Contents

• About this statement
  
• What is an ACCU?
• Issue of ACCUs
• Property rights in ACCUs
• Selling ACCUs to the Commonwealth
  
• Use of ACCUs in the safeguard mechanism
• Relinquishing ACCUs
  
• Cancelling ACCUs
• Transferring ACCUs
• Trading ACCUs
• Tax treatment of ACCUs
• Notes

About this statement

This is a statement setting out a concise description of the characteristics of Australian Carbon Credit Units (ACCUs). This statement is published, and will be kept up-to-date, under section 162 of the Carbon Credits (Carbon Farming Initiative) Act 2011 (CFI Act 2011). It is not a Product Disclosure Statement within the meaning of Part 7.9 of the Corporations Act 2001.¹

This statement 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 with particular reference to your own circumstances and requirements. This statement does not provide specific information or advice concerning, among other things, the detailed characteristics of ACCUs, 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 ACCUs. Nor can they provide any specific advice concerning ACCUs. 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 ACCUs or is exempt from the requirement to hold an AFS licence for this purpose. You can visit the ASIC website to search the register of AFS licensees, or visit the Money Smart website for more information on obtaining professional financial advice.

Please note that any financial product which is related to or associated with an ACCU, 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.

What is an ACCU?

An ACCU is a unit issued to a person by the Clean Energy Regulator (Regulator) by making an entry for the unit in an account kept by the person in the electronic Australian National Registry of Emissions Units (Registry)². Each ACCU issued represents one tonne of carbon dioxide equivalent (tCO₂-e) stored or avoided by a project. An ACCU can only be issued to a person if the person has a Registry account³ and a Registry account can only be opened by a person after the Regulator has considered whether they are a ‘fit and proper person’⁴.

Issue of ACCUs

The Regulator issues ACCUs for greenhouse gas abatement activities undertaken as part of the Australian Government’s Emissions Reduction Fund. The issuance of ACCUs is governed by the CFI Act 2011, the Carbon Credits (Carbon Farming Initiative) Regulations 2011(CFI Regulations 2011) and the Carbon Credits (Carbon Farming Initiative) Rule 2015 (CFI Rule 2015). Each ACCU represents one tonne of carbon dioxide equivalent net abatement (through either emissions reductions or carbon sequestration) achieved by eligible activities.

Eligible activities are undertaken as ‘eligible offsets projects’⁵. There are a number of requirements that must be satisfied before a project can be declared an ‘eligible offsets project’, and there are ongoing requirements in undertaking an eligible offsets project. The requirements include:

• The project proponent⁶ must pass a ‘fit and proper person test’⁷
  
• There must be an approved methodology for the type of project⁸
  
• The project must deliver abatement that is additional to what would occur in the absence of the project
  
• The project must meet the applicable additionality requirements⁹
  
• The project must be undertaken in accordance with the methodology and comply with other scheme eligibility requirements¹⁰
  
• The project proponent must report to the Regulator about the conduct of the project and the abatement achieved¹¹. Certain reports must be accompanied by a report prepared by a registered greenhouse and energy auditor¹².

ACCUs are issued as either Kyoto ACCUs or non-Kyoto ACCUs¹³.

• Kyoto ACCUs are issued if the relevant offsets project is an eligible Kyoto project and the reporting period ends on or before the Kyoto abatement deadline
  
• Non-Kyoto ACCUs are issued if the relevant offsets project is an eligible non-Kyoto project, or if the relevant project is an eligible Kyoto project but the reporting period ends after the Kyoto abatement deadline.

A person must hold a certificate of entitlement¹⁴ before an ACCU can be issued to that person¹⁵. The number of ACCUs issued to the person is equivalent to the number specified in that certificate¹⁶. This number, generally speaking, reflects the number of tonnes of carbon dioxide equivalent net abatement achieved by the project over the reporting period¹⁷. If the project is a sequestration offsets project, the number is reduced by a risk of reversal buffer, currently set at 5 per cent¹⁸. If the project has a 25-year permanence period project¹⁹, the number is reduced by another 20 per cent or another percentage specified in the legislative rules that is applicable to the project at the start of the project’s crediting period²⁰.

If the project is a native forest protection project covered by Item 387 of Schedule 1 to the Carbon Farming Initiative Amendment Act 2014²¹ the number is reduced by the risk of reversal buffer, and one-twentieth of the resulting number is attributed to each year of the twenty year crediting period.

If abatement from a project has already been credited or otherwise accounted for under another carbon offsets scheme that existed before 13 December 2014, the number is further reduced by that amount²².

See further information about the Emissions Reduction Fund.

Property rights in ACCUs

An ACCU is personal property²³. The registered holder of an ACCU — the person in whose Registry account there is an entry for the ACCU — is its legal owner and may, subject to the CFI Act 2011 and the Australian National Registry of Emissions Units Act 2011 (ANREU Act 2011), pass good title to the ACCU to another person.

The Regulator may correct the Registry in certain circumstances, including in order to comply with a court order to rectify errors flowing from fraudulent conduct²⁴. However, if the ACCU is transferred to another person’s account before the defect is detected, that other person will nevertheless have good title to the ACCU provided they purchased the unit in good faith for value from the registered holder and without notice of the defect²⁵. A person who acquired the ACCU without purchasing it in good faith from the registered holder for value (for example, if they received it as a gift), or who was aware of the defect, will not have good title to the ACCU.

The CFI Act 2011 does not prevent the creation or enforcement of, or any dealings with, equitable interests in ACCUs²⁶. It may be possible for the holder of an ACCU to grant security over (for example, to mortgage) the ACCU or to hold the ACCU on behalf of others under a trust or other beneficial ownership arrangement²⁷. More detailed information on taking security over ACCUs is available on the Australian Government’sPersonal Property Securities Register website.

Selling ACCUs to the Commonwealth

Kyoto ACCUs issued to a project proponent in relation to an eligible offsets project can be sold to the Commonwealth under a carbon abatement contract²⁸. A project proponent enters into a carbon abatement contract with the Regulator, on behalf of the Commonwealth, as a result of participation in a carbon abatement purchasing process conducted by the Regulator²⁹. It is immaterial whether the ACCUs are in existence when the contract is entered into³⁰.

Use of ACCUs in the safeguard mechanism

From 1 July 2016, the National Greenhouse and Energy Reporting Act 2007 (NGER Act) will provide for the safeguard mechanism which ensures the net covered emissions of certain designated large facilities do not exceed their applicable baseline emissions number for a period³¹. Both Kyoto and non-Kyoto ACCUs may be surrendered to reduce the net emissions number for a facility under the safeguard mechanism³².

A facility’s net emissions number may be increased by the issuance of ACCUs attributable to carbon abatement at a facility³³. If those ACCUs are purchased by the Commonwealth under a carbon abatement contract they may be deemed to be surrendered to reduce the net emissions number of the facility that generated the carbon abatement³⁴. Offsets reports after 1 July 2016 will need to identify carbon abatement attributable to safeguard facilities to facilitate these steps³⁵.

Relinquishing ACCUs

Mandatory relinquishment

ACCUs may be required to be relinquished if:

• the issue of the ACCUs is attributable to the giving of false or misleading information³⁶
  
• the ACCUs were issued in relation to a sequestration offsets project and the declaration of the project as an eligible offsets project has been revoked³⁷, or
• the ACCUs were issued in relation to a sequestration offsets project and there has been a complete or partial reversal of sequestration³⁸.

A court may order a person to relinquish ACCUs where the issue of the units was attributable to the commission of one of a number of specified offences involving fraudulent conduct³⁹.

The number of ACCUs that a person must relinquish may be deducted from any ACCUs that are to be issued to the person. In these circumstances, the person will be deemed to have relinquished the relevant number of ACCUs⁴⁰.

Voluntary relinquishment

ACCUs may be voluntarily relinquished:

• in order to voluntarily terminate a sequestration offsets project⁴¹, or
• in order to terminate a carbon maintenance obligation imposed in relation to a project area⁴².

Cancelling ACCUs

An ACCU will be cancelled if the Registry account in which it is held is closed by the Regulator on the basis that the account holder has contravened, or is contravening, Part 2 of the ANREU Act 2011 or the ANREU Regulations 2011⁴³.

Any ACCU held in a person’s Registry account may be voluntarily cancelled by giving electronic notice to the Regulator. Upon receipt of the notice, the Regulator must remove the entry for the cancelled unit from the relevant Registry account⁴⁴.

ACCUs transferred to the Commonwealth Emissions Reduction Fund Delivery Account under a carbon abatement contract will be cancelled by the Regulator as soon as practicable after they are transferred to that account⁴⁵.

ACCUs surrendered under the safeguard mechanism from 1 July 2016 are also cancelled⁴⁶.

Transferring ACCUs

An ACCU is transferable within Australia between accounts in the Registry⁴⁷.

An ACCU may be transmitted by assignment (for example, on a sale or gift) or by operation of law (for example, upon the death or bankruptcy of the registered holder of the ACCU). A transmission of an ACCU, however, is of no force until the Regulator removes the entry for the unit in the transferor’s Registry account and makes an entry for the unit in the transferee’s account⁴⁸.

ACCUs cannot be transferred out of the Registry into an account in a foreign registry⁴⁹.

The Regulator may restrict transfers in, out or within the Registry to ensure the integrity of the Registry, prevent, mitigate or minimise abuse of the Registry or prevent, mitigate or minimise criminal activity involving the Registry⁵⁰.

Trading ACCUs

ACCUs that have not been surrendered, cancelled or relinquished can be traded. You should obtain your own professional advice about the trading of ACCUs having regard to your own situation.

An ACCU is a ‘financial product’ under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001⁵¹. This means that people who provide financial services in relation to ACCUs and related financial products and services in Australia may require an AFS licence which authorises them to provide those services.

However, carbon abatement contracts are exempt from the definition of ‘derivative’ and ‘financial product’ for the purposes of the Corporations Act 2001.⁵² This exemption means that a person is not required to hold an AFS licence to provide advice about, or enter into, a carbon abatement contract.

Buying and selling ACCUs on behalf of another person is also a ‘designated service’ for the purposes of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006⁵³. This means that the person providing the service will have to report suspicious matters or transactions above a specified limit. Except in special cases, the service provider will also have to verify their customer’s identity prior to trading in ACCUs.

The values of Kyoto ACCUs and non-Kyoto ACCUs are determined by current and future markets and may go up or down. Their values will be influenced by a wide range of factors including, but not limited to, changes to the international climate change framework and Australian legislation. Neither the Commonwealth of Australia or the Clean Energy Regulator, nor any of their officers or related bodies, make any representation or provide any guarantee concerning the future values of Kyoto ACCUs and non-Kyoto ACCUs.

Tax treatment of ACCUs

Detailed information about the tax treatment of ACCUs is available on the ATO’s website. You should obtain your own professional advice about the tax treatment of ACCUs having regard to your own situation. Generally, the following applies to ACCUs:

• the cost of acquiring an ACCU is tax deductible, with the deduction effectively being deferred through the rolling balance method until the year in which the ACCU is sold or surrendered
  
• however, where an ACCU is issued to you in accordance with the CFI Act 2011, the availability (if any) of a deduction for the expenses you incur in undertaking activities under the CFI is generally determined under the normal income tax provisions rather than under the more specific provisions that apply to other ACCUs. The one exception is costs incurred in preparing and lodging an application for a certificate of entitlement or an offsets report. These are deductible under the specific provisions. The market value of this type of ACCU is included under the rolling balance account method. This has the effect of temporarily offsetting the economic benefit of the deductions until the ACCU is sold or surrendered.
• the proceeds of selling an ACCU are assessable income on revenue account in the income year the ACCU is sold
  
• the change in value of the ACCU between the beginning and end of an income year must be included as assessable income (where the value increases) or is a deduction (where the value decreases) in the tax return for each financial year in which the ACCU is held (the value is taken to be nil at the start of the income year in which you first become the holder)
• supplies of Kyoto ACCUs and non-Kyoto ACCUs are GST-free⁵⁴
  
• sellers of ACCUs are deemed to have received market value for an ACCU in certain circumstances (for example, transactions between related entities).

Notes

1 Generally speaking, Subdivision 4.1A of Part 7.9 of the Corporations Regulations 2001 provides that provisions in Part 7.9 of the Corporations Act 2001 dealing with the need to give a Product Disclosure Statement do not apply in relation to an ACCU. Part 19 of Schedule 10A to the Corporations Regulations 2011 modifies Part 7.9 of the Corporations Act 2001 so that a person who would otherwise be required to give a Product Disclosure Statement in relation to an ACCU is instead required to direct its clients to this statement.

2 Sections 147 and 148, CFI Act 2011; sections 9(3) and 17(1), Australian National Registry of Emissions Units Act 2011 (ANREU Act 2011). If a registered native title body corporate is taken to be the project proponent for an eligible offsets project under section 46 of the CFI Act 2011, ACCUs can only be issued by making an entry in the special native title account for the project: section 49(4), CFI Act 2011. ACCUs held in a special native title account are held on trust for the relevant common law holders of native title: section 50(2), CFI Act 2011. Regulations or rules may make provision for the account holder to consult, and act in accordance with the directions of, the beneficiaries in relation to, amongst other things, the account: section 51, CFI Act 2011. If there are multiple project proponents for a project, ACCUs can only be issued by making an entry in the nominee account for the project kept in the name of the nominee of the multiple project proponent whose nomination is in force: section 141, CFI Act 2011. ACCUs held in a nominee account for a project are held on trust for the persons who are, for the time being, the project proponent for the project: section 142, CFI Act 2011.

3 Sections 11(5), 141(4) and 148(2), CFI Act 2011.

4 Regulation 13(2)(c), Australian National Registry of Emissions Units Regulations 2011 (ANREU Regulations 2011).

5 An ‘eligible offsets project’ can be a sequestration offsets project (defined in section 54 of the CFI Act 2011) or an emissions avoidance offsets project (defined in section 53 of the CFI Act 2011) that has been declared by the Regulator to be an eligible offsets project. An emissions avoidance project can be an area-based emissions avoidance project (defined in section 53 of the CFI Act 2011).

6 The project proponent is the person who is responsible for carrying out the project and has the legal right to carry it out: section 5, CFI Act 2011 (definition of ‘project proponent’). A project proponent may also be referred to as the project participant.

7 Section 60, CFI Act 2011 and Part 4, CFI Rule 2015.

8 Subsection 27(4) of the CFI Act 2011.

9 The additionality requirements for projects declared eligible under the Emissions Reduction Fund are set out in subsection 27(4A), CFI Act 2011, section 21 of the CFI Rule 2015 and in applicable methodology determinations. They include the government program requirement, the regulatory additionality requirement and the newness requirement. However, the previous Carbon Farming Initiative additionality requirements apply to ‘ERF transitional applications’ for projects. ERF transitional applications are applications made before 1 July 2015 for projects that are covered by a methodology determination made before 13 December 2014, unless the project was declared or refused to be declared before 13 December 2014.

10 The eligibility criteria for a project to be declared as an eligible offsets project are set out in section 27 of the CFI Act 2011, Part 3 of the CFI Regulations 2011 and section 20 of the CFI Rule 2015.

11 Part 6, CFI Act 2011, Part 6, CFI Rule 2015.

12 Subsection 77(4), CFI Act 2011 and Part 6, Division 3, CFI Rule 2015.

13 Sections 11(2) and (3) CFI Act 2011. An ACCU issued on or after 12 December 2014 is a Kyoto ACCU if it is identified as a Kyoto ACCU in the Registry. An ACCU issued before 13 December 2014 has the attributes specified in the Ministerial determination Carbon Credits (Carbon Farming Initiative) – Kyoto Australian Carbon Credit Unit Specification 2011: section 5, CFI Act 2011 (definition of ‘Kyoto Australian carbon credit unit’). A non-Kyoto ACCU is an ACCU other than a Kyoto ACCU: section 5, CFI Act 2011 (definition of ‘non-Kyoto ACCU’).

14 Also referred to as an abatement statement

15 Section 11(1), CFI Act 2011. The certificate of entitlement is issued by the Regulator. The criteria for the issue of a certificate are set out in section 15 of the CFI Act 2011 and section 9 of the CFI Rule 2015.

16 Subsections 11(2) and (3), CFI Act 2011.

17 See sections 16 and 18 of the CFI Act 2011 for details as to how unit entitlements are calculated.

18 Subsection 16(2), CFI Act 2011.

19 A sequestration offsets project is declared as either a 100-year or 25-year permanence period project in accordance with section 27 of the CFI Act 2011 and Item 390 of the Carbon Farming Initiative Amendment Act 2014, which applies to ERF transitional applications.

20 Subsection 16(2), CFI Act 2011.

21 Item 387 of the Carbon Farming Initiative Amendment Act 2014 applies to native forest protection projects (within the meaning of the CFI Act 2011 prior to 13 December 2014) that existed before 13 December 2014 and for which the applicable methodology determination includes a provision for the calculation of a carbon dioxide equivalent net sequestration amount or became eligible offsets projects as a result of an ERF transitional application, is covered by the Carbon Credits (Carbon Farming Initiative) (Avoided Deforestation) Methodology Determination 2013, and that determination includes a provision for the calculation of a carbon dioxide equivalent net sequestration amount.

22 Items 386 and 387, Carbon Farming Initiative Amendment Act 2014.

23 Section 150, CFI Act 2011.

24 Section 19, ANREU Act 2011.

25 Section 150A, CFI Act 2011.

26 Section 158, CFI Act 2011.

27 This is subject to the operation of sections 50 and 51 of the CFI Act 2011, which deal with special native title accounts, and section 142 of the CFI Act 2011, which deals with nominee accounts.

28 Section 20B, CFI Act 2011.

29 Sections 20C and 20G,CFI Act 2011 and section 11, CFI Rule 2015

30 Subsection 20B(2), CFI Act 2011

31 The safeguard mechanism was legislated in Schedule 2 to the Carbon Farming Initiative Amendment Act 2014. Those amendments to the NGER Act commence on 1 July 2016.

32 Subsection 22XK(2) and section 22XN of the NGER Act, as in force from 1 July 2016.

33 Subsection 22XK(4) of the NGER Act, as in force from 1 July 2016.

34 Subsection 22NX(6) of the NGER Act, as in force from 1 July 2016.

35 Subsection 70(4), CFI Rule 2015.

36 Section 88, CFI Act 2011.

37 Section 88, CFI Act 2011.

38 Section 89, CFI Act 2011.

39 Sections 90 and 91, CFI Act 2011.

40 Section 176, CFI Act 2011.

41 Section 32(2), CFI Act 2011 and section 29, CFI Rule 2015.

42 Section 99, CFI Act 2011.

43 Regulation 28(4), ANREU Regulations 2011.

44 Section 64B, ANREU Act 2011. If the cancelled ACCU is a Kyoto ACCU, the Minister must direct the Regulator to transfer a Kyoto unit from a Commonwealth holding account to a voluntary cancellation account before the end of the true-up period for the relevant commitment period.

45 Subsection 11A(2), CFI Rule 2015.

46 Subsection 22XN(3) of the NGER Act as in force from 1 July 2016.

47 Sections 151-153, 156, CFI Act 2011.

48 Sections 151-153, CFI Act 2011.

49 Section 93, CFI Rule 2015.

50 Sections 28A-28D, ANREU Act 2011.

51 Section 764A(1)(ka), Corporations Act 2001; section 12BAA(7)(l), Australian Securities and Investments Commission Act 2001.

52 Paragraph 7.1.04(8)(c) and regulation 7.1.07J, Corporations Regulations 2001.

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

54 Section 38.590, A New Tax System (Goods and Services Tax) Act 1999.