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Submission in response to consultation paper:
Proposed new requirements for native vegetation regeneration projects
Background and context
This document sets out our views and comments in response to the Consultation Paper – Proposed amendments to the Carbon Credits (Carbon Farming Initiative) Rule 2015 relating to Emissions Reduction Fund native vegetation regeneration projects (the Consultation Paper).
Our organisation, which has been operating since 2014, services a wide range of clients, from farmers interested in operating carbon projects on their own land, through to large corporates seeking to cost-effectively mitigate their greenhouse gas emissions. Through these relationships, we are working with a variety of parties to identify, develop and manage Emissions Reduction Fund (ERF) projects, including of the type referenced in the Consultation Paper (Regeneration Projects).
Many of our senior personnel have been involved with the Carbon Farming Initiative since its inception, including through establishing and operating numerous Regeneration Projects, typically in instances where farmers elect to operate a Regeneration Project on their land alongside an ongoing agricultural enterprise. The views presented in this submission are, therefore, informed by many years of practical experience in working with farmers to successfully integrate Regeneration Projects into their broader agricultural enterprise.
This submission provides a general response to the proposed new requirements for Regeneration Projects, as well as responses to those questions specifically raised in the Consultation Paper.
GENERAL FEEDBACK
The basis for the Rule change is unsubstantiated
We, like many others in the farming and carbon industry that we have consulted on the proposed Rule change, are highly concerned that this change appears to be based on a relatively small set of localised opinions, rather than robust, balanced data and objective assessment.
For the Carbon Farming Initiative to remain credible, material Rule Changes such as that proposed in the Consultation Paper, need to be well informed (by actual data), objectively assessed, and supported by quantitative metrics and science to the extent possible. Such changes should also be with consideration of an appropriate stakeholder consultation process which, frankly, the Department has fallen well short of given its allowance of just five weeks for stakeholder feedback, timed to occur over the Christmas/New Year period, and with the consultation paper framed around the premise that the Rule change is necessary and appropriate (rather than calling for views on this).
The Department has provided nothing to substantiate the need for the proposed Rule change, which has significant impacts for the farming and carbon farming sectors, other than making a reference in the Consultation Paper to “Concerns have been raised”.
In light of these, we call on the Department to:
Fully detail the basis for the proposed Rule change, including the information that it is relying upon to enact the proposed change. This is critical to the transparency and integrity of the consultation process, as well as to ensuring that carbon market participants, including the many farmers and land owners already involved in operating Regeneration Projects on their land, can continue to have confidence that the Rules governing participation (and compliance) are only adjusted where there is a strong, credible case for doing so.
Collect further information around the impacts of Regeneration Projects, including consideration of the benefits derived from these by farmers through conducting a detailed survey of Regeneration Project participants. We note that the government has committed to funding a study in this area (“The impacts of carbon farming on south west Queensland Communities”) and it would be appropriate to consider the findings of that study (when concluded), or undertake alternate detailed assessments, before announcing a material Rule change that has such substantial impact for future Regeneration Project development.
Extend the consultation period and undertake a greater level of engagement with affected stakeholders including, for example, the many farmers who are already participating in Regeneration Projects.
We note that there is significant quantitative information available that suggests regional farmers consider that Regeneration Projects are beneficial to their agricultural enterprise. At drafting, approximately 360 Regeneration Projects are operating (ERF project register), the vast majority of which are situated within operating farms where the Regeneration Project is run in conjunction with traditional agriculture (typically grazing), suggesting that the farming sector sees considerable positive benefit in incorporating Regeneration Projects into their farming enterprise.
Most of these existing Regeneration Projects are associated with Carbon Abatement Contracts, which provide farms with an additional revenue stream that increases on-farm income generally, but critically, provides for a ‘drought-proof’ source of revenue that has been instrumental in supporting many farmers through the severe droughts of the past five years. Through our many conversations (and direct relationships) with regional farmers, we know that this additional revenue has enabled many farms to continue to maintain a level of agricultural production through periods of drought (which otherwise wouldn’t have been possible) through, for example, providing the financial resources required to pay for supplemental feeding in order to maintain grazing livestock.
These are important voices to be heard when considering the need for the proposed Rule change and we are highly concerned that the Department does not appear to have undertaken any level of consultation with existing Regeneration Project participants to appropriately consider their views prior to announcing the proposed Rule change.
The proposed timing of the application of the Rule change, so as to coincide with the date that the consultation process was commenced, is entirely inappropriate
Any change to the Rule should only be applicable following the conclusion of a robust consultation process, and publication of the actual Rule change. It is not appropriate to time the commencement of the Rule change from the date that the consultation was actually announced.
We note the Consultation Paper proposes that the Rule change would apply from the 10 December 2021, being the date at which the draft Rule amendments were actually released for the first time and the consultation process commenced. We further note that prior to the 10 December Consultation Paper, the only reference to a possible change to the Rule appears to have been an article in the Australian Newspaper.
It is not appropriate that the Department would seek to apply the Rule change retrospectively to the date of 10 December 2021 for a variety of reasons, including:
The consultation process is itself presumably intended to inform both the need for a Rule change, and the shape and form of the specific amendments to the drafting of the Rule (notably feedback on the latter is specifically requested by the Consultation Paper). Hence, it is not appropriate to begin to apply the Rule change until after the consultation process has concluded, at which point the Department will be in a position to clearly communicate to all stakeholders the consultation outcomes and the final drafting of any Rule amendments that are to be implemented.
It takes many months (as well as a significant financial investment) to investigate and develop a Regeneration Project to the point that it is at the stage of submitting an application to register an ERF project. In reality, the Rule change has an immediate impact on a number of recently developed projects (including projects developed by our own organisation) that submitted project registration applications in the days and weeks following 10 December 2021, which will have ‘in good faith’ invested in developing these projects to the point of application in advance of any appreciation that a Rule change was imminent. It is not a reasonable position for the Department to jeopardise this significant historic project development investment through setting the date of the Rule change as the very date that the details of the proposed rule change are released.
Following from the above, as well as the proposed Rule changes still being only in draft form, we also note that the details of the notification process, such as the guidelines relating to notifications, are themselves yet to be finalised. This places recent project applicants (i.e. applications lodged shortly after 0 Dec 2021) in the impossible position of potentially having to submit to the notification process identified in the Consultation Paper, but not yet knowing if these will actually be implemented as drafted, or possibly in quite a different form to that which appears in the Consultation Paper.
We consider that, where a robust consultation process confirms that a Rule change is actually appropriate, then the finalised set of changes needs to be communicated well in advance of implementation (and not, as is the currently case, coming into effect from the very date that a proposal to change the Rule is first announced).
At the very least, implementation should only follow conclusion of the consultation process and publication of the finalised drafting of the amended Rule. Preferably, however, the Department should consider allowing for a transition period so as to allow farmers, landholders and project developers to adjust to the Rule change since it represents such a significant shift in the market settings for Regeneration Projects. This would help ensure adequate preparation by all stakeholders (including government) for servicing the notification process proposed through the Rule change and minimising adverse financial impacts associated with the Rule change.
The proposed Rule change increases red-tape, reduces farmer access to the growing carbon economy and impacts the property rights of farmers and land owners
Minister Taylor and the Clean Energy Regulator have stated on a number of occasions their commitments to reducing “red tape” and promoting expanded participation in the ERF. Minister Taylor is, for example, widely reported as having committed $40 million over 10 years to “cut emissions red tape” (e.g. as reported in Canberra Times, 2 Oct 2020), as part of a response to the ‘King Review’ commissioned by Minister Taylor for the purpose of (among other things), identifying opportunities for increasing participation in the ERF. From the King Review, we note a series of recommendations accepted by the Commonwealth focusing on: reducing transaction costs for ERF Projects; allowing for a wider range of emissions reducing activities to participate in the ERF; and increasing incentives for participating in the ERF.
With respect to the farming and agricultural sector, we note that a number of representative organisations and peak bodies are calling for greater access to, and opportunities to benefit from, emissions reduction programs, such as the ERF. The National Farmers Federation of Australia, for example (media release, 14 Oct 2021) states:
“We urge the Government to go further and explore market-based solutions that connect farmers and their carbon sequestration capability.
Ongoing investments are needed by government to support the development of innovations and technology to allow farmers to take advantage of the opportunities for emission reduction within production agriculture.”
The proposed Rule change runs counter to all of these through:
introducing a further notification and approval process to the already lengthy project registration and Offset Reporting processes, clearly increasing “red tape” and the administrative overhead for farmers and land owners wishing to participate in the ERF;
increasing the uncertainty associated with developing Regeneration Projects and increasing the level of investment risk for farmers, land holders and project developers seeking to develop Regeneration Projects (thereby reducing their attractiveness as compared with other ERF project types, such as those in the mining, energy and transport sectors not subject to size limits per the proposed Rule change); and
applying a potential limit to the scale of Regeneration Projects possible within a farm, which in a number of cases (particularly for smaller farmers and land holders), will render Regeneration Projects financially unviable by virtue of the fixed costs associated with establishing and operating these Projects (i.e. the proposed Rule change impacts the economies of scale for Regeneration Projects).
The proposed Rule change particularly disadvantages smaller farmers and land owners
The Rule change can be expected to create particularly significant barriers to entry for small to medium sized farmers and land owners (farm size <6,000 ha). There are a number of fixed costs associated with operating Regeneration Projects, including for example in relation to audits, Offset Reporting and, to some extent, mapping and monitoring of Carbon Estimation Areas. Through these, for a Regeneration Project to be financially viable, the ACCU revenue potential of the Regeneration Project must be sufficient to at least offset these fixed costs (as well as the opportunity cost associated with the minimum 25 year permanence requirements for Regeneration Projects). Through linking the trigger for notification to the proportion of farm over which the project area is situated, we can expect that smaller land holders will more typically trigger the notification requirement (as compared with large land-holders) since for smaller farms, even a relatively small (and financially marginal) Regeneration Project may exceed the one-third of a farm trigger.
In the case where a scale related trigger for notification is considered by the Rule change, then we would recommend that the Department consider a minimum absolute project area threshold, such as 5,000 hectares, with only Regeneration Projects both exceeding this threshold, and a proportion of the total farm area threshold, triggering the notification requirement. In this way, the additional barriers to entry associated with the Rule change for small to medium sized farmers will be less pronounced.
The proposed Rule change sees private land owners disadvantaged as compared to large industrials and corporates
The Rule change proposes to introduce a mechanism that can be utilised to limit the scale of Regeneration Projects situated on private lands and, at the very least, increase the approvals requirements and administrative overhead associated with Regeneration Projects. We note that no such upper scale limits apply to any other ERF Project types that we are aware of (outside, perhaps, plantation-based projects), meaning that the proposed Rule change can be expected to reduce the attractiveness of Regeneration Projects (and increase barriers to entry) as compared with, for example, large-scale industrial and facility project types.
Through this, the proposed Rule change would seem to unfairly disadvantage private land owners, and graziers and cropping farmers in particular, as compared with corporate, energy, mining and transport sectors. We are of the firm view that farmers should be able to benefit from the carbon market on an equal footing with other sectors, and that the proposed Rule change will work against this.
Project area is not the appropriate metric for any scale based triggers, but instead Carbon Estimation Area is a more appropriate reflection of the scale of Regeneration Project activity
Current drafting proposes that Project Area, relative to the size of a ‘farm’, be used as the trigger for the proposed notification requirement. We consider that, if a scale related trigger is ultimately to be included in the rule Change (which we contest), then Carbon Estimation Area (CEA), being the land area over which the Regeneration Project is actively conducted, is a more appropriate metric to use.
As set out within the Regeneration Project methods, as well as various guidance published by the Clean Energy Regulator (CER) in relation to these, CEA boundaries within Project Areas may iterate over time depending on, for example: increasing refinement of boundary mapping through detailed on-ground surveys; feedback from in-field sampling data establishing progress toward forest potential and canopy cover thresholds; and the emergence, over time, of forest potential in areas not mapped as CEA at the original project registration application.
For these reasons, as well as administrative efficiency at time of project registration, the general practice has been to establish the project area boundaries as considerably larger than the CEA boundary. In many cases, it is the entirety of the land title boundary that is nominated as the project area boundary, thereby allowing flexibility around the locating of CEAs in the lead up to the first Offsets Report for the relevant project.
Through the above, it is noted that the vast majority of Regeneration Projects registered to date would exceed the proposed one-third by area cap, thereby triggering the notification requirement under the proposed Rule change, even though many of these will have CEA less than one-third of the total farm area.
In place of reference to Project Area, we strongly recommend that the Department consider instead referring to CEA, since that directly reflects the land area subject to the Regeneration Project activity. Administratively, this could be simply dealt with as follows:
the CERs project registration application process within the Client Portal is altered to include a question to the effect “Do you intend to establish CEA that will exceed one-third of the farm area?”
where the response is ‘yes’ to the above, then the applicant is directed to the notification requirement (and if no, proceed to finalise application)
Regeneration Projects that apply project activities consistent with increasing agricultural production should be exempt from the notification requirement
To the limited extent that the Department has outlined the case for a Rule change, we gather that part of the underlying premise is that Regeneration Projects may be detrimental to agricultural enterprise (a premise that we reject). If that is the case, then we note that Regeneration Projects can be based upon a variety of land management activities, a number of which are clearly beneficial to agricultural enterprise and the management of pests and weeds. The HIR Method, for example, notes the following as project activities that can be implemented within CEAs as project activities:
the management, in a humane manner, of feral animals; and
the management of plants that are not native to the project area (i.e. management of introduced weeds).
As the above activities are clearly aligned with maintaining, and even improving, agricultural production, we recommend that the Department consider that Regeneration Projects based on the above activities (at least, but potentially also where the above activities are combined with other eligible project activities) be excluded from the notification requirement on the basis that they are fundamentally favourable to agricultural production and ‘good neighbour’ objectives.
RESPONSES TO SPECIFIC QUESTIONS RAISED IN THE CONSULTATION PAPER
Are the rule amendments appropriately drafted?
As set out in preceding comments, we consider that the basis for the Rule change has not been appropriately considered, or communicated, by the Department and that, through these, it is inappropriate to make a Rule change of this materiality without a more detailed stakeholder consultation and objective review process.
Noting the above, many of our key issues with the proposed drafting are set out in earlier sections, summarised as:
The Rule amendment should only come into effect once the consultation process is concluded and the final drafting of the amended Rule is released. It is absolutely not appropriate or acceptable to financially disadvantage projects that were developed in good faith in the lead up to 10 December, by retrospectively applying the Rule changes back to that date (being the very date at which the consultation on a possible Rule change was announced).
Carbon Estimation Area, not Project Area, should be the applicable metric for any scale related notification triggers.
Projects based on certain project activities that are fundamentally favourable to agricultural production and good neighbour objectives (namely pest and introduced weed management) should be exempt from the notification requirement (at any scale).
A minimum scale threshold to trigger the notification should be set, and set much higher than 15 ha so as to avoid unfairly disadvantaging smaller farmers. To that end, we propose that any Regeneration Project smaller than 5,000 ha be exempt from the notification requirement.
Additional to the above, we note:
The drafting does not appear to explicitly state what occurs in the case where the Minister exceeds the specified timeframes for providing a response/decision. Drafting needs to explicitly establish that, in these instances, no adverse finding applies (i.e. if deadlines for the Minister are exceeded, the proposed project is immediately taken as being an allowable project and the registration application may continue to proceed in a timely fashion with the CER on that basis).
A lower bound of 15 ha is not appropriate, given that the apparent intent of the Rule change is to consider material adverse impacts for agriculture. A project area of just 15 ha is extremely unlikely to represent an adverse material impact in any context within Australian agricultural systems.
In relation to section (122) (3) & (4), we note that the drafting considers extended timeframes between the 10 December 2021 and “the commencement of the Amendment Rule”. This further highlights the flaw in applying the Rule change retrospectively to the 10 December 2021, since the Departments drafting in these areas suggests “the commencement of the Amendment Rule” occurs sometime after the 10 December 2021 (i.e. presumably at the point the Rule is actually formally amended, rather than the date the consultation process was announced), but elsewhere states it actually commences from that date.
Presumably these extended timeframes are also indicative of the Ministers office requiring some additional time to actually prepare to service the notification process, once again supporting a case to only apply any notification requirement at a date after the Rule amendments are formally in place, at a minimum, but sensibly also after appropriate guidelines for the notification process are available to applicants and the criteria by which the Minister may make an adverse finding are published.
What type of information would be useful to support the Ministers assessment of whether native forest regeneration projects would have adverse impacts on agriculture and the local community?
The basis upon which an adverse impact would be determined must be clearly documented, including clearly stating these within notification guidelines for applicants. It is not acceptable or appropriate that this is be left to just a ‘matter of opinion’ for the Minister.
In considering impact, consideration needs to be given to underlying farm condition, land degradation processes and farm financial viability in the ‘without Regeneration Project’ scenario. Notably, the approximately 360 Regeneration Projects that are already operating all align with Natural Resource Management Plans, review of this forming part of the existing project registration application process.
Through our practical experience delivering Regeneration Projects within farming enterprises, we are aware of many instances where revenue derived from Regeneration Projects has been used to improve on-farm infrastructure (such as fencing), maintain livestock herds (through funding supplemental feed during drought for example), undertake increased pest and week control (these forming the primary Regeneration Project activity in some instances), to pay for the re-building of livestock herd size (particularly following droughts), and to address serious land degradation issues that have a material adverse impact for agricultural systems, such as salination and erosion.
We also note that in many cases, farmers utilise their less agriculturally productive land (or areas that are particularly challenging to manage, due to access issues for example) for the purposes of the Regeneration Project. In these instances, revenue from the less agriculturally productive Regeneration Project areas can be used to help increase agricultural production in those areas of the farm retained exclusively for agriculture (rather than mixed ag-carbon within the Regeneration Project areas).
Through the above, it is clear that determining agricultural impact shall require detailed consideration of the specifics of each farm, the features of the Regeneration Project (including the project activities contemplated) and how the revenue associated with the Regeneration Project may influence the viability and operation of the overall agricultural enterprise. We contend that in the vast majority of instances, improving farm profitability through providing farmers access to an additional, drought-proof revenue stream in the form of a Regeneration Project, is highly favourable to ensuring long-term, sustainable agricultural production objectives are met when the farming enterprise is viewed in its entirety.
These factors also suggest that applying a simplistic area based threshold (potentially capturing projects as small as 16 ha) as set out in the draft Rule amendment, is a blunt instrument that does not necessarily have a strong link with overall farm enterprise productivity. In lieu of this, provided that the potential for adverse impact is actually supported by a robust data review and stakeholder consultation process, the Department might consider a more nuanced approach based on long-term farm enterprise productivity and profitability.
Identifying an appropriate approach will require greater stakeholder consultation than the Department is currently allowing for, but might take into consideration any actual adjustment to overall farm production expected from the Regeneration Project (noting these may be positive in many instances), the overall impact of proposed Regeneration Projects on total farm revenue/profitability, capacity to adapt traditional farm management practices so as to, for example, utilise ACCU sales proceeds to increase production in parts of the farm (or whole farm in some case), and the drought risk and land degradation mitigation opportunities afforded by the Regeneration Project.
How many projects would be affected by the proposed rule amendment?
We consider that almost all Regeneration Projects will be affected, based on the current drafting. Addressing some of the amendments we have set out here around the lower threshold (15 ha) and application of Carbon Estimation Area in place of project area would reduce impact, but nevertheless, will create uncertainty, increased risk and red-tape for many projects.
As a recent example, we have advanced five project registration applications in the past several months, all of which would be impacted by the notification requirement set out within the proposed Rule change.
We specifically wish to raise that one pending application is now seemingly at risk from the proposed back-dating of the Rule change to 10 December 2021. That project was developed over many months at considerable cost (and with no expectation at that time that the proposed Rule change would be announced), with the registration application finalised in a matter of a few days after the 10 December 2021.
We seek immediate clarification from the CER and Minister Taylors office as to how the above application is now going to be dealt with, given we are seemingly faced with a situation where the Rule change is back-dated to around the time of our application, but the Rule change is yet to even be finalised (including in relation to what may trigger a notification, what the finalised process for notifications is, and what information we should include with the notification). We also wish to communicate our intention to participate in the April 2022 ERF Auction in relation to this project and are highly concerned that our ability to do so will be jeopardised by the proposal to back-date the Rule change.
Are there any alternatives to manage unintended adverse impacts of ERF Projects on agricultural production and regional communities?
The premise that ERF Projects are having adverse impacts on agriculture and regional communities is yet to be established. As set out in earlier sections, the Department should conduct a more detailed stakeholder consultation process that firstly evaluates whether such claims have merit and, if so, what the key concerns are and what mechanisms may be best suited to dealing with these. As it stands, allowing just five weeks over the festive break for stakeholders to respond to a discussion paper of such limited scope is simply not appropriate to even confirming the basis for any rule change, let alone identifying appropriate mechanisms to deal with adverse impacts.
We note that the Department more typically undertakes detailed stakeholder consultations around Rule, Method and Guideline changes, which can include stakeholder feedback and workshop sessions capturing a diversity of views and collectively identifying practical solutions. The Method working groups, and stakeholder consultations around Regeneration Project guidelines, are good recent examples.
Given the Departments otherwise excellent track-record in stakeholder engagement, this recent approach, which has all the hall-marks of seeking to rush changes through with little real opportunity for feedback from those directly affected by the Rule change, is very disappointing and seriously damages confidence in the Departments commitment to transparency and meaningful stakeholder engagement.
How could the implementation of the new requirements best be monitored to inform their consideration in the governments five yearly reviews?
Given the impact that this Rule change will have, it is not appropriate that the review be left to ‘5 yearly intervals’, particularly since the proposed Rule change, should it come to pass as drafted, has been subject to such a minimal and rushed stakeholder engagement process.
If the proposed changes are enacted, we request that an initial independent review process be undertaken no later than six months after the Rule amendment is enacted, so as to ensure any adverse impacts may be quickly identified, considered and addressed.
