CARBON FARMING INITIATIVE AMENDMENT BILL 2014 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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CARBON FARMING INITIATIVE AMENDMENT BILL 2014

2013-2014 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA SENATE CARBON FARMING INITIATIVE AMENDMENT BILL 2014 SUPPLEMENTARY EXPLANATORY MEMORANDUM (Circulated by the authority of the Minister for the Environment the Hon Greg Hunt MP)

Table of contents General outline and statements .............................................................. 5 Explanation of amendments .................................................................................. 9

General outline and statements Amendment On 18 June 2014, the Government introduced the Carbon Farming Initiative Amendment Bill 2014 (the Bill). The Bill amends the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) to implement the Emissions Reduction Fund as part of the Governments efforts to reduce emissions in Australia and help achieve Australias emissions reduction target of five per cent below 2000 levels by 2020. The Bill was referred to the Senate Environment and Communications Legislation Committee on 19 June 2014. The Committee handed down its report on 7 July. Since July, the Government has considered the Committees report and undertaken further targeted consultation with businesses in relation to the Bill. The Government has made a number of refinements to the Bill based on this process. Government amendments to the Bill in sheet HV130 seek to ensure that the Emissions Reduction Fund operates as the Government intends, including by ensuring that the process for assessing methodology determinations (methodologies) is not duplicative. Further detail about the legislative framework for the Emissions Reduction Fund is set out in the Explanatory Memorandum for the Bill. Financial impact The amendments to this Bill have nil financial impact. The financial impact of the Bill was outlined in the Explanatory Memorandum to the Bill and has been replicated below. The total estimated impact of the Emissions Reduction Fund on the underlying cash balance is $2.55 billion. The Regulator is authorised to commit this amount under contract from the commencement of the Emissions Reduction Fund. Funds will be expended over time as emissions reductions are certified and paid for over the life of the contract. This is reflected in the profile of expenditure published in the 2014-15 Budget. 5

Carbon Farming Initiative Amendment Bill 2014 The cost of administering the Emissions Reduction Fund will be met from within the existing resources of the Department of the Environment and the Clean Energy Regulator. Regulation impact on business The amendments to this Bill have nil regulatory impact. The regulatory impact statement for the Bill was outlined in the Explanatory Memorandum to the Bill, which is replicated below. The Department of the Environment certified the Emissions Reduction Fund White Paper as a Regulation Impact Statement for initial decisions on the Emissions Reduction Fund, including the Emissions Reduction Fund crediting and purchasing arrangements, Carbon Farming Initiative arrangements incorporated into the Emissions Reduction Fund, and coverage of the Emissions Reduction Fund safeguard mechanism in accordance with the Australian Government Guide to Regulation. The White Paper is available at http://www.environment.gov.au/resource/emissions-reduction-fund-white- paper. The RIS will be finalised after consultation with business on the remaining aspects of the safeguard policy. Date of effect: On a date to be proclaimed by the Governor General. Statement of Compatibility with Human Rights Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Amendment to the Carbon Farming Initiative Amendment Bill 2014 This amendment is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Overview The Bills compatibility with the Human Rights (Parliamentary Scrutiny) Act 2011 was outlined in the Explanatory Memorandum to the Bill. This amendment to the Bill includes minor refinements and has been assessed to be compatible with human rights, consistent with the human 6

rights compatibility statement provided in the Explanatory Memorandum to the Bill. Human rights implications This amendment does not engage any of the applicable rights or freedoms. Conclusion This amendment is compatible with human rights as it does not raise any human rights issues. 7

Explanation of amendments Outline of amendments 1.1 These amendments include minor refinements to the Bill to ensure that the Emissions Reduction Fund operates in the manner that the Government intends. 1.2 These refinements ensure that methods can be assessed before the passage of the Bill and that these processes are not duplicated once the Bill has passed. 1.3 They ensure that avoided deforestation projects can transition to the Emissions Reduction Fund and access crediting that reflects the period when the abatement occurs. 1.4 They also ensure that the project additionality and eligibility government programme requirement can be implemented in a more effective and streamlined manner. Summary of amendments Transitional arrangements for the Emissions Reduction Assurance Committee (ERAC) and Department 1.5 The Bill provides that the Interim ERAC can consult on and assess methodologies for the Emissions Reduction Fund prior to the passage of this Bill. 1.6 The amendment provides that the Department can also consult on methodologies for the Emissions Reduction Fund to ensure that methods can progress before the appointment of the Interim ERAC. 1.7 The Bill already provides that advice given by the Interim ERAC is treated as advice provided by the statutory ERAC for the purposes of this legislation. 1.8 The amendment clarifies that a request for advice to the Interim ERAC is treated as a request to the statutory ERAC and that the statutory ERAC is not required to undertake consultation processes which have already been undertaken by the Interim ERAC or Department. 9

Carbon Farming Initiative Amendment Bill 2014 Existing and transitional avoided deforestation projects Unit entitlement 1.9 The amendment provides that proponents which make a project application before 1 July 2015 using the Carbon Credits (Carbon Farming Initiative) (Avoided Deforestation) Methodology Determination 2013 (CFI avoided deforestation methodology) can have their credits distributed evenly over the crediting period, as they are for existing projects. Transferring to a new or modified methodology 1.10 The amendment also ensures that existing and transitional projects using the CFI avoided deforestation methodology may request to apply a different methodology, such as a modified CFI avoided deforestation methodology. As a result, the crediting period specified in the new or modified methodology will apply to these projects from the start of the project declaration. Additionality - Government programme requirement 1.11 Where the Bill enabled methodologies to specify requirements to apply in lieu of the government programme requirement specified in the Bill, the amendment provides for this to be done in legislative rules. 1.12 This is to ensure that requirements in lieu of the general requirement can apply to a small or large range of types of projects where appropriate, and that they can be modified quickly to respond to changes in other government programmes. 10

Explanation of amendments Comparison of key features of new law and current law Amendments Current Bill Transitional arrangements for the ERAC The Department can undertake public It is unclear whether only the Interim consultation for methodologies. ERAC and statutory ERAC, not the Department, could undertake public consultation for methodologies. The statutory ERAC does not need to If consultation was undertaken but the replicate consultation processes which Interim ERAC had not provided have already been undertaken by the advice by commencement, the Department or the Interim ERAC. statutory ERAC would be required to redo public consultation. Where the Minister requests advice from the Interim ERAC, but the advice Advice provided by the Interim is not provided, the request is still ERAC was taken to have been advice treated as a request for advice to the provided by the statutory ERAC. statutory ERAC. Existing and transitional avoided deforestation projects Unit entitlement Transitional projects approved using Projects approved using the existing the CFI avoided deforestation avoided deforestation methodology, methodology will now also be able to under an ERF transitional application use the old unit entitlement are subject to the same unit arrangements for native forest entitlement arrangements as all ERF protection projects and will have their sequestration offsets projects. credits distributed evenly over the crediting period. Transferring to a new or modified methodology Where a project covered by the CFI Projects using an existing CFI avoided deforestation methodology avoided deforestation methodology transfers to a modified or other could not apply to a new or modified applicable methodology, any crediting methodology as the unit entitlement period specified in that methodology for these projects could not be will apply to that project from the start calculated under the new law. of the project declaration. This is because the unit entitlement for these projects is determined by a "net sequestration number" while under the ERF, the unit entitlement for all projects is determined by a "net abatement number". 11

Carbon Farming Initiative Amendment Bill 2014 Additionality - Government programme requirement Legislative rules can specify Methodologies can specify requirements in lieu of the government requirements in lieu of the programme requirement specified in government programme requirement the Bill. specified in the Bill. Detailed explanation of new law Transitional arrangements for the ERAC [Sheet 130, amendments 5-7] 1.13 The Bill provides transitional arrangements to ensure that the Interim ERAC can consult on and assess methodologies for the Emissions Reduction Fund prior to the passage of this Bill. 1.14 The amendment ensures that the Department can consult on methodologies before the Interim ERAC is appointed. [Schedule 1, item 393, clauses 4 and 5] 1.15 It also ensures that a request for advice to the Interim ERAC is taken to be a request for advice to the statutory ERAC and that the statutory ERAC does not need to redo consultation processes which have already been undertaken by the Interim ERAC or Department [Schedule 1, item 393A, clause 6]. 1.16 If before the passage of this Bill, - the Minister requested the Interim ERAC to advise the Minister about making a methodology, - the relevant methodology was published for consultation, and - the committee did not provide their advice to the Minister, the Ministers request will be taken as a request to the statutory ERAC. 1.17 In this case, the ERAC does not need to consult again but must consider and publish submissions received during the Interim ERAC consultation process. Existing and transitional avoided deforestation projects [Sheet 130, amendments 2-4] 1.18 The amendments ensure that avoided deforestation projects can transition to the ERF and provide clarity around the continued crediting of those projects. 12

Explanation of amendments Unit entitlement 1.19 Native forest protection projects avoid clearing or harvesting of native forest. The Carbon Farming Initiative (CFI) as enacted by the current CFI Act provided for credits for the net total sequestration from these projects to be issued over a 20 year crediting period. 1.20 The Bill preserves arrangements to enable units to be issued evenly over a crediting period for projects applying the CFI avoided deforestation methodology before the commencement of the Bill. 1.21 This amendment ensures that these arrangements now also apply to proponents who make project applications before 1 July 2015 using the CFI avoided deforestation methodology. [Schedule 1, item 387, clause 3] 1.22 As this is intended to be a transitional measure, these arrangements will not apply to projects which apply after 1 July 2015 or projects approved using a modified CFI avoided deforestation methodology or other ERF methodologies. Unit entitlement for these projects can be determined under the new law. [Schedule 1, items 86-93] 1.23 Proponents of existing and ERF transitional application projects can choose to move to a modified methodology and be subject to these new arrangements. Transferring to a new or modified methodology 1.24 The Bill includes transitional arrangements to preserve the application of the 20 year crediting arrangements for existing and transitional projects applying the CFI avoided deforestation methodology (projects approved under an ERF transitional application). [Schedule 1, item 152, subsection 71(2)] 1.25 The amendment provides that where a project covered by the CFI avoided deforestation methodology transfers to a modified or other applicable methodology, any crediting period specified in that methodology will apply to that project from the start of its declaration. [Schedule 1, items 152 and 203, subsection 71(2)] 1.26 If no particular crediting period is specified in the applicable methodology, the 20 year crediting period specified for avoided deforestation projects in the Act under section 69 of the current CFI Act will apply. 1.27 For example, if a project is covered by the CFI avoided deforestation methodology and transfers to a methodology which specifies 13

Carbon Farming Initiative Amendment Bill 2014 a 15 year crediting period, this project will have a 15 year crediting period instead of 20 years. 1.28 The purpose of this amendment is to ensure that crediting periods reflect the period of time when abatement is being generated by these activities, consistent with Kyoto accounting principles. Additionality - Government programme requirement [Sheet 130, amendment 1] 1.29 As one part of the framework to ensure the additionality of projects, the Bill provides that in order to be eligible for the Emissions Reduction Fund, a project must not be likely to occur because of funding from another State, Territory or Commonwealth government programme. 1.30 It also enables methodologies to specify requirements in lieu of the general government programme requirement specified in the Bill. 1.31 The amendment enables legislative rules to specify requirements in lieu, rather than methodologies. 1.32 This is to ensure that ,,in lieu requirements can apply across several types of projects, rather than projects under each methodology. It also ensures that the rule can be amended quickly to respond to potential changes to other government programmes, rather than having to amend the full set of methodologies that exist under the Emissions Reduction Fund. 14

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