Australia's Senate on Monday passed the world's first nationally regulated scheme governing the creation and trade in greenhouse gas offsets from agriculture and forestry projects that cut emissions or lock away carbon.
The government on March 24 introduced laws on the scheme, called the Carbon Farming Initiative (CFI), that aims to give the government and investors another way to cut emissions and source offsets that can be traded in Australia and overseas.
Key to the scheme's success is the government passing separate laws later this year that put a national price on carbon from top polluters, a step that will underpin demand for CFI offsets.
WHAT IS CARBON FARMING?
Agriculture and land use change, such as cutting down forests, counts for nearly a quarter of Australia's total greenhouse gas emissions each year.
The government is looking for ways to reduce this by creating a market for tradeable offsets that companies or other investors can buy to meet emissions reduction targets. Each offset represents a tonne of carbon dioxide-equivalent.
The scheme, regulated by the government, is meant to reward farmers or other investors for projects that reduce emissions or lock them away, such as planting large stands of trees that soak up carbon as they grow.
But under the rules, the projects can only earn carbon credits if the investment is additional to those that would occur normally, with the lure of revenue from credit sales making the project financially viable.
WHAT WILL IT COVER?
Activities include: reforestation, protection of native forests, curbing methane emissions from livestock, better fire management of savannah grasslands as well as capturing methane emissions from some landfills.
Excluded projects include those deemed to affect the availability of water, threaten the richness of plant and animal species in an area or might threaten jobs.
Managed investment schemes for forestry are also excluded.
HOW WILL IT WORK?
A government panel vets and approves the rules for each project activity and an agency administers the scheme's offset registry. A number of project types have already been approved: www.climatechange.gov.au/cfi
Successful projects will earn Australian carbon credit units, or ACCUs, that can either be traded domestically or overseas.
To underpin investor certainty, the initial crediting period for native forest protection is 20 years, 15 years for reforestation projects and 7 years for all other eligible offset projects.
WHO WILL BUY THE CREDITS?
Carbon credits generated under this scheme can be sold to companies or individuals and into a variety of markets.
ACCUs can be compliant under the U.N.'s Kyoto Protocol, depending on the project type. Or projects can sell non-Kyoto Australian units that can be used in the domestic voluntary carbon market to help firms meet carbon neutral goals.
Kyoto-compliant units can be converted into a credit that can be traded internationally and sold to companies or governments in some rich nations with Kyoto emissions targets.
WHAT WILL THEY COST?
That's still unclear. It will depend on the demand for offsets from certain types of projects and particularly on the price for carbon in Australia.
The government aims to launch a national carbon pricing scheme from July 1, 2012, with the price starting at A$23 a tonne before a switch to an emissions trading scheme for top polluters from mid-2015.
Some analysts expect ACCUs to closely track the national price on carbon emissions from power generators, smelters, refiners and others.
WHAT ARE THE MAIN CONCERNS?
The scheme is expected to start off slowly, with carbon tree plantations likely to attract the most investment initially, investors say.
Modeling by the Australian Treasury estimates the CFI will generate credits totaling 7 million tonnes of greenhouse gas reductions by 2020. ClimateWorks, a non-profit organization focusing on low-carbon growth, has calculated the CFI could reduce emissions by up to 41.5 million tonnes by 2020, mainly through greater investment in carbon tree plantations.
(Reporting by David Fogarty, Editing by Jonathan Thatcher)