Chapter 2
Overview of the bill
2.1
This chapter provides an overview of key aspects of the bill.
Introduction
2.2
The Carbon Farming Initiative Amendment Bill 2014 (the bill) amends the Carbon
Credits (Carbon Farming Initiative) Act 2011 (the CFI Act) and makes minor
amendments to related Acts[1]
to allow for the establishment of the Emissions Reduction Fund. Specifically,
the bill proposes to amend the CFI Act to 'implement the crediting and
purchasing components of the Emissions Reduction Fund'.[2]
The bill also proposes to expand the Carbon Farming Initiative to make it
accessible to emissions reduction activities across the economy, not just
land-based projects. It proposes to empower the Clean Energy Regulator (the
Regulator) to hold auctions, enter into contracts and buy emissions reductions.
The bill also proposes to streamline current processes and provide for the
transition of existing participants under the Carbon Farming Initiative.
Emissions Reduction Fund
2.3
According to the Explanatory Memorandum, the Emissions Reduction Fund
will commence operations following the repeal of the carbon tax.[3]
The 2014–15 budget allocation for the fund is $2.55 billion.[4]
The Clean Energy Regulator will be able to 'commit under contract the full
level of funding from the commencement of the Fund'.[5]
2.4
The three elements of the Emissions Reduction Fund are:
-
credit emissions reductions;
-
purchase emissions reductions; and
-
safeguard emissions reductions.[6]
Crediting emissions reductions
2.5
The bill empowers the Clean Energy Regulator to allocate Australian
carbon credit units (ACCUs) to eligible carbon abatement projects across a
broader range than under the existing legislation. The bill proposes to expand
the types of projects able to be credited under the Carbon Farming Initiative
to any type of project to avoid greenhouse gas emissions, not just land-based
projects and certain types of waste projects.[7]
2.6
As it does under the current legislation, the Regulator will issue ACCUs
to registered projects for each tonne of carbon dioxide equivalent reduced or
stored in the land. ACCUs will be issued once emissions reductions have been
estimated using approved methodologies, and, where necessary, independently
audited. A project will need to be registered before it can participate in an
Emissions Reduction Fund auction or other purchasing process.[8]
Developing methodologies
2.7
As outlined in the previous chapter, the Carbon Farming Initiative uses
methodologies to estimate emissions reductions across activities. The bill
intends to change the way methodologies are proposed, assessed and made under
the Emissions Reduction Fund.[9]
2.8
Under the current framework, methodologies can be proposed by anyone,
and a minimum period of 40 days of public consultation follows. The Minister
for the Environment can only make a methodology if it has been endorsed by the
Domestic Offsets Integrity Committee and complies with, among other
requirements, the offsets integrity standards. The offsets integrity standards
currently require that emissions reductions be 'measurable, capable of being
audited, and estimated on the basis of conservative assumptions'.[10]
The offsets integrity standards requirements will remain under the regime
proposed by the bill.
2.9
Under the Emissions Reduction Fund the Minister for the Environment
would identify priorities for methodology development, following consultation
with technical working groups and advice from the renamed 'Emissions Reduction
Assurance Committee'.[11]
The process for anyone to propose methodologies will be repealed[12]
and the 40-day consultation period reduced to 28 days.[13]
2.10
The Explanatory Memorandum states that this streamlined process:
...will focus methodology development on opportunities that
generate the largest volume of genuine abatement and that are likely to encourage
the most participation.[14]
Crediting periods
2.11
Under the Carbon Farming Initiative, projects are approved and
registered for a specified 'crediting period', which is the period during which
emissions reduction activities are eligible to generate credits.[15]
Currently, the standard crediting period is seven years unless a different
crediting period is specified through the regulations. The bill proposes a
standard seven-year crediting period for emissions reductions projects and 25
years for sequestration projects. The bill also enables different lengths of
crediting period to be provided through methodologies.[16]
2.12
The White Paper explained that flexibility is provided by allowing
crediting periods of different durations depending on the project:
...methods can also provide for shorter, three-year crediting
periods or longer, 10-year crediting periods in certain circumstances. This
recognises that some activities are likely to remain additional to business as
usual for significantly shorter or longer periods than the standard seven-year
crediting period.
For example, while a seven year crediting period would be
provided for a whole-of-building energy efficiency upgrade, a shorter crediting
period could be considered for some space heating projects that are likely to become
business as usual very quickly.
Conversely, large and ambitious projects with the potential
to make a substantial single contribution towards reducing Australia's
emissions may require longer crediting periods. These projects could be
provided with a 10‑year crediting period...[17]
2.13
Currently, after the first crediting period has expired, project
proponents can apply for a subsequent crediting period. The bill proposes to
remove the ability for projects to have more than one crediting period.[18]
The Explanatory Memorandum states that this will 'ensure that the Emissions
Reduction Fund continues to target new projects that build on previous gains'.[19]
Additionality
2.14
To be eligible to receive credits under the current legislation, a
project must undergo an 'additionality' test. The Explanatory Memorandum
defines 'additionality' as a requirement that a project or activity produce
emissions reductions that are most likely to be additional to what would have
occurred in the absence of the Emissions Reduction Fund. The current test
requires a project to go beyond common practice and be listed on the 'positive
list' under the CFI Regulations. The project must also not be required by
another law. The bill proposes to repeal the existing additionality 'common
practice' test and the associated separate 'positive list' process. It will be
replaced with new project eligibility requirements and an express definition of
additionality in the offsets integrity standards, which require that a methodology
must result in carbon abatement that is unlikely to occur in the ordinary
course of events.[20]
The concept of 'common practice' remains a useful way to determine whether an
activity is additional and is likely to be incorporated in the context of
methodology development and assessment.[21]
2.15
Under the proposed project eligibility requirements, the bill introduces
a new requirement that projects likely to occur because of funding from another
Commonwealth or state government program will not be eligible to receive
support from the Emissions Reduction Fund. This does not preclude projects from
receiving other types of funding or support:
It is not the Government's intention to prevent proponents
from obtaining funding or in-kind support from multiple sources where this is
necessary for the project. For example, the Government anticipates that
environmental projects could receive assistance from the Green Army and fire
management projects may involve rangers involved in Indigenous ranger
programmes.[22]
Purchasing emissions reductions
2.16
The bill authorises the Clean Energy Regulator to buy emissions
reductions on behalf of the Commonwealth. The ability to purchase emissions
reductions, enter into contracts and enforce contract provisions is a new
responsibility for the Regulator. Purchasing will generally be done through
reverse auctions to obtain emissions reductions at the lowest cost, although
the Regulator will also have discretion to purchase emissions reductions
through other processes such as tendering.[23]
As noted earlier, a project must be registered in order to be included in an
auction or other purchasing process.
2.17
The Regulator will design the purchasing process:
The Regulator's discretion will be bound by principles
outlined in the legislation. The principles require the Regulator to, among
other matters, design the purchasing process to deliver value for money,
maximise abatement, minimise administrative costs and ensure the integrity of
the purchasing process.[24]
2.18
On 27 June 2014, the Clean Energy Regulator released for public
consultation an exposure draft of the Carbon Abatement Contract to be used for
the Emissions Reduction Fund and an accompanying discussion paper. Submissions
are due by 18 July 2014.[25]
Safeguarding emissions reductions
2.19
An Emissions Reduction Fund safeguard mechanism will be operational from
1 July 2015. Consultation on the design of the mechanism will continue to occur
through 2014 and the first half of 2015. The mechanism will be put in place to
ensure that 'emissions reductions paid for by the Emissions Reduction Fund are
not displaced by a significant rise in emissions elsewhere in the economy'. It
will be implemented through discrete legislation.[26]
Other changes to the Carbon Farming
Initiative
2.20
As outlined in the previous chapter, the Carbon Farming Initiative
currently applies only to land-based emissions reduction projects and
particular waste projects. The bill opens up the initiative to all sectors of
the economy, whether on land, at sea or in Australia's external territories.
The Explanatory Memorandum lists some of the new projects to reduce emissions
which could be supported by the Emissions Reduction Fund, such as improving the
energy efficiency of homes and industrial facilities, reducing electricity
generator emissions, reducing waste coalmine gas, upgrading vehicles and
improving transport logistics.[27]
2.21
The bill alters the permanence arrangements for carbon sequestration
projects. Under the existing legislation, sequestration projects must continue
for 100 years. If a project does not fulfil this obligation, its carbon credits
are relinquished. The bill permits new sequestration projects to nominate for a
25-year or 100-year permanence period. Projects that are currently subject to a
100-year permanence period can elect to convert to a 25-year period within two
years of the commencement of the Emissions Reduction Fund. Information about a
project's permanence period will be available through the Emissions Reduction
Fund Register, which will assist both prospective buyers of land where sequestration
projects are operating and buyers of credits from sequestration projects.[28]
2.22
The bill proposes to change the timing of requirements relating to
obtaining consent from 'eligible interest holders'. Currently, consent is
required during the application stage for projects. The bill proposes that
proponents of carbon sequestration projects may apply to receive conditional
registration for their projects, prior to obtaining the consent of all parties
with an eligible interest holding. This allows project proponents to
simultaneously begin the process of registration a project and contacting the
relevant eligible interest holders. Full registration of a project will not be
granted until eligible interest holders have given their consent.[29]
Transitional arrangements for
existing Carbon Farming Initiative projects
2.23
Projects that are already registered under the Carbon Farming Initiative
will be automatically registered under the Emissions Reduction Fund. Carbon
Farming Initiative methodologies will also continue to apply unless varied or
revoked.[30]
Until 1 July 2015, proponents will be able to apply to register their
projects using the eligibility rules and assessment methodologies that existed
prior to the commencement of the bill.[31]
2.24
Projects transitioning from the current Carbon Farming Initiative
arrangements to the Emission Reduction Fund will receive a second crediting
period—that is, their current crediting period will end and a new crediting
period will begin the day after the commencement of the Emissions Reduction
Fund legislation. The second crediting period will be seven years for emissions
reduction projects or 25 years for sequestration projects.[32]
The bill proposes that a transitioning project cannot have more than two
crediting periods.[33]
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