Considering a carbon project?Carbon farming is a new industry where land managers can earn Australian Carbon Credit Units (ACCUs) by following specific carbon farming methods. Each Australian Carbon Credit Unit equals one tonne of carbon dioxide equivalent (tCO2-e) and is a financial product. Earning Australian Carbon Credit Units through carbon farming has the potential to provide landholders with an alternative income stream and improve enterprise viability. However, as with any important business decision, it is critical that you take the time to understand all the pros and cons.

The Clean Energy Regulator is the government body responsible for administering the Emissions Reduction Fund and the legislation around reducing carbon emissions.

The Clean Energy Regulator website has some excellent tools and information to help you determine an appropriate carbon method for you. The section called opportunities for the land sector outlines a range of methods including both emissions avoidance and carbon sequestration projects.

If you are thinking about a project involving storing carbon in vegetation you should use the sequestration decision tree to work out which method is most appropriate for you.

Carbon farming methods fall into two categories:

Emissions avoidance: activities that reduce or avoid greenhouse gas emissions. Activities could include:

1. destruction of methane generated from manure

2. herd management

3. changing livestock supplement regimes

4. changing fertilizer regime in irrigated cotton.

Carbon sequestration: activities involve removing carbon dioxide from the atmosphere and storing it in vegetation through the process of photosynthesis. Carbon can also be sequestered in soils.

All sequestration projects involve a period of permanence. Carbon sequestered in soils or vegetation must be maintained for a period of 25 or 100 years. Emissions avoidance projects do not involve permanence agreements.

What would you like to do on your land to store, or sequester, carbon and be issued with Australian carbon credit units for that activity?

Protect or maintain the existing native forest

Plant seeds or seedlings on cleared land to establish a

permanent forest

Plant seeds or seedlings on cleared land to

establish a forest plantation for harvesting

Store carbon in soil

Avoided Deforestation 1.1

Do you have a clearing consent (for

the land) that was issued before 1 July

2010?

Are you prepared to manage the native forest

to achieve a mix of native forest vegetation?

Are you prepared to fund and/or carry

out destructive tests on the mature trees?

Is unrestricted clearing permitted

on the land?

Has the land been cleared at least

twice; was it used for cropping or

grazing afterwards?

Is the land now uniformly covered in native forest?

Do you have evidence of native forest regeneration after the clearing

events?

Avoided Clearing

Has the land been used for grazing,

cropping or fallow for the last 5 years?

Has the land been used for settlement, nature conservationor not used at all?

Are you prepared to undertake field measurements of

your planted trees?

Has the land been clear of forest cover*

at least 5 years before application?

Are you prepared to fund and/or carry

out destructive tests on the mature trees?

Farm Forestry

Reforestation by Environmental or Mallee Plantings –

FullCAM

There are currently no methods

Has the land been used for grazing,

cropping or fallow for the last 5 years?

Are you prepared to undertake field measurements of

your planted trees?

Are you prepared to fund and/or carry

out destructive tests on the mature trees?

Farm Forestry

There are currently no methods

There are currently no methods

Has the land been cleared in the last 7 years or 5 years if it has changed hands?

There are currently no methods

There are currently no methods

Are you prepared to harvest and re-establish

project trees?

Reforestation and Afforestation 2.0

Soil Carbon in Grazing Systems

Has the land been under permanent

pasture or continuously cropped for at least 5 years?

Are you prepared to implement one

or more new management

actions?

Are you prepared to fund expert

technicians to sample and analyse soil from a project?

There are currently no methods

Let the cleared land revert to native forest

Are you prepared to change practices to assist regeneration

of existing seed or rootstock?

Have you prevented regrowth on cleared land? eg (ongoing) livestock grazing

or

Are native trees expected to regrow

on the land?

Does the land currently have Forest cover*?

Managed Regrowth

Human-Induced Regeneration 1.1

Are you prepared to change practices to assist regeneration

of existing seed or rootstock?

There are currently no methods

No

Yes

No

Yes

Yes

No

No

No

No

Yes Yes

Yes

Yes

No

No

Yes

Yes

Yes

Yes

No

No

Yes Yes

Yes

No

Yes

No

No

No

Yes

No

Yes Yes

No

No

Yes Yes

Yes NoYes

Yes

Yes

Yes

Yes

No

No

No

No

Or

There are currently no methods

There are currently no methods

This document is produced for general information only and does not represent a statement of the policy of the Commonwealth of Australia.The Commonwealth of Australia and all persons acting for the Commonwealth preparing this document accept no liability for the accuracy of or inferences from the material contained in this publication, or of any action as a result of any person’s or group’s interpretation, deductions, conclusions or actions in relying on the this material. It should be read in conjunction with the Carbon Credits (Carbon Farming Initiative) Act 2011 and supporting Regulations (available on the Comlaw website). Changes to the legislation may affect the information in this document. This is not intended to provide legal advice. Entities are responsible for determining their obligations under the law and for applying the law to their individual circumstances. Entities should seek independent professional advice if they have any concerns.

Soil Carbon using Modelled

Abatement Estimates

Was the land used for agricultural purposes at least once in the 5 years before you apply to run

a project?

Are you prepared to run one of three projects?

1. Sustainable intensification

2. Stubble retention3. Conversion to

pasture

Are you prepared to implement one

or more new management

actions?

Yes

Yes

Yes

*Forest cover is defined as an area of at least 0.2 hectares that includes trees measuring at least 2 metres in height and providing crown cover of at least 20 per cent of the land.

Have yourepeatedly clearedforested land forpastoral use? eg

mechanicalchemical clearing

Carbon farming involves land managers changing practice to reduce greenhouse gas emissions or capture and hold carbon in vegetation and soils.

The Australian Government is offering land managers incentives to do this through the Emissions Reduction Fund.

Figure 1: The Clean Energy Regulation sequestration decision tree can be downloaded from www.cleanenergyregulator.gov.au

What's your long term plan?Before you make the decision to take on a long term carbon project you should consider how it will fit in with future plans for your property, business and lifestyle? Remember, sequestration projects involve committing to maintaining the carbon for a 25 or 100 years.

It may be worthwhile taking the time to put together a long term plan.

Here is a simple template for identifying goals for you

and your business:

Although 100 years may seem like a long time, consider the permanence obligations on carbon sequestration projects. When determining the long term goals for your property or business you should also take into account succession plans where appropriate. It may be worth consulting a professional to assist you with your plan.

Will the proposed carbon project fit in with your long term goals?

Once you’ve determined your long term goals you must decide whether the carbon project you’re considering aligns with those goals. Other things you might ask yourself:

• Will the carbon project require you to change your management practices?

• Do you have the time and capacity to make those required changes?

• Will your project allow you to continue grazing the area? If not, how will that impact on your primary production?

• Will your project allow you to achieve long-term sustainable use of your land?

• What will the landscape look like after 25 or 100 years in a carbon project?

SWOT analysis

Some people find it useful to use a SWOT analysis when they’re making important decisions. These are just examples of how you might think about the strengths, weaknesses, opportunities and threats associated with implementing a carbon project.

Is your project consistent with the Western Local Strategic Plan?Local Land Services Western Region has developed some guiding principles for carbon projects in the region including criteria to ensure that projects are consistent with the Western Local Strategic Plan and long term goals for the region.

Consider the impact of your project

• Will the project cause damage to areas of high conservation value or areas of Aboriginal cultural significance?

• Will this project have any adverse effect on neighbouring landholders?

• Will the project adversely impact groundwater of surface distribution, availability or quality?

• Will the project reduce landscape diversity?

• Will the project result in a reduction of groundcover below 50 per cent?

• Does the project conflict with the requirements of any existing government contracts?

If you have answered YES to any of these questions then you

should not proceed with the project as it is.

SWOT analysis

Implementing a carbon project

STRENGTHS WEAKNESSES

Example — guaranteed income

for the duration of the contract

(3-10 years)

Example — permanence

obligation may limit long term

productive capacity

OPPORTUNITIES THREATS

Example — Financial

opportunity to invest in

infrastructure and improving

management practices.

Example: Opportunity for

inter-generational wealth.

Example — wildfire may destroy

Example — permanence may

impact on property value in the

long term?

10 years 25 years 100 years

Business

Lifestyle

Landscape

project area

Carbon project developersSometimes referred to as brokers or aggregators, there are a range of carbon project developers working across this emerging industry.

Many land managers work with project developers to help them navigate the scientific, financial and legal aspects of developing a carbon project which involves following very specific “methods” to deliver carbon abatement that is measured and traded as an Australian carbon credit unit.

Before signing an agreement with a project developer you should do some homework.

What are their skills, experience and track record?

If they cannot demonstrate experience and expertise in this field you should be cautious.

Does the carbon broker hold an Australian Financial Services licence?

Australian carbon credit units are tradable units and are regulated by the Clean Energy Regulator as financial products. Reputable brokers (project developers) should hold an Australian Financial Services licence. You can also check whether their name is on the Australian Securities and Investment Commission’s register.

What income will you receive from participating in the project?

What percentage will the broker take? Different brokers offer different fee structures.

Talk to other landholders and different brokers to make sure you’re getting the best deal.

When considering the projected income from your carbon project don’t forget to factor in implementation and maintenance costs as well as any income potential you may forgo if you implement this project. For example, will your stocking levels be reduced?

Who is the project proponent? You or the carbon project developer?

It is the project proponent who enters into the carbon abatement contract with the Clean Energy Regulator.

Australian carbon credit units are issued to the project proponent and they are responsible for reporting to the Clean Energy Regulator about the conduct of the project.

In some cases the landholder is the project proponent who works with a broker or aggregator. In other cases the carbon project developer themselves are the project proponent for the project being implemented on your property.

What services will be covered by the broker fees?

Will there be additional costs for auditing, monitoring and reporting over the life of the project?

Find out just what services you will receive as part of the fee your broker/aggregator is receiving.

For example, auditing. There are rigorous auditing and reporting requirements involved with carbon sequestration projects. Ask your broker whether they will provide all the auditing involved with your project? If so, is this included in their flat fee or commission, or will this incur extra costs?

How much is it going to cost you to implement the carbon project?

Also how much will ongoing management of the carbon project cost? For example, you may be required to install fences and fire breaks to protect your carbon investment.

As well as considering initial costs for installing these, you should also think about the ongoing maintenance costs over the full life of the project.

What are the risks? How certain are the future financial benefits?

What are the implications if your project doesn’t generate the emissions reductions agreed to in your contract?

What will happen if your carbon project is impacted by fire or damaged in some other way?

Legal and financial considerationsHave you obtained legal and financial advice about the implications of the proposed project?

Before you make the decision to enter into a carbon contract make sure you get sound advice from both a solicitor and your accountant.

This is a new, emerging industry - if your regular advisers don’t understand the financial and legal implications of carbon sequestration projects, seek further advice.

For example, the current ruling from the Australian Tax Office is that carbon income is not deemed primary production. Does your accountant understand this and what the implications might be for tax planning?

The Clean Energy Regulator website provides information about Australian Carbon Credit Units and implications for tax and trading.

Eligible interested holder consent

If you are applying to register an area-based emissions avoidance project or a sequestration project under the Emissions Reduction Fund, you must seek the consent of any persons or organisations holding an eligible interest in the land on which your project will run.

This means your bank if you hold a mortgage, and Crown Lands if your property is a Western Lands leasehold.

The Emissions Reduction Fund auction

Once a project has been registered with the Clean Energy Regulator, successful applicants are eligible to sell Australian carbon credit units. The current process for selling Australian carbon credit units is through the Emissions Reduction Fund auction.

Project proponents can register for an auction and enter a bid price for their Australian carbon credit units

The auction is a single-round, pay-as-bid, sealed-bid format.

If a bid is successful, the participant will automatically enter into a contract with the Clean Energy Regulator on behalf of the Commonwealth of Australia.

The Clean Energy Regulator will select projects to contract with solely on the basis of the bid price.

Participants with the most competitive prices will be successful. (taken from Clean Energy Regulator website, 25/2/16).

The Australian National Registry of Emissions Units

The trading of all Australian Carbon Credit Units and the mechanism for exchanging, selling and trading Australian carbon credit units is the Australian National Registry of Emissions Units (ANREU).

Administered by the Clean Energy Regulator, ANREU is the national registry that ensures accurate accounting of the issuance, holding, transfer and acquisition of Australian carbon credit units.

Organisations and individuals are required to have an ANREU account if they want to own, transfer, cancel or relinquish Australian carbon credit units.

© State of New South Wales through Local Land Services 2016.

The information contained in this publication is based on knowledge and understanding at the time of writing November 2016. However, because of advances in knowledge, users are reminded of the need to ensure that the information upon which they rely is up to date and to check the currency of the information with the appropriate officer of Local Land Services or the user’s independent adviser. For updates go to www.lls.nsw.gov.au

More information

Local Land Services Western Region has produced other fact sheets which can provide you with further information.

• Guiding principles for carbon projects

• Managing a carbon project for long term production and environmental outcomes

For any other information, contact your nearest Local Land Services office.