Carbon Farming Methods in 2024: passing the pen from Government to proponents

Since the inception of Australia’s Carbon Credit Units scheme (ACCU Scheme) in 2011, the Government has held the pen when it comes to deciding what carbon farming projects can be carried out and what boxes those projects must tick under the relevant methods to be eligible. Now, as we move into 2024, that’s all about to change.

The pen is passing to proponents as the Government embarks upon a new approach to method development which will give proponents the flexibility to propose new methods and change existing methods for crediting carbon abatement. In this alert, we take a look at what’s to come and the potential opportunities and concerns it presents.

Background

Australia’s ACCU Scheme supports carbon farming initiatives which prevent greenhouse gas emissions or remove them from the atmosphere. It is regulated under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CFI Act) and Carbon Credits (Carbon Farming Initiative) Rule 2015 (Cth) (CFI Rule). 

What we know so far about the proponent-led approach

According to the Discussion Paper, the proposed new proponent-led approach will allow any person (known as a Method Developer) to submit proposals to the Integrity Committee for ‘new methods’ and ‘modules’.

Method Developers could include industry stakeholders, carbon service providers, land managers, corporates, not-for-profits, First Nations parties, academics, experts, governments and other persons.

The Integrity Committee will be an independent expert committee tasked with assessing method integrity, including providing assurance that methods meet the Offsets Integrity Standards (OIS) under the CFI Act.

What are ‘new methods’ and ‘modules’?

A ‘new method’ is, as its name suggests, a new carbon farming method that does not already exist. There are currently 32 carbon crediting methods available for registration under the ACCU Scheme, and 2 methods under development by the Government:

A ‘module’ is a change to how an existing method or methods are implemented to account for regional or other circumstances, and these changes would be able to be approved by the Integrity Committee where the module meets the OIS. Currently, any changes to methods must be implemented as variations to the primary legislative instrument and therefore involve parliamentary scrutiny.

The proposed new modular approach is intended to make methods more adaptable to changing circumstances and technology advancements, and to foster innovation by the private sector, by allowing minor changes to methods (such as introducing a new way to undertake an activity or a new way to measure abatement) to be approved more easily. If the Integrity Committee considers an EOI for a module proposes a change that is too substantive, the change will still need to be progressed as a legislative method variation.

How will the proponent-led approach work?  

The process proposed in the Discussion Paper includes the following key steps.

The Discussion Paper acknowledges that method development is time and resource intensive and suggests possible ways in which the Department could assist Method Developers. This may include assistance with legislative drafting and liaising with other public officials, as well as advising on the policy landscape and ACCU Scheme more broadly.

Notably, at any time during the above process, Method Developers may choose to discontinue method development, or the Integrity Committee may require method development to be discontinued if new evidence indicates the method will not meet the OIS.

What about the ‘newness requirement’?

The CFI Act contains an ‘additionality test’ with a ‘newness requirement’, which operates to prevent projects from being registered under the ACCU Scheme if the project has already started prior to registration (unless a method contains requirements in lieu of the newness requirement).

By its very nature, the proponent-led process means that Method Developers are likely to be undertaking research and trials to test both productivity and emissions abatement of new technologies to inform the calculations to be used in a method, meaning a project may ‘start’ well before a method is approved or the project is registered.

The Discussion Paper suggests this issue may be overcome by:

• Method Developers including requirements in lieu of the newness requirement in their methods (assuming the ‘in lieu of’ requirements can be justified by evidence); and
• potential legislative reforms to clarify the application of the newness requirement going forward (e.g. reforms could allow a person to undertake research projects to inform a method’s development and undertake a project under that method in the future).

What does all of this mean and what happens next?

When will the proponent-led approach commence?

The proponent-led approach to method development has not yet commenced. First:

• the Integrity Committee needs to be established by legislative changes (which is not expected to occur until mid-2024); and
• the Government needs to further develop the process for the proponent-led approach, including in light of the submissions received on the Discussion Paper in 2023.

As the proponent-led process is further developed, it will become clearer what can be achieved through policy and administrative changes and what will require further legislative reform. However, the Government has indicated it expects the first EOI process for proponent-led method development to occur at some stage in 2024.

In the meantime, the Interim Framework:

• confirms the Government will continue to progress some work to maintain existing methods until the proponent-led approach is operational (including continuing to develop the 2 methods currently in development); and
• provides interim guidance to Method Developers on what may be required in an EOI to enable Method Developers to start preparatory work for new methods or modules (although confirms the Department can only offer limited support to Method Developers during this interim period).

Opportunities and concerns

The proposed proponent-led approach to carbon farming methods has the potential to make carbon farming more accessible (and potentially more profitable) to many, particularly as proponents could ‘package’ different methods and modules to create a more fit-for-purpose project that maximises the carbon abatement potential of a property (and therefore the number of ACCUs generated). The proposed new approach is also likely to lead to a more diverse range of carbon projects and help keep pace with new and emerging technologies for carbon abatement.

While proponents will gain more method flexibility when the Government passes the pen in 2024, they will also gain a heavy technical and administrative burden. Key concerns include:

• what level of information and evidence will ultimately be required at the EOI stage, as proponents may be reluctant to experiment with new methods or modules and invest in research and development if ACCUs may not eventuate;
• what support will the Government provide Method Developers, including specifically those who have sound proposals but may lack the resources to develop an EOI (such as First Nations parties, not-for-profit organisations or individual landholders); and
• exactly how will the Integrity Committee triage different EOIs and will methods and modules that are new, innovative and emerging be prioritised over those that are simple and easy with a strong evidence base.

We expect the above concerns will be further considered as the Government continues to develop the proponent-led approach. Ultimately, if the process for creating new methods does prove to be too time, cost or resource intensive for some, it may be that the modular approach (i.e. making minor tweaks to existing methods to be more fit-for-purpose) becomes the more popular pathway for proponents.

Will the new nature repair market adopt a proponent-led approach?

As discussed in our previous alert, the Government recently passed framework legislation for a ‘world-first’ nature repair market in Australia, which is expected to become operational later in 2024. This market is similar to, and intended to operate alongside, the carbon market, with a view to proponents being able to carry out projects that meet the requirements and reap the benefits of both markets.

As passed, the framework in the Nature Repair Act 2023 (Cth) contains a government-led approach to method development, with the Minister making methods on advice from the Nature Repair Committee and proponents unable to submit EOIs and drive method development. Further details about how the market will operate have not yet been released.

It is unclear at this stage whether the Government intends to further amend the nature repair framework to ensure consistency with the carbon reforms currently being implemented, including specifically the proponent-led approach to method development. If the nature repair market adopts this approach, we expect there will be more opportunity for proponents to create and design projects with unique carbon abatement and biodiversity co-benefits.

Next steps

Whether you are currently participating in the ACCU Scheme or not, we encourage you to monitor the development of the proponent-led approach to carbon farming (and whether the nature repair market follows suit) and consider how these opportunities may benefit you. This may include exploring potential new carbon abatement methods, or considering which of the existing methods you could ‘package’ and potentially ‘tweak’ to best suit your needs and achieve maximum carbon abatement, and whether there is potential for biodiversity co-benefits (such that a project could capitalise on both the carbon and nature repair markets).

Of course, each carbon farming method has associated risks which need to be considered and managed. We will explore key methods and risks in more detail in future alerts as the proponent-led approach continues to take form, as well as monitoring any changes to the nature repair method development process. Stay tuned.