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Removal units

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25 August 2015

Removal units (RMUs) are emissions units issued either in or outside of Australia under the Kyoto Protocol.

Developed countries (Annex I Parties) operating under the United Nations Framework Convention on Climate Change1 (UNFCCC) and the Kyoto Protocol may issue RMUs into their national emissions registry for emissions stored or avoided through eligible human induced land use, land use change and forestry (LULUCF) activities.

Under the Kyoto rules, Annex I Parties must report all emissions stored or avoided through LULUCF activities set out in article 3.3 of the Kyoto Protocol. LULUCF activities under the Kyoto Protocol are limited to afforestation, reforestation and deforestation that have occurred since 1990.

Under the Kyoto rules, Annex I Parties may elect to report additional emissions stored or avoided from LULUCF activities that are set out in article 3.4 of the Kyoto Protocol. LULUCF activities under article 3.4 of the Kyoto Protocol include forest management, cropland management, grazing land management and revegetation.

If an Annex I Party has ratified the Kyoto Protocol and accounts for LULUCF activities in its national accounting of stored and avoided emissions for the first commitment period of the Kyoto Protocol, LULUCF activities can be used by that country to meet its emission reduction commitments under the Kyoto Protocol. That country may issue RMUs equivalent to emissions stored or avoided through LULUCF activities in the first commitment period.

Each Annex I Party has different national policies about the type of activities which are eligible for the creation of RMUs and the procedure for issuing RMUs.

As Australia elected not to include the activities listed in article 3.4 in its emissions accounting during the first commitment period, article 3.4 LULUCF activities undertaken in Australia are not eligible for the creation of RMUs.

Each RMU has a serial number made up of a number of different elements which, when combined, create a unique identification number. This unique number identifies the unit as an RMU, the Kyoto Party that issued the RMU, the Kyoto commitment period for which the RMU was issued, the Emissions Reduction Fund or Kyoto project number, and the year of issue.

RMUs in Australia

A RMU is represented as an electronic entry in the participants ANREU account.

The Clean Energy Regulator may make changes to a RMU held in the ANREU if a defect is discovered in the registered holder's title to a unit, for example—if the Clean Energy Regulator becomes aware that the unit had been entered in the registered holder's account in error or as a result of fraudulent conduct.

Property rights in RMUs

A RMU held in a ANREU account is personal property for the purposes of the Corporations Act 2001, the Bankruptcy Act 1966, the Australian National Registry of Emissions Units Act 2011 (ANREU Act 2011), the law relating to wills, intestacy and deceased estates and the Proceeds of Crime Act 2002.2

The Australian National Registry of Emissions Units Act 2011 does not prevent the creation or enforcement of, or any dealings with, equitable interests in RMUs.3 It may be possible for the holder of a RMU in the ANREU to grant security over (for example, to mortgage) the RMU or hold the RMU on behalf of others under a trust or other beneficial ownership arrangement. More detailed information on taking security over RMUs is available on the Australian Government’s personal property securities register website.

Trading RMUs

Under Australian law, RMUs can be traded. Before trading in RMUs, you should obtain your own professional advice which takes into account your own situation.

A RMU is a 'financial product' under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.4 This means that people who provide financial advice in relation to RMUs and related financial products and services may require an Australian financial services licence which authorises them to provide those services.

Buying and selling RMUs on behalf of another person will also be a 'designated service' for the purposes of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.5 This means that the service provider must report suspicious matters or transactions above a specified limit. Except in special cases, the service provider must also verify their customer's identity prior to trading in RMUs.

The value of RMUs is determined by the current and future markets and their price may fluctuate. The value will be influenced by a wide range of factors including, but not limited to, changes to the international climate change framework and relevant legislation. Neither the Commonwealth of Australia or the Clean Energy Regulator, nor any of their officers or related bodies, can provide any guarantee on the future value of RMUs.

Transferring RMUs and the ANREU

A RMU is transferable:

  • within Australia between accounts in the ANREU6
  • into an ANREU account from a foreign account in a foreign Kyoto registry (the national or regional registries of certain foreign countries or regions),7 and
  • out of an ANREU account to a foreign account in a foreign Kyoto registry.8

Potential restrictions apply to transferring RMUs between accounts. The Clean Energy Regulator:

  • must not give effect to an instruction to transfer a RMU to or from a foreign account if the International Transaction Log notifies the Clean Energy Regulator that there is a discrepancy with the instruction to transfer or the proposed transfer has been rejected or cancelled9
  • must not give effect to an instruction to transfer a RMU from an ANREU account to a foreign account or the voluntary cancellation account where this would mean that Australia breached its commitment period reserve (that is, the transfer would result in the total number of Kyoto units, including RMUs, held in the ANREU falling below the minimum number that the Kyoto rules require that Australia hold in the ANREU),10 and
  • may restrict transfers in, out or within the ANREU to ensure the integrity of the ANREU, prevent, mitigate or minimise abuse of the ANREU or prevent, mitigate or minimise criminal activity involving the ANREU.

Cancellation of RMUs

The Kyoto rules include some restrictions on carry-over of RMUs from the first to subsequent commitment periods. Regulations made under the ANREU Act 2011 could provide for cancellation of RMUs for which carry-over is not permitted. No regulations have yet been made.11

Legal and financial advice

The information published on this page is general in nature and does not apply to any particular situation, transaction or organisation. It is not legal or financial advice. You should seek your own legal or financial advice which takes into account your individual circumstances and requirements. This information does not include advice concerning, among other things, the detailed characteristics of RMUs, the costs associated with them, their legal status, their taxation treatment and the potential benefits and risks of dealing in them.

Neither the Commonwealth of Australia or the Clean Energy Regulator, nor any of their officers or related bodies, make any representation as to the future nature, characteristics or performance of RMUs. Nor can they provide any specific advice concerning RMUs. You may obtain professional advice from a person who holds an Australian financial services licence (AFS licence) that authorises them to provide financial advice in relation to RMUs or is exempt from the requirement to hold an AFS licence for this purpose. You can visit www.asic.gov.au to search the register of AFS licensees, or visit www.moneysmart.gov.au for more information on obtaining professional financial advice.

Please note that any financial product which is related to or associated with a RMU, such as a derivative or a managed investment scheme, may require a product disclosure statement to be provided by the person offering or recommending that financial product.

Notes

1 Section 45 of the ANREU Act 2011, and regulation 48 of the ANREU Regulations 2011.

2 Section 46 of the of the ANREU Act 2011.

3 Section 764A(1)(kb) of the Corporations Act 2001, and section 12BAA(7)(la) of the Australian Securities and Investments Commission Act 2001.

4 Item 33(bb) of the table in section 6(2) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

5 Section 34 of the ANREU Act 2011, and regulation 36 of the ANREU Regulations 2011.

6 Section 36 of the ANREU Act 2011, and regulation 40 of the ANREU Regulations 2011.

7 Section 35 of the ANREU Act 2011, and regulation 39 of the ANREU Regulations 2011.

8 Regulations 39(5) and 40(2)(a) of the ANREU Regulations 2011.

9 Section 41 of the ANREU Act 2011, and regulation 41 of the ANREU Regulations 2011.

10 Sections 28A-28D of the ANREU Act 2011.

11 Section 40(2) of the ANREU Act 2011.

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