EXPLANATORY STATEMENT
Issued by the Minister for Industry, Energy and Emissions Reduction
Carbon Credits (Carbon Farming Initiative) Act 2011
Carbon Credits (Carbon Farming Initiative) Amendment (Soil Carbon Projects) Rule 2021
Purpose of Amendment Rule
The Carbon Credits (Carbon Farming Initiative) Amendment (Soil Carbon Projects) Rule 2021 (the Amendment Rule) provides arrangements for the timing of offsets reports for projects transitioning from the Carbon Credits (Carbon Farming Initiative—Measurement of Soil Carbon Sequestration in Agricultural Systems) Methodology Determination 2018 (2018 soil carbon method) on to the Carbon Credits (Carbon Farming Initiative—Estimation of Soil Organic Carbon Sequestration using Measurement and Models) Methodology Determination 2021 (2021 soil carbon method).
Background: Emissions Reduction Fund
In 2014, the Australian Government amended the Carbon Credits (Carbon Farming Initiative) Act 2011 (the Act) with the Carbon Farming Initiative Amendment Act 2014 (CFI Amendment Act). The CFI Amendment Act established the Emissions Reduction Fund (ERF) to support investment in carbon abatement projects across all sectors of Australia’s economy.
The Act is supported by subordinate legislation, including methodology determinations, the Carbon Credits (Carbon Farming Initiative) Rule 2015 (Principal Rule) and the Carbon Credits (Carbon Farming Initiative) Regulations 2011 (the Regulations). The Principal Rule and the Regulations provide detailed explanations of the way in which the Act is administered by the Clean Energy Regulator (the Regulator). The Minister for Industry, Energy and Emissions Reduction is empowered to make legislative rules under section 308 of the Act.
The ERF is a key component of the Government’s policy agenda to drive emissions reductions across the economy and to fulfil Australia’s international commitments under the Paris Agreement.
Outline
The Act delegates certain administrative matters to the legislative rules. These matters include enabling the Principal Rule to specify that a lesser number of months is the minimum number of months applicable to an offsets report under subparagraphs 76(1)(c)(ii) and 76(2)(c)(ii) of the Act.
The Amendment Rule applies to projects under the 2021 soil carbon method that have transitioned from the 2018 soil carbon method. Under section 128 of the Act, project proponents using the 2018 soil carbon method may request the Regulator to approve the application of the 2021 soil carbon method to the project with effect from the start of a reporting period. Additionally, the 2021 soil carbon method includes provisions to enable existing projects under the 2018 soil carbon method to transition to the new method.
The 2021 soil carbon method has in effect replaced the 2018 soil carbon method. The structure and essential components of the earlier method have been maintained, and errors that were identified in the 2018 soil carbon method have been corrected in the 2021 soil carbon method. New soil carbon projects are not able to register under the 2018 soil carbon method as it has been revoked by the Carbon Credits (Carbon Farming Initiative—Measurement of Soil Carbon Sequestration in Agricultural Systems—Revocation) Instrument 2021. The errors that remain in the 2018 soil carbon method equations prevent calculation of net abatement required to determine the amount of eligible Australian Carbon Credit Units a soil carbon project can receive. In practice, existing projects need to transition to the 2021 soil carbon method in order to receive those credits as intended. The Amendment Rule will allow these projects to report earlier under the 2021 soil carbon method so that they can be credited as soon as possible after they transition to that method.
The Amendment Rule inserts a new section to the Principal Rule, which specifies that the minimum number of months applicable to the first offsets report is 1 month for a soil carbon project which has transitioned from the 2018 soil carbon method to the 2021 soil carbon method.
In conjunction with subsection 4(2) of Schedule 1 to the 2021 soil carbon method, the Amendment Rule allows transitioning projects to report the abatement associated with their sampling under the 2018 soil carbon method by utilising a minimum reporting period of one month for the first reporting period after transitioning to the 2021 soil carbon method. This amendment will allow transitioning project proponents to receive credits under the 2021 soil carbon method they should have received under the 2018 soil carbon method without waiting an additional 6 months as would have otherwise been required by the Act.
Detailed description of the Amendment Rule
Attachment A outlines and describes the sections in the Amendment Rule.
Public consultation
Joint consultation between the Regulator and the Department of Industry, Science, Energy and Resources on the 2021 soil carbon method and amendments to the Principal Rule was undertaken from 30 August 2021 until 27 September 2021. An exposure draft of proposed amendments to the Principal Rule were included as part of the consultation on the Department of Industry, Science, Energy and Resources’ website for comment and feedback. Comments and advice received were taken into account in finalising the Amendment Rule.
No concerns were raised in relation to the proposed amendments.
Regulatory impact
The Office of Best Practice Regulation has confirmed that a Regulatory Impact Statement is not required, because the proposal is unlikely to have more than a minor regulatory impact.
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 (Soil Carbon Projects) Rule 2021
1. Name
Section 1 provides that the name of the Amendment Rule is the Carbon Credits (Carbon Farming Initiative) Amendment (Soil Carbon Projects) Rule 2021.
2. Commencement
Section 2 provides that the Amendment Rule would commence on the day after it is registered.
3. Authority
Section 3 provides that the Amendment Rule would be made under section 308 of the Act. The power to make rules in section 308 of the Act includes the power to amend or revoke rules that have already been made, with any doubt about this resolved by subsection 33(3) of the Acts Interpretation Act 1901.
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
Item 1: After Section 68
Under Part 6 of the Act, project proponents for an eligible offsets projects must give the Regulator an offsets report for a period that is expressed to be a reporting period for the project. Section 76 of the Act establishes that the default minimum length of a reporting period is 6 months, unless a lesser amount of months specified under the legislative rules is applicable to that report.
Item 1 inserts section 68A to the Principal Rule, which specifies a lesser minimum number of months applicable to an offsets report which is a transitional offsets report about a soil carbon project. The section specifies that the minimum number of months applicable to an offsets report is 1 month if the criteria of both paragraphs 68A(a) and (b) are met.
New paragraph 68A(a) requires that section 68A only has effect if the 2018 soil carbon method was the applicable method for that project for the reporting period immediately before the reporting period for the transitional offsets report. Paragraph 68A(b) makes clear that a transitional offsets report means the offsets report for the first reporting period for which the 2021 soil carbon method applies to a project which has transitioned from the 2018 soil carbon method.
Paragraphs 68A(a) and (b) of the Amendment Rule makes clear that the specified lesser minimum number of months is only 1 month for the first offsets report after a project has transitioned to the 2021 soil carbon method from the 2018 soil carbon method. Subsequent offsets reports for transitioning projects will be subject to the default minimum length of a reporting period of 6 months in accordance with section 76 of the Act unless otherwise specified.
New projects declared under section 27 of the Act to which the 2021 soil carbon method applies will also be subject to a minimum length of a reporting period of 6 months in accordance with section 76 of the Act.
ATTACHMENT B
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 (Soil Carbon Projects) Rule 2021
The Carbon Credits (Carbon Farming Initiative) Amendment (Soil Carbon Projects) Rule 2021 (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 Carbon Credits (Carbon Farming Initiative) Rule 2015 details additional administrative procedures under the Act, including information and audit requirements for project applications and reports, the fit and proper person test for participants, procedures for parts of the carbon abatement purchasing process, the length of reporting periods, and notification and record-keeping requirements
The Amendment Rule amends the Carbon Credits (Carbon Farming Initiative) Rule 2015 to specify a lesser minimum number of months applicable to an offsets report for projects which are transitioning from the Carbon Credits (Carbon Farming Initiative—Measurement of Soil Carbon Sequestration in Agricultural Systems) Methodology Determination 2018 to the Carbon Credits (Carbon Farming Initiative—Soil Carbon Projects) Methodology Determination 2021 (2021 soil carbon method). The Amendment Rule should be viewed in combination with the 2021 soil carbon method which provides for the eligibility of soil carbon projects under the Act.
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: https://www.legislation.gov.au/Details/C2014B00129/Explanatory%20Memorandum/Text.
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.
The Hon Angus Taylor MP
Minister for Industry, Energy and Emissions Reduction