House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Climate Change and Energy Efficiency, the Hon Greg Combet AM MP and the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 3 Amendments relating to the Carbon Farming Initiative

Outline of chapter

3.1 Schedule 3 to the bill amends provisions of the CFI Act relating to projects approved on the condition that they obtain the necessary regulatory approvals, and removes a requirement that the Domestic Offsets Integrity Committee (DOIC) publish matters incorporated by reference in methodology determinations. It also amends the CFI Act to extend the timing for methodology determinations to be backdated.

Context of amendments

3.2 The CFI, which was set up by the CFI Act, is a carbon offsets scheme that is part of Australia's carbon market. The CFI allows farmers and land managers to earn carbon credits by storing carbon or reducing greenhouse gas emissions on the land. These credits can then be sold to people and businesses wishing to offset their emissions.

3.3 The CFI also helps the environment by encouraging sustainable farming and providing a source of funding for landscape restoration projects.

Regulatory approvals

3.4 All CFI projects are required to obtain all necessary regulatory approvals. This was an important element of addressing potential negative impacts of projects on the local environment and communities.

3.5 The CFI Act allows the CER to conditionally approve projects that have not yet obtained all regulatory approvals. This is because obtaining such approvals can be costly and time-consuming, and proponents need certainty that their project would be eligible under the CFI before making such an investment.

3.6 At present, project proponents are required to obtain the relevant regulatory approvals by the end of the first crediting period for the project. A crediting period is normally seven years, or 15 years for reforestation projects.

3.7 Proponents can report on their project and receive credits 12 months after the project commences. Proponents could therefore receive Australian carbon credit units prior to obtaining regulatory approval for their project.

3.8 The proposed amendment addresses this risk by requiring that approvals are obtained prior to the end of the first reporting period, rather than the first crediting period. This means that the approval must be obtained before credits are issued.

Publication of matters by the DOIC

3.9 The CFI Act currently requires the DOIC to publish on its website the text of any matters incorporated by reference in methodology determinations, such as an international measurement standard.

3.10 Complying with this provision could involve lengthy negotiations and some expense to secure the right to publish material on the DOIC website. This could considerably delay the finalisation of methodology determinations.

3.11 The amendment will remove the requirement for the DOIC to publish the matters. Instead, the explanatory material for methodology determinations would contain a description of the incorporated material and indicate how it may be obtained. Material that is incorporated into legislative instruments is normally dealt with in this way.

Backdating of methodologies

3.12 All CFI projects must be conducted in accordance with a methodology determination, which is a legislative instrument made by the Minister. Prior to the Minister making a methodology determination, the DOIC must provide a recommendation as to whether or not the determination meets the offsets integrity standards established within the CFI Act.

3.13 The CFI Act currently allows for methodology determinations to be expressed to have come into force on 1 July 2010, if they are made by 30 June 2012. Projects using these methodologies can be backdated to 1 July 2010, and can be issued credits for all abatement that has occurred since 1 July 2010, provided they were undertaken in accordance with the methodology and met other CFI requirements in that period.

3.14 It has taken longer than initially anticipated for methodologies to be assessed and made into methodology determinations. This is because, initially, each methodology raises new policy and technical issues.

3.15 This amendment will enable methodologies for existing abatement projects to be eligible for backdating as originally intended.

Summary of new law

Regulatory approvals

3.16 The amendment will require participants to obtain all regulatory approvals by the end of the project's first reporting period.

Publication of matters by the DOIC

3.17 The amendment removes a requirement for the DOIC to publish matters incorporated by reference in methodology determinations.

Backdating of methodologies

3.18 The amendment allows more time for submission and assessment of methodology applications that can be backdated.

Comparison of key features of new law and current law

Detailed explanation of new law

Regulatory approvals

3.19 The bill amends paragraphs 15(2)(e), 34(2)(a) and 168(1)(h) and subsections 28(2) and 31(1) of the CFI Act to replace "crediting period" with "reporting period" in instances where it refers to requirements to obtain regulatory approvals. These references relate to the issuance of a certificate of entitlement, the making of a project declaration conditional on obtaining a regulatory approval, varying a project declaration to remove such a condition, unilateral revocation of a project declaration if the proponent fails to obtain the approval, and the listing of any such condition on the Register of Offsets Projects. [Schedule 3, Item 1, section 15(2)(e), CFI Act] [Schedule 3, Item 2, section 28(2), CFI Act] [Schedule 3, Item 3, section 31(1), CFI Act] [Schedule 3, Item 4, section 34(2)(a), CFI Act] [Schedule 3, Item 6, section 168(1)(h), CFI Act]

Publication of matters by the DOIC

3.20 The bill repeals subsections 106(10) and (11) of the CFI Act. This removes the requirement for the DOIC to publish on its website any matters applied, adopted or incorporated by reference in a methodology determination. The explanatory statements for methodology determinations will include descriptions of any matters applied, adopted or incorporated by reference, and include information on how to obtain the instrument or writing within which the matter is contained. [Schedule 3, Item 5, section 106, CFI Act]

Backdating of methodologies

3.21 The bill amends subsection 122(3) of the CFI Act to provide that methodology determinations made on or before 30 June 2013 may be expressed to have come into force at the start of 1 July 2010, provided that the application for endorsement of the methodology was submitted to the DOIC on or before 30 June 2012. This amendment allows the backdating of methodology determinations that were anticipated to be made on or prior to the originally specified date of 30 June 2012. [Schedule 3, Item 7, section 122, CFI Act]

Application and transitional provisions

3.22 The provisions in Schedule 3 to the bill commence on the day after which it receives the Royal Assent. [Section 2]

3.23 Transitional arrangements will apply for any projects declared eligible, subject to obtaining a regulatory approval, prior to the commencement of these provisions. Any project which, immediately before the commencement of these provisions, is subject to a requirement to obtain a regulatory approval before the end of the first crediting period will be taken to be subject to a requirement that the approval is obtained before the end of the first reporting period instead. [Schedule 3, Item 8, CFI Act]