With more than 6 months passing since the advent of the Federal Government’s carbon tax, many organisations have been considering or pursuing potential opportunities with respect to Carbon Farming Initiative (CFI) projects.
These projects offer proponents the opportunity to be issued with Australian Carbon Credit Units (ACCUs), which can potentially be sold or used to meet liabilities under the Clean Energy Act 2011 (Cth). The CFI legislation was introduced by the Federal Government to allow primary producers and agribusinesses the opportunity to participate in the carbon market to earn a revenue stream and to help rural communities and the environment supporting sustainable farming by creating incentives for practices such as landscape rehabilitation.
A number of organisations have identified opportunities with respect to CFI projects and have taken advantage of the legislation to pursue them. CFI projects create, for instance, the potential in some cases for a return to be generated from marginal land. Unlike other kinds of eligible emissions units under the Clean Energy legislation, ACCUs do not have an expiry date and can be banked or sold for future use.
We recommend careful assessment is made of any potential CFI project at an early stage, to consider the commercial viability of the project and the compliance obligations which will need to be met. Good design at the outset is essential to running an effective CFI project.
5 key relevant questions in this context are:
What kind of project am I looking at – is it eligible for ACCUs?
Consideration should be given to whether a project would meet the relevant criteria to be eligible for the issue of ACCUs. Only projects with an approved methodology will be eligible to generate ACCUs. The Federal Government has published a “positive” list of activities and a “negative” list of activities which give some guidance about the eligibility of particular proposed projects – see attached links. For example, projects relating to the establishment and management of permanent native forests not for harvest or projects proposing human induced regeneration of a permanent even- aged native forest may potentially be eligible.
How should I structure the project?
Project proponents will have certain compliance obligations to meet and some projects involve collaboration between multiple parties (eg joint ventures between landowners and project proponents to achieve scale). It is prudent to ensure that the appropriate vehicle(s) are in place for your project at the outset which takes into account these and other relevant issues.
What are the material compliance obligations that need to be met?
Understanding the relevant compliance obligations associated with the project is critical in this context. For instance, permanence obligations for sequestration projects (which may prevent clearing of reforested land for 100 years) have significant implications for the design of any vegetation project.
What are the likely project costs and revenue expectations for the project?
A thorough assessment of anticipated project costs and revenue projections needs to be carried out. Consultation with an appropriately licensed carbon broker about anticipated revenues may be prudent, particularly in light of amendments made to the Clean Energy legislation in late 2012 and the advent of the flexible pricing period in 2015 when fixed carbon pricing is scheduled to come to an end.
Has the risk of revocation of the Clean Energy legislation been taken into account?
For the project to generate revenue, the proponent of the project will need to be issued ACCUs and to find buyers for the units at an appropriate price point. Carbon pricing in Australia does not currently enjoy bi-partisan support and there is a risk that the Clean Energy legislation may be revoked. In this regard, it is relevant to note though that:
- a certain kind of ACCUs (Kyoto units) may be able to be traded on international markets; and
- the Government has announced it is establishing a fund to buy another kind of ACCUs (non-Kyoto units), using revenue collected as entities pay the carbon price.
Understanding the CFI legislation is critical to designing and implementing an appropriate CFI project in a manner which is best structured to achieving the desired commercial objectives. We recommend that primary producers and agribusinesses seek appropriate advice at an early stage to avoid some of the pitfalls which can arise in this context.
Ron Eames, Partner
T: +61 7 3135 0629
Trent Taylor, Partner
T: +61 7 3135 0668
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed above.