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Carbon maintenance obligations for area-based projects
Carbon maintenance obligation declarations, made in accordance with the Carbon Credits (Carbon Farming Initiative) Rule 2015 (CFI Rule) are intended to prevent large-scale loss of carbon (below a specified level) from an Emissions Reduction Fund (ERF) project. They are intended as a compliance measure of last resort to protect the carbon stored by a project and can only be used in very specific circumstances.
Generally, carbon maintenance obligations will not be required if projects are managed in line with vegetation method requirements or Australian carbon credit units (ACCUs) have been relinquished for any carbon stores lost. Under the ERF, projects are required to store carbon in vegetation or soils for either 25 or 100 years. These permanence obligations run with the land. In addition, changes in land use will generally be managed by mutual agreement between the project proponent and other relevant eligible interest-holders. In such cases, an application to remove a particular piece of land from a project (thereby freeing it up for more profitable business opportunities) can be made. The variation to a project area is contingent on ACCUs equal in number to those associated with the specific land being voluntarily relinquished. This is a standard application process.
Process for making a carbon maintenance obligation declaration
The Clean Energy Regulator initiates the making of a carbon maintenance obligation declaration. As outlined below, this would be done only in very specific circumstances and can only be made in relation to land that was part of a sequestration project.
Before a carbon maintenance obligation declaration can be made, the Clean Energy Regulator must first:
- have required the relinquishment of ACCUs in relation to the project, and the relinquishment requirement have not been met or are unlikely to be met, or
- be satisfied that it is likely that a relinquishment of ACCUs in relation to the project will be required, and it is likely that the relinquishment requirement will not be met.
Carbon maintenance obligations apply to the carbon sequestered in land covered by a project. This means that the current landholder, and any other person who has the right to undertake activities on the land, will need to abide by the carbon maintenance obligation, regardless of whether they were involved in the project.
As part of making a carbon maintenance obligation declaration, the Clean Energy Regulator will engage with relevant parties, particularly in relation to the setting of the benchmark sequestration level and any ‘permitted activities’.
Relinquishment
Carbon stored by sequestration projects may be lost due to unavoidable natural disturbance or deliberate conduct. In certain circumstances where the reversal has been significant (see section 88 and 89 of the CFI Rule), we may require a project proponent to relinquish a certain number of issued ACCUs.
Clean Energy Regulator may require relinquishment if:
- ACCUs were issued based on false or misleading information
- registration of the project has been revoked
- carbon stored by the project was lost due to conduct (other than reasonable actions taken to reduce the risk of bushfire) engaged in by the project proponent, or another person within the reasonable control of the project proponent, or
- carbon stored by the project was lost due to natural disturbance (bushfire, drought, flood, pests or disease which could not reasonably be prevented by the project proponent) or conduct of another person not within the reasonable control of the project proponent, and the project proponent fails to take reasonable mitigation steps.
The requirement to relinquish ACCUs applies to the project proponent.
The amount of ACCUs to be relinquished is specified by the Clean Energy Regulator and will depend on the nature of the relinquishment. For example, if the relinquishment is due to a project being revoked in its entirety, the amount of ACCUs to be relinquished would take into consideration all ACCUs issued to the project (less any ACCUs already relinquished). If the relinquishment was as a result of a loss of carbon stored due to a natural disturbance event, the number of ACCUs to be relinquished would take into consideration the amount of ACCUs issued in relation to the affected areas of the project.
Carbon maintenance obligation
Where a relinquishment requirement has been issued, the person has 90 days in which to comply. Following this period, or earlier, if the Clean Energy Regulator believes that the relinquishment requirement is unlikely to be complied with, the Clean Energy Regulator can make a carbon maintenance obligation declaration.
The Clean Energy Regulator may also make a carbon maintenance obligation declaration before a relinquishment requirement has been issued if it believes that, once issued, the relinquishment requirement is unlikely to be complied with, for example, if the project proponent no longer exists.
Benchmark sequestration level
The benchmark sequestration level is the level of carbon sequestration that must be maintained under a carbon maintenance obligation.
The Clean Energy Regulator is responsible for determining the benchmark sequestration level. This will be done as part of the carbon maintenance obligation declaration process. How the level is calculated will vary depending on the reason for the relinquishment.
For example, if the relinquishment requirement was in relation to a revocation of the project and the Clean Energy Regulator was satisfied that the abatement claimed throughout the life of the project was accurate, the benchmark sequestration level could be based on the offset reports and supporting documentation provided by the project proponent. Essentially, in this case, the benchmark sequestration level would be based on the total amount of carbon sequestration claimed throughout the life of the project.
However, the benchmark sequestration level reflects the amount of carbon sequestered in the relevant pool on the area or areas at the time that the carbon maintenance declaration was made.
Where the relinquishment was as a result of a reversal of carbon stock, the benchmark sequestration level would need to account for that reversal. This means that a person who is subject to a carbon maintenance obligation, who may not have benefited from the project, does not have to restore carbon stock that is lost before the carbon maintenance declaration was made. When setting the benchmark sequestration level the Clean Energy Regulator will make an assessment of the impact of any reversal event.
Similarly, where the relinquishment was as a result of false and misleading information, the Clean Energy Regulator would conduct its own assessment of the likely abatement achieved by the project.
In any of these cases, the Clean Energy Regulator would rely on a combination of reviewing the original information provided by the project proponent, desktop assessments, use of compliance monitoring tools and the application of the relevant Method formulas. The Clean Energy Regulator may also consider seeking access to the land to conduct ground truthing activities.
Permitted activities
Permitted activities may be specified in the carbon maintenance obligation declaration. Activities would only be permitted where the Clean Energy Regulator is satisfied that they would not result in the carbon stocks being reduced to below the benchmark sequestration level. These activities would allow areas that are subject to a carbon maintenance obligation to be used for productive purposes, such as grazing. Permitted activities could also include activities by native title holders in exercise of their native title rights where they were determined after the project became unconditionally declared.
Permitted activities will be specified in the carbon maintenance obligation declaration and will set out the manner, time, place, persons or time period during which the activity may be carried out. Permitted activities do not override any existing regulations around land use.
Notification of a carbon maintenance obligation declaration
Once the Clean Energy Regulator has determined the benchmark sequestration level and made the carbon maintenance obligation declaration, it will provide a copy of the declaration to the project proponent, each person who holds an interest in the area (eligible interest-holders), and the relevant land registration official.
Obligations under a carbon maintenance obligation declaration
A person (regardless of whether or not they were involved in the project) must not conduct an activity that reduces or is likely to reduce the carbon stores on land subject to the obligation, below the level when the obligation was declared (benchmark sequestration level).
An owner or occupier of the land subject to a declared carbon maintenance obligation is required to take reasonable steps to ensure that the carbon stores on the land are not less than the benchmark sequestration level. This obligation applies whether or not the person was owner or occupier of the land when the project was first registered.
If the carbon stores fall below the benchmark sequestration level, for example, because of bushfire, drought or an action by a neighbour or other third party, the owner or the occupier of the land must take all reasonable steps to ensure that carbon stores recover to the benchmark level. In many cases, this would mean allowing vegetation to regrow or the owner or occupier may need to take more active steps to re-establish carbon stores.
The consent of eligible interest-holders is required at project registration because it is important to ensure that persons who could be subject to, or have their interests in land affected by, a subsequent carbon maintenance obligation have agreed to the land being brought into the offsets scheme.
Variation or revocation of declaration of a carbon maintenance obligation
While carbon maintenance obligation declarations protect the carbon stored by a project, the ability to vary the declaration to remove a particular part of land, or revoke the entire declaration, recognises that flexibility is required to accommodate changing business opportunities over a piece of land over time.
Where a proposed activity will impact on the carbon stores of a particular area subject to a carbon maintenance obligation declaration, a person may apply to us to vary or revoke the declaration. For example, if mining activity will result in a reduction in the carbon stores on land subject to the declaration below the level of when the declaration was made, then the miner or another person could apply for a variation of the declaration to remove land required for mining from the scope of the declaration.
Similarly, a variation may be requested to add or change permitted activities associated with the declaration. For example, a native title group may want the carbon maintenance obligation declaration varied to include particular activities inherent in their native title rights. A landholder may also want to clear some area for a particular project, for example for mining exploration, where the activities are not expected to bring the amount of carbon sequestered to below the benchmark sequestration level.
Providing flexibility in the management of carbon maintenance obligations will allow other commercial activities to continue, while recognising the impact on carbon stores that these activities may incur, and ensuring ACCUs continue to represent genuine and additional abatement.
Requesting the variation of a carbon obligation maintenance obligation
A person may submit a written request to the Clean Energy Regulator for a carbon maintenance obligation declaration to be varied so as to remove a specified area or areas of land. Such a request must include details of the land that the person is seeking to have removed.
On receipt of a request, the Clean Energy Regulator will notify the person of the amount of ACCUs that need to be voluntarily cancelled for the variation to be made. As a general rule, this amount will be no more than the percentage of ACCUs issued in relation to the project, which is proportionate to the amount of land to be removed from the carbon maintenance obligation area, compared to the total amount of the carbon estimation area(s) in the project.
For example, if the carbon maintenance obligation covers an entire project area, and the area(s) of land to be removed make up 30 per cent of the project’s total carbon estimation areas, the number of ACCUs to be voluntarily cancelled would be no more than 30 per cent of the total amount of ACCUs issued in relation to the project.
The person seeking the variation would then arrange to have the required number of ACCUs voluntarily cancelled. There is no requirement for these ACCUs to have originated from the project.
Once the Clean Energy Regulator is satisfied that the ACCUs have been cancelled for the purpose of facilitating the variation, it will vary the declaration to remove the relevant area(s) from the scope of the declaration.
The Clean Energy Regulator will take all reasonable steps to ensure that the variation is made within 30 days of the ACCUs being cancelled.
Notification of the variation of a carbon maintenance obligation declaration
Once the Clean Energy Regulator has varied a carbon maintenance declaration, it will provide a copy to the project proponent, each person who holds an interest in the area, and the relevant land registration official.
A carbon maintenance obligation will also be removed if:
- all ACCUs issued for the project are returned to the Clean Energy Regulator and land subject to the carbon maintenance obligation is no longer a part of any sequestration project
- all outstanding penalties for failing to relinquish ACCUs are paid in full, or
- the permanence period of the project expires.
The person making the application for revocation of the carbon maintenance obligation declaration or relinquishing the associated ACCUs does not need to be the original project proponent.