similarly cautious about the negative list because it 'is all a blank sheet'.[28]

3.24      The question of Managed Investment Scheme (MIS) plantations and whether they would be included in the negative list was also raised by the Green Institute.[29] The institute was concerned the CFI would create incentives for project proponents to establish 'large-scale tree planting, similar to previous MIS schemes'.[30] In their submission, the Green Institute claimed:

Plantations on previously cleared land are already Kyoto-compliant and if permitted to participate in a compliance scheme are likely to be one of the first options taken up. CSIRO research reportedly shows that large food‑producing areas of the Murray Darling Basin could be converted to carbon sink forests at relatively low carbon prices (Sydney Morning Herald, 5 April 2011). This potential may be exacerbated because proponents can create financially engineered plantation investment products that would be eligible for:

  • tax advantages under Managed Investment Schemes provided the purpose of the scheme is for establishing and tending trees for felling;
  • carbon credits through the CFI provided net levels of sequestration are maintained on land in the project;
  • renewable energy certificates if the plantation is categorised as an ‘energy crop’ or used for a purpose eligible to create wood waste.

...

If the CFI contributes to creating a new incentive for large-scale tree planting, similar to previous MIS schemes, state and local land management authorities will be ill-equipped to deal with the impacts. Both the future use of farming land and the integrity of the CFI would be affected.[31]

3.25      The Department of Climate Change and Energy Efficiency (DCCEE) responded to concerns regarding the possibility of MIS-type plantations being eligible projects under the CFI. The department explained:

In combination, the requirements of the CFI and for Managed Investment Schemes make it highly unlikely that investors will be able to access tax benefits for Managed Investment Schemes in addition to carbon credits.

Managed Investment Schemes can be used to finance forests established for harvest only, not carbon sink forestry plantations.

For harvest forestry activities are unlikely to meet the CFI additionality test because they are commonly occurring.

As currently structured, for harvest forestry Managed Investment Schemes are for a single rotation, allowing investors to recover their capital and exit from the business after around 10 years. This model provided a significant upfront tax benefit and an expectation of high returns from sale of the timber over a relatively short time period.

Projects involving single rotation plantations are unlikely to benefit from the CFI because the scheme requires credits to be handed back if projects are terminated within 100 years.

In theory, Managed Investment Schemes could be structured to run a business involving more than one harvest rotation. In practice, such arrangements are unlikely to be attractive because, for example, individuals would have to invest in the business for a long period (at least two harvest rotations) in order to obtain the initial tax benefit. In addition, the amount of carbon credits received would have to be adjusted downwards to take account of harvest emissions.

The Government can exclude from the CFI types of projects that have significant potential for adverse outcomes, including projects funded through managed investment schemes, through the ‘negative list’.[32]

3.26      Further, the DCCEE provided to the committee an indicative negative list outlining the types of activities that may be excluded projects (see Appendix 6).[33] Managed Investment Schemes were amongst the examples of projects likely to be on the negative list.

3.27      The department also described the process, which will include stakeholder consultation, for determining what would be on the negative list. The department emphasised the role of the negative list in preventing adverse impacts on the allocation of prime agricultural land, water availability or biodiversity:

What the government has also said is that in regulation we will establish a negative list of activities that have a very high risk of leading to perverse or unintended environmental consequences and that we will be working to consult with stakeholders to establish, in regulation, a list of activities that are effectively banned for carbon farming. We see that as the key vehicle by which we will prevent the sorts of unintended consequences that you are alluding to. The provision for a [statutory review by the end of 2014] to look at material impacts down the track is, if you like, a second order safeguard. In fact, it is the negative list approach that we do see as the key vehicle for ensuring that these sorts of adverse impacts that you are alluding to do not occur.[34]

Committee comment

3.28      It is the view of the committee that the negative list will be an effective mechanism to exclude projects with detrimental impacts on water availability, biodiversity conservation, employment, or the local community from participating in the CFI. It is prudent to create such a mechanism in the bill, so as not to create a perverse incentive for potentially damaging projects.

3.29      The discretion afforded the minister in determining inclusions on the negative list, whilst causing some uncertainty for stakeholders, ensures there is flexibility in the scheme so that activities on the negative list are appropriately defined.

3.30      Indeed, the committee believes the government should exercise caution when developing the negative list to maintain a strong abatement incentive by tightly prescribing excluded projects to suit local environmental conditions or circumstances. This will ensure that certain activities are not unnecessarily excluded from the scheme by inclusion in the negative list.

Recommendation 4

3.31      The committee recommends that in developing the negative list the government takes care to preserve abatement incentives, for example by tightly defining excluded projects to reflect local environmental conditions or circumstances.

Monitoring the scheme's impact

3.32      In addition to the limitations introduced through the negative list provisions, the CFI bill requires project proponents to comply with all local, state and Commonwealth government water, planning and environmental requirements. Proponents must also take into account regional natural resource management (NRM) plans.[35]

3.33      The explanatory memorandum states:

To ensure that abatement projects do not have perverse or unintended impacts, offsets projects will need to comply with all state, Commonwealth and local government water, planning and environment requirements. Project proponents will also be required to take account of regional natural resource management plans. These provide a mechanism for local communities to have their say about the type and location of abatement projects.[36]

3.34      With respect to monitoring the impact of the CFI scheme, the explanatory memorandum further states:

The Government will monitor the implications of the scheme for regional communities and introduce further restrictions on abatement projects as necessary, if there is evidence that projects are likely to have a material and adverse impact on the allocation of prime agricultural land, water availability or biodiversity.[37]

3.35      The bill also requires the CFI scheme to undergo regular review, at a minimum of 3 year intervals, with the first report tabled in Parliament by 31 December 2014.[38]

3.36      The types of impacts which might be monitored by the government were suggested by some submitters. For example, the potential incentive created by the CFI to cause competition between different land uses, for example food production versus plantation forestry, on prime agricultural land was discussed by the National Farmers' Federation (NFF) and the NSW Farmers Association.[39] The NSW Farmers Association was concerned that Kyoto-compliant projects able to attract a higher carbon price would be preferentially established on productive agricultural land 'at the expense of  commercial farming, with cascading negative impacts for land markets, water allocation and regional economic stability'.[40]

3.37      Mr Tim Powe, Senior Forester with Greenfleet, informed the committee that this had not been Greenfleet's experience:

Over 13 years I do not think we have displaced any prime farming or agricultural land. The returns just do not stack up—$130 per hectare per year over 20 years just does not measure up to wheat, fat lambs or lucerne.[41]

3.38      The Wentworth Group of Concerned Scientists (the Wentworth Group) was strongly supportive of the use of regional NRM plans as a tool to identify preferred locations for carbon offset projects:

Regional NRM plans can be used to identify where carbon offset projects might be located in a region to deliver multiple benefits. They can also identify where there might be impacts on the environment or communities if offset projects were to take place in certain locations. For example, a regional NRM plan might identify where the highest biodiversity benefit might be achieved through environmental reforestation, or where there might be risks to water availability from plantation establishment.

In many cases, it is local and regional communities that are best placed to determine whether or not a project is likely to cause adverse impacts. It is local and regional communities that are often best placed to make decisions on the most appropriate locations for offset projects, and NRM and land use plans are the appropriate places for communities to have input.

The most effective approach for optimising carbon farming offsets at the appropriate scale is for state, territory and local governments to link regional NRM plans across Australia to land use planning schemes and zone land according to its suitability for carbon farming offsets. Land use planning schemes can then guide carbon farming offsets into areas of highest benefit and away from areas of risk, without significantly undermining the terrestrial carbon market.[42]

3.39      The Wentworth Group also described regional NRM plans as:

...key...because the job of the regional natural resource management bodies is to marry up the science, the community views and the government's priorities into looking across the landscape, what the most appropriate land us is and where the priorities are in the landscape.[43]

3.40      However, the Wentworth Group went on to recommend that:

...regional NRM plans are upgraded to identify where in the landscape carbon offset projects can achieve co-benefits, and where there might be adverse impacts.[44]

Committee comment

3.41      The committee acknowledges the concerns raised by various groups on the potential for the CFI to increase competition for natural resources such as productive agricultural land and water availability. The committee also notes the views of witnesses such as Greenfleet that in over a decade of planting carbon offsets forests these projects have not displaced agriculture on productive land. 

3.42      The committee agrees with the views expressed by the Wentworth Group on the utility of regional NRM plans in establishing carbon offsets in the land sector. The committee is of the view that the NRM planning process has significant potential to identify where in the landscape carbon offset investments can lead to positive social and environmental outcomes and where there might be perverse impacts on high value natural resources such as prime agricultural land and water availability.

3.43      The committee notes that some NRM groups are statutory bodies (for example, those in New South Wales, South Australia and Victoria) whilst others are not (such as those in Queensland, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory).[45] In addition, the matters covered by each regional NRM plan (for example water management, biodiversity, salinity, vegetation, soil, invasive species) vary from region to region and between states and territories.  Equally, the enforcement of NRM plans managed by statutory authorities is different to the enforcement of those NRM plans which are managed by non-statutory bodies.

3.44      Whilst recognising that natural resource management plans are prepared on a regional basis, the committee is of the view that the government should consider options for improving NRM plans so they take account of climate change mitigations options and adaptation needs, and maximise the broader environmental and social benefits of the land-sector carbon offsets. This is likely to involve working in close collaboration with state and territory governments.

3.45      In the committee's opinion, the consistency and efficacy of regional NRM plans could be further improved by requiring each NRM plan to:

  • be managed by a statutory body;
  • address the same basic criteria at a minimum (for example water management, biodiversity and invasive species); and
  • be enforced to the same standard.

The Commonwealth Government may need to provide funding to assist with the implementation of these changes to regional NRM plans. 

Recommendation 5

3.46      The committee recommends the government consider options for improving the capacity of natural resource management plans to take account of climate change mitigations options and adaptation needs, and to maximise the broader environmental and social benefits of the Carbon Farming Initiative.

Recommendation 6

3.47      The committee recommends the government consider further changes to regional natural resource management plans to improve their governance and consistency, such as by requiring each plan to:

  • be managed by a statutory authority;
  • address the same basic criteria, at a minimum; and
  • be enforced to the same standard. 

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