The Emissions Reduction Fund: Storing Carbon
The Emissions Reduction Fund will support forestry, revegetation and soil carbon projects.
What are carbon storage projects?
Carbon storage projects (sometimes known as 'sequestration' projects) generate emissions reductions by removing carbon dioxide from the atmosphere and storing it as carbon in plants as they grow. Land managers can increase carbon stores in the landscape through reforestation, revegetation and increasing the organic content of soils.
How long do projects need to store carbon?
Proponents of new carbon storage projects can nominate a 100- or 25-year permanence period.
Carbon storage projects must be maintained for the duration of the permanence period or the credits issued for the project must be relinquished (handed back). Because of these obligations, mortgagees such as banks and lending institutions must consent to carbon storage projects.
Projects with a 25-year permanence period will be subject to a 20 per cent discount on the number of credits that would be issued to the project under a 100-year permanence period.
Owners of existing Carbon Farming Initiative (CFI) carbon storage projects can request to convert from a 100- to a 25-year permanence period. This request must be made within two years of the commencement of the Emissions Reduction Fund. If no request is made, the project remains a 100‑year project.
If Australian Carbon Credit Units have already been issued for a project, project owners that choose to move to a 25-year permanence period will have 90 days to give back credits to reflect the 20 per cent discount. Alternatively, the project owner can seek the Regulator's agreement to an alternative repayment schedule.
Once a proponent has chosen a permanence period for their project, this will remain the permanence period for the project and cannot be varied.
How can you opt out of these projects?
Project owners can cancel carbon storage projects and remove the carbon stores at any time by handing back the same number of credits that were issued to the project.
If credits have already been sold, replacement credits can be purchased from other Emissions Reduction Fund projects.
How will the 25-year permanence period support carbon storage projects?
The introduction of a 25-year permanence period will significantly reduce the amount of time before proponents can clear their land or reverse carbon stores without financial penalty.
After 25 years, owners of carbon storage projects will have full land use flexibility. This may make it easier for mortgagees to consent to projects.
In practice, many carbon storage projects are likely to continue at the end of the permanence period as they will still deliver benefits for natural resource management and agricultural productivity.
What happens if carbon stores are affected by natural events like bushfires?
Under existing CFI rules, a risk buffer of five per cent is applied to carbon storage projects, meaning that for every 100 tonnes of carbon stored by a project, 95 Australian Carbon Credit Units are issued.
The buffer means that a project owner does not have to relinquish (pay back) credits if carbon stores are lost because of natural events such as a bushfire. If carbon stores are lost, proponents will stop receiving credits until carbon stores recover.
Under the Emissions Reduction Fund, the 'risk of reversal' buffer will continue to apply to all existing and new carbon storage projects.
How long will carbon storage projects receive credits?
The Emissions Reduction Fund will credit projects for a single defined 'crediting period', during which the activity is eligible to generate Australian Carbon Credit Units. The crediting period for carbon storage projects will be 25 years.
How will the Emissions Reduction Fund facilitate the aggregation of carbon storage projects?
Under the CFI, a project owner is the person that is responsible for carrying out the project, has the legal right to carry out the project and, for carbon storage offsets projects, has the relevant carbon sequestration rights.
The requirement for the project proponent to hold a carbon right makes it difficult to aggregate projects across multiple properties. This is because the landowners may be unwilling to transfer property rights to the project owner.
The Emissions Reduction Fund will make it easier to aggregate projects by removing the requirement for the project owner to hold the relevant carbon sequestration rights.
For all types of projects, the project owner will be the person that is responsible for carrying out the project and has the legal right to do so.
Under the CFI, proponents must obtain the consent of anyone with an interest in the land before a project can be registered. This will remain a requirement under the Emissions Reduction Fund, applying to aggregated as well as other sequestration projects.
To provide flexibility, consents can be obtained after a project has been to auction and the proponent secures a contract. Credits will only be issued once all the necessary consents have been obtained.
Details about the Emissions Reduction Fund are available at:www.environment.gov.au/emissions-reduction-fund.
Note: While the Commonwealth has made reasonable efforts to ensure the accuracy, correctness or completeness of the material, the Commonwealth does not guarantee, and accepts no liability whatsoever arising from or connected to, the accuracy, reliability, currency or completeness of this material. Any references to the potential costs or benefits of undertaking an activity in accordance with an emissions reduction method are estimates only. This material is not a substitute for independent professional advice and entities should obtain professional advice suitable to their particular circumstances.