Publications

Publications

Publications / Food and Agribusiness

7 Dec 11
Carbon farming framework established in Queensland

Download PDF

Legislative amendments under the Waste Reduction and Recycling Act 2011 (Qld) (WRR Act) came into effect on 1 December 2011. While you wouldn’t know it from its title, the WRR Act has paved the way for landholders in Queensland to participate in the Federal Government’s recently introduced Carbon Farming Initiative.

McCullough Robertson’s Carbon Services Team sets out the impacts for those seeking to take advantage of the Government’s Carbon Farming Initiative in Queensland.

Overview of the Carbon Farming Initiative (CFI Scheme)

The CFI Scheme has been introduced by the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act).

In simple terms, it aims to reward landholders, farmers and forest growers for reducing greenhouse gases by allowing them to generate tradeable carbon credits from certain approved projects.

The types of projects that a landholder can undertake include:

  • emissions avoidance projects, which reduce emissions from agricultural production and legacy waste deposited in landfill facilities, and
  • sequestration projects, which store carbon dioxide (which has been removed from the atmosphere) in living biomass such as forests, native vegetation, dead organic matter or soil.

By undertaking projects that reduce or store carbon, landholders can generate carbon credits and sell them domestically or internationally.  The credits, known as Australian Carbon Credit Units (ACCUs), can be used to offset emissions voluntarily or to meet regulatory requirements.

Importantly, those ACCUs that are ‘Kyoto-compliant’ can be sold to entities that have a liability under the Clean Energy Act 2011 (Cth). While there is a limit on the number of ACCUs generated through carbon farming that can be used by any one entity to acquit its carbon liability in the first few years of the carbon pricing scheme, the restriction is set to be lifted when the fixed $23/tonne carbon price becomes a floating price in 2015. This, together with the ongoing price floor proposed under the carbon pricing scheme, should ensure a ready demand for ACCUs generated under the CFI Scheme moving forward.

Sequestration projects

There are a number of preconditions to establishing an eligible sequestration offset project (that is, a project to store carbon) under the CFI Act, the two main requirements being that:

  • the project must be carried out on land (the ‘project area’) that is either Torrens system land, Crown land or native title land (as opposed to general law land), and
  • each person who holds any legal interest in the project area (or a mortgage or charge over such an interest) must have consented to the declaration of the project as an eligible offsets project under the CFI Scheme.

The consent of eligible interest holders is a precondition to the declaration of a project as an eligible offsets project because, in some limited circumstances, an area of land involved in a carbon farming project can become subject to a carbon maintenance obligation. A carbon maintenance obligation is designed to protect carbon stores in circumstances where the project proponent has not, or is unlikely to, hand back any ACCUs generated by the sequestration project as required if carbon stores are not maintained.

For example, if a company undertook a project to store carbon in a forest grown from environmental plantings and received ACCUs for that project, it would generally need to hand back those ACCUs if it subsequently decided to commence clearing the forest for development. If the company became insolvent so there was no prospect of the ACCUs being returned by that company, the project area could become subject to a carbon maintenance obligation to ensure that its carbon stocks are not further depleted.

A carbon maintenance obligation ‘runs with the land’ and will therefore apply to future land owners. For this reason, the CFI Act together with State-based legislation (which as discussed below has already been enacted in Queensland) ensures that persons who could be subject to, or have their interests in land affected by, the carbon maintenance obligation have agreed to the land being brought into the CFI Scheme.

The requirement for consent is likely to prompt negotiation between interest holders. For example, a lessor might consent to a carbon farming project being established on its land on the basis that the lessor receives some of the carbon credits the lessee generates as a result of the project.

In addition to the preconditions mentioned above, where the project area covers Crown land, the CFI Act requires the project proponent to obtain a certification from the responsible Minister that it holds the ‘carbon sequestration right’ and that the relevant government will not deal with (or consent to another person dealing with) the project area in a way that is inconsistent with the ‘carbon sequestration right’.

Carbon sequestration rights

To undertake a carbon sequestration project, the project proponent must have the applicable ‘carbon sequestration right’. Generally speaking, a proponent will hold such a right if it has the exclusive legal right to obtain the benefit of carbon stored in the relevant biomass, dead organic matter or soil.

The CFI Act recognises that there are various interests in land that could amount to a carbon sequestration right and that these interests may be a lesser right than ownership of the land. Carbon sequestration rights are not created by the CFI Act but, instead, are created under state-based legislation.

Different jurisdictions operate different systems to create and recognise carbon sequestration rights and these rights may be separate from land ownership. For example, different people may hold the freehold title, the forestry right and the carbon sequestration right over one area of land. However, the carbon sequestration right typically runs with the land either because it is a recognised proprietary right or because it accrues to the holder of a proprietary interest in the land.

Queensland position

In Queensland, carbon sequestration rights will be recognised due to the enactment of the WRR Act, which introduces the concept of ‘carbon abatement products’ and ‘carbon abatement interests’ into the following Queensland acts:

  • the Forestry Act 1959 (Forestry Act)
  • the Nature Conservation Act 1992 (Nature Conservation Act)
  • the Land Act 1994 (Land Act), and
  • the Land Title Act 1994 (Land Title Act).

The Forestry Act and the Nature Conservation Act (as amended) will allow for the grant of rights to deal with carbon abatement products (that is, living biomass, dead organic matter and soil) in Queensland. Carbon abatement interests, on the other hand (which are granted under the Land Act and the Land Title Act) will be the recognised interests in Queensland that provide for the right to carry out an eligible sequestration project in relation to carbon abatement products on land in Queensland under the CFI Act. The interests will be registered with the land titles register or in one of the various registers maintained under the Land Act.

By creating these rights and specifying how they can be granted, the WRR Act should clarify the carbon rights of landholders and other parties so they can participate in the carbon market by undertaking sequestration projects. In particular, the WRR Act is intended to provide:

  • a cross-tenure, long-term legal right to carry out a carbon sequestration project in Queensland, and
  • the power to vest in a landholder (as grantor of a carbon sequestration interest) the Crown’s statutory ownership of carbon in all forest products in a project area. [1]

Forestry Act

Under the Forestry Act, all forest products on Crown land are the property of the Crown. The Forestry Act (as amended) will allow the owner of land to apply for a right to deal with carbon abatement products and to receive the benefit of those carbon abatement products on the land. [2]

The application for a right in a carbon abatement product is to be decided by the Minister [3], who will determine whether the carbon abatement product should be vested in the owner.

The amended Forestry Act defines ‘owner’ for the purposes of a carbon abatement interest, as:

  • if the land is registered in the freehold land register - the registered owner of the land, or
  • if the land is vested in fee simple - the vested person for the land, or
  • if the land is the subject of a lease other than a State lease under the Land Act - the lessee of the land, or
  • if the land is a reserve under the Land Act - the trustee of the reserve, or
  • if the land is the subject of an occupation licence under the Land Act - the licensee.

In making a decision, the Minister must consider whether the land will, or is likely to be used or dealt with under the Forestry Act in a way that may be inconsistent with the grant of the proposed right.

Nature Conservation Act

Under the Nature Conservation Act, all natural resources (which includes the right to carbon in those natural resources) in a protected area are the property of the State. [4]

Similar to the amendments to the Forestry Act, the Nature Conservation Act (as amended) will allow the State’s property in these natural resources to vest in the owner of the land. For the purposes of the Nature Conservation Act, the owner of land in the area of a conservation park or resources reserve means the trustee appointed for the land. [5]

The owner of the land may apply to the Minister [6] for the right to deal with carbon abatement products on the land. In deciding the application, the Minister must consider whether the land the subject of the application will, or is likely to, be used or dealt with under the Nature Conservation Act in a way that is inconsistent with the grant of the proposed right.

Land Act

The Land Act (as amended) will allow carbon abatement interests to be created in respect of any land registered in the various registers maintained under the Land Act [7]. As discussed above, a carbon abatement interest is an interest in land consisting of the exclusive right to the economic benefits associated with a carbon sequestration project.

The relevant Minister must consent to the creation of the carbon abatement interest before it is registered [8] and may only register a document creating a carbon abatement interest if:

  • the proposed grantor of the interest is an owner of the land
  • the proposed grantor is the holder of the right to deal with carbon abatement product on the land (this right having been granted under the Forestry Act or the Nature Conservation Act)
  • all holders of a registered interest in the land whose interest may be affected by the proposed carbon abatement interest consent to the proposed grant, and
  • there are no existing carbon abatement interests registered for the part of land to which the proposed carbon abatement interest relates.

In making a decision on whether a carbon abatement interest may be registered, the Minister must consider whether the land will, or is likely to be used or dealt with under the Forestry Act, Land Act or the Nature Conservation Act in a way that may be inconsistent with creation of the interest.

Land Title Act

The amended Land Title Act grants the legal right to carry out an eligible offsets sequestration project on freehold land. A carbon abatement interest over a lot is created by registering the interest on the land titles register.

The requirements for registration are the same as under the Land Act except that the registrar is empowered to make decisions in relation to the creation of carbon abatement interests, as opposed to the Minister. Consent of the relevant Minister would still be required if the freehold land is a deed of grant in trust or is a forest entitlement area.

CFI Scheme in Queensland

While the amendments under the WRR Act may appear to create some regulatory burden due to registration requirements, they have definitely clarified what steps must be taken in Queensland to establish a carbon farming project to store carbon.

In relation to Crown land, the CFI Act requires the relevant Minister’s consent in any case, so enacting legislation that formalises this process is a supportive step on the part of the Queensland government.

Additionally, the Carbon Credits Administrator must be satisfied that the applicant for an eligible offsets sequestration project holds the applicable carbon sequestration right in relation to the project area. This should be achieved by the registration system now put in place in Queensland.

Removing such uncertainties should assist early adopters in putting a CFI project into practice.

McCullough Robertson has established a team of experts to help business make the most of carbon offset opportunities.

The Carbon Services Team includes:

  • Heather Watson, Partner, specialist in Indigenous community development (+61 7 3233 8820)
  • Tim Hanmore, Partner, environmental regulation expert (+61 7 3233 8955), and
  • Isaac West, Senior Associate, specialist in resource sector and corporate law (+61 7 3233 8576).

A number of special advisers in the fields of energy and carbon markets, ecology and conservation also support the team.

Landholders interested in taking up carbon farming options should seek legal advice to ensure any schemes or projects meet legislative requirements, including the new registration requirements if undertaking a project in Queensland. For further assistance or enquiries please contact us.

 

[1]  Waste Reduction and Recycling Bill 2011 Explanatory Memorandum, page 5.
[2]  Forestry Act section 61M.
[3]  The Forestry Act is jointly administered by the Minister for Climate Change and Sustainability and the Minister for Natural Resources, Mines and Energy and Minister for Trade. However, parts of the Forestry Act are administered by the Treasurer, the Minister for Employment and Economic Development and the Minister for Primary Industries, Fisheries and Rural and Regional Queensland.
[4]  Land Title Act section 61(1).
[5]  Nature Conservation Act section 31.
[6]  The Nature Conservation Act is administered by the Minister for Climate Change and Sustainability.
[7]  Land Act section 373S.
[8]  Land Act section 373T.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

Download PDF

In this section

Contact

For enquiries please contact: