The risk of reversal buffer is an inbuilt insurance scheme that insures the Emissions Reduction Fund 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 participant (e.g. vandalism). The buffer will also insure against losses that occur as a result of wrongdoing by a participant that cannot be remedied.
The buffer applies to all sequestration projects and reduces the carbon abatement achieved during a reporting period by 5 per cent. This means that for every 100 tonnes of carbon stored by a sequestration project only 95 Australian carbon credit units will be issued, instead of 100 if the project is a 100-year permanence period project. A further 20 per cent deduction of Australian carbon credit units will be made for 25-year permanence period projects.
The risk of reversal buffer does not insure participants 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 in the legislative rules.
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