This page contains information about sequestration offset projects. It explains the obligations of the project proponent and the landowner. In addition, it contains information on withdrawing from the Carbon Farming Initiative, transferring a sequestration offsets project, and changing land ownership.
What is a sequestration offsets project?
Sequestration projects generate abatement by removing carbon dioxide from the atmosphere and storing it as carbon in plants as they grow.
Environmental plantings sequestration projects involve establishing native forests. Establishing environmental plantings increases the removal of carbon dioxide from the atmosphere by sequestering (absorbing and storing) the greenhouse gas carbon dioxide (CO2), as carbon, in the trees and tree debris.
Carbon sequestration in plantings can only offset emissions if it is stored permanently. If the carbon is subsequently released back into the atmosphere, for example because vegetation is cleared, it cannot offset emissions. For this reason, sequestration projects are subject to a 100 year permanence obligation.
Examples of sequestration activities could include:
- Restoring rangelands
- Protecting native forest or vegetation that is at imminent risk of clearing
Returns on investment from sequestration projects
The Clean Energy Regulator warns potential investors in Carbon Farming Initiative sequestration projects to be aware of misleading claims, particularly about unrealistic minimum returns on investment or returns that are government guaranteed.
Potential revenue from sequestration offsets projects under the Carbon Credits (Carbon Farming Initiative) Act 2011 can vary depending on a range of factors. Considerations should include decisions on who will own and manage the project, the type, scale and location of a project, the crediting strategy (when to report and apply for Australian carbon credit units), and the potential of the project to generate additional benefits and revenue streams.
The following examples have been prepared to provide guidance on expected abatement from a permanent environmental planting offsets project and to demonstrate the differences in abatement levels across Australia.
Each example is based on one hectare of permanent environmental planting and makes the following assumptions:
- mixed species environmental planting
- non-harvested planting
- 1000 stems/hectare density
- normal weed control intensity
- no extraneous natural events (i.e. fire, drought), and
- planting in January 2013.
Each tonne of carbon dioxide equivalent (CO2-e) abatement represents one Australian carbon credit unit.
Expected abatement (tonnes of CO2-e)
|Number of years
||Kyogle, New South Wales
||Gold Coast Hinterland, Queensland
||Geraldton, Western Australia
For those sequestration projects affected by a non-CFI scheme (a prescribed scheme) there is regulatory guidance on the calculation of unit entitlement available at:
Legal right to undertake a sequestration offsets project
If you intend to undertake a sequestration offsets project you will need to:
Regulatory approvals to undertake the project
The Clean Energy Regulator must be satisfied that the project proponent has obtained all Commonwealth, state and territory and local government planning and environmental and water regulatory approvals. The Clean Energy Regulator may issue a project declaration that is conditional on the project obtaining all regulatory approvals before the end of the project's first reporting period.
For a sequestration offsets project, the regulatory approvals to carry out the project may include the right to manage the carbon stores related to the project, ownership of the project area or a forestry right to plant, establish, manage and maintain vegetation on land.
If a project involves entering someone else's property, for example to plant trees and monitor the project the project proponent will also need to ensure they have the right to do so for the duration of the project.
Applicable carbon sequestration right
A carbon sequestration right is the exclusive legal right to obtain the benefit of carbon stored in the relevant carbon pools on the project area.
Carbon sequestration rights are created through state and territory legislation. Different jurisdictions operate different systems and in some states or territories the carbon sequestration rights may be separate from land ownership and forestry rights. That is, different people may hold the land title, the forestry right and the carbon sequestration right over one area of land. Not all jurisdictions have enabled carbon sequestration rights.
Non-freehold interests such as easements and licences do not confer carbon sequestration rights on the proponent.
Consent of eligible interest holders
For a sequestration project to be declared an eligible offsets project, each person with an eligible interest in the project area must provide written consent for the project. In some circumstances, eligible interest holders must also provide written consent in relation to an application to vary an existing carbon farming project. This consent is provided through the Eligible Interest Holder Consent form, available on the forms and calculators page.
Examples of eligible interest holders can be found under Step 2: How to apply.
All eligible interest holders should understand the nature of the activities to be carried out by a project and the implications of permanence obligations including relinquishment requirements and carbon maintenance obligations.
Sequestration is regarded as permanent if it is maintained on a net basis for 100 years. The requirement to sequester carbon for this duration is referred to as a permanence obligation.
Carbon stored in vegetation and soils can be released back into the atmosphere by man-made or natural events, thereby reversing the environmental benefit of the sequestration offsets project. For this reason, all sequestration offsets projects are subject to permanence obligations. A permanence obligation maintains carbon stores for which Australian carbon credit units have been issued and requires the handing back (or relinquishment) of Australian carbon credit units to the Clean Energy Regulator in cases where the required permanence obligation is not achieved due to matters that are within the control of the project proponent.
What to do if a natural disturbance or third party reduces sequestration
If your offsets project suffers a significant reversal in which sequestered carbon is lost through a natural disturbance (e.g. bushfire, drought or disease), action to manage fire (e.g. establishing a fire break) or the action of a third party who is beyond your control (e.g. vandalism), you are not automatically required to relinquish Australian carbon credit units.
However, if there is a significant reversal in your carbon stores, you must notify the Clean Energy Regulator within 60 days and take reasonable action to ensure that carbon stores are re-established. A reversal of carbon stores is considered significant if it occurs on 5% or 50 hectares of the project area, whichever is the smaller.
In some cases, the re-establishment of carbon store may require only modest intervention, such as allowing trees to regenerate. In other cases, where natural regeneration is unlikely or does not occur, active re-establishment or management may be necessary, for example replanting, stock exclusion or weeding. The project proponent will not receive further Australian carbon credit units until carbon stores exceed pre-disturbance levels. This provides an incentive to manage losses and to re-establish carbon stores as quickly as possible.
What to do if you do not meet your obligation to re-establish carbon stores
If you do not take reasonable steps to re-establish carbon stores, you will need to relinquish (hand back) Australian carbon credit units to the Clean Energy Regulator. The project proponent has 90 days to comply with this relinquishment requirement.
If this relinquishment requirement is not met, or if the Clean Energy Regulator is satisfied that the project proponent will not comply with the requirement to relinquish Australian carbon credit units within 90 days, a carbon maintenance obligation may be declared for the land area of the project.
As the carbon maintenance obligation is attached to the land, the obligation to maintain sequestered carbon dioxide stores will apply to future land owners for 100 years after the first Australian carbon credit units were issued for the offsets project. If a new offsets project area is added to the offsets project the obligation will apply to that offsets project for 100 years after the first Australian carbon credit units were issued for the new offsets project.
A carbon maintenance obligation seeks to prevent the landholder from engaging in conduct that results, or is likely to result, in a reduction in carbon stores below the benchmark sequestration level, unless the conduct relates to an activity that is expressly permitted by the carbon maintenance obligation. The benchmark level is the amount of carbon sequestered in the relevant area or areas at the time that the carbon maintenance obligation was made.
A carbon maintenance obligation will be revoked once any outstanding relinquishment obligation or penalties payable in relation to the offsets project have been met. A civil penalty may be imposed if a carbon maintenance obligation is breached.
Scheme insurance against loss of carbon stores
A risk of reversal buffer of 5% will be deducted from the Australian carbon credit units issued for all sequestration offsets projects. This means that for every 100 tonnes of carbon stored by a sequestration offsets project only 95 Australian carbon credit units will be issued, instead of 100.
The risk of reversal buffer will insure the scheme against temporary losses of carbon stores as a result of natural disturbance (e.g. bushfire) and conduct by a third party that is outside the control of the project proponent (e.g. vandalism). The buffer will also insure against losses that occur as a result of wrongdoing by a project proponent that cannot be remedied.
The risk of reversal buffer does not insure project proponents against loss of income from the sale of Australian carbon credit units following fire or other natural disturbance or for the costs of re-establishing carbon stores.
The risk of reversal buffer may be adjusted over time to reflect actual losses of carbon across the scheme.
Withdrawing a sequestration offsets project from the Carbon Farming Initiative
A project proponent can choose to withdraw from the Carbon Farming Initiative at any time by applying to the Clean Energy Regulator to have the eligible offsets project declaration revoked. If the offsets project is a sequestration offsets project and the carbon has been stored for less than 100 years, all Australian carbon credit units issued for the offsets project (and not previously relinquished) must be handed back to the Clean Energy Regulator. If the project proponent has previously sold their Australian carbon credit units in the carbon market they must meet the relinquishment obligation by purchasing the same number and kind of Australian carbon credit units (Kyoto or Non-Kyoto) at the market price to hand back to the Clean Energy Regulator. In some instances, substitution of Australian carbon credit units may occur. Eligible units for substitution include:
Land ownership and sequestration offsets projects
It is the landholder's responsibility to ensure that carbon stores are maintained and that an offsets project is properly transferred, or terminated, if the land on which the offsets project operates is sold.
Transferring an offsets project
An offsets project can be transferred at any time to another person (individual or organisation) if the person who the project is being transferred to:
- is a recognised offset entity, or
- becomes a recognised offsets entity within a 90 day period after the offsets project is transferred to them and they become the project proponent.
An offsets project declaration can be unilaterally revoked by the Clean Energy Regulator if the new project proponent is not a recognised offset entity by the end of the 90 day period.
When an offsets project is transferred:
- The declaration for the eligible offsets project must be varied to reflect the name of the new project proponent.
- An offsets project variation form must be completed and submitted to the Clean Energy Regulator.
If a landholder wishes to sell land that contains a sequestration offsets project, then they will need to consider what is required to transfer their offsets project to the purchaser of the land.
Sellers of land containing a sequestration offsets project/s should:
- Ensure that any agent, representative, prospective purchaser or relevant party is fully informed of a permanence obligation or carbon maintenance obligation associated with that land.
Buyers of land containing a sequestration offsets project/s should:
- Request to review specified information relating to the recording keeping and methodology of the sequestration offsets project.
- Check the Register of Offsets Projects to identify whether land contains a sequestration offsets project and other information about the offsets project.
- Check with the sellers if the sequestration offsets project is contained on the land title. It is not guaranteed that the existence of a Carbon Farming Initiative offsets project will always be noted on the land title.