Complying with the legislation

Changes to the Carbon Farming Initiative

The legislative rules governing the Carbon Farming Initiative have changed. The Carbon Farming Initiative has been integrated with the Emissions Reduction Fund from 12 December 2014.

Content on this website will be progressively updated to reflect these changes. More information can be found on the Emissions Reduction Fund and other schemes page.

Contents

This page contains information about complying with the Carbon Farming Initiative legislation and regulations. It also includes the penalties for non-compliance.

Participants in the Carbon Farming Initiative are responsible for ensuring they are aware of and comply with their obligations under the following Acts and Regulations:

Participants are also bound by the rules set out in the relevant methodology determination for the project, as well as other relevant legislation such as the Corporations Act 2001 (Cth) which governs the handling of financial products in the market, including Australian carbon credit units.

An overview of the project proponent's obligations​ under the Carbon Farming Initiative is available.

Methodology determinations

See methodology determinations.

Regulatory guidance

Regulatory guidance is provided by the Clean Energy Regulator on interpretation of the legislation.

Monitoring and enforcement

Effective monitoring and enforcement arrangements are vital to ensuring the integrity of the scheme. The Clean Energy Regulator has developed a proactive policy for monitoring compliance: The Clean Energy Regulator Compliance, Education and Enforcement Policy (PDF).

The Clean Energy Regulator’s monitoring and enforcement powers include:

  • the power to require a person, by written notice, to provide information or documents, or to provide copies of documents where the Clean Energy Regulator reasonably believes that a person has information or a document relevant to the operation of the CFI Act or CFI Regulations;
  • the power of inspectors to enter premises to determine whether the CFI Act, the CFI Regulations and related provisions of the Criminal Code have been complied with or to substantiate information provided under the CFI Act, CFI Regulations or related provisions of the Criminal Code. An inspector’s powers include the ability to search, examine, take measurements, conduct tests and inspect and copy documents. However, an inspector can only enter premises with the consent of the occupier or under a monitoring warrant; and
  • the power to require a person to appoint a registered greenhouse and energy auditor to carry out an audit of a project proponent’s compliance (or the compliance of a person who was a project proponent) with one or more aspects of the CFI Act, CFI Regulations or related provisions of the Criminal Code.

Penalties for non-compliance

Penalties for non-compliance with the CFI Act include:

  • cancellation of a person’s recognition as an offsets entity;
  • imposition of a carbon maintenance obligation on the land on which the project is, or was, being conducted;
  • civil or criminal penalties (see below); and
  • revocation of the declaration that an offsets project is an eligible offsets project. The CFI Regulations enable the Clean Energy Regulator to revoke a declaration if the Clean Energy Regulator is satisfied the project no longer complies with one or more criteria for making a declaration set out in subsection 27(4) of the CFI Act. The Clean Energy Regulator will provide written notice to the Carbon Farming Initiative participant before the declaration is revoked. Instances where a declaration may be revoked include where:
    • the project proponent has failed to obtain all regulatory approvals before the end of the first crediting period
    • the project proponent is no longer a recognised offsets entity
    • the person responsible for the project is no longer the project proponent
    • false or misleading information was provided to the Clean Energy Regulator in relation to the project
    • multiple project proponents failed to nominate a nominee in relation to the project

Civil and criminal penalties

Most penalty provisions in the CFI Act impose civil penalties. Civil penalties impose a financial penalty and are not considered criminal offences or involve imprisonment. Most offences under the CFI Act relate to a person’s failure to meet notification requirements associated with a project, reporting requirements, record-keeping requirements and auditing requirements.

There are, however, several provisions that impose a criminal penalty. These offences generally relate to behaviour that involves dishonest or fraudulent conduct or could involve considerable harm to society, the environment, the Carbon Farming Initiative scheme or its participants. Examples of offences under the CFI Act that impose a criminal penalty include the unlawful use of a Carbon Farming Initiative inspector identity card, failure to comply with the requests of an inspector when there is a monitoring warrant in place entering into schemes to avoid payment of penalties and disclosure of protected information.

The table below lists the sections of the CFI Act that, should a breach occur, impose a civil penalty:

CFI Act Offence
s 76 Offsets reports – requirement to submit report
s 78 Notification requirement - ceasing to be the project proponent for an eligible offsets project otherwise than because of death
s 79 Notification requirement – death of a project proponent for an eligible offsets project
s 80 Notification requirement – methodology determinations
s 81 Notification requirement – natural disturbances
s 82 Notification requirement – reversal of sequestration due to conduct of another person
s 83 Notification requirement – project becomes inconsistent with a regional natural resource management plan
s 84 Notification requirement – recognised offsets entities
s 85 Any notification requirements set in regulations
s 97 Carbon maintenance obligation
s 185 Clean Energy Regulator may obtain information and documents
s 191 Record-keeping requirements - general
s 192 Record-keeping requirements – preparation of offsets report
s 193 Record-keeping requirements – methodology determinations
s 194 Project monitoring requirements – methodology determinations
s 214 Compliance audits-possible contravention of the Act or its provisions
s 215 Other audits
s 217 Civil penalties for executive officers of bodies corporate

Part 21 CFI Act sets out what a Court will consider when determining the civil penalty amount payable by a person.

The table below lists the criminal offences and penalties listed in the CFI Act, which apply to proponents:

CFI Act Offence Penalty: 1 penalty unit = $170
s197 Unlawful use of CER inspector identity card or failure to return the card. 1 penalty unit
s201 Failure to comply with inspectors request to answer questions and provide documents. 30 penalty units
s210 Failure to provide inspector with facilities and assistance 30 penalty units
s234(1), (3) & (5) Scheme to avoid existing liability to pay administrative penalty

Imprisonment for 7 years or 2,000 penalty units, or both

Imprisonment for 3 years or 850 penalty units, or both

(Depending on which offence applies)

s235 (1), (3), (5), Scheme to avoid future liability to pay administrative penalty

Imprisonment for 7 years or 2,000 penalty units, or both

Imprisonment for 3 years or 850 penalty units, or both

(Depending on which offence applies)

Note: there are other criminal offences listed in the CFI Act which relate to the disclosure of protected information and protected audit information. These provisions generally apply to persons who improperly use or disclose protected information or protected audit information.

Sequestration offsets projects

Proponents of sequestration offsets projects and persons who have an eligible interest in land on which a sequestration offsets project is, or has been, conducted should take particular care to ensure they understand the implications of permanence arrangements, which include relinquishment requirements and carbon maintenance obligations. These obligations have long-term implications for the land on which a sequestration offsets project takes place.

Relinquishment notices

The Clean Energy Regulator may issue a notice requiring that the project proponent hand back (or ‘relinquish’) Australian carbon credit units.

This might happen if:

  • units were issued based on false or misleading information provided to the Clean Energy Regulator by a project proponent. This includes information provided in an application, offsets report or notification under Part 6 of the CFI Act;
  • the declaration for a sequestration offsets project has been revoked less than 100 years from the time the project was declared an eligible offsets project; or
  • a sequestration offsets project suffers a significant reversal of the sequestration of carbon dioxide as a result of a natural disturbance such as a fire or flood, or conduct engaged in by a person (other than the project proponent) that is not within the reasonable control of the project proponent, and the Clean Energy Regulator is not satisfied the project proponent took reasonable steps within a reasonable time period to mitigate the reversal. See also carbon maintenance obligations.

Penalties for failing to relinquish Australian carbon credit units

A person who fails to relinquish Australian carbon credit units when necessary will be required to pay the Commonwealth a penalty. This penalty is proportional to the shortfall in relinquishment.

If the penalty is not paid by the due date, a late payment penalty will accrue. The Clean Energy Regulator may remit the late payment penalty (or part thereof) in specified circumstances (for example, if the Clean Energy Regulator agrees that special circumstances apply).

If a person has not relinquished any Australian carbon credit units or has relinquished insufficient Australian carbon credit units before the deadline, the person must pay the Commonwealth an amount worked out by the following formula:

Number of units required to be relinquished   x   prescribed amount

The prescribed amount means the greatest of the following amounts:

  • $20;
  • 200 per cent of the market value of Kyoto Australian carbon credit units (if the units required to be relinquished were Kyoto Australian carbon credit units);
  • 200 per cent of the market value of non-Kyoto Australian carbon credit units at the compliance deadline (if the units required to be relinquished were non-Kyoto Australian carbon credit units).

The penalty is payable at the end of 30 days after the compliance deadline.

If a late payment penalty remains unpaid after the compliance deadline the person is liable to pay a further penalty calculated at a rate of:

  • 20 per cent per annum; or
  • if a lower rate is specified in the CFI Regulations, at that lower per annum rate.

(There is not currently a lower rate specified in the CFI Regulations.)

Penalty payments, including late penalty payments, are regarded as a debt due to the Commonwealth and may be recovered by the Clean Energy Regulator on behalf of the Commonwealth through an action in the relevant court.

Where a person overpays a penalty or late penalty the amount will be refunded by the Commonwealth. Interest may be payable in relation to an overpayment by a project proponent where the overpayment is due to an error in whole or part made by the Clean Energy Regulator.​

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