On August 22, 2011, Australia’s parliament endorsed the world’s first national scheme to regulate the creation and trading of carbon credits from farming and forestry, which will complement government’s plans to put a price on carbon emissions from mid-2012.
The new law is a precursor to carbon price legislation that will be put before parliament in late 2011. Known as the Carbon Farming Initiative (CFI), the new law allows farmers and investors to generate tradeable carbon offsets from farmland and forestry projects. Land use, including agriculture, accounts for 23% of Australia’s emissions. Projects backed by the CFI include reforestation, protection of native forests, curbing methane emissions from livestock, better fire management of savannah grasslands as well as capturing methane emissions from some landfills. Excluded projects include those deemed to affect the availability of water, threaten the richness of plant and animal species in an area or might threaten jobs. Managed investment schemes for forestry are also excluded. Under the rules, a project can only earn carbon credits if the investment is additional to those that would occur normally, with the lure of revenue from credit sales making the project financially viable.
Modeling by the Australian Treasury estimates the CFI will generate credits totalling 7 million tonnes of GHG reductions by 2020. ClimateWorks, a non-profit organization focusing on low-carbon growth, has calculated the CFI could reduce emissions by up to 41.5 million tonnes by 2020, mainly through greater investment in carbon tree plantations.
The CFI scheme is expected to start off slowly until the approval of laws parliament passes laws to put a price on carbon emissions from July 2012. Under the scheme, a government panel will vet and approve the rules for each project activity and an agency will administer the scheme’s offset registry. A number of project types have already been approved, see www.climatechange.gov.au/cfi. Successful projects will earn Australian carbon credit units, or ACCUs, that can either be traded domestically or overseas. ACCUs can be compliant under the U.N.’s Kyoto Protocol, depending on the project type. Or projects can sell non-Kyoto Australian units that can be used in the domestic voluntary carbon market to help firms meet carbon neutral goals. Kyoto-compliant units can be converted into credits that can be traded internationally and sold to companies or governments with Kyoto emissions targets. To provide investor certainty, the initial crediting period for native forest protection is 20 years, 15 years for reforestation projects and 7 years for all other eligible offset projects.
Pricing of the ACCUs will depend on the demand for offsets from certain types of projects, and particularly on the price for carbon in Australia. Some analysts expect ACCUs to closely track the national price on carbon emissions from power generators, smelters, refiners and others.
Prime Minister Julia Gillard plans a carbon tax starting at A$23 a tonne on about 500 of Australia’s biggest polluters from July 2012, ahead of emissions trading from mid-2015. Agriculture is not included in the carbon price scheme, but the government wants farmers to be able to benefit from the market for carbon credits. Under the carbon price plan, Australian industries which buy carbon offsets will need to ensure at least 50% of the offsets are domestic credits.
The government estimates that the CFI will help Australia reduce its carbon emissions by 460 million tonnes by 2050. The government has committed to cut total emissions by five percent of year 2000 levels by 2020. While Australia accounts for only about 1.5% of global emissions, it is the highest per capita polluter in the developed world because coal is used to generate most of the country’s electricity.