EXPLANATORY STATEMENT

Carbon Credits (Carbon Farming Initiative) Act 2011

Carbon Credits (Carbon Farming Initiative) Amendment Rule 2017 (No. 1)

Purpose

The Carbon Credits (Carbon Farming Initiative) Act 2011 (the Act) enables the crediting of greenhouse gas abatement from emissions reduction activities across Australia. Greenhouse gas abatement is achieved either by reducing or avoiding emissions, or by removing carbon from the atmosphere and storing it.

The Carbon Credits (Carbon Farming Initiative) Amendment Rule 2017 (No. 1) (the Amendment Rule) makes four minor changes to:

-          ensure that consents from the operational controller of a designated large facility are maintained if the operational controller changes;

-          set out who may act on behalf of a project proponent if they die or are incapacitated;

-          ensure that project areas cannot be added to projects applying a method which the Emissions Reduction Assurance Committee has suspended under section 27A of the Act; and

-          specify, under subparagraph 69(5)(b)(i) of the Act, a number of months to be the limit on the deferral of the start of a project’s crediting period for particular kinds of projects.

It does this by amending the Carbon Credits (Carbon Farming Initiative) Rule 2015 (the Principal Rule).  

Background: Emissions Reduction Fund

In 2014, the Australian Government amended the Act with the Carbon Farming Initiative Amendment Act 2014 (CFI Amendment Act). The CFI Amendment Act established the Emissions Reduction Fund by expanding the crediting of emissions reductions under the Carbon Farming Initiative to non‑land based sectors of the Australian economy.

The primary objective of the Emissions Reduction Fund is to assist Australia to meet its greenhouse gas emissions reduction targets, consistent with its international obligations under the Unite Nations Framework Convention on Climate Change and the Kyoto Protocol.

The Emissions Reduction Fund does this by purchasing approved and verified emissions reductions from registered projects. The Clean Energy Regulator is empowered under the Act to conduct processes to purchase emissions reductions, and enter into contracts for this purpose.

Operation

The Act is supported by subordinate legislation, including the Principal Rule, and the Carbon Credits (Carbon Farming  Initiative) Regulations 2011 (the Regulations). The Principal Rule and Regulations provide detailed explanations of the way in which the Act is administered by the Clean Energy Regulator.

The Minister is empowered to make legislative rules under section 308 of the Act.

Detailed description of the Amendment Rule

Attachment A outlines and describes the sections in the Amendment Rule.

Public consultation

Public consultation on a draft Amendment rule was undertaken during a six-week period from 11/11/2016 to 19/12/2016. This included items 1 and 2 of Schedule 1 and no comments addressed those rules. Item 3 is a technical correction to close a way of avoiding the suspension power in section 27A of the Act and is consistent with similar restrictions the Principal Rule. The need for item 4 of Schedule 1 arose during discussions with the proponents impacted by nominations that did not comply with the 18 month default time limit in subsection 69(5).

Regulatory impact

In accordance with the Australian Government Guide to Regulation, the Department of the Environment and Energy certified the Emissions Reduction Fund White Paper as a Regulation Impact Statement for initial decisions on the Emissions Reduction Fund. The decisions included 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. These minor amendments will not materially impact the regulatory impact of the scheme.

Statement of compatibility with human rights

A statement of compatibility with human rights for the purposes of Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is set out at Attachment B.

ATTACHMENT A

Details of the sections in the Carbon Credits (Carbon Farming Initiative) Amendment Rule 2017 (No. 1)

1.  Name

Section 1 provides that the name of the Amendment Rule is the Carbon Credits (Carbon Farming Initiative) Amendment Rule 2017 (No.1).

2.  Commencement

Section 2 provides that the Amendment Rule  (other than item 4 of Schedule 1) would commence on the day after it is registered.

Item 4 of Schedule 1 will commence on 17 February 2015, the date the Carbon Credits (Carbon Farming Initiative) Rule 2015 (the Principal Rule) commenced. This allows projects with backdated declarations to choose to deter the start of their crediting periods by nominating a deferral period longer than the default 18 month limit in the Act. A number of project wishing to do this have already provided invalid nominations to the Regulator and retrospective commencement would allow those nominations to be considered valid by the Regulator. Accordingly, consistent with s 12(2) of the Legislation Act 2003, no person’s rights would be affected so as to disadvantage the person and no liabilities would be imposed on a person in respect of anything done or omitted to be done before that day. Item 4 is explained in more detail below.

3.  Authority

Section 3 provides that the Amendment Rule would be made under the Carbon Credits (Carbon Farming Initiative) Act 2011. In particular, section 308 of the Act includes the power for the Minister to make legislative rules.

4.  Schedules

Section 4 provides that the Amendment Rule would, when made, amend the Principal Rule in the manner set out in the schedules.

Schedule 1 Amendments.

[1] After subsection 9(5) (requirement relating to consent)

This item inserts a new subsection 9(5) to provide additional consent requirements for proponents of offsets projects being undertaken at designated large facilities, within the meaning of the National Greenhouse and Energy Reporting Act 2007. This reflects the current eligibility requirement in section 20 of the Principal Rule, but ensures that new consents are obtained if the operational control of a facility changes after the declaration of the eligible offsets project.

If an offsets project is being undertaken at a facility that is, or is likely to be, a designated large facility, and the project proponent does not have operational control of the facility, then the proponent will need to obtain consent to carry out the project. This consent must be obtained from the person who has operational control of the facility that is being used to carry out the project immediately before the certificate of entitlement is issued.

The Regulator is not able to issue certificates of entitlement under subsection 15(2) of the Act until such consent has been obtained. That is, the Regulator must be satisfied that the project proponent has consent to undertake the project at the relevant facility from the person who has operational control of the facility.

A note in the subsection provides that consent which satisfied this requirement may already have been obtained by the project proponent in order to satisfy the eligibility requirement for consents in the application for declaration of eligible offsets project under section 20 of the Principal Rule. For instance, if operational control had remained the same as at declaration, the original consent would satisfy this subsection.

Consent of the current operational controller is important to the operation of s 22XK(4) of the National Greenhouse and Energy Reporting Act 2007, which increases a facility’s net emissions number for a financial year if credits are issued in relation to a facility. This consent requirement ensures that the operational controller of a facility at the time credits are issued is aware of the implications of crediting on the operation of the safeguard mechanism and their facility’s net emissions number.

[2] After subsection 24(2) (legal personal representative applications)

This item inserts a new subsection (24(2A)) which specifies, subject to subsection 24(2), who may make an application on behalf of the current project proponent in the event that they are unable to act on their own behalf.

The new subsection 24(2A) specifically provides that if the current project proponent is deceased or is incapacitated, that the person’s legal personal representative may make an application under subsection 24(2) to vary a section 27 declaration on behalf of the current project proponent.

Under the current subsection 24(2), the only person who can make an application to vary a section 27 declaration is the current project proponent. The new subsection 24(2A) operates to ensure that, should the current proponent be unable to do so because of death or serious illness, there is no confusion as to whether another person may make this application on their behalf. 

For example, a project proponent may have executed an enduring power of attorney and then become incapacited. The person with the power of attorney is then able to transfer the project’s declared project proponent to another person who now has the legal right to carry out the project and is responsible for carrying out the project. This avoids the risk that such a project will need to be revoked because no one is the project proponent for the project.

[3] At the end of subsection 23(1) (suspended methods)

This item inserts a new paragraph into subsection 23(1) to ensure that project areas cannot be added to a project if the applicable methodology determination for the project is a methodology determination for which the Regulator must not consider applications under section 22 of the Act because of an order by the Emissions Reduction Assurance Committee under subsection 27A(1) of the Act. This is consistent with the existing restrictions in paragraph 23(1)(f) and (g) of the Principal Rule. Together new paragraph (1)(h) and existing paragraphs (1)(f) and (g) ensure that the revocation or suspension of a method because of inconsistency with the offsets integrity standards stops both applications for new projects and the addition of land to an existing project. Without new paragraph (1)(h) if the Emissions Reduction Assurance Committee suspended a methodology determination under secton 27A the Regulator would refuse to consider applications under section 22 of the Act for a new project, but an existing project proponent could add a new project area to an existing project and bypass the suspension. It is anticipated that the Regulator could exercise a discretion under subsection 23(1) of the rule to refuse an application with this effect under the Principal Rule, but new paragraph (1)(h) ensures this will be the case.

[4]  After Part 4 (limit on deferral of start of crediting period)

This item inserts a new Part 5 into the Principal Rule to specify, under subparagraph 69(5)(b)(i) of the Act, a number of months to be the limit on the deferral of the start of a project’s crediting period for particular kinds of projects.

Section 69 of the Act determines the length of a project’s crediting period unless that project was in existence on 13 December 2014 (such that sections 70 or 71 apply). The start of a project’s crediting period is determined under subsection 69(4) such that it would generally start when the declaration takes effect through paragraph 69(4)(c). However, paragraphs 69(4)(a) and (b) allow for a delayed start time which can be varied once by written notice to the Regulator. Subsection 69(5) provides for a limit on the deferral of the start time of crediting periods under paragraphs 69(4)(a) and (b), which is generally 18 months after the declaration took effect. Under paragraph 69(5)(b) that time limit can be extended for certain kinds of offsets projects if another number of months is specified in the legislative rules.

Under item 389 of Schedule 1 to the Carbon Farming Initiative Amendment Act 2014 applications received by the Regulator before 1 July 2015 that were covered by methodology determinations made before 13 December 2014 were able to nominate that their declaration commence retrospectively, but no earlier than 1 July 2010. This allowed continued access to the backdating of declarations provided by subsections 27(15) and (16) of the Act before it was amended and their cediting period started at that time under paragraph 69(4)(a). Some of the projects who received backdated declarations have now sought to defer the start of that backdated crediting period under paragraph 69(4)(b) of the Act. For example, a project may have sought 1 July 2010 as the date of their declaration, but now wants to specify 1 July 2015 as the start of their crediting period. As this is not consistent with the time limit in subsection 69(5) that nomination would be invalid. However, if the applicant had specified 1 July 2015 in their original application for declaration, this would have been a valid start date.

The new Part 5 specifies a range of months for different kinds of projects to extend the default 18 month deterral limit so that nominations that could have validly been included in an application for declaration can now be made under paragraph 69(4)(b) of the Act. In the example above, new subsection 66B(1) would apply to the project such that 72 months would be the limit on the deferral of the crediting period (ie until 1 July 2016). Therefore, a nomination of 1 July 2015 would comply with this new time limit and be valid under paragraph 69(4)(b) of the Act. These provisions only have practical effect in relation to transitional applications that used item 389 of Schedule 1 to the Carbon Farming Initiative Amendment Act 2014 to backdate their declarations.

A few projects have already put notifications to the Regulator seeking to change their crediting period start date unaware that their nomination was inconsistent with the default 18 month time limit in subsection 69(5). These provisions commence restrospectively from 17 February 2017 (when the Principal Rule commenced) to ensure such nominations are legally effective. This is to the benefit of project proponents who wished their crediting periods to start at those later times. Accordingly consistent with s 12(2) of the Legislation Act 2003 no person’s rights would be affected so as to disadvantage the person and no liabilities would be imposed on a person in respect of anything done or omitted to be done before that day. Item 4 of Schedule 1 therefore commences before the Amendment Rule as a whole, consistent with subsection 12(3) of the Legislation Act 2003.

The new provisions are structured to be Division 1 of a new Part 5. New section 66A outlines the general operation of the Division to specify, under subparagraph 69(5)(b)(i) of the Act, a number of months to be the limit on the deferral of the start of a project’s crediting period for particular kinds of projects.

New section 66B, provides the following new limits on the deferral of crediting periods:

• 72 months for eligible offsets projects whose crediting period start time under paragraph 69(4)(a) of the Act is in the period 1 July 2010 to 30 June 2012;
• 48 months for eligible offsets projects whose crediting period start time under paragraph 69(4)(a) of the Act is in the period 1 July 2012 to 30 June 2014; and
• 24 months for eligible offsets projects whose crediting period start time under paragraph 69(4)(a) of the Act is in the period 1 July 2014 to 13 December 2014.

ATTACHMENT A

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Carbon Credits (Carbon Farming Initiative) Amendment Rule 2017 (No. 1)

The Carbon Credits (Carbon Farming Initiative) Amendment Rule 2017 (No. 1) (the Amendment Rule) 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 of the Legislative Instrument

The Carbon Credits (Carbon Farming Initiative) Act 2011 (the Act) enables the crediting of greenhouse gas abatement from emissions reduction activities across Australia. Greenhouse gas abatement is achieved either by reducing or avoiding emissions, or by removing carbon from the atmosphere and storing it.

The Amendment Rule makes four minor changes to:

-          ensure that consents from the operational controller of a designated large facility are maintained if the operational controller changes;

-          set out who may act on behalf of a project proponent if they die or are incapacitated;

-          ensure that project areas cannot be added to projects applying a method which the Emissions Reduction Assurance Committee has suspended under section 27A of the Act; and

-          specify, under subparagraph 69(5)(b)(i) of the Act, a number of months to be the limit on the deferral of the start of a project’s crediting period for particular kinds of projects.

It does this by amending the Carbon Credits (Carbon Farming Initiative) Rule 2015 (the Principal Rule). 

Human rights implications

The Amendment Rule does not engage any of the applicable rights or freedoms.

A detailed statement of compatibility of the provisions of the Emissions Reduction Fund is provided in the Explanatory Memorandum for the Carbon Farming Initiative Amendment Bill 2014: http://www.environment.gov.au/system/files/pages/7aef9f12-8ba1-4d9a-bf6a-1bc89a0bd6f5/files/cfi-amendment-bill-explanatory-memorandum.pdf .

Conclusion

The Amendment Rule is compatible with human rights because it does not limit any human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.