Investing in the Carbon Farming Initiative is an important business decision. Before you invest, you should undertake careful research so you can make an informed assessment of the potential benefits and risks. You should also consider seeking independent legal and/or financial advice with particular reference to your own circumstances and requirements.
The Clean Energy Regulator warns potential investors in Carbon Farming Initiative projects to be aware of misleading claims, particularly about unrealistic minimum returns on investment or returns that are government guaranteed or false certificates or units.
Potential revenue from eligible offsets projects under the Carbon Farming Initiative Act can vary depending on a range of factors. Considerations include decisions on who will own and manage the project, the type, scale and location of a project, the crediting strategy, and the potential of the project to generate additional benefits and revenue streams.
You should contact the Clean Energy Regulator if you suspect dishonest conduct or fraudulent behaviour relating to investment in the Carbon Farming Initiative.
Research for potential investors
- Review the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act) before you consent to a project operating on your land or decide to undertake a project, sell a carbon right or future stream of carbon units, or procure professional services such as auditors for a project to make sure you understand your responsibilities and obligations. If you're still unsure, contact the Clean Energy Regulator for further guidance.
- Understand what the Australian National Registry of Emissions Units (ANREU) is and what it means to be a registered account holder. To hold Australian Carbon Credit Units (ACCUs) or other emissions units, you must have an account in the ANREU.
- Check the Register of Offsets Projects (the Register). If a project is listed on the Register, you will know that the project has been declared to be an eligible offsets project under the CFI Act (and therefore has the potential to earn ACCUs). The Register will also present information on the number of ACCUs issued to individual projects.
- The Register also provides other useful information about carbon farming projects. This includes where the project is, who the project proponent is (the person responsible for undertaking the project), and whether the declaration is subject to a condition. If a project is not listed on the Register, the project has not been declared to be an eligible offsets project under the CFI Act. This could mean that the Clean Energy Regulator may be currently assessing whether the project should be declared an eligible offsets project. Projects undergoing assessment will not be listed on the Register. Alternatively, it may be that no application for the project has been submitted to the Clean Energy Regulator or that the Clean Energy Regulator has refused to declare the project eligible. You should check the Register regularly if you're considering investing in a particular project as it is updated often and/or ask to review the project application submitted to the Clean Energy Regulator.
- Review the abatement methodologies that apply to projects. To be declared an eligible offsets project, the project must also be covered by a relevant methodology determination. These are legislative instruments made by the Minister that set out detailed rules about how the project must be conducted in order to be eligible for ACCUs. A list of methodology determinations is available on our website and on ComLaw.
- If the proposed project involves undertaking an abatement activity that is not the subject of a methodology determination, it is not eligible under the Carbon Farming Initiative. Activities such as capture and combustion of sewage gas or postponing extraction of coal seam gas are outside the scope of the Carbon Farming Initiative.
- Understand this important information about Australian carbon credit units (ACCUs):
- The Carbon Credits (Carbon Farming Initiative) Act 2011 (the CFI Act) allows for the issuance of Kyoto ACCUs or non-Kyoto ACCUs:
- Kyoto ACCUs are issued for eligible Kyoto projects with a reporting period that ended before the original Kyoto abatement deadlines.
- Kyoto ACCUs are issued for eligible Kyoto projects from 21 May 2013 and for reporting periods until 30 June 2020 for emissions avoidance projects and 31 December 2020 for sequestration projects.
- Non-Kyoto ACCUs are issued if the relevant offsets project is an eligible non-Kyoto project.
- Non-Kyoto ACCUs are issued, for eligible Kyoto projects if the reporting period ends after the original Kyoto abatement deadlines and before 21 May 2013.
- Non-Kyoto ACCUs (NKACCU) will be displayed in two ways within an ANREU account – NKACCU eligible and NKACCU voluntary.
- NKACCU eligible are able to be surrendered under the carbon pricing mechanism. NKACCU voluntary are able to be sold on the voluntary market and cannot be surrendered under the carbon pricing mechanism.
Beware of scams over promising returns on Carbon Farming Initiative investments or liability cover
The Clean Energy Regulator warns potential investors in Carbon Farming Initiative projects to be aware of:
- claims of unrealistic minimum returns on investment
- claims that returns are government guaranteed
- claims that the Australian Government will buy Australian carbon credit units for a fixed price
- claims that the five per cent risk of reversal buffer for projects that store carbon in vegetation limits the liability of project owners and investors from events such as bushfires that affect the amount of carbon in the forest
- lack of concrete detail on project location and management.
It is important to understand the following:
- The price of Australian carbon credit units is not fixed.
- The Australian Government does not provide any guarantee that it will purchase Australian carbon credit units, or that it will make such a purchase at a particular price or that investor returns are guaranteed.
- Third parties with liabilities under Australia's carbon pricing mechanism might buy Australian carbon credit units if doing so is more cost-effective than undertaking abatement within their own operations, or if they need carbon units to pay their liability under the carbon pricing mechanism, or to meet corporate sustainability goals. These parties are not obliged to buy Australian carbon credit units to discharge their liability under the carbon pricing mechanism.
- During the fixed price period (1 July 2012 – 30 June 2015) the value of Australian carbon credit units eligible to be used under the carbon pricing mechanism may trade at around the fixed price for carbon units for the relevant financial year. However, this price is not guaranteed. Australian carbon credit units sold into voluntary markets (those not eligible for use under the carbon pricing mechanism) are expected to trade at a discount.
- In the flexible price period, post July 2015, the value of Australian carbon credit units may vary significantly from prices during the fixed price period.
- There is no guarantee that all prospective Carbon Farming Initiative project applications will be eligible under the Carbon Credits (Carbon Farming Initiative) Act 2011 or that eligible CFI projects will realise a given quantity of Australian carbon credit units over a particular timeframe.
- The quantity of Australian carbon credit units that may be issued for a CFI project is calculated in accordance with the relevant methodology determination. Some determinations require the use of specific models and tools to calculate abatement.
If you are conducting a sequestration project, remember that you will only receive 95 Australian carbon credit units for every 100 tonnes of carbon stored by the project. This is called the risk of reversal buffer. The risk of reversal buffer does not insure you against the potential loss of income following a disturbance or for the costs of re-establishing carbon stores. Other mechanisms such as private insurance, or carbon pooling and diversification, may be suitable options for proponents to manage these risks.
Anticipate modest returns from environmental planting projects
The environmental planting methodology requires proponents to calculate abatement using a specified reforestation modelling tool. The amount of abatement will vary according to factors such as the location and density of planting and whether there has been a significant reversal of abatement due to events such as fire.
For example planting half a hectare with native trees in Victoria will deliver around 120 Australian carbon credit units over the 15 year crediting period. Returns on investment will be determined by the market and may be up to $3800 over this period.
Claims that investing around $14,000 in planting native trees on half hectare plots of land in Victoria as part of a CFI environmental planting project can deliver 770 Australian carbon credit units and return in excess of $17,000 over the 15 year crediting period are unrealistic and may indicate the possibility of fraud.
Reporting false or misleading claims
Information provided by members of the public helps the Clean Energy Regulator ensure the integrity of the Carbon Farming Initiative.
The Australian Consumer Law prohibits businesses from making false or misleading representations in trade or commerce in connection with the supply of goods and services. This includes businesses that provide false and misleading information to consumers about their status as 'Recognised Offsets Entities' or the eligibility of offsets projects in relation to the Carbon Farming Initiative Act. Penalties of up to $1.1 million per contravention can be imposed by the Federal Court.
The Australian Securities and Investments Commission (ASIC) will also take appropriate action against businesses that make false and misleading claims in relation to Australian carbon credit units.
The Australian Securities and Investments Commission provides a list of companies you should not deal with on its Moneysmart website.
The Australian Competition and Consumer Commission (ACCC) also maintains information on documented scams on SCAMwatch.
Many overseas regulators maintain lists of unregulated or fraudulent companies. Conduct a thorough check on any overseas companies offering investments in ACCUs.
Note these sites are not definitive and you should always bear in mind that it is prudent to seek independent legal and/or financial advice before making an investment.
What are carbon brokers and carbon farming aggregators
Carbon brokers and carbon farming aggregators help to market and trade carbon credits by linking suppliers and buyers. Australian carbon credit units are financial products for the purposes of the (Australian) Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.
The Government does not hold a specific register of carbon brokers or carbon farming aggregators.
The Australian Securities and Investments Commission (ASIC) recently released the regulatory guide do I need a licence to participate in carbon markets? (RG 236). This provides an introduction to ASIC's role in relation to regulating carbon markets and emissions units. It may also assist you to check whether an entity offering financial advice with respect to Australian carbon credit units or other emissions units should have an Australian financial services licence.
Who to contact
Contact the Clean Energy Regulator if you suspect dishonest conduct or fraudulent behaviour relating to investment in the CFI.
P: 1300 553 542
Where compliance activity identifies possible fraud, the matter will be referred to the relevant authorities to investigate the matter.
See the Clean Energy Regulator fraud policy statement for more information about how the Clean Energy Regulator deals with fraud.