EXPLANATORY STATEMENT
Issued by the Authority of the Ministerfor the Environment
Carbon Credits (Carbon Farming Initiative) Act 2011
Carbon Credits (Sequestration of Carbon in Soil Using Modelled Abatement Estimates) Methodology Determination 2014
Purpose
This explanatory statement provides context to theCarbon Credits (Sequestration of Carbon in Soil Using Modelled Abatement Estimates) Methodology Determination 2014 (the determination). It also provides justification for the approach taken and values presented. These contextual sections are detailed for the consideration of the Emissions Reduction Assurance Committee (ERAC) and public consultation.
Each part of this explanatory statement includes:
(a)background;
(b)detailed explanation; and
(c)discussion points.
Background (general)
The Carbon Credits (Carbon Farming Initiative)Act 2011 (the Act[1]) enables the crediting of greenhouse gas abatement in the land sector. Greenhouse gas abatement is achieved either by reducing or avoiding emissions or by removing carbon from the atmosphere and storing it in soil or trees.
Carbon sequestration and emissions reduction activities are undertaken as offsets projects. The process involved in establishing an offsets project is set out in Part 3 of the Act. An offsets project must be covered by, and undertaken in accordance with, a methodology determination.
Subsection 106(1) of the Act empowers the Minister to make, by legislative instrument, a methodology determination. The purpose of a methodology determination is to establish procedures for estimating abatement (emissions reductions and sequestration) and rules for monitoring, record keeping and reporting.
Offsets projects that are undertaken in accordance with methodology determinations and approved by the Regulator can generate Australian carbon credit units.
Application of the determination
The determination sets out the detailed rules forimplementing and monitoring offsets projectsthatsequester carbon in agricultural soils using certain types of management actions on project land.
The determination uses modelled estimates of sequestration that have been derived by the Government usingAustralia’s National Inventory System soil carbon model (the Full Carbon Accounting Model – FullCAM) and the parameters used to generate National Inventory reports for agricultural systems. FullCAMestimates the effect on soil carbon of increasing inputs of biomass to, or reducing removals of biomass from, agricultural soils. For example, consider a project that involves increasing the amount of pasture grown compared to business as usual pasture growth. The greater amount of leaves and root fibres from the additional pasture plants will increase the quantity of carbon rich biomass added to the soil of the project area. The proponent can then report on the amount of sequestration estimated to have occurred through the FullCAM modelling exercise using the look-up table in the Sequestration Values Table for the ‘Carbon Credits (Sequestration of Carbon in Soil Using Modelled Abatement Estimates) Methodology Determination 2014’.
Sequestration projects covered by the determination are referred to in the determination as ‘modelled soil carbon projects’. To be an eligible offsets project, a modelled soil carbon project must undertake one of three ‘project types’ under which specified ‘project management activities’ must be carried out.
The types of modelled soil carbon projects covered by the determination are:
(a)sustainable intensification projects, requiring project management activities such as nutrient management, irrigation, managing soil acidityor pasture renovation;
(b)stubble retention projects, where crop residue that was previously removed through burning, baling or grazing is retained in field; and
(c)conversionto pasture projects, where land under continuous cropping is permanently converted to pasture.
The Sequestration Values Table for the ‘Carbon Credits (Sequestration of Carbon in Soil Using Modelled Abatement Estimates) Methodology Determination 2014’ sets out a conceptual flowchart that summarises the key steps associated with carrying out a project under this determination.
A project proponent wishing to implement the determination must make an application to the Clean Energy Regulator (the Regulator) under section 22 of the Act. The project must meet the general project eligibility requirements set out in subsection 27(4) of the Act. These requirements include compliance with the rules set out in the determination, and the additionality requirements specified in subsection 27(4A) of the Act. These additionality requirements are:
(a)the newness requirement;
(b)the regulatory additionality requirement; and
(c)the government program requirement.
Subsection 27(4A) of the Act provides that a methodology determination that covers the project may specify requirements in lieu of any of the above requirements. The determination specifies requirements in lieu of the newness requirement.
The regulatory additionality requirement and the government program requirement specified in the Act apply to projects covered bythe determination. The determination specifies a further additionality requirement in that project management activities involving improved irrigation efficiency are not eligible if the efficiency improvements were funded through a government program.
As they are sequestration offsets projects under section 54 of the Act, proponents of modelled soil carbon projects may select either a 100-year or 25-year permanence period. Projectsare also subject to a risk of reversal buffer, as provided by section 16 of the Act.
Public consultation
ThedeterminationhasbeendevelopedbytheDepartmentoftheEnvironmentin consultation with the Regulator and in accordance with advice from technical experts in the field of soil carbon.
The exposure draft of the determination has been published on the DepartmentoftheEnvironment’s website atwww.environment.gov.aufor public consultation from 14 November 2014 to12 December 2014. Information on how to make a submission isalso provided on the website.
Determination details
The determinationis a legislative instrument within the meaning of the Legislative Instruments Act 2003.
The determination commences on the day after it is registered on the Federal Register of Legislative Instruments (FRLI).
The determination expires when it is either revoked under section 123 of the Act, or on the day before it would otherwise be repealed under theLegislative Instruments Act 2003, whichever happens first. Under subsection 50(1) of that Act, a legislative instrument such as the determination is repealed on the first 1 April or 1 October falling on or after the tenth anniversary of registration of the instrument on FRLI. For example, if the determination is registered before 1 April 2015, it would expire on 31 March 2025.
Details of the determination are at Attachment A.
A Statement of Compatibility prepared in accordance with the Human Rights (ParliamentaryScrutiny) Act 2011 is at Attachment B.
Attachment A
Details of the Methodology Determination
Part 1 Preliminary
1.1Name of determination
Section 1.1 sets out the full name of the determination, which is the Carbon Credits(Sequestration of Carbon in Soil Using Modelled Abatement Estimates) Methodology Determination 2014.
1.2.Commencement
Section 1.2 provides that the determinationbegins on the day after it is registered on the Federal Register of Legislative Instruments (FRLI). For example, if the determination is registered on FRLI on 1 April 2015, it would take effect from 12.01am on 2 April 2015.
1.3Authority
Section 1.3 provides that the determination is made under subsection 106(1) of the Act.
Subsection 106(1) of the Act provides that the Minister may,by legislative instrument,make a certain type of determination. Subsection 106(2) of the Act specifies that the determination is to be known as a methodology determination.
1.4Duration
Under subparagraph 122(1)(b)(i) of the Act, a methodology determination remains in force for the period specified in the methodology determination.
Section1.4 provides that the determination is in effect from the time it commences (as specified in section 1.2), until the day it would otherwise be repealed under the Legislative Instruments Act 2003.
Instruments are repealed under that provision on the first 1April or 1 October following the tenth anniversary of registration on FRLI. Paragraph1.4(b) ensures that the determination will expire in accordance with subparagraph122(1)(b)(i) of the Act.
If the determination expires or is revoked during a crediting period for a project to which the determination applies, the determination will continue to apply to the project during the remainder of the crediting period under subsections 125(2) and 127(2) of the Act. Project proponents may apply to the Regulator during a reporting period to have a different methodology determination apply to their projects from the start of that reporting period (see subsection 128(1) of the Act).
1.5Definitions
Section 1.5 defines a number of terms used in the determination.
The note at the end of section 1.5 lists terms that are not defined in the determination but instead have the meaning given to them by section 5 of the Act.
Under section 23 of the Acts Interpretation Act 1901, words in the determination in the singular number include the plural and words in the plural number include the singular.
Part 2Type of project to which this determination applies
2.1Type of project—general
The effect of paragraphs 27(4)(b) and 106(1)(a) of the Act is that a project must be covered by a methodology determination, and that the methodology determination must specify the kind of offsets project to which it applies.
Section 2.1 sets out the kind of project to which the determination applies. Subsection 2.1(2) clarifies that this kind of project is known as a modelled soil carbon project.
To be an eligible offsets project, a modelled soil carbon project area must be divided into carbon estimation areas on each of which one of three ‘project types’ must be undertaken. For each project type specified ‘project management activities’ must be carried out. Different project types and project management activities have different requirements. Some can only be carried out on land that is under pasture, some can only be carried out on land that is under crops and others can be carried out on either type of land.
Sequestrationarising from each project type is estimated usingthe values provided in the Sequestration Values Table for the ‘Carbon Credits (Sequestration of Carbon in Soil Using Modelled Abatement Estimates) Methodology Determination 2014’. This document is referred to in the determination as the ‘Sequestration Values Table’. It is published and made available on the Department of the Environment’s website: www.environment.gov.au. The values in this document were derived through modelling undertaken by the GovernmentusingFullCAM and the parameters used to generate National Inventory reports for agricultural systems. The National Inventory is the report of that name, as published and made available on the Department’s website.
Modelled soil carbon projects must also account for the effect of changes in emission from other sources such as livestock, fertiliser, lime, irrigation energy use and residues in estimating net abatement from the project. These calculations use factors and approachesderived from the National Inventory.
2.2Types of modelled soil carbon projects
Project proponents will be required to nominate a project typespecified in section 2.2 for each carbon estimation area in the project. The project types are:
(a)sustainable intensification project—this type of modelled soil carbon project involvesimplementing any two of the following project management activities: nutrient management, introducing irrigation, managing soil acidity or pasture renovation. Sustainable intensification projects may be carried out on land that is under either pasture or crops.Pasture renovation, however, may only be carried out as a project management activity on land that is under pasture;
(b)stubble retention project—this type of modelled soil carbon project applies to land that is under crops where crop residues (stubble) were historically removed through either burning, baling or grazing. This project involves retainingthe crop residues that would have been removed under a business as usual scenarioin field;and
(c)conversionto pasture project—this type of modelled soil carbon project involves converting land that was historically continuously cropped to permanent pasture. This type of project only applies to land that was under crops for all five years of the baseline emissions period and the land must remain under pasture for the duration of the permanence period.
Part 3Eligibility requirements
Background
The determination sets out the requirements for an eligible project, including the land where it can and cannot be undertaken (eligible land).
This concept of ‘eligible land’is based on the land types on which the FullCAM modelling was conducted. The modelling is not applicable to areas such as wetlands, deserts, human settlements and peat soils as the carbon cycle dynamics of such areas differ from those of agricultural soils.
Other types of land, such as conservation reserves and forested land, are not eligible land as the determination does not encourage projects that are incompatible with these land-uses.
Although the sequestration values derived through the modelling can technically be applied to areas of very low or erratic rainfall such as the rangelands, it is highly unlikely that the project types covered by the determinationwould be viable in these areas.
The Government will provide a map and interactive mapping tool that will assist potential proponents to determine whether their proposed project area is located on eligible land. It is likely that there will be some situations where the application of the eligible land definition and of the eligibility map is not straightforward. To address these situations,the determinationprovides for the Regulator to determine whether or not land is taken to be eligible land.
Detailed explanation
Division 3.1Eligible projects
3.1 General
The Act establishes general requirements for eligible projects, including the Regulator’s role in declaring an eligible project.
Under paragraph 106(1)(b) of the Act, requirements that a project must meet in order to be an eligible offsets project may be specified in a methodology determination.
Under paragraph27(4)(c) of the Act, the Regulator must not declare that a project is an eligible offsets project unless the Regulator is satisfied that the project meets the requirements specified in the applicable determination.
Under section 35 of the Act, the Regulator may revoke the declaration of a project as an eligible offsets project, if the project no longer meets certain requirements. These requirements include that the project:
(a)be covered by a methodology determination; and
(b)meets:
(i)the requirements set out in the methodology determination; and
(ii)the eligibility requirements set out in the Carbon Credits (Carbon Farming Initiative) Regulations 2011 (the Regulations)—see regulation 3.26.
Division 3.2Requirements for declaration as eligible project
Subdivision 3.2.1General
3.2General
Section 3.2 provides that Division 3.2 of the determination sets out a number of requirements that must be met in order for a project to which the determination applies to be declared an eligible offsets project.
The note to section 3.2refers to regulatory requirements for applications for declarations. In particular, the note refers to regulation 3.36 of the Regulations. This regulation sets out the types of projects that are excluded offsets projects. Under paragraph27(4)(m) of the Act excluded projects cannot be declared as eligible offsets projects.
Subdivision 3.2.2Land on which the project is carried out
3.3Location
Section 3.3 specifies that projects to which the determination appliesmust be located within Australia, excluding external territoriessuch as Christmas Island and Norfolk Island.
These territories are excluded from the application of the determination because the assumptions underpinning the modelling exercise from which the sequestration estimates were derived apply only to mainland Australia and Tasmania.
3.4Eligible land
The effect of sections 3.4 and 3.5 is that the project must take place on land that is either eligible land (section 3.4), or taken to be eligible land (section 3.5). This means the project cannot be carried out on land that is not determined to be eligible land under section3.4or3.5.
Paragraph 3.4(2)(a) specifies thateligible land must be shown on the soil carbon sequestration eligibility map. The soil carbon sequestration eligibility map will beavailable on the Department of the Environment’s website. It will show the boundaries of eligible and non-eligible land, as described in section 3.4, as an image.
Paragraph 3.4(2)(b) requires that crops must have been grown on the land, and/or that livestock was grazed on the landat least once during the baseline emissions period.This is to ensure that projects take place on land that has recently been used for agricultural purposes as this is a key assumption used to model the sequestration values.
Subsection 3.4(3) specifies a number of types of land that are not eligible land under the determination. These types of land have been excluded from the determination as their inclusion would increase the risk of adverse environmental or carbon outcomes. For example, if projects could be undertaken on land that had recently been cleared then credits could potentially be issued for sequestration activities without considering the loss of carbon previously stored in woody biomass on the project area.
3.5Eligible land—determination by Regulator
The effect of section 3.5is to provide the Regulator with discretion to deal with uncertainty surrounding whether particular land is eligible or ineligible for a modelled soil carbon project.For example, in cases where the resolution of the soil carbon sequestration eligibility map is unclear, or a carbon estimation area overlaps the boundary between eligible and ineligible land, or evidence can be produced of a different land use from the land use depicted in the map, the Regulator may decide that land is eligible land, even if the land does not meet all the necessary requirements in section 3.4.
3.6Identification of project area
The project area includes land on which an offsets project is carried out.
A project proponent is required to define the geographic boundaries of the project area when seeking a declaration of an eligible offsets project. The information and documentary requirements to identify a project area are specified in regulation 3.1 of the Regulations. Regulation 3.1 sets out the information and documentation that must accompany an application for a project to be declared an eligible offsets project.
Section 3.6 of the determination provides that the boundaries of the area in which the project will occur must be identified in accordance with the CFI Mapping Guidelines. The CFI Mapping Guidelines are available at http://www.climatechange.gov.au/reducing-carbon/carbon-farming-initiative/methodologies/spatial-mapping-guidelines.