POWER, Mr Michael, Lawyer, Australian Network of Environmental Defenders Offices

RIVERS, Ms Nicola, Law Reform Director, Australian Network of Environmental Defenders Offices

[11:27]

CHAIR: Welcome. Thank you for appearing today. You have probably heard me go through the part about this being a legal proceeding of the parliament, so I will not go through that again. The committee has received your submission. I invite you to add to it or make an opening statement. Following that, we will ask questions. Who would like to go first?

Mr Power : I will. Thank you for the opportunity to speak here today. We are here today on behalf of the Australian Network of EDOs. There is an EDO in every state and territory, and each of them is an independent, not-for-profit community legal centre dedicated to practicing and promoting public-interest environmental law. Part of what we do there is law reform: environmental law reform and, in particular, climate change law reform, which is why we have been working on the CFI.

ANEDO takes the view that the land sector has a large amount of opportunity to not only reduce atmospheric carbon but also improve biodiversity and the environment and drive regional development. We welcome the government's move to drive all those things in this sector, but it is worth noting that there is more than one way to do that and, in choosing a voluntary offsets trading scheme, the government has chosen a particular way to do it which has a particular set of complexities, risks and problems. Now, in the interests of making this scheme work—and we do applaud the objectives of the scheme—we think it is important to manage those risks and to fix those problems. We have set out how to do that in our submission, but in broad outline there are really three things that we are interested in. The first is that the CFI is unlikely to work without a carbon price—you need a carbon price a well. That is not only to drive demand for offset credits but it is also to make sure that there is a net reduction in emissions across the whole economy.

The second thing that is important to ensure is that credits under the scheme represent genuine, real and additional carbon abatement. The scheme has gone some way to doing that, but it is not watertight and we think it could be improved. It is important to do that and it is important to proceed cautiously with a thing like the CFI, because if the credits under offset schemes do not represent real and genuine abatement it is important to understand that those offset credits allow someone else to pollute. Polluters can either reduce their own emissions or they can offset them, and if the offset does not represent real abatement then you could end up with a net increase in emissions. So if we do not get this right the CFI could undermine other climate laws, especially an emissions trading scheme.

The third thing that is important to do is to make sure that the CFI takes the opportunity to restore biodiversity and to achieve as many co-benefits in the land sector as possible. We think that there is a need for further incentives to make sure that projects which reduce carbon, improve biodiversity and help out communities are first cab off the rank, and we think the CFI needs to go further to make sure that projects under this scheme do no harm to the environment or communities.

That is a broad outline of how we think this scheme could be improved. If the government implements these, and if we move cautiously and carefully with the CFI, the CFI could unlock the great opportunities in the land sector and make this tricky mechanism work.

CHAIR: Thank you, Michael. Nicola, did you want to add anything to that?

Ms Rivers : No.

Ms BURKE: Thanks for the submission, because, funnily, I read it and understood what was going on. I was very appreciative of that at 2 o'clock last night! As members of parliament, we are not on top of everything—let's be broadly honest—so your submission really helped to clarify lots of things for me.

At the outset you say that the biggest problem is that by themselves carbon offset schemes are unable to guarantee net emission reductions, and because they are on a project-by-project basis you have some issues with the positive and negative list and say it should be project-by-project driven. Other people have huge issues if you do it project-by-project because it will be a bureaucratic nightmare and therefore it will never happen. Part of some of this stuff is to generate the change; as we have heard from the other witnesses, to get people on board to start doing things. Do you see some downturn also in doing it on a project-by-project basis? Is there a halfway house where we can actually have some of these schemes which, by themselves, are not going to reduce it hugely, but every little bit obviously is working towards our overall reduction level?

Mr Power : There are two issues there: one is that offset schemes like this one are inherently project-by-project, because you just have a farmer and a particular site for a particular project. That is really about the carbon leakage issue. The second thing is assessing additionality on a project-by-project basis.

Firstly, if carbon offset schemes are designed rightly they can make sure that this project—this forest carbon sink I have just created—reduces emissions. But because they work project-by-project, and because they do not impose a price across the economy, there is no way to ensure that those carbon reductions will not be cancelled out somewhere else. The great example that the department gave is reduced emissions from livestock. Let us say that a farmer reduces the emissions from livestock, or just reduces the amount of livestock they have to reduce emissions. There is nothing to say that another farmer will not see that gap in the market and just increase their amount of livestock. So to make sure that you have a net reduction in atmospheric carbon you need to have economy-wide measures, and you need a carbon price.

The second issue is assessing additionality, project-by-project; that is what the CFI has moved away from since the draft legislation, and that is what we would like to see back in there. The reason is because additionality is a key part of the successful offsets trading scheme, and the only way to really know that you have done it is to work it out project-by-project. Anything else is just a guess. The reason it is important is that essentially it is an accounting issue; because an offset credit here allows someone else to increase their emissions and legitimate it, it is important that that does, in fact, represent a new and additional abatement. Otherwise, you are essentially double counting. We appreciate that assessing project by project, whether this would not have happened in the absence of the CFI, is harder to do than to just deem them all to be additional, which is what the current test effectively does. It is harder. Because it is so important to the integrity of the scheme and to ensure that you do not have credits out there that do not represent genuine abatement, on the side of the tension between being very careful to make sure that the scheme has integrity and trying to encourage as much participation in the scheme as possible, ANEDO supports taking a more careful approach.

We will have to see exactly how much of a deterrent that will be. It might be that it means people do not want to get involved in the scheme; it might not be. Under the Kyoto protocol that is a case-by-case assessment and there are plenty of abatement projects under that. It is our position that, in the beginning at least, it is prudent to take a careful approach and then, in three years of the 2014 review, see how we go.

Ms BURKE: The question I have been asking everybody—it is the chicken and the egg—is whether you see we can go now or whether we need the carbon price to actually make this thing work.

Mr Power : You can go now, but to make it drive really big abatement and to make it really work you need a carbon price. If you go without a carbon price you are (a) unable to guarantee there are no emissions but (b) you essentially are putting in a detailed legal framework for the voluntary market that already exists. People are already doing these offset projects and selling offset credits to companies, but the price just is not very high. With a carbon price you generate much more demand for that and we start talking about serious abatement.

Ms Rivers : Initially, it is not a problem to not have the carbon price straightaway. Initially, it is useful to have this scheme because it does get people used to this kind of offset; it does get people used to carbon markets. At the start, it is probably going to be a slow uptake anyway, so I think that is okay, but for the longer term success you need a carbon price to come in within a couple of years.

Ms BURKE: The other point is that, in your introduction, you had the notion of polluter pays but if people can offset then the polluter is not paying. I suppose one of the great debates has been about all schemes, going back to the CPRS, the ETS—the notion that you can just buy a forest and therefore keep polluting. It is that overall abatement. At what point do we say it is all too hard and we are not going to do anything? You are damned if you do and you are damned if you don't. How do we actually address that to ensure that what we are doing is at the end of the day taking greenhouse gases out of our environment?

Mr Power : As Nicola said, there is no harm in putting this scheme in place and just taking a careful approach and getting that infrastructure there. To make sure that it does drive genuine abatement, you cannot rely on offsets alone. It is all well and good to plant a forest to offset the emissions for a polluting company, but at the end of the day you are going to have to reduce those emissions. So it is important that the CFI is part of a range of policies and laws that the government has to drive abatement all across the economy.

Ms HALL: From your answer, I need to understand the careful approach. Do you support putting in place the scheme as it is now as an initial step and then moving forward and looking at finetuning it further down the track or do you not support putting in place the scheme as it is now unless the projects are assessed on a case-by-case basis? I need to know your position there.

Mr Power : We have made a number of recommendations in our submission to tighten it up. If those changes are made, we will have a cautious approach and we think it is a good idea to put that cautious scheme in place. If it turns out that we are being too cautious and farmers are not taking up opportunities for projects under this scheme we can always come back two or three years later when we have to come back and say, 'We are a bit too careful; let's loosen up the controls a bit.' We submit that that is the appropriate approach.

Ms HALL: Do you agree with that?

Ms Rivers : It is a difficult question. Obviously we do have some concerns with the scheme as proposed at present but we also see that there is a lot of opportunity in it. Our preference would be that it is tightened up a bit in the ways that we have recommended. That would certainly be our preference.

Ms HALL: If it is not?

Ms Rivers : If it is not, it is a difficult question. The 2014 review is a good opportunity to tighten it up then, but our concerns around additionality would definitely remain if there were no changes to the legislation. That would be our strong preference, to make those three key changes.

CHAIR: Could I follow up a couple of the matters that you have touched on. Firstly, with respect to the carbon price, you say that a carbon price should start at a high point. Are you referring to the carbon price that is associated with the legislation separate to this legislation—that is, the carbon price bill?

Mr Power : Yes.

CHAIR: There was another question related to that, which eludes me right now. It crossed my mind when you speaking, but I will come back to it as soon as it comes to me. There has been concern expressed about the 100-year period under which people must be committed to and if not they have to find a way out of it by perhaps buying back credits. Do you have a view about that?

Mr Power : Yes, it is pretty consistent with what we have said already. We understand, from what people have told us, that there are some who are concerned about the 100-year obligation. But that is an obligation that is really important to ensure that these credits represent real abatement. We think it is important to put in a scheme that has as much environmental integrity as possible and make sure that they are permanent. Then if there is a problem we will revisit it later.

CHAIR: The question I was going to ask was this: Michael, you said earlier that you believed the take-up rate for this scheme would be very slow in the early stages and certainly until there is a carbon price in the market. If the carbon pricing legislation does not get through in the short term, do you have any suggestions as to how we could encourage more people to participate in the scheme?

Mr Power : It is tough, because the reason you need a carbon price is because people who are under an obligation to acquit permits under that carbon price would be probably the major market for these offset credits. There might be some other way to drive demand for these offset credits, in the voluntary market or in international markets. I do not know that at the moment. The other way to do it, which we have also put in our submission, is to provide other incentives for people to take on these projects.

One of the things that have been talked about a lot is opportunities to improve biodiversity and community co-benefits of this scheme. Those are co-benefits. This scheme is designed to reduce carbon, and it can do those other things as side effects but it is not designed to do them.

It is entirely possible and, we think, a good idea, to have other measures in place to support improving biodiversity and improving the general environment at the same time. So the government could put in an incentive mechanism, be it a fund or something else, to use a carrot policy to drive these projects that reduce carbon and improve the environment. That would be another alternative.

Ms Rivers : At the end of the day obviously it is an offset credit scheme and you need someone to want to buy the credits. Without a requirement to do that, there will be lower uptake. That is the way the scheme has been designed. That is the best outcome for the scheme: if someone needs to buy the credits and there is the market there, so creating the market is the best option.

CHAIR: In your submission I believe you also talk about placing a cap on the number of units that are available. Would you like to expand on that and why you believe that ought to be done?

Mr Power : The cap would not be on the number of units available under the CFI but on the amount of CFI credits that could be acquitted under a carbon price under an emissions trading scheme. That is just what Garnaut has recommended and a number of other groups have recommended. With a CFI, we really do not know how much uptake there will be. Some people think there will be too little; some people think there will be too much. If there is too much, you could have a situation where you get many more CFI credits than you thought and many more of them would be acquitted under the emissions trading scheme. That will have a number of bad effects. It means there will be more offsetting and less pollution reduction. It will also mean that polluters will not have to buy their credits from the government at auction, so it means there will be less revenue from the scheme. It will be a dire outcome.

The cap is like a fallback position. In the event that there are too many credits—and we just do not know this—it says that only four per cent of the credits emitted under the emissions trading scheme can be from offset schemes like the CFI. The four per cent was what Garnaut recommended. Something in that region might be something to consider.

Ms BURKE: In introducing this scheme as an incentivised scheme rather than a cap and trade scheme, do you think we could put this into other abatement areas or industry sectors? Have you thought that through or looked at it?

Mr Power : We have not thought about it in this submission but, generally speaking, incentive schemes are tricky. Our understanding of why they have been chosen for the land sector is that there are real policy barriers to imposing carbon pricing on the land sector. It is not easy. There are spread out sources of emissions and there are very small operators rather than big companies. This situation might be where you look to offsets. Generally speaking, we move closer to the polluter pays principle.

Ms BURKE: The notion of a market versus picking winners—and I am asking you a politically loaded question, I realise this, and you have walked into my trap—is one of the basic arguments out there. Do we go with schemes that the government pays or do we go to a market based mechanism for the reductions? At the end of the day, this bill is about reducing emissions.

Ms Rivers : We see benefits from different approaches in different areas. There are a lot of areas where we would not support a market based instrument. We say there should be direct regulation or a government-pays system. It depends on the particular situation and in many cases we do not think a market based instrument would work. In the broader climate change area, we think an emissions trading scheme is probably the best option for Australia.

Ms BURKE: One of the earlier proposals was to leave agriculture out of it. It is too hard, the data is too difficult to collect, there are too many cows and all that sort of stuff—it is all been run before. From your perspective, do you think we should leave it alone and that agriculture is too hard, or is it such an important part that it should be in?

Mr Power : No, you cannot leave it alone. It is a big chunk of the emissions. It is an opportunity to drive abatement , improve the environment and drive regional development. That is not to say this is the only thing you should do. We recommend that the government explore other options for pricing pollution in this sector. We have also recommended that the government explore ways of otherwise incentivising measures to reduce carbon and improve the environment in this area. With this sector ,and I suspect with a lot of other sectors, the appropriate approach is to get a number of different tools coming at the same problem from different angles, each of which have their own strengths and weaknesses.

In our submission we said that, as a general principle and in environmental law, when it comes to reducing carbon that the polluter should pay. We said that particularly when it comes to things like avoided deforestation. If you have a choice between paying someone not to pollute and imposing a penalty on them for polluting, the way that governments usually work and what good public policy does is to impose a penalty on them for the cost of their pollution.

Dr WASHER: I think this amounts to greater than 20 per cent of our total emissions.

Mr Power : It could well be.

Dr WASHER: So it is a significant thing we would need to engage in—just to reinforce that.

Mr Power : Yes.

Ms HALL: As has already been said, this is a voluntary scheme and it is the scheme that will operate in an area where there is probably a reasonable amount of resistance to the need for action to change behaviour. You also referred to the fact that uptake is problematical, whether or not there will be a large uptake or a small uptake. Do you think that the nature of a voluntary scheme will achieve this? Do you think that the appropriate incentives for people working in the agricultural sector are included in this? If not, what do you think needs to be added?

Mr Power : The short answer is: we just do not know. That is for two reasons: first of all, because we are not experts in economics and we cannot do the sort of business modelling that is needed to really answer that question; and, secondly, because no-one really knows what the uptake is going to be like. You can model as much as you like, but essentially we have just got a series of educated guesses. That is why there are differing views on this scheme I think: some think that the market is going to be flooded and some think it is not going to be taken up enough at all. We just do not know. That is why we take the approach that you should put in place a scheme with as much environmental integrity and as much safeguards as possible and see what the response in the market is and then recalibrate as necessary in the 2014 review.

Ms Rivers : As I think a few other people have mentioned, one of the keys will be assisting people to actually get involved in this. We have had farmers ring and say that they want to get involved in the scheme and ask what it is all about. The level of detail at the moment is too complex for a lot of people to get their heads around. Having Landcare groups and NRM bodies resourced to assist people is going to be crucial. It would be ridiculous for everybody to have to know all the detail of this scheme just to get involved in it. They will need a lot of assistance to do that. I think that is a really important part and will have a big impact on whether it is actually taken up or not and how many barriers there are.

Ms HALL: So that is improving the carbon literacy?

Ms Rivers : Yes.

Ms HALL: Are you saying that the language needs to be more simple and engagement with the sector needs to be a high priority?

Ms Rivers : Yes, I think it does. To encourage people to take on these projects there will need to be a mediator to assist—something between this legislation and the farmer trying to do the offsetting projects—in most cases, but not in all cases. Some landholders are very skilled at doing these kinds of projects. The people we have spoken to have incredible carbon literacy already, but this is the next step. Having Landcare groups and NRM groups resourced to help people and aggregate projects so people do not have to know all the fine detail themselves is very important.

Ms HALL: They are the groups that you would see taking on that mediating role?

Ms Rivers : I think so. They already have established roles, networks and experience in these areas. There will be other groups that can provide services, but they are the key ones at this stage I would say.

Mr Power : We have spoken to quite a few landholders and people in the sector who do know a lot about this but I would hazard to guess that they are the minority. To make this market work and to drive uptake, I think serious resources need to be committed to improving carbon literacy and engaging people in the land sector with the scheme.

Ms HALL: So you see that as a key element in the success of this?

Mr Power : As much as we would like this to be simpler, it is complex stuff.

CHAIR: When you say 'landholders' are you referring to farmers or other groups?

Mr Power : Really anybody who might be able to have an offset project under the scheme.

CHAIR: No, who you have spoken to.

Mr Power : We hold seminars regularly and provide information to people who call us up and want to know more about laws like this one. We have spoken to a number of farmers and a couple of people in companies who do these sorts of offset projects. I think it is the farmers who really need the help because they do not have the resources and the expertise that the companies do. People in catchment management authorities as well might need a bit of help.

CHAIR: As there are no other questions, thank you both very much for appearing before the committee today. A draft transcript of today's proceedings will be made available to you. If there are any changes you believe should be made to that could you please advise the secretariat.

Ms Rivers : Thank you for inviting us.

Dr WASHER: It was a great submission, by the way.

Ms HALL: It was, and its recommendations were fantastic.

Mr Power : Thank you.

STRELEIN, Dr Lisa, Director of Research, Indigenous Country and Governance, Australian Institute of Aboriginal and Torres Strait Islander Studies

[11:55]

CHAIR: I welcome Dr Lisa Strelein from the Australian Institute of Aboriginal and Torres Strait Islander Studies. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceedings of the parliament and warrants the same respect as proceedings of the House itself. The giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The committee has received your submission, which is submission No. 52. Would you like to make any changes to it or would you like to make an opening statement and then proceed to a general discussion with the committee?

Dr Strelein : Given that we are about to launch into native title, I thought I might give a brief introduction to settle us all in. Before I start I would like to acknowledge the traditional owners of the place in which we meet and pay our respects to their ancestors and their elders. I would also like to offer the apologies of my chairperson, Professor Mick Dodson. He has left it to me and my colleagues to get across the carbon legislation, but I know there are a couple of things he would want me to begin with in relation to the interaction of native title with any legislative framework that is being introduced by the Australian parliament.

I will start with the recognition of native title in 1992. It is important to remember that that was recognised on the basis of nondiscrimination and equality before the law, and it is those principles that we seek to see reflected in any legislation that may be seen to affect native title or Indigenous people's rights and interests in land. In the Mabo decision the court proposed a very prescient question, which was how much the Australian law is prepared to accommodate Indigenous people's interest in land, as opposed to extinguishing or suppressing Indigenous people's interest in land, once it is recognised. It is really interesting to go through a process of introducing a new system of recognition of rights, as with this carbon farming legislation, and see how that has played out in terms of whether it accommodates or suppresses Indigenous people's interest in land. I think the drafters have done a pretty good job in taking native title seriously and trying to give it equal respect with other interests in land. That being said, I think there are a couple of things that could be improved with the legislation to make sure that it is consistent with the Native Title Act and the framework of that act but also that it does not build on some of the discriminatory aspects of native title where we have had to make pragmatic compromises in the Native Title Act to make sure that we can reconcile and have coexistence of rights and interests. There are a lot of compromises within the Native Title Act to make that happen, but they do not necessarily have to carry through into new pieces of legislation and rights and interests. I thought I would bring those things to your attention.

There are three ways in which native title interests can be accommodated within the act. One is through the deeming of exclusive possession of native title holders to have the rights to the commercial and economic benefits of dealing with carbon emissions. They have suggested that that should apply only to exclusive possession of native title because it is most obviously equivalent to freehold rights. I think that is logical. There is also a suggestion that native title holders could benefit from the legislation on the basis of right—that is, if their native title rights and interests suggest that they have the right to benefit from carbon, they will be able to establish that as a matter of right, potentially through the courts if necessary. The other is through the Indigenous land use agreements process, and that particularly applies to non-exclusive native title, which would be where native title exists concurrently with other interests, such as pastoral and mining interests and some Crown interests—for example, in relation to the joint management of national parks—and any other eligible interests.

We have sent this material out to our networks of native title interest holders and PBCs. I think there is a general feeling that there is potential for economic benefit for native title holders through emissions, particularly through sequestration abatement projects, and so there is a lot of enthusiasm for making sure that native title works with this legislation. As we know, the opportunities for economic and commercial benefit for native title are often limited, so it is important to make the most of those opportunities when they arise. We have recommended elsewhere before this parliament that there may be some benefit to clarifying in the Native Title Act, rather than leaving it up to legislation like this, that exclusive possession native title does include economic and commercial rights, regardless of what traditional law might say, and that if you have exclusive possession, then, just like any freeholder, you have the right to do anything with your land subject to any regulation by the Crown. That may have assisted the drafters in drafting this legislation.

One of the important points in assessing how the proposed legislation works for the Native Title Act is in looking at what are wrongheaded assumptions, which comes with the turf when you are dealing with native title. The other area we are working on is the interaction between tax law and native title. When you bring two complex pieces of legislation together you are bound to get interpretation issues. One of the things we think needs to be changed in the act is the drawing of an analogy between non-exclusive native title and licences; we think that is inappropriate—in fact non-exclusive native title should be seen as exclusive native title minus any rights and interests that have been recognised in someone else. For example, when we look at the coexistence of native title on pastoral leases, we look at the rights and interests that the pastoral leases have under legislation. We compare that to the rights and interests that native title holders have, and where they conflict, native title gives way, but only where they conflict. So it is important conceptually to think of native title as 'exclusive possession minus'.

CHAIR: May I interrupt you there, Dr Strelein. I understand that Mr Thomson has now joined us—welcome back. Mr Thomson, Dr Strelein, who is the Director, Research, Indigenous Country and Governance with the Australian Institute of Aboriginal and Torres Strait Islander Studies Group, is appearing before us right now. Please continue, Dr Strelein.

Dr Strelein : In relation to my point about the impact of legislation on native title it is also important to remember some of the first principles of native title law, which are that, if legislation is going to impact on native title, particularly if it extinguishes any rights and interests, that has to be established through clear and plain intention. It is very clear from this legislation that there is no clear and plain intention to have any impact on native title. So we need to look for unintended impacts because what we have seen in native title law is that, if there is a necessary implication, there is no doubt that the way in which we have structured the law is that native title will yield. We need to be very careful and keep in mind that native title as we have designed it has become quite vulnerable, so we need to be careful about unintended consequences and make sure that they are really well thought through. There are two final points that I would make. One is that we think there is a fundamental problem with not recognising native title that is claimed, particularly registered claims. At the moment the definition of native title land is limited to where a determination has been made. That is actually incorrect and would be inconsistent with the law. Basically, native title is a common law right, recognised through the common law; it exists regardless of whether the Crown recognises it or not. What we have done through the Native Title Act is provide a process for trying to get through the recognition process and actually find out where native title exists. But the important point to make is that where it does exist it has always existed, so that we do not have to wait until a determination. That is why we have the registration process, so we have registered claims.

Once you make a claim, then the Crown should be on notice that you are claiming you have native title rights and interests, and that should be dealt with as if native title exists until proved otherwise. There are processes in the Native Title Act so that if somebody objects to that they can make a non-claimant application, they can force the issue. But at the moment we have quite a detailed process for dealing with registered native title claims. We knock out some at the start—we have a reasonably robust registration process to make sure there is a prima facie case. So it is important that we recognise that native title claimants, where they have registered claims, have a legitimate right to be included in this program. I understand that it might not be appropriate to have the full benefits of perhaps the deeming provisions, but certainly access to an ILUA process. Claimants and proponents and the Crown are used to entering into ILUAs during that claim stage and there is no reason why that could not be factored into this scheme.

My last point is in relation to eligible interests. I think it is important that native title be recognised as an eligible interest. At the moment it is recognised in part by saying that the Crown does not have an eligible interest where native title holders have exclusive possession. I think that is right. They would have to enter into an agreement as a proponent with the exclusive possession native title holders. But what it does not say is that where non-exclusive possession native title exists—for example, over a pastoral lease or over crown land or over a mining lease—it does not include them in the list of eligible interests along with Torrens title holders. I would suggest that that might be in contravention of the Racial Discrimination Act: they should be treated as any other interest holder under that. What that means is that they would have to give their consent.

One of the difficulties is that in some of these instances it may not constitute a future act under the Native Title Act, particularly where, for example, it is in relation to a pastoral lease. The Native Title Act was amended in 1998 to ensure that pastoral leaseholders could expand their operations into new areas that are not necessarily provided for in their original lease agreements or under the pastoral lease legislation. We would suggest that it is important when native title has been recognised that pastoral leaseholders should at least enter into an agreement, whether that requires a change to the Native Title Act to make carbon projects future acts, and you could have a lower that consent benchmark, or whether they are listed as an eligible interest holder and thus provide consent. I think that would be consistent with the treatment for other interests holders.

Finally, there is a proposal for a consultation regime under the carbon legislation that mirrors the Native Title Act process. I would suggest there is probably no need for that. I think to actually link it to the Native Title Act would be more sensible, otherwise you could have unintended inconsistencies in the treatment. That is my considered opinion, and I am happy to discuss any of those issues with you.

CHAIR: Thank you very much for that very in-depth submission. I will turn to committee members for questions.

Ms BURKE: This situation has, I suspect, arisen elsewhere. How has this issue of native title and benefits for other schemes and other buy ins been handled? Are there other examples that you can give us of how legislation has interacted with native title and the economic benefits have flowed on? Obviously, if you have looked at amending the Native Title Act, this has arisen. Where has it arisen and what can we learn from that?

Dr. Strelein : There have been a couple of instances. One was the changes to the Native Title Act in relation to pastoral leases in 1998. That was criticised by the Committee on the Elimination of Racial Discrimination because it tried to anticipate conflict between the act and the wishes of pastoralists who wanted to enter into new areas of activity by automatically suppressing native title rather than through promoting an agreements process. I do not think that the environment is the same anymore. That kind of pre-emptive action is not needed. Agreement making is much more common and much more of an accepted practice across the native title sector these days.

Another example where you get into complications if you do not treat native title as holding economic rights is the debate that we are involved in relation to wild rivers in Queensland. Regardless of which side you fall on, the issue there is in relation to what constitutes a future act and what constitutes a native title right. Arguments about whether restricting Indigenous people's right to carry on economic activity is having an impact on their native title. If we are saying on the one hand that we want Indigenous people to use their native title to build their economic base and to build the regional economies that they live in but at the same time we consistently produce legislation that limits those opportunities then we are putting Indigenous people in a double bind.

Ms BURKE: Through a market mechanism, which this will end up being, how do you deal with things when there is a recognised native title or when it is understood under law that native title exists over some of it but it has not been recognised in a court proceedings? There are two things. Under a market mechanism, if you are the owner of a title it is your land. If you do something, you can go to the market and get recognition. You are the title holder. In a native title situation there might not be one person; there are lots of people; there are community groups. All those issues have to be dealt with. In a practical sense, could you see how it would need to be worked through? Would there need to be another body to deal with, given the already complicated nature of it? I am not dismissing it; what you are raising is vital. But how would we ensure that the economic benefit is realised and not lost in a maze that is all too hard.

Dr. Strelein : When you are talking about native title that has not yet been recognised, that is a registered claim for native title. It is important to recognise that that is not necessarily stalling on the Indigenous people's part.

Ms BURKE: I would not say that.

Dr. Strelein : It is not as if we can just fix that by getting a determination. Determinations can take up to 10 years or more. We cannot fix it by saying, 'Let's just get a determination made.' Nor could we fix it by having a non-claimant application trying to force the issue. Both this and the previous Australian governments have been pushing native title determinations by agreement. It is important not to push litigation. That is not what we want. Recognising that we are going to have claims, the future act process provides a really well-established process to lock into, particularly through the ILUA process. The crown would most likely be the entity objecting to Indigenous people having rights over carbon. So if they have to enter into an agreement if they want to enter the carbon market then that is something that should be able to be accommodated within the native title process.

Ms BURKE: On something that is a bit outside what you have put, the Indigenous communities getting involved in some of these projects, I would have thought that they would be in the best position to do so. They are that custodians of the land; they understand our country better than any of us. I must admit that I have not read all of the submissions. How could we engage that group, which I think we have left out of this process. We talk to farmers; we talk to environmental defenders. But what about the Indigenous communities that may have projects to bring forward? How do we engage with them? It is there country. Are there mechanisms to ensure that we get the best of their knowledge?

Dr Strelein : There are, and there is a structure within the native title and land rights sectors that can be consulted. It just tends to be missed out or sometimes treated as a legal issue: 'How does it work with the Native Title Act' but not 'How can we make it work for people who want to do stuff?' That being said, we run an annual conference with over 700 people who come. We have had carbon on the program for the last four years or so. There is a research project going on as part of the department's program which engages with a couple of the Indigenous communities. One in particular is the Gunditj Mirring PBC and they have put a submission in that would be worth having a look at. They have non-exclusive native title in south-west Victoria. Their experience is practical and they are very experienced. They have Indigenous protected areas, ILC land and their non-exclusive native title. I think there are about 13 ILUAs that sit under the Gunditjmara consent determination. They have used every mechanism, so they are experienced in dealing with these things. It is certainly worth looking at their submission.

There are also Indigenous people's experiences in the pastoral industry that tie into this; there are a lot of ILC properties that would tie into this. As you said, the consistency with Caring for our Country and that sense of wanting to care for country is a really poignant point of interaction for native title groups in this program.

Dr WASHER: How effective are the land councils? Surely they would handle this issue pretty well for people. What is your faith in some of these land councils to address this issue on behalf of native people?

Dr Strelein : There is certainly the expertise and the willingness. There is a problem with resourcing native title, particularly in land councils that are native title representative bodies or native title service providers. They have very strict grant conditions on what they are allowed to do with their money. Successive governments have prioritised funding the resolution of native title. There is still no dedicated funding in the budget for prescribed bodies corporate. So for native groups who have their native title there is no funding for them.

One of the projects we are doing is to look for opportunities, and that is where we come to this, under various other programs. So there are limitations based on capacity and resourcing. That being said, a number of the representative bodies also have land and sea management units that are funded through Caring for our Country programs. They look at the post-determination: once you have gone through the process of getting native title, what do you do with your land then?

Certainly a number of the land councils have that land and sea management capacity, and they are also building up through things like ranger programs. As I said, a lot of their experience in the pastoral industry will feed into their ability to take up these opportunities. There are a few. My colleagues tell me Kowanyama is an example. There is also the north-east Arnhem Land fire abatement project that has been going for years. There are a few examples and there is also enthusiasm.

Mr KELVIN THOMSON: There is no doubt that people have differing expectations of how land is going to be managed pursuant to native title or the Indigenous land use agreements. Some people will have an expectation that land will be managed with the priority being accorded to looking after the environmental values—a Wilderness Society-type of perspective—and then you will have an alternative perspective that managing land will be all about maximising the economic value of it, such as mining, agriculture and other uses. What is your sense of how these differing expectations are being played out in the areas that you study and do you think that this legislation will have any influence on that sort of debate or conflict?

Dr Strelein : The land use discussion, I guess, is one that confronts society in general. Native title holders are not like any other landholder. They should be treated equally but they hold themselves to particular expectations and responsibilities under traditional law and custom. The land that they have native title over cannot necessarily be replaced by a plot on the other side of the country. There are different expectations around caring for country in particular. But, at the same time, we have been doing a study over the last four or five years looking at the prescribed bodies corporate around the country and what their expectations and aspirations are. All of them talk about economic development for their community as well as caring for their country. They are trying to find ways to be able to do both of those things. A lot of the native title holdings around the country are quite large, so there are opportunities to do both. A lot of people have been forced into thinking really hard about economic development, because, as you know, under native title if the crown agrees to a proponent going ahead with, for example, a gas hub then they do not have a choice to say no. There is no right to veto under the Native Title Act; they must negotiate to an outcome, otherwise it is almost guaranteed that the proposal will go ahead anyway. So engaging in that economic development question sometimes is a forced issue, but for most of them it is an aspiration right from the start to find ways of building opportunities for economic development and caring for country. That is why proposals that can look at doing both are so important.

Mr KELVIN THOMSON: Does this legislation have any particular bearing on those issues?

Dr Strelein : It does in the sense that any legislation that seeks to define the allocation of rights and interests within the property law system is always going to have an impact on those kinds of debates about who gets the right to make decisions about land use and whether, as a society, we respect Indigenous people's ability to make decisions about their country. Often we are not prepared to do that, but I think that that is more out of fear than any proven irresponsibility on the native title holders' part.

Ms HALL: Will there be any conflict between state laws, the native title/Mabo legislation and this legislation? How will that all come together to work?

Dr Strelein : The states at the moment are grappling with the idea of native title land not being theirs. Most states still call exclusive possession native title land 'unallocated crown land'. They still deal with it as if it is theirs to deal with when they need it.

Ms HALL: And claims last 20, 30—

Dr Strelein : Even once you have got a determination through and have exclusive possession native title, on the map it will still say 'unallocated crown land' or 'vacant crown land'. So we still have not made that mental adjustment to 'Actually somebody owns this now.'

Ms BURKE: The title has not been issued.

Dr Strelein : The title has been recognised.

Ms BURKE: But there is no bit of paper like we have all got sitting in some bank somewhere.

Dr Strelein : There is nothing on Torrens. Native title does not get registered on Torrens, for example. A couple of the governments have started notating native title determinations on the Torrens register. Crown land legislation, we know from the law, does not impact on native title, and native title holders are allowed to make decisions. Questions around who manages crown land are still being played out. Particularly over areas of conservation estates and things like that, it comes into sharp relief. So the crown may have different views about who is entitled to the benefits of carbon. In terms of inconsistencies with legislation, everyone knows that the Commonwealth Native Title Act takes precedence, so in that sense there should not be—

Ms HALL: So it should not be too much of a problem.

Dr Strelein : If the states are introducing their own bits of legislation they will have to be consistent with the Native Title Act. If this legislation is consistent with the Native Title Act then the Native Title Act will play the section 109 constitutional role of creating consistency with the state legislation.

Ms HALL: I see there has been another submission and it is from the Gunditj, traditional owners in Western Victoria. They request that the three bills provide, 'adequate and engaging status to native title holders as having rights and interests in carbon and other similar projects facilitated on the crown land' where native title is recognised and similar recognition to 'holders of Aboriginal title under the Traditional Owners Settlement Act 2010 (Vic)'. I suppose that really is in line with what you are saying, is it not?

Dr Strelein : Yes, particularly from Gunditj Mirring's perspective. As I said, they have a lot of proposals that are consistent with this kind of activity. They have been part of the research program of the department so they understand that they want to get into this. They want to have sequestration of forests. I do not know whether they have cattle stations. They have an interest. But they went through an incredibly difficult process in getting their consent determination through in Victoria, as you can imagine. It was hard work on the part of the courts, the tribunal and the state, and this was not contemplated. So what do they do now? They cannot go back and renegotiate all of those ILUAs. They would have to go through a process of re-recognition of the ILUAs. Finding ways in which their avenues are not cut off, I guess, is important, whether through the regulations or through further consultation. Those issues are a good case study to work through.

Ms HALL: The National Native Title Council gave evidence to the Senate. Their evidence seems to be generally supportive of the legislation and embraces it as an opportunity, which really supports what you have been saying. I am wondering what the general level of carbon literacy is within Indigenous communities, what education has been given to communities so that they can understand the advantages of this and whether there is a role for government to play in its promotion.

Dr Strelein : As I said, we have included sessions on carbon in our national conference every year for the last three or four years-four years including this one, coming up in June-including workshops with the department, looking particularly at sequestration et cetera. We have an email list of all the prescribed bodies corporate that we have been sending information to. The department itself has been trying to access those networks. I think that carbon literacy is probably pretty good. Certainly, the capacity to take up this literature and these opportunities is relatively high given the Caring for our Country experience, the pastoral experience and the agreement-making experience. The ILUA experience is incredibly important in terms of agreement making more generally. In that sense, the capacity to have take-up could be relatively high and worth investing in.

Ms HALL: Maybe the literacy in your communities is better than some of those others that we have been dealing with.

Dr Strelein : It may well be that they are looking for opportunities like this.

Ms HALL: I note the four points you made in your submission that you see would be beneficial or would enhance the legislation, but are you generally supportive of the legislation?

Dr Strelein : As I said in our submission, I am pleased to the extent to which the drafting tried to accommodate native title rather than suppress it or shift it out of the way. We often get the idea that you need to replace native title with something more familiar, and I think it is about time we started adjusting ourselves rather than getting Indigenous people to adjust. I think this is a good attempt at doing that with those few provisos that we put on it.

CHAIR: Dr Strelein, I understand that the government has proposed to continue consultations and discussions with Indigenous communities in respect of many of the matters that you have touched on today. How do you feel about that process and what is being proposed?

Dr Strelein : It is imperative. At the moment they have really only touched on getting information out and not getting information from. Often the mistake that is made in consultations is going out there and selling something that is already done rather than, as I said, learning from people that have got experience in these areas about how to make the fit work. There are structures for doing that and it is important that that does not get limited to going to capital cities. You will not be getting to the right people if you are going to do that. The consultations must get out into the regions where the take-up is going to be the highest.

CHAIR: Thank you. I think we have just about run out of time. I thank you for appearing before the committee today. You will be provided with a draft copy of the transcript of today's proceedings. If there are any changes that should be made to that draft, please advise the secretariat.

Dr Strelein : If there is any further information I am researching that you can use, let me know.

Proceedings suspended from 12 : 31 to 13 : 19

BALSARINI, Mr Peter James, Chief Executive Officer, Carbon Conscious Ltd

CHAIR: Welcome. Thank you for coming along today. Although the committee does not require you to give evidence under oath, I should advise you that the hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House itself. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. Would you like to add to the submission which you have already made to the committee or make an opening statement and then we will open it up for discussion and questions?

Mr Balsarini : I would like to make some opening statements and thank the committee for having this opportunity to talk to them today. I propose to give a little bit of background about the company. I will not go into that ad nauseam, it is quite a detailed position, but I think it does provide some context about our position on the carbon farming issue. I will then talk broadly to some of the positions on the Carbon Farming Initiative. One of the things that our organisation was particularly conscious of when we put this submission together was to try and make it as brief as possible and allow for some of those details to be fleshed out in discussion. That is certainly the position of the paper. Towards the end of my presentation I would like to make a couple of additional comments that relate to some things that have not been touched on. I welcome any questions along the way.

In terms of the business history, we are a listed company on the Australian Stock Exchange. We listed in early 2008. The origin of the business related effectively to November 2007. I got the call the day after the Labor government came to power suggesting that there was a business model around carbon sequestration. Broadly, the business model is around a native mallee eucalypt model, so we look for marginal agricultural land—and I will talk a bit more about that in a moment—we put in a specific native mallee eucalypt tree in a plantation format in what has been referred to as an alley format, so complementary plantings to existing wheat belt farmers. We do that for the purpose of the carbon sequestration. Without telling everyone what they probably already know as the tree grows it sequesters carbon from the atmosphere. The mass of the tree effectively represents the amount of carbon credit. Once the tree is fully grown there are no more additional carbon credits. It acts as a store.

Generally, as I have said, we are looking for marginal agricultural land. We look to plant approximately 1,000 stems per hectare. We take a very agricultural approach to this. We look at ensuring that we are managing weed burden and those types of things. We get those trees in the ground. We have quite high maintenance obligations in the initial period conventionally two to three years. We have had a very dry period in Western Australia over the last 18 months and we are feeling the full effects of that. We have a lot of issues with insects, locusts and survival rates. We have survival rates under our contractual obligations. But once those trees are established they will form a permanent plantation. It is not our intention to harvest those trees. There may be a set of circumstances into the future where they could be harvested for energy production but at its core our model is to put a permanent revegetation event in.

I have touched briefly on the sequestration process, the tree species and the planting configurations. In terms of soil types we look for what we refer to as deep, sandy soils. We are on low rainfall country. We are on 250 to 450 ml rainfall country generally. That is low and by definition that is marginal cleared agricultural country in WA and to some extent in the rest of the wheat belt areas in Australia.

This is not a very well-defined map but I will hold it up for the committee. Perth is there, Geraldton is about there where that button is and all those circles represent where our plantations are. I will pass it around. We are not in what they refer to in Western Australia as down south—anywhere south of Perth—which is the high-value agricultural country. We are very much in that marginal country. A lot of those sites actually abut the rabbit-proof/emu-proof fence. They are right out on the outer extremities of the agricultural area. A lot of that land—you may have some arguments here—is overcleared and should probably never have been cleared in the first place. As you would be aware, under the Kyoto Protocol the land must have been cleared prior to 1990 to form a Kyoto-compliant credit. A lot of that land was cleared in the 1960s, 1970s and 1980s. As late as the seventies and eighties there were Australian government incentives in place to clear agricultural land. People have the idea that this land was cleared hundreds of years ago but that was probably not true in many cases.

That is basically the model. To date we have planted about 8½ thousand hectares of trees—8.5 million trees. That is a very substantial number in the carbon space. All those plantings have been done for the purposes of carbon sequestration. There is no other driver. We financed that model partly through our raisings of capital on the stock exchange but predominantly through signing clients to those planting obligations. At a notional level, they pay us some fees upfront and they also pay us management fees over an extended period of time—that extended period of time is 15 years.

It is on the public record—we are a public company—that our two major clients are Origin Energy, a large electricity company originally based in Brisbane, I think, but now in Sydney, and BP, based out of their Singapore trading hub. We have been, we consider, very successful to have attracted that calibre of clients. It is challenging to deal with those parties when they are looking for a carbon benefit in the absence of a legislative environment for carbon sequestration or the price that goes with that.

We have relevant accreditation. We received accreditation under the Greenhouse Friendly program of the Department of Climate Change. That program is now defunct and that left a void—and that gives me a lead-in to talking about the Carbon Farming Initiative. Do members have any questions about the model—what we are doing and how we are planting—they would like to raise?

CHAIR: Perhaps not at this stage, Peter. After you complete your presentation we will go to questions.

Mr Balsarini : We would like to take some credit for the development of the Carbon Farming Initiative. We were pushing very heavily post the demise of the CPRS. Obviously the CPRS was an important variable. Post the demise of the CPRS we were cognisant of the fact that there was no scheme in Australia, voluntary or mandatory, to recognise carbon credits through biosequestration by trees. The Greenhouse Friendly program ceased as at 30 June 2010. Under the contracts we have with our clients, we have an obligation to provide them 'highest and best use' in terms of carbon. So if there were no CPRS we had to provide them with other credits. There was simply no mechanism to provide the credits. There were trees out there growing, but there was no mechanism to provide our clients with credits.

One of the aspects of the proposed CPRS had been that, to ensure that Australia obtained the advantage of the reduced carbon emissions event—being native biosequestration—there was a specific ban on exporting any of those credits internationally. I am sure you would be aware that the way to export such credits is to generate AAUs—assigned amount units—under the Kyoto protocol and export them to, potentially, European governments or Japanese companies with an appetite for such credits. We pushed quite heavily to do that and we, along with some other businesses within our sector, commissioned some reporting and provided some advice to the government on that. We were pleased when part of that advice was encapsulated in the election announcement about the Carbon Farming Initiative. We are pleased that that has now been put into legislation and is now going through this committee review process. That background should give you an understanding that we were obviously very positive about the Carbon Farming Initiative. I think I have made the point that there was no adequate legislated mechanism. I will make the point that, effectively, the Carbon Farming Initiative is a supply side solution. It provides the rules of the game. It provides a regulator, it provides methodologies and it provides an accounting system. It does not, per se, create demand. I will make a point about the current international environment. That is a very first important step: you cannot have the demand side without having the supply side sorted out.

The CFI legislation does provide international recognition of credits through the assigned amount units process that I mentioned earlier. Again, we are very pleased about that. Again, the demand side for such credits will largely depend on the negotiated outcomes at any international agreement level—that is, Kyoto post 2012 or whatever the replacement date is—or bilateral commitment. The important commercial aspect of biosequestration is that it is capital intensive upfront. If you are looking to put trees in the ground you are looking for a certainty around a stream of revenue to be able to make that investment.

I also made a comment in my submission in relation to the five per cent reduction on 1990 levels. I make the point that, irrespective of disagreement around the method to achieve such a reduction, a valid and well-designed Carbon Farming Initiative should fit into a carbon tax system, into an ETS and potentially could also fit into a government funded direct action system, which is the proposal of the coalition. I would assume that, under the coalition's proposed actions, they would have to put in a similar style of mechanism to recognise carbon abatement. They would need a regulator and they would need methodology approval. One of the constants of this is, irrespective of your position on some of those other things, I believe that the Carbon Farming Initiative provides some significant advantage for both sides of the political fence.

The last point I made in my submission was really as a result of some of the publicity and comments I had seen in the media around the Carbon Farming Initiative being akin to a managed investment scheme. I would like to put on record that I really do reconcile from that position and make the following points. There are no preferred tax treatments associated with the carbon farming legislation. It is as simple as that. As I have noted, the Carbon farming legislation supply side solution will not itself drive significant demand for tree projects. Tree projects and biosequestration projects will be done against the current backdrop of future carbon prices. If you look at who will actually invest into this you will see that it is generally large clients who have significant liabilities—that is, Origin Energy, BP and a whole host of other liable companies—under any sort of mandatory carbon legislation. Those organisations are, potentially, a far cry from the investors who invested in managed investment schemes over the last number of years. They are sophisticated; they are well organised. One of the great challenges of our business is, effectively, that when you are putting a tree model together you are selling a projection of growth. Investors want to make an investment and they want to see it grow. We have been thoroughly examined in terms of our growth projections. One thing that we hold dear is that our growth projections are actually able to meet that sophisticated level of rigour that these organisations put into that. I would contend that, through the managed investment schemes, while there are many issues around management fees and these types of things, one major issue is the growth parameters that were projected were simply not there or there were other variables around cutting trees, the distance from port and these types of things. So I would draw a sharp distinction there.

The last point, which is probably the most important, is that our model and, I think, all models of biosequestration will work on overcleared marginal agricultural land. If you have high-value agricultural land it would be very unlikely that you would put that back to native trees for a carbon sequestration event. The economics just would not work. I can anecdotally say that, of the 8½ thousand hectares that we have planted on about 14 to 15 farms, the vast majority of those farmers would be indebted substantially to banks and would be struggling to make ends meet. And they are struggling to make ends meet largely because they have poor agricultural land. What this opportunity does is provide those farmers some capital, so in some ways it will put a baseline underneath marginal agricultural land and allow them to free some capital up that may then enable them to buy some more productive agricultural land or invest in some other opportunities. So from an agricultural perspective we think it is relatively positive rather than a negative in taking agricultural land out of food production and also in terms of the social issues around farmers leaving the land. They were the comments in my submission. I have probably covered everything I wanted to say to the committee, but I am certainly happy to answer any questions the committee may have in relation to the information I have provided.

Ms HALL: Would it be fair to say that you support this legislation?

Mr Balsarini : Yes, that is correct. We are very positive around the legislation. Ideally we would like that legislation to link to some sort of carbon pricing mechanism—that is, that the credits generated under the Carbon Farming Initiative would be linked to some sort of demand driven system within Australia. But the legislation in itself is certainly of benefit to our industry.

Ms HALL: I also noted in your submission, and you mentioned it a moment ago, that you emphasise that the Carbon Farming Initiative is different to a managed investment scheme. Would you like to expand on that a little bit, please?

Mr Balsarini : Perhaps I should just clarify. I used a timber based managed investment scheme as an example in my submission, and a managed investment scheme is a bit like vaseline—it has become the word rather than what it actually is. There are fine managed investment schemes. A lot of what we have seen are timber based managed investment schemes where investors—and I will use colloquial term mum and dad investors—have invested, let's say, $20,000 and received upfront tax deductions. They may or may not have ongoing management fees over the life and there is a responsible entity who manages those schemes on their behalf with a view that the trees will at some point in time be right to harvest and they will harvest them. I think it is well on the record that a number of companies like Great Southern and Timbercorp have gone into administration. A number of those managed investment schemes and people within those schemes have very problematic issues around how they realise their investment, who manages that investment for them and whether there is any equity left in their investment.

So that is one subset and it really has been an important part of our existence since 2008 to differentiate and distinguish ourselves from that. Again, I look to the clients. The types of clients that we deal with are high-end, high-value professional clients who do rigorous due diligence. I look in particular at the incentives. There are no particular tax incentives in the Carbon Farming Initiative. I will make the point to the committee that there is a specific piece of tax legislation that exists that allows an upfront deduction for planting under biosinks until 30 June 2012. That piece of legislation specifically excludes managed investment schemes, so you cannot use a managed investment scheme. If I wanted to go out and raise money for mums and dads and put it into a carbon plantation, I could not do it under the legislation. I draw those distinctions, and ultimately the distinction you would like to see when we are looking back in 15 years time is that when our carbon plantations went in we were somewhere near our projections on growth and our investors got what they thought they were going to get out of it, which was a stream of carbon credits which created value. There is an ongoing asset there that will continue to sequester additional carbon to a point in time and store carbon over a long period of time, and parties, governments, investors and ultimately managers are happy with the outcome.

Ms HALL: Thanks. The other question I will ask you before I hand over is: as this is a voluntary scheme, one of the issues is around the take-up of the scheme. I would be interested in hearing your thoughts on that. You might also like to comment on the issue of carbon literacy and what role needs to be played in expanding carbon literacy within this country.

Mr Balsarini : In terms of the voluntary nature of the scheme, you are correct, it is a voluntary scheme. There are two streams—Kyoto compliant and non-Kyoto compliant. The nature of our business model would suggest that our credit, subject to methodology approval, would generically fall into the Kyoto compliant format. Without some sort of linkage to some carbon-pricing mechanism in Australia, that would be a voluntary event only. The voluntary market in Australia is not substantial. I could count on my hands the number of parties who look at voluntary credits. It is a very small part. Interestingly, the European market has a history of both a mandatory and a vibrant voluntary market, but that does not seem to have parlayed in Australia. Under the National Carbon Offset Standard, which was a standard that the government produced in relation to voluntary carbon credits, the voluntary credits have to be what is referred to as additional, and this Carbon Farming Initiative will meet that test.

In terms of take-up from a voluntary perspective, there will be some but it certainly will not be a major driver of investment into this type of opportunity. The nature of voluntary credits is that you want your credits now, where tree projects need to have a long-term investment time frame—10 or 15 years minimum payback period—and you are unlikely to sign up clients for voluntary systems over a 10- or 15-year payback period. So the answer to the question is that there may be some take-up but I do not think that it would be substantial. Probably the other demand side would be the international linkage, which I have mentioned before; that may provide some opportunity. But I guess the caveat on that is continued international negotiations, extension of Kyoto protocol and bilateral agreements that may be undertaken post 2012.

In terms of carbon literacy, again I will break that down into two components. If I talk about clients who may have some type of carbon liability or may have had some type of carbon liability under a CPRS and potentially under some sort of carbon tax going forward, the literacy is incredibly high. A lot of companies made substantial investments in teams and resources through the 2009 period. Some of that investment has been reduced and a number of parties have sent people away. But I think there is a good understanding that the national greenhouse energy reporting system has provided them with a mechanism to look at their carbon liability. I think there are a number of potential technologies to be instigated in a number of those businesses should a carbon price come along.

In terms of, let us say, more outside that mandatory market, I think at a small business level it is relatively poor. It is difficult to see carbon in the supply chain, and small businesses, like many other people, have a number of competing demands and it is difficult to get their head around that. That is not all; that is a general comment. I think at a mum and dad level again it varies. I would put it into an age distinction. A number of younger people have a very good understanding of this. I am not trying to be ageist; I am just making the comment. We have a voluntary calculator and what works quite well are the rock festivals and these types of things. People of a younger age actually understand that. I think that has probably been an educational process through their schooling system that perhaps the older generations have not had.

Ms BURKE: A couple of people mentioned in their submissions about the failure to get the CPRS up and this bit of blame to us as members of parliament. There is ability to get things through a Senate and there is ability to sell things with the public. From your business perspective, should you be doing anything to get this up? It kind of assists your business model. I am finding reading these submissions quite fascinating. There is this sort of third-party endorsement about getting a carbon price up there. I am wondering, from your perspective, if there is anything that people can be doing; because at the end of the day this is a business for you but it is a benefit for our overall community. How do we go and how do we link that in to make this a better reality for all of us?

Mr Balsarini : In terms of your first question, we tried as hard as we could to get the CPRS up. I used to spend numbers of days, and that was a political lobbying type process and it was at a Liberal level rather than a Labor level at the time. It would be fair to say that as a business we have a little bit of a challenge. By definition our clients are parties who have large carbon liabilities. Our process is to educate and inform. One of the frustrations from our perspective is—and again it is difficult to put a circle around—with the number of calculations, you could just say, 'My carbon liability is X so therefore it is going to cost me Y.' It takes no account of any sort of remedial action that they may take. Anecdotally there are comments around new technologies that are sitting there waiting for a price. I have got absolutely no doubt in my mind—and this not blame apportioning, it is just a comment about the political process—that it has been much more difficult to talk to clients in 2011 than it was in 2009. The proof is in the pudding. We moved with clients. What potential liable parties saw after 2009 was that everything was on the table for negotiation and that it would be counterproductive to their negotiation position to move early, for example in terms of investing in a tree project. In a simple method, going in to the minister and saying, 'We are all going to be ruined; we are going to lose X number of jobs,' and at the same time offsetting X amount of carbon. The answer to that is: we work very hard to do that. There is an industry but the industry is small and fledgling in terms of carbon offsets and we are up against a relatively well funded, well organised, well constructed campaign in terms of the negative side of that argument.

Ms BURKE: And you would be in a bind, because some of your clients would be the ones mounting the campaign against the whole thing, I should imagine.

Mr Balsarini : We have a number of interesting conversations—and they actually have a number of interesting conversations. In effect there is a duplicitous type of conversation, which is 'We don't want anything,' but at the same time they are saying, 'What can you do for us?' The public persona and the private persona are a little bit different. I guess those people are there to add value to the shareholders and if they think that is the way to add value then that is the line they take. We do certainly try to do that and we try to do that at a public level. We do a lot of sponsorship, and the sponsorship is not really for brand recognition; it is to get the name out there and to get the opportunity for carbon sequestration out and about. We do what we can.

Ms BURKE: From you work in the marketplace, this model works? As a business market mechanism, leave aside the environmental good, it is a business model that can work? A carbon market and a trading scheme can flourish?

Mr Balsarini : Yes. If I just look at our business, it is a pricing question. The reality is that if the carbon price is set at $10 we have not got a business. Origin Energy, BP or any other of these clients are not doing this for corporate social responsibility. They may put a ring around that on their website but that is not the process that they are making. They are looking at a straight way of hedging their liability into the future. One of the interesting things is that trees actually provide something that no other market mechanism does provide, which is a long-term stream of carbon over a 15-year period. Most of these clients are investing in projects that are over 15, 20 or 30 years. So trees have a role to play. They cannot take forward contracts for 15 years because there is no counter-party on the other side. But if you throw in the risk—growth risk and manager risk and all that sort of stuff—the price at which we deliver our tree credits has got to be somewhere less than they think the market is going to be. So, conceptually, our pricing might, on a net present value basis, be between $13 and $18 per tonne of carbon. If you are talking about $25, that is the type of thing. At $20 you are very marginal. At $25 you are starting to say, 'There is good opportunity there.'

But these parties would not have moved earlier if there was not an economic reason for doing so, and I think that a market can continue. We operate in New Zealand. The forestry has been going since 1 January 2008 but the scheme itself has been going since 1 July 2010. It is operating quite well. They have a capped price of $25 and the market has settled itself at $18 to $20. Forestry providers are getting credits for their underlying store of carbon.

Ms BURKE: Are they buying from you? Is that international, or just internal, within New Zealand?

Mr Balsarini : No, they cannot buy out of here. They can buy what are referred to as CERs—certified emission reductions. That is out of the developing countries. But there is a lot of investment going into forestry and, interestingly, they have a similar system where they can export their tree credits through AAUs. There have been a lot of sales to European governments—Norway and Denmark and those types of places. There is a thriving market for AAUs in Europe, but there is a stigma on what are referred to as 'hot air AAUs'—AAUs out of, let us say, the old Eastern bloc.

Ms BURKE: I was about to say that the definition is that the trees have been planted and we can verify that, if they have been planted, they are living still.

Mr Balsarini : Yes. The 'greened AAU' is the term that is being bandied around.

Ms BURKE: So we are greenwashing forestry as well as AAUs?

Mr Balsarini : I think the other side of it is the strong or government counter-party. If you had a New Zealand or an Australian government standing behind it, that would be an awfully strong counter-party.

Ms BURKE: So your trees are alive and well?

Mr Balsarini : Yes. And guess what? If they are not, it is the Australian government's problem, or the New Zealand government's problem, as the case may be, because ultimately they are accounting for it at an international level.

Dr WASHER: Really this is a bipartisan thing. And I can understand Anna's difficulty. But, under direct action, which the coalition has, this is what they are advocating. I cannot speak for the coalition—and I was part of the team that tried to get that CPRS over, and you know that, Peter, too, because we met before—but basically this is a bipartisan-type thing that we are trying to achieve here, and I would find it hard for a coalition member to stand up and say, 'Hang on; if we are going to do this under direct action, what the hell's the difference?' And obviously it is a price too.

Ms BURKE: Exactly. And you can trade that. Well, theoretically, if this gets up, you could actually trade that—theoretically; you would have to work it out.

Mr Balsarini : The simplest way to explain it from my perspective is: if you had direct action, you would have the same mechanism, and you would have one buyer, which would be government. Under a carbon pricing mechanism, you have the Carbon Farming Initiative—the same regulatory environment but you have got a host of buyers, which would be industry buyers, because they are all looking to offset their liabilities, subject to any limits that are put on them. The mechanism itself is something that is required; it is a set of rules; it is an administrator. I think it is actually really well designed. The methodology process is good because the Domestic Offsets Integrity Committee provides an opportunity to go in and talk about methodologies, get them approved and work through them, rather than having a blanket, 'This is in; this is out.' You have actually got an opportunity to develop different methodologies.

We would certainly like to do other types of trees. We are looking at opportunities in things like livestock management and that type of thing. In the history of the carbon market, if you go back 10 years, trees were a voluntary type of thing. What happened was that people got in, got involved and got comfortable with how they worked, and they have translated into mandatory. I think you will find the same thing in terms of some of those voluntary opportunities. Anecdotally, a number of parties are very positive about the way that the DOIC is conducting itself in terms of that process. So I think that is ideal from either political party's perspective.

CHAIR: I am conscious of the time.

Mr Balsarini : My apologies.

CHAIR: Very quickly, can you just clarify something. You talked about what is happening with the New Zealand government, and I thought you said that there was a price around $20 a tonne at the moment for carbon credit units. Was that the case?

Mr Balsarini : Under the New Zealand legislation—I will just clarify—there is a $25 capped price. In the initial two-year period, emitters have a two-for-one liability. If you have got 100 tonne worth of liability, you only have to pay for 50 tonne. So you work it out and you divide it by two but you have to buy the credits. The credits are trading. The New Zealand offset credits that can be generated from forestry are selling for approximately NZ$20. You put that into a price continuum. They have to settle up. It is almost like the cost of carry. If you know you have to pay $25 in six months time, you are not going to pay $25 for a credit because that is your top price; you are going to work out what the carrying value of that money is and what I would be prepared to pay today. Twenty dollars is where it is trading, and you will probably see that that will creep up towards the $25 as you get closer to when they have to remit their liability.

CHAIR: Are those credits internationally tradeable?

Mr Balsarini : There is a mechanism. If you are a forest owner—similar to this one—you can generate what they call NZUs, New Zealand units. You have then got an extra step to go through that generates an AAU, but it has been done and they have been sold into European governments. That is similar to this process: you could get a CFI but then there is a step that gets you to the AAU. Effectively, the government is accounting for that once it is offshore.

CHAIR: Thank you very much. We have run out time. You will be provided with a draft of the transcript of today's proceedings. If there are any changes that you think should be made, please feel free to contact the secretariat. Once again, thank you for your presentation today.

CHURCHILL, Mr William, Communications and Public Affairs Manager, AUSVEG

PUTLAND, Mr David, Climate Change Officer, Growcom

[13:58]

CHAIR: Welcome. Do you have any comments to make on the capacity in which you appear?

Mr Putland : Growcom is the peak industry body for horticulture in Queensland.

CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that the hearings are a legal proceeding of the parliament and warrant the same respect as proceedings of the House itself. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The committee has received your submission and I now invite you to make any additional comments or an opening statement. We will then open for general discussion. We are on a strict timetable and have already run over with the previous witness, so if you could perhaps keep your opening statement to a brief outline, that will enable us to pursue the points of interest that we want to pursue.

Mr Churchill : I will keep it brief in the interests of time. For your benefit, AUSVEG is the peak industry body representing the interests of about 9,000 vegetable and potato growers around the country. We are funded partly by the National Vegetable R&D levy, which operates through matched funds and also through private funding, which allows us to be here today. This proposed carbon farming initiative has the potential to engage the vegetable and potato growers in sequestering and abatement of carbon and AUSVEG strongly supports this concept of the CFI and its goal to drive carbon sequestration and abatement in agricultural systems. However, a significant number of potential risks to AUSVEG members remain in the legislation. This submission we have provided to you outlines those. I would like to make one key point today. The legislation as we see it has a bias for forestation at the moment and we have significant concerns on the moral ground about the state and its obligation to provide food for the country. It is interesting that there are a lot of moves to use prime agricultural land for forestation. Keeping it sweet, I will pass quickly to Mr Putland.

Mr Putland : Growcom also strongly supports the concept of the carbon farming initiative as a method to drive abatement within the farm sector. However, we think that the opportunities for horticulture industries are actually quite limited. As William mentioned, it seems to be biased towards forestry on broadacre land. Few of the methodologies that are listed in the bill appeared to be compatible with continued intensive food production, which is one of our concerns. There are really only two methodologies that we think may fit the bill for horticulture, and they are the reduced nitrous oxide emissions from fertiliser use and also increases in soil carbon. We believe that the abatement potential is actually quite limited and I think this has been confirmed in a recent report from the Department of Climate Change and Energy Efficiency looking at realistic levels of abatement in the farm sector. We also are a bit worried about the cost of participation not only in instigating these projects and getting a project up but also then the costs of registration, monitoring, reporting and auditing, for example, that are likely to take the gloss off the cost-effectiveness of any scheme. As a previous speaker mentioned, the demand for the credits is unknown at this point and because of that also the price is unknown, and because of that it is extremely difficult to come to a view of the cost-effectiveness of the scheme from our industries' perspective.

CHAIR: Thank you. Ms Hall.

Ms HALL: You mentioned that there is a bias towards forestry and that the opportunities for horticulture are limited. What are your suggestions to increase the opportunity for horticulture?

Mr Putland : That is interesting. As the bill stands, the only methodology really that exists at the moment is forestry. The problem with horticultural production is that it tends to be very intensive use of a relatively small area of land. So if a business is to continue food production there is no spare land on the majority of properties to do that sort of abatement project. The bill does include a couple of methodologies that look potentially successful. One of them is the fertiliser management. The trick with that one, though, is to develop a methodology that a small grower can use, and that is likely to be a very expensive and complex process to develop these methodologies. There has been a suggestion that it will probably be driven by the fertiliser industry rather than individual growers and then growers can pick it up if they like. There is also a continued question mark over the role of soil carbon for sequestration and the actual amount that can be sequestered successfully. I think some of the bigger steps to be made here are in the research and development of these methodologies to maximise the potential for horticultural businesses to participate.

Ms HALL: What would you like to see happen in that area? What initiatives would you like to see introduced to accompany this bill to encourage investment in those two methodologies?

Mr Putland : One of the big things would be to encourage research into the methodologies. It is a very complex business. For example, Growcom is already involved in a project looking at different farm management practices and the effect that has on emissions on farm. That is a project that is funded by DAFF and also involves a couple of departments of primary industries, for example. We are doing the fieldwork in the Granite Belt in Queensland. There are some quite promising results for the use of nitrification inhibitors and the effect that that has on nitrous oxide emissions. However, turning some of those early results into a methodology is quite a time-consuming process. It needs to be replicated across multiple soil types, crop types and farming systems, for example. That is well beyond the scope of an individual grower and so needs to be a process that is encouraged and sponsored by government.

Ms HALL: Both of you, at the commencement of your statement, said that you supported CFI. I was wondering whether or not you support the initiatives that are outlined in this bill. If you do not, which ones do you not support and what needs to be included? Will this legislation have any adverse impact on the people you represent?

Mr Putland : In terms of the Carbon Farming Initiative, because it is a voluntary scheme it may not necessarily have any negative impacts on individual growers. They can elect to be part of it or not. The benefits to those individual growers who choose to participate are an unknown quantity at this stage, given the unknowns about the price of the permits plus the costs of participation. Broadening that out a little bit, the price for the Carbon Farming Initiative credits is likely to be low unless there is a price on carbon. That, then, is a different kettle of fish.

Ms HALL: Are you supportive of a price on carbon?

Mr Putland : The short answer to that is that we acknowledge that the majority view amongst those people who actually know what they are talking about is that a price on carbon is the most cost-effective way to drive emissions reductions across the economy. We agree with that view. The trick is to design the scheme in such a way that it does not introduce new costs to individual businesses that cannot be met. In the case of horticulture industries, a price on carbon is likely to lead to increased input costs—fuel, fertiliser and chemicals, for example. Given that it is similar to the previous CPRS, we can go back to some of the economic modelling there and suggest that input costs are going to go up by about three to five per cent. In the case of horticulture, individual growers really do not have an opportunity to recoup that cost. They do not have the opportunity to pass that cost down through the supply chain, so they really just have to swallow it. Given the lack of opportunities in the CFI, they really do not have the opportunity to have another business venture or to diversify in a way that will recoup those costs. This is where—

Ms HALL: Unless they look at those two initiatives that you referred to earlier.

Mr Putland : Yes. Again, there are too many unknowns at the moment to really analyse that in any sort of depth. When we combine the CFI with the carbon price that is where it gets very complex. Because the CFI relies on a carbon price to drive demand, that carbon price in turn will have negative impacts on the businesses that we represent. While we are supportive of the concept in both cases, it is very hard to get down to the detail of how it is actually going to work and what the exact impact on our businesses will be.

Ms HALL: We have legislation that we are looking at here that relates to the CFI. You have already stated that you generally support the CFI.

Mr Putland : Yes, that is right.

Ms HALL: I just want to pull you back to the legislation we have here. Can you share with the committee whether or not you are supportive of this legislation—and, if not, why not.

Mr Putland : I think the short answer is: yes, we are supportive of the legislation.

Ms HALL: Okay. Thank you.

Ms BURKE: In terms of the things that you have looked at, leaving aside the CFI stuff, is your industry looking at the need to adapt and change anyway to already occurring environmental changes, such as issues with soil degradation? Are there some offsets that can come from work that your growers are going to have to be doing anyway just to survive in the current climate, leaving aside the changes that we are predicting? Aren't there some productivity benefits that your industry can gain through work that it will probably have to by virtue of the current environment, let alone projecting out to what the scientists are telling us? Does the industry see some benefits in having to address this on top of the benefits through a scheme like this?

Mr Putland : The short answer is of course. Many of the steps to reduce emissions listed in the bill are used within the industry, although they have not been widely adopted. The early adopter growers are already participating in many of these sorts of practices. We have raised the issue before in terms of the additionality requirement that relies on the common practice test. Things like low til farming, which is an important method to reduce emissions, has already been widely adopted. We have had concerns about whether those growers that are already employing these various strategies may not be able to claim credit for it.

In our communication with growers, we are certainly pushing the point that these are all things that are worth doing anyway, regardless of whether or not there is a benefit from selling credits. In the case of increasing soil carbon, that is a good thing to do anyway. Any step to increase fertiliser efficiency is something that growers are already striving to do, because that is a cost minimisation practice. So, yes, many of these things are already being adopted.

Ms BURKE: Are many of your growers involved in the natural resource management plans for their areas? Have they been involved in any of those sorts of issues?

Mr Putland : Many of them are, but I would not know the details of their level of involvement.

Ms BURKE: Do you have any view about the part of the legislation that says that those plans must be considered in the overall schemes put into place so that—raising something that you have already mentioned—you do not get trees planted in areas that may destroy the water catchment or indeed take away good arable land. It is not a question of trees or food, I would have thought. Have they been involved in those sorts of things? Do you have a view on how they work?

Mr Putland : I am not aware of the details.

Ms BURKE: An earlier presenter to the committee today said that from his perspective s a farmer—that is his trade, although he was here with another hat on—he would see it as food production versus trees because the cost of that land is too prohibitive. You are not going to buy terrific arable land to plant a crop of trees on. It would go into more areas that need revegetation; that need work. Do you see that as being an issue in the long run or not?

Mr Putland : Over the longer term it is an issue to keep an eye on. The information that we have at present suggests that you are only going to get that direct competition, with land taken out of food production to be used for forestry, at relatively high prices of carbon, which is not likely to be an issue in the short to medium term. But that is certainly something that needs to be considered over the longer term. Protective measures need to be placed in the legislation just in case that sort of issue comes back.

Dr WASHER: I can see the problem that horticulture will have, because most of these practices are already being done, so the only improvement that I can rapidly think of is nitrogen fertilisers. We have this hundred-year concept in a number of other things in here. Under this legislation, if you were able to say that the fertiliser industry has addressed this in cooperation with growers, would that be covered and rewarded, or do we need to put something else in here?

Mr Putland : Our view is that the risk of reversal buffer addresses these issues with annual variation. One of the problems that we foresee is that individual growers would find that very confusing and complex—the scheme by which, essentially, you are insuring the amount of sequestration. I am not sure that it is necessary to address that further in the legislation. The risk of reversal buffer covers that. Further to that, insuring your sequestered carbon is going to be an important aspect of this that growers are going to have look into. I notice that there has been some, say, progress in ways of accounting for and taking account of annual variability. In the development of these methodologies that is something else that needs to be pursued to great depth.

CHAIR: You expressed some concerns on behalf of the people you represent that the administration costs could be a problem. What is your understanding of what the administration costs could be.

Mr Putland : From our reading of the bill, a lot of it is left up to the regulations rather than the bill itself. There are clauses like 'there may be a cost involved in registration of the project'. I imagine that will be relatively small. From our members' perspective, simply instigating one of these projects might be quite costly. So, for example, the cost of a nitrification inhibitor really increases the cost of your fertiliser. Or if you were to implement a no-till system it might cost in the vicinity of $100,000 for the equipment to get that up and running. Then you are looking at a very small return over a large number of years. So it is a very tricky investment decision to make.

Getting back to the nitrification inhibitor, again, the early data that we have suggests that the way that we have done it up in the Granite Belt you are looking at about $50 a hectare extra for the nitrification inhibitor. Then, the best case scenario, if what we are doing now is an approved methodology and you can claim all of it, is that you are looking at a return of about $150 a hectare. Again, that is the best case scenario. Given the intensive use of land and the profits per hectare that growers are getting and the risk of any reduction in productivity on that land, I think that return simply is not worth it.

On top of that you need to add the compliance cost. A lot of this is going to rely on auditors, who are obviously going to need to be paid, and a lot of those charges are unknown at present. Because of the small volumes of land and relatively small abatement potential, it is probably going to rely on brokers as well to aggregate a number of growers together to get a meaningful level of credits generated. That is also going to come with a cost. As I mentioned before, trying to estimate what those costs will be is very difficult at the moment.

CHAIR: I guess the viability question would entirely depend on whether there is a price on carbon and what that price would be.

Mr Putland : Yes, because that will drive the price of the credits generated.

CHAIR: Has your organisation come to a conclusion as to what would be perhaps the minimum price on carbon that would make it generally viable.

Mr Putland : No, we have not done any of that sort of analysis yet.

Ms BURKE: You have provided an interesting perspective that we have not got from anybody else. It was well done.

CHAIR: Thank you for your evidence. You will be provided with a draft transcript of today's proceedings. If there are any changes that should be made to the draft, please advise the committee secretariat.

COSIER, Mr Peter, Director, Wentworth Group of Concerned Scientists

PARKES, Miss Claire, Senior Policy Analyst, Wentworth Group of Concerned Scientists

[14:09]

CHAIR: Welcome. I think you were here when I ran through the facts about these proceedings deserving the same respect as the proceedings of the House itself and that the giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I am sure you have presented to committees in the past and are aware of that. We have your submission. I invite you to add to it or make some opening statements.

Mr Cosier : Thanks very much, Mr Chair, for the opportunity to appear before you today. I hope we can be of some assistance. We are all wrestling with climate change and with this new concept of terrestrial carbon offsets. I will only make a brief opening statement, just to provide some context to our submission, in the hope that we can spend as much time as possible answering your questions. The focus of our submission is on how to manage this new economic opportunity both in the long term and by using the positive and negative lists to manage the transition. Managed well, with a price on carbon, this bill presents the opportunity of a generation to pay farmers to manage our landscapes more sustainably. Healthy landscapes store vast quantities of carbon. It is complex, and there are no simple answers. We have some wonderful opportunities, but we also have some significant risks. I am sure, Mr Chair, you would agree with me that we do not want to be sitting here in 20 years time fixing up another environmental problem as we are now trying to fix the Murray-Darling Basin, so let us use this opportunity to get it right from the beginning. That is basically the basis of our submission.

We need to plan where to grow trees, we need to produce food and we need to work out where we might do both. That planning needs to be done by working with communities, not by communities having top-down rules imposed upon them. Good planning will pay enormous dividends in the future. We know that there is a lot of uncertainty about how this carbon market will work or not, especially in the short term. There are different estimates on how much carbon abatement the carbon farming initiative would deliver, largely due to uncertainty about how landholders will respond to the scheme and uncertainty on the price they may be able to receive for the credits they generate. It is unknown to what extent we will be able to achieve co-benefits for the environment and rural communities and how some of the big risks of perverse outcomes might occur.

There has been a lot of good work done by agencies such as CSIRO and ABARES, but there is much more work to do. We believe that the most effective way of managing the risks is to work with state and local governments and our existing natural resource management bodies to put land use planning schemes in place where necessary and appropriate to guide carbon farming into the areas of highest benefit and away from the areas of greatest risk. We also believe that the initiative of a co-benefits index presents an opportunity for the Australian government to explore complementary economic instruments to achieve the model benefits that are possible. In summary, if we plan well, a price on carbon linked to an offsets market is a once-in-a-lifetime opportunity to pay landholders to manage our landscapes more sustainably. Thank you very much for the opportunity, Mr Chair.

CHAIR: Thank you very much, Peter. We have heard—and you might have heard—the evidence of the previous witness when we were talking about soil carbon and the difficulty in measuring it. Does the Wentworth Group of Concerned Scientists have a view or any professional opinion to provide in respect of how well we can measure soil carbon today?

I have written papers which suggest that there has been a lot of research carried out and that it can be done and measured fairly well. Clearly, there are people who dispute that. Can you give me some feedback from the Wentworth Group of Concerned Scientists?

Mr Cosier : With the preface that I am not a soil carbon expert—so I am interpreting expertise as many others need to do—there are three issues. There is the question of the science, there is the question—as we heard from the previous speakers—of the cost of monitoring and then there is the question of whether farmers will take it up anyway. So in answering the question of how much we will get, we need to answer all three questions; actually there are four questions, because then there is the question of at what price they will change behaviour.

As to the science question, there is no peer reviewed science of sufficient robustness to provide anybody with a reasonable estimate. Is that bad? It is not good. But is it surprising? No, it is not—we have never had a carbon market provide this opportunity before, so it is not surprising that we do not have the science behind that information. One of the things that we think is excellent in the design of this bill is that it creates the institutional circumstances to encourage that innovation in science, to answer that question. So do we think we should be grabbing any opportunity we can to store carbon in soil? The short answer is: absolutely. A large part of the degradation in our agricultural landscapes is because we have mined those landscapes from carbon, and the way to restore those landscapes is with carbon. But we need an economic mechanism to do that. Will this provide that? Obviously the question of price is a big question there, but there are a lot of other questions that we honestly do not know the answer to and we probably will not know the answer to until we get the system up and running.

Ms HALL: You opened—and finished, really—by saying that it was a once-in-a-lifetime opportunity to pay farmers to manage their land. You talked about planning where trees go and where we grow food and how this was a unique opportunity. Given this is a voluntary scheme, how do you envisage that this planning process will take place and how effective do you think it will be?

Mr Cosier : First of all, we support the voluntary scheme.

Ms HALL: So do I.

Mr Cosier : We support agriculture being exempt from the process, largely on the basis that the vast majority of agricultural land on this planet will always be exempted, so why would we not exempt agriculture? So we are very supportive of a voluntary mechanism. But we also know, from the last 20 years of the Landcare movement, that there are a lot of farmers out there who know how to manage their land better than we have managed it in the past; they just have not been given the economic tools to do that, because they compete on an international price. So the basis of our submission—and Claire can speak to this in more detail—is that, with all that uncertainty, we can model the economics all we like but we will still only have an economic model; what we will not have is a system that guarantees that the carbon is directed into the right place in the landscape. Rather than build a new set of institutions to manage carbon, why don't we use the ones we have got, which are our natural resource management bodies, which are building in capacity and have done so over the last decade, with resources that are quite capable of delivering that holistic landscape planning? Then we can use the land use planning system, which in urban areas in Australia we have been very used to over the last 50 years. We use the land use planning schemes to manage urban development, so why don't we use the same system to guide this carbon economy? Claire might have something else to add.

Ms Parkes : In terms of how it might roll out, the regional natural resource management bodies around the country see this as a great opportunity to channel carbon finance towards getting multiple benefits—so to getting biodiversity benefits, salinity benefits or soil quality benefits. They see it as a great opportunity. They have already been out there for a long time building up the capacity in their communities to undertake natural resource management projects, but what we see is needed is better spatial planning for where the carbon finance can deliver both carbon abatement and environmental benefits.

Ms HALL: My next question follows on from that question, and it deals with the need to improve carbon literacy. How can that be best achieved? What is the role of government and the other parties in that?

Mr Cosier : It is quite consistent with what Claire was just talking about, the capacity of the natural resource management bodies. One of the jobs that we gave them when the Natural Heritage Trust was established was to provide a capacity-building function, to be the broker of knowledge between science and farmers. One thing we know about Australian farmers is that they are great innovators. We also know that the vast majority of them are very keen to improve the sustainability of their farms. So it is not like we are having to push something onto a community that does not want this information. They are sitting there waiting for it. You asked a lot of questions, Mr Chair, about soil carbon, for example. There is soil carbon in the cropping lands, which is where most of the focus has been, but there is also the opportunity for soil carbon sequestration in the grazing lands. I am sure you have received many submissions about that.

Our great hope is that with a carbon price we can deliver some cost-effective monitoring systems that encourage that new innovation in grazing management in Australia. I have no doubt that, once we get the carbon price turned on, those people will have their methodologies in really quickly and will do it by learning. It goes back to a core question. The whole philosophy of Landcare, the Natural Heritage Trust and so on has been that farmers can only manage their farm but landscape processes happen at a landscape scale. Water systems flow in catchments and biodiversity is connected across the landscape, so the question is: if you want to manage Australia sustainably, how do you give farmers the knowledge about their contribution to larger landscape management? That is really the role of these natural resource management bodies. There are some obvious things, like riparian vegetation—the vegetation on river systems. I have never met a farmer who would not love to be paid to restore the vegetation along their river system. That is a very simple one, but we have some very complex ones. Some of the work we are doing—that Claire is doing—is looking at how we deal with the more complex stuff and put that in a simple way that farmers can understand.

Ms HALL: You mentioned perverse outcomes. What perverse outcomes do you think could occur as a result of this legislation?

Mr Cosier : Three, potentially. The first is the lack of environmental flows in rivers. If you had massive forestry plantations in many of the catchments in eastern Australia and in Western Australia, if the worst-case scenario happened and over the next 50 or 100 years they were converted from food production to carbon farming, it would probably drain the rivers. That is a huge environmental risk. There is a great economic risk, too. We have seen that with the managed investment schemes, where it is economic for an individual to go out of agricultural production and into forestry production. That is a good decision for an individual but it has flow-on community, economic and social impacts if it happens at too large a scale. Those are two potential outcomes. The third one is the potential for monocultures to impact on biodiversity, which is already struggling from overclearing across Australia.

Ms HALL: Finally, would it be fair to say that you are supportive of the legislation that we are looking at here today?

Mr Cosier : We are very supportive of the legislation. We think it is an excellent framework to deal with a very complex issue. A lot of the questions that we have noticed that people have been asking in their submissions are really related to the next levels of information—the regulations and probably systems underneath that, like the accreditation standards. But it is very complex legislation, so you cannot fix it all in an act. That is why we have subsidiary legislation. We think the structure of the legislation is an excellent way to deal with the complexity and also to drive innovation.

Ms HALL: Thank you very much.

Ms BURKE: Some of the things you have been referring to have been talked about by some of the other presenters today, particularly Environmental Defenders, such as the notion of doing it project by project as opposed to a whole environmental impact. A couple of things happen: the notion of leakage, the notion that the polluter should pay as opposed to offset. Some of the stuff you are talking about reminds me of this. You have to get the whole of it right. I have to admit that I do not see in my head, on the map of Australia, how you can do that. In terms of using the land appropriately, as you and the last presenters discussed, how do you ensure that trees are not grown where we should be planting crops and protecting the water catchments. Have you envisaged how you actually do that so it is not a matter of a farmer doing something really innovative in one place that actually has other impacts downstream? In the market system of trading these credits, how do we get the outcome we want, which is the reduction of greenhouse gases in our environment? It is confusing me no end, I have to admit.

Ms Parkes : My answer to your first question would be that, as the Wentworth Group says, regional natural resource management planning is key in this, because the job of the regional natural resource management bodies is to marry up the science, the community views and the government's priorities into looking across the landscape, what the most appropriate land use is and where the priorities are in the landscape. At that scale, those regional groups can take that view of a landscape and, hopefully, accommodate some of those issues where something someone does here might have an effect downstream.

We also think that should be put into land-use planning schemes, so the way in which state and local governments manage and improve land use and do zoning. That more regulatory approach will manage adverse impacts, or manage unwanted land use change.

Ms BURKE: I am not sure if you are involved at the sort of micro level that the two guys before you were talking about—the notion of additionality, that farmers are already doing some of this stuff now because it is best practice for their production as opposed to the other greater good for the environment. How do we actually recognise that so it has legitimacy in a scheme as well as the greater good for the environment? The research side as well; it is dollars to do and it does cost—it is new methodologies and changes, and some farmers are great. As you say, some are terrific innovators; others are not. I am always reminded of that ad with the guy who talks about Sunday soil, and that his destiny is to leave the land in a better situation than he found it in. I think that most farmers actually operate like that, and we do not give them credit for it. It is the notion of how we ensure that that is sustainable for the farmer and for the entire environment, as well as recognising what is good practice, but doing it within a market based mechanism where those issues of additionality and leakage are. Have you looked at those?

Mr Cosier : Yes; we could be here for a week or until next year, because it is the great question that is challenging this country: how do we pay farmers to look after our landscape? That is 7½ million square kilometres, we have 20 million people and we have 300,000 farmers. They cannot be expected to do it all; we have to pay them to do it somehow. We have made small attempts at it, but they really are petty cash.

What we have here is a carbon market potential, but at the end of the day we are buying carbon. We have to purchase carbon; the challenge for us is that for recognising we are purchasing carbon, how do we also get the other benefits from that purchase? We in Wentworth are, and have always been, very favourably inclined to market mechanisms. We believe they are far more efficient than command and control mechanisms of government—government grant systems. But all good markets need to be regulated, so we are saying, 'Well, let's regulate this market so that we get all the good outcomes we want and we don't get the bad outcomes that we don't want either'.

For the individual farmer, additionality and leakage are complicated questions. Part of the education question is that there are a lot of laws about carbon farming, and there is a lot of expectation out there that, in our opinion, will not be met because they will fail those fundamental test of additionality and leakage. For example: if a farmer were to destock their farm and get paid to grow soil carbon or grassland systems, we know that the world is not going to eat less cows—that is what leakage is. Somewhere else, somebody will grow more cows, so you cannot pay the farmer here to do that but not charge the farmer over here to increase the number of cows. We have to deal with those complex questions of leakage.

You would have also had many submissions saying that it is not the holy grail and it is not the great nirvana that people have been promising. Certainly in the short term it is not, both capacity-wise and financing-wise. But—and this is really back to our core submission—for all of the farmers out there who just want money to do the things that they have never been able to afford to do to make their farming systems more sustainable, our great hope is that the carbon market will provide that tipping point of income so that they can do what they have always wanted to do.

Ms BURKE: I have been asking about the notion of the chicken and the egg: do we need the carbon price before we do this to make it viable and to make people buy into it, or is it good to just start this for the sake of getting on with it—from the Wentworth's perspective?

Mr Cosier : It is never too early to start, to be honest. We know what we need to do to fix the Australian landscape. Our farmers know what to do. We have institutions from the last 20 or 30 years—CSIRO and government agencies. We know what the core problems are. We know that we have built regional capacity that can answer those questions. If we could get some money systems into what we already know, we would achieve great things. So get a carbon price and go, but go cautiously.

The cautiousness in what we are saying is that the planning that we have been talking about will take time to do well. We think one of the great innovations in this bill is the positive and negative list. It is a great way to simplify a lot of complex economic questions. One would also use it as a transition mechanism to push the carbon away from where it might be a problem and into areas where it might be a great advantage. This would be as a transitional mechanism before we have the right planning systems in place, which will take two or three years.

Ms BURKE: And do you think the permanency issue—the 100 years—will lock people out, putting them off? Will it just seem too complex and too far-fetched that we have to commit to 100 years?

Ms Parkes : I think the issue of 100 years permanence is creating a few problems in people's perceptions of it. The Wentworth group's thinking is that it has to be permanent for it to be credible in the market, but perhaps we have to tone down 100 years. Something that has not come out as fully as it perhaps should is the fact that farmers can get out of it if they want to. They are able to relinquish their credits. They are able to pay back. So the idea of 100 years permanence where you have to stick with that land use has been a problem, but there are mechanisms in the scheme that enable people to get out if they want to.

CHAIR: On that: there was concern raised about the mechanism to get out which enables the farmer to pay back the credits or units, because at the time that they may want to get out the price may have changed significantly from the time they paid for it. Therefore, it might not be so easy to get out and they might have to do that at a loss. That is a risk they take and, therefore, it might be a disincentive.

Ms Parkes : Yes, I can see that might be a problem.

Mr Cosier : Yes. To reinforce Claire's point, that is a real issue and is one of the reasons why we think there will be a considerable constraint on farmers adopting this in the short term. My personal view is that they will adopt it where there are no-regret actions. A no-regret action is, for example, if you want to put riparian vegetation on your farm. That usually puts up the price of your property and does not affect or has a minimal impact on your farming enterprise. You say to yourself, 'I'm never going to want to clear that land again; so, if I will get paid for doing that, that'll be great.' But if you are entering into a changing farming management enterprise where you are aware that if you are paid to sequester carbon and you wish to relinquish those credits you have to buy credits at the market price, knowing the price of carbon is going up by what Treasury estimates to be four per cent compound per annum, you are going to be very risk averse in changing your land use. You are really locking in a land-use practice, effectively, because you will not be able to afford buying your way out.

So the models cannot show that behavioural question that farmers will make. But, to go back to Claire's core point: we do not see any need to use the '100-year' phrase. If you just say, 'If you are paid to sequester carbon and you wish to relinquish it, you are allowed to, but you have to pay for the relinquishment credits,' just leave it at that. We do not see any great advantage in them putting this 100-year stuff on it. I know that if I go in to buy a farm and someone says to me, 'There's a covenant on the bit of land that you want to buy,' and it has this 100-year thing on it, I'm not going to touch that. But in fact is it not a complicated thing at all. If you sequester it, you get paid for it; if you relinquish the credits, you have to buy them. Just leave it at that. Make the rule more transparent.

CHAIR: I will take up something relating to a couple of comments you made. One of them was when you were referring to the leakage issue. You referred to the example of the cattle being sold by one farmer but taken up by another. I thought you said earlier that you did not think the land sector should be included in any carbon price legislation. But a moment ago, when you were talking about the leakage, you referred to the person who is now contributing additional emissions as having to somehow pay for that. Could you explain your thoughts on the question of land being included in carbon pricing. I was also particularly interested in your comment that it should not be because most of the land mass of the world will not be.

Mr Cosier : This is a very interesting, intriguing and complex dilemma. The principle is that if you sequester carbon more you get paid for it and if you emit carbon you have to buy it. We have said that the agriculture sector will be exempt. If you want to stop that leakage, the only way you can stop the leakage is, when you give a credit for sequestering carbon, to deduct the loss of carbon that is likely to happen as a result of the removal of that stock. So you would have a net carbon account for that farm rather than just paying the credit, because you know somewhere else in a voluntary system the market will sequester something else.

We have developing countries and non-developing countries. The developed countries—Kyoto Annex I countries—have said that they will do X. Developing countries will come later. The vast amount of food production in this world is by non-Annex I—non-Kyoto—countries. So, yes, Australia is a great exporter of agricultural products, but in the global scale of things we are about one or two per cent of the planet. So why would you impose restrictions on Australian farmers that is highly unlikely to be imposed anywhere else on the planet? It just does not make sense. It is not a practical thing to worry ourselves over. It is not a philosophical issue; it is just a practicality issue. Why get into that stuff when we have all this other hard stuff to deal with? Let's just exempt agriculture from this process and use the incentive voluntary mechanisms, because that is what will be used in the developing countries as well.

CHAIR: Thank you for very much. You will get a draft copy of the transcript of today's proceedings. Feel free to contact the secretariat if you think something needs to be changed there.

Mr Cosier : Thank you.

Proceedings suspended from 14 : 47 to 15 : 00

MACINTOSH, Mr Andrew Kerr, Associate Director, Centre for Climate Law and Policy, College of Law, Australian National University

CHAIR: We resume committee proceedings and welcome our next witness, Mr Andrew Macintosh. Although the committee does not require you to give evidence under oath, I should advise you that the hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House itself. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. Andrew, we have received your submission and members have a hard copy of it, but we invite you to add to it or make any changes you feel are necessary, or simply summarise it for us so that we can then ask some questions of you and enter into a general discussion. So I will hand over to you.

Mr Macintosh : Generally, I think the bill is a good one. The one issue that has arisen is about the perverse impacts, which I am sure you have discussed this morning, and in the submission I have outlined a potential solution to it. The government has come up with this idea of a negative list, where there is a discretion to create regulations to knock out project types or project types in certain areas. Hypothetically, if I were in the shoes of a parliamentarian and given a bill where it said that the minister had the discretion to make regulations to knock out particular projects to deal with a risk, I might not be satisfied that that provided me with sufficient certainty that that would deal with it.

The idea I have put forward a very simple one, and that is to use the strategic assessment provisions and the trigger provisions under the Environment Protection and Biodiversity Conservation Act to set thresholds in regions or bioregions. If revegetation or reforestation passes beyond a certain threshold, a threshold that will be determined after deliberations, then any further project in that region or bioregion would require approval under the EPBC Act—so that is project based approval. Now, that would mean that individual projects would have to go through the environmental impact assessment and approval process that starts under part 3 of the EPBC Act. There would be an obvious objection to that from project proponents, who would say, 'That's going to add to project costs and that's going to cause us transaction costs.' The response to that is: the EPBC Act contains a number of provisions to minimise transaction costs for proponents, and the process can last a very short period of time and can be relatively cursory, so you can get projects in an out and deal with major issues rather quickly.

The other thing is that under the EPBC Act there is a strategic assessment process. Since about 2004, the Commonwealth has been trying to get itself involved in strategic assessments for environmental purposes. It has not had a lot of success to date; there have been problems with resourcing and problems with the interaction with the states. By using that process under the EPBC Act, not only could you deal with the problems associated with perverse impacts of the CFI bill; also you could potentially roll in other issues associated with the environment. So the way I could see it rolling out is very much like a regional zoning process. You tie it in with the regional NRM processes, get the information from that and basically feed into developing regional plans that would deal with the perverse impacts associated with CFI projects. That is basically it, in a nutshell.

CHAIR: Thank you for that. That is one of the issues of concerns that have been raised by people have made representations to us. I will open it up to questions from the members here. It seems to me, Andrew, that your submission is pretty much focused on that one aspect entirely.

Mr Macintosh : That is right. I think the rest of the bill is fairly robust. Sure, there are a few other issues, but from my evaluation of it—and I must say I have not gone through it with a fine toothcomb—it looks pretty robust and I do not think there are that many issues associated with it beyond the perverse impacts. And, on the perverse impacts, I should say that personally I do not think they are going to be an enormous issue in the early stages of the scheme. I think it is further down the track that we are likely to see those issues arise. Some people might say, 'It's merely theoretical,' but, given what happened with managed investment schemes and the Great Southern and Timbercorp collapses, I think it would be remiss of people to say it is a completely hypothetical issue and it is never going to arise.

Dr WASHER: I think it is a very valid point. Being a great hater of the managed investment schemes, I have a passionate dislike for them and think that they cause major problems. Your recommendation here is very good.

Mr MacIntosh : I have heard other people suggest using some sort of provision that says that projects have to be in accordance with NRM plans. While I like it at a general level, I think it might confront problems in that those plans were not designed to deal with these issues and also a lot of them are not statutory instruments. It might cause problems if you have a one line provision that simply says, 'Projects must be in accordance with NRM plans.' I think this idea of folding in the EPBC Act could have something. You could use all the information from the NRM plans and I would envisage that being done but I do not think that solely using an NRM process would hit the nail on the head.

Dr WASHER: We are also told there is a bit of variability in the quality of some of these organisations.

Mr MacIntosh : In the quality of the organisations and the quality of the plans themselves.

CHAIR: That is absolutely correct. I do not know whether you have had time to look at the legislation but I thought the previous witness made an interesting comment that the 100-year rule applying to projects is almost unnecessary—I might be paraphrasing him—because proponents can get out of it simply by paying back the credits or buying an equal number of credits at the time. Therefore, in essence, is there any reason to specify a particular timeframe on it? Do you have a view about that?

Mr MacIntosh : I will be honest. I have not put a lot of thought into it. Yes, you can buy permits to get out of it but, obviously, as the price of permits increases it is going to become increasingly difficult. Is it necessary? I would say that it probably is. It is the general course that is being done. If you had simply an indefinite period, which is the other option, that does not solve the problem of people saying it is too long. I imagine that people have been saying that the length of the period is a deterrent to getting involved. Obviously, if you do not have some period or an ongoing obligation then there is the fear that people would simply default on projects. That leaves the liability holding somewhere else, either with a future land-holder or with the Commonwealth.

CHAIR: Okay, I was curious from almost a legal perspective as to whether you had given it some thought.

Ms HALL: Reading your submission your recommendation goes to one particular aspect. Is it fair to say that you are supportive of the legislation that we are looking at?

Mr MacIntosh : Yes.

Ms HALL: That is good. Your suggestion is looking at, I suppose, perverse outcomes. Would you like to share with the committee the types of perverse outcomes that you think could occur? You said it is not an enormous issue at first but further down the track you can see it possibly becoming an issue.

Mr MacIntosh : The main one is to do with reafforestation and potentially revegetation—mostly it is going to be reafforestation. Obviously, the fear is that you would have an enormous amount of reafforestation in particular regions. That would firstly from a social impact probably put pressure on local towns just like we have seen with MI schemes. There is pressure on local water resources, obviously forests draw a lot of water, and under the National Water Initiative they are trying to integrate water with things like reafforestation. You could potentially have adverse biodiversity impacts. A great example is in Tasmania where they have had a homogenous plantings and you have seen water pollution as a result of single species eucalypt plantings. There are these sorts of environmental impacts as well as those social impacts.

Ms HALL: Another message you are giving us is that it is imperative that we get the planning right.

Mr MacIntosh : Yes, this scheme has to sit alongside some sort of planning scheme and that is what the EPBC Act provides. Obviously, the states will play a role in this because usually you cannot set up plantations without some sort of state approval as well. I think it would be remiss of the Commonwealth to set up a scheme like this just like the MI scheme where you provide an incentive for reafforestation without having some mechanism for controlling those perverse impacts.

Ms HALL: You mentioned the states and that was my next question. Do you think there will be any difficulties, problems or unforeseen issues that arise when dealing with the states?

Mr Macintosh : There are always issues dealing with the states, aren't there!

Ms HALL: How do you counteract that?

Mr Macintosh : The state and territory processes are very variable and very different; they are different in terms of planning and they are also different in terms of environmental processes. There are going to be issues with dealing with the states. That is the beauty of relying on the EPBC Act: the Commonwealth can basically confine itself or deal with those perverse impacts through its own process. By having a threshold, you are not saying every project that goes through this has to go through an environmental impact assessment process; it is only beyond a certain threshold. Of course, some level of reforestation in catchments is really not going to make that big a difference; it is when it crosses a certain threshold that you will have those issues.

Ms HALL: Thank you. You have answered all my questions. It is always good to have a new direction to look at and other suggestions for ways we can do things.

CHAIR: Returning to the question of the EPBC Act and the regulations, is it your suggestion that it be written into the legislation that the regulations must be in accordance with the EPBC Act or—

Mr Macintosh : Sorry, I should have explained it. I sort of assumed that everybody spends their days wading through the EPBC Act! With the EPBC Act you have to cross a threshold called the significant impact threshold, and there are a collection of triggers under that—matters of national environmental importance. There is also the power for the Commonwealth to make regulations. I am suggesting that you make regulations that say: for X regions, if there is this amount of revegetation and reforestation in this area any further project in that region requires approval under the EPBC Act, so it triggers the requirement under part 3 and therefore requires assessment and approval. The government or the minister would recommend to the Governor-General that regulations be made that would prescribe those threshold limits.

CHAIR: In the EPBC Act?

Mr Macintosh : Under the EPBC Act regulations.

CHAIR: Not under the Carbon Farming Initiative?

Mr Macintosh : No.

CHAIR: That is what I was trying to clarify.

Mr Macintosh : They would be sitting side by side.

CHAIR: Instead of having regulations, if you have pretty well identified a framework that you would work under, why would you not simply have it written into the original Carbon Farming Initiative legislation?

Mr Macintosh : That is a valid point. The Carbon Farming Initiative bill would be administered by DCC whereas the EPBC Act is administered by the department of the environment—I cannot remember what the hell it is called these days; it keeps changing its name every five minutes! If you put it just in the CFI bill it would sit under DCC's remit and, with respect to them, I do not think they have expertise in administering an environmental assessment and approval, particularly strategic assessments, like the environment department does. And the EPBC Act structure is already there. If you were concerned about regulations you could pass an amendment to the EPBC Act—there is nothing stopping you doing that—and that would effectively achieve the same thing. You would simply have a transitional bill that would accompany the CFI bill.

CHAIR: I can just see that being raised as perhaps a point of objection by some. Are you familiar with the five per cent risk of the reversal buffer?

Mr Macintosh : Yes.

CHAIR: Do you have a view on that?

Mr Macintosh : I think that is fair and reasonable. People have said it is just an arbitrary number picked out of the air. There are always going to be arbitrary numbers picked out of the air. Five per cent seems there or thereabouts in terms of the sorts of risks we are facing. Other countries have higher buffers, but I think five per cent is fairly reasonable.

CHAIR: That leads me to something else. You mentioned other countries. Are you familiar with what other countries are doing in respect of similar matters and is there any similar legislation that you are aware of that we could compare this with?

Mr Macintosh : From what I understand this is the first legislative offset scheme. There are other schemes that have offsets in them—GGAS in New South Wales and the ACT—but this is the first certification scheme of its type in the world as I understand it. There are other schemes. I am no expert—and I cannot go through tooth and nail again the details of other schemes and the sorts of offset requirements—but I have been told on good authority that the sorts of risk reversal buffers that other schemes have thought about have been in this ballpark and slightly larger in some cases.

CHAIR: That is consistent with other evidence that has been presented to us. No-one is absolutely certain because so far no-one has been able to categorically say that nothing else exists anywhere else. That is why I am asking you as well.

Mr Macintosh : I am peeling through my head. The New Zealand emissions trading scheme has certain things like that and there is GGAS in New South Wales.

CHAIR: That has been mentioned. Thank you for what you have presented. Your comments in respect of the EPBC Act I suspect will be very useful in trying to address some of the concerns that have been raised. I thank you for that and for your submission.

Mr Macintosh : Thank you for your time.

Proceedings suspended from 15 : 16 to 15:32

GIBBS, Mr Mark, General Manager, Climate Change Policy, Department of Agriculture, Fisheries and Forestry

STUART-FOX, Mrs Maya, Assistant Secretary, Carbon Farming Policy Branch, Department of Climate Change and Energy Efficiency

STURGISS, Mr Robert George, Assistant Secretary, Land Analysis and Accounts Branch, Department of Climate Change and Energy Efficiency

THOMPSON, Mrs Shayleen, First Assistant Secretary, Land Division, Department of Climate Change and Energy Efficiency

CHAIR: We have heard from a number of people who have made submissions to the committee during the course of the day and there will be some questions arising from those submissions. Mrs Stuart-Fox made a presentation to the committee this morning. Mrs Thompson, is there anything else you want to add to the presentation that was given to us—albeit you were not here so I assume you may not be aware of everything that was said to us.

Mrs Thompson : We have prepared a formal opening statement for the committee, which I am very happy to read out if that would assist.

CHAIR: Sure.

Mrs Thompson : The Land Division has responsibility for the work on the carbon farming legislation. The Carbon Credits (Carbon Farming Initiative) Bill 2011 fulfils the government's election commitment to give farmers, forest growers and landholders access to carbon markets. This will begin to unlock the abatement opportunities in the land sectors, which make up almost a quarter of Australia's greenhouse gas emissions. The land sectors have an important role to play in Australia's climate change response. Our natural assets mean that while we have some of the highest agricultural emissions in the developed world there are also significant opportunities to increase carbon storage on the land. Action taken to reduce emissions or increase carbon storage under the Carbon Farming Initiative is also likely to help increase the land sector's resilience to the impacts of climate change, protect our natural environment and improve long-term farm productivity.

We have already made substantial progress in these areas with more than $46.2 million invested into research and development of abatement in climate change adaptation options for the Australian land sectors. CFI will provide new incentives for farmers to adopt new ways of improving the health of their soils, improving herd efficiency and farming more sustainably. The government has developed methodologies for manure management, landfill emissions, savannah farm management and reforestation. We are working with stakeholders to develop methodologies for soil carbon, reductions in livestock emissions and for application in the range lands. Private proponents are also coming forward with methodologies. The Carbon Farming Initiative provides these incentives in a way that does not see the government itself trying to pick winners. It provides a mechanism for farmers to add value to their actions and decide for themselves whether or not there is sufficient incentive to invest. The Carbon Farming Initiative is a voluntary scheme. There is no requirement on anyone to participate, but those that do will be eligible to receive carbon credits for every tonne of greenhouse gas saved or stored. These credits will be able to be exported or sold here in Australia to companies or individuals wishing to offset their emissions or sell carbon neutral products. The scheme has been designed to encourage broad participation without compromising the environmental integrity and market value of the credits generated.

Submissions from a diverse range of organisation—including carbon businesses and established abatement providers; representatives of the agriculture, forestry, landfill and clean energy sectors; regional natural resource management bodies; state governments and environmental non-government organisations—all welcomed the CFI legislation and noted its potential to contribute to the national emissions reduction effort. The National Association of Forest Industries, for example, said that it considers the CFI to be an important interim measure to provide investment certainty and access to voluntary domestic and international carbon markets. The Wentworth Group of Concerned Scientists said that the legislation represents a sound market based approach for achieving land sector abatement and that it establishes a solid framework for taking advantage of Australia's potential for biosequestration. The National Farmers Federation also welcomed the introduction of the legislation to parliament, noting that many of its initial concerns about the scheme's design had been addressed through the consultation process. Indeed, several improvements were made to the legislation following widespread consultation with stakeholders earlier this year. The changes simplify aspects of the scheme's administration and will further reduce participation costs. They also provide stronger safeguards against potential adverse impacts from abatement projects.

The key change has been the streamlining of the additionality test. Individual project proponents will not need to demonstrate their project's additionality to the scheme administrator. Rather, the government will identify and list eligible activities that are not already in widespread use and deem these to be additional in regulations. The government will consult with stakeholders to identify activities for inclusion on the list. To be eligible an activity would need to go beyond common practice in an industry or under specific regional or environmental circumstances. Other aspects of administration that have been streamlined include reporting and some audit requirements. Proponents will be able to choose a reporting period between 12 months and five years. Auditing may also be reduced for small or less complex projects.

The bill includes an objective to achieve carbon abatement in a manner that is consistent with the protection of Australia's natural environment and improves resilience to the impacts of climate change. Activities that have a high potential for adverse impacts on regional communities' water and biodiversity will be ineligible for Carbon Farming Initiative credits and listed in regulations. Eligible projects will need to comply with all state, Commonwealth and local government water, land-use planning and environmental regulations and to take account of regional natural resource management plans.

CHAIR: I might stop you there, because this is the exact statement that you have provided to the Senate committee, and members have access to that if they want to read the full statement. Given that I am aware that some members have a plane to catch and a number of questions arise from today's hearings that we would like to put to you, could you just wrap up your opening statement by summarising any critical issue that you feel the committee would not be aware of. We will then go questions, if you do not mind.

Mrs Thompson : The main changes that we have made to the statement following on from the Senate committee have already been put into my opening statement, so we are happy to take the statement as read if in fact it has been provided to the committee and move on.

CHAIR: Thank you. I note that there are a number of questions. Ms Hall?

Ms HALL: One issue that has arisen today that is important to me is around carbon literacy and the plans the department may have to deal with carbon literacy amongst land users and within communities generally so that they will be more inclined to embrace this legislation and the programs that will be available under it. Given that there can be some resistance to new ideas, and carbon farming is a new idea, it might be useful if you could share with the committee ideas and initiatives that will be undertaken in that area.

Mrs Thompson : The carbon farming initiative also included some quite specific information provisions and outreach activity for farmers and other landholders to address, as you say, the particular problem that you mention.

Ms HALL: Did you say 'included'?

Mrs Thompson : Yes. I will invite my colleague from DAFF, Mark Gibbs, to tell us a little bit more about that stream of work, given that DAFF takes the lead on that.

Mr Gibbs : What Mrs Thompson is alluding to is that under the CFI package there is $4 million dedicated to using the Landcare movement to extend it and work with land managers to implement the CFI, the Carbon Farming Initiative. We have set up a steering group to implement that initiative and we have looked at things like carbon literacy. Members of that steering group are very keen on carbon literacy, recognising the points that you have made—that we have a new piece of legislation. We need to start talking with land managers about what that bill means and how it is implemented. We figure that the best way to start that is to use a group like Landcare, with their 56 regions. One thing that will come out of the CFI is that no regions are the same. They are different. Having these people within a regional context means they can talk to farmers about different elements. To work with the Landcare managers we will be doing some activities. We have already held a national forum with the Landcare managers. We are also starting to prepare some course material that goes through the basics of the Carbon Credits (Carbon Farming Initiative) Bill. It is a training module for working with that Landcare network. We will be doing some further work on the key messages and how we give those key messages to farmers in the right way, which builds their knowledge around the Carbon Farming Initiative and the opportunities that are there for them.

Ms HALL: And will this be ongoing?

Mr Gibbs : This is for another three years after this financial year.

Ms HALL: Good. The next issue to raise is that we have received a submission from Andrew Macintosh. He provided evidence to the committee just before you. In his submission he suggested that there could be some unintentional, perverse outcomes. His suggestion was that the CFI be linked to the regulations made under part 3, section 25 of the EPBC Act.

Mrs Thompson : We saw that suggestion in Mr Macintosh's submission. Our feeling is that the carbon farming bill contains a number of provisions to address the potential for perverse outcomes from carbon farming projects. The most important of those I mentioned in my opening statement, which is this proposal we have for what we are calling a 'negative list'. That will create in regulation a list of activities that are ineligible under carbon farming so that they will not be able to be undertaken. The proposal is that we will be consulting with stakeholders very soon on the items that should go on to the negative list. Then that will be brought forward as part of this process.

One of the strengths of the negative list is that it means that you can actually be quite specific about the particular adverse impact that you are trying to avoid, even going down to a local or catchment level with respect to the particular environmental conditions that are in place there or that are associated with the activities of a particular sector. So we think it is going to be a very powerful tool for ensuring that we do not in fact have the sorts of problems that Andrew Macintosh is looking to solve. I guess our feeling on this is that it is better to use the regulatory architecture specifically for carbon farming to address those particular problems rather than going through a bill like the EPBC Act, which we think will risk the potential of being less targeted to the particular problems that the CFI has. To put it another way, we think the best way of solving issues associated with the CFI is within the CFI legislation itself.

Ms HALL: The Wentworth Group also gave evidence today and they put forward that this was an opportunity to pay farmers to manage land. They emphasised that it was basically a once-in-a-lifetime opportunity to get it right. They emphasised the need for planning and putting in place the right sort of approach, one that was really well planned. Would you like to comment on that and whether or not you see that provisions within this legislation are adequate to cover the planning needs not only from a Commonwealth perspective but also pulling in the states and local governments as well?

Mrs Thompson : One of the other elements that carbon farming has also to address this potential for adverse outcomes is to draw on the catchment management plans, and I know that is one of the issues that the Wentworth Group raised in their submission. Our proposal is that each of the 56 catchment authorities prepare plans that try to balance the land uses in their particular local regions, and we are saying that carbon farming offsets projects need to take account of these plans. They are actually a very important way, we think, of giving local communities a say in the land use planning decisions that go on in their local areas.

It is the case, we acknowledge, that the plans vary a bit at the moment in terms of how well they deal with climate change mitigation or emissions reduction approaches and also with looking ahead to adapting to climate change impacts. So what we are wanting to do with the plans is to work with departments like SOPAC, the environment department and also our colleagues in DAFF, to ensure that the plans are enhanced in their ability to deal with these issues. In that regard, we are planning a workshop in early June with a number of the representatives from the catchment management authorities and also people with expertise in terms of adapting to climate change and thinking about how best to deal with land use impacts with a view to improving these plans' ability to address the needs of the carbon farming initiative.

Ms BURKE: The NRM chair this morning made that very comment. One of her difficulties was that they are state regulated and so in various places—and some are just voluntary groups—what was envisaged under the National Heritage Act has not come to pass. So her argument is that the 56 are not operating on the level as envisaged by this act and they will need a lot more money to come up to speed and a lot more direction from state government to ensure that they are complying with state government requirement as well as your requirements. Some of these groups are voluntary organisations coming together and, as the Chair said, they do not have the capacity to do all that and it is going to require a little more than a workshop to get them there.

Mrs Thompson : I think that it is a well-known point that a journey of a thousand miles begins with a single step. Of course the workshop would be the beginning of an effort to address the sorts of issues you are referring to. I think that it is worth bearing in mind that the Commonwealth's approach to the catchment management plans and the catchment management bodies is mainly done through the Caring for Our Country program that is jointly administered by the environment department and DAFF, and there is actually a review of Caring for Our Country going on at the moment. So this effort with a workshop is not a one-off or a single shot in the locker; it is actually the beginning of what would be a much longer process to address and deal with the sorts of concerns you are just raising.

Ms HALL: That was a very good point, Anna. I have had a lot of dealings with total catchment management groups and I know that they vary considerably. They can be quite political bodies and that can interfere with the operations that the department has planned for them. You need to be cognisant of that fact. We really want this legislation to work; it is good legislation. We need to put in place the right sorts of safety mechanisms to ensure that it does.

Mrs Thompson : I want to be a bit clearer on that, because I might not have been as clear as I should have been. What we are really saying is that we agree that the catchment management bodies and plans vary in terms of their capacity and nature and so forth across the various jurisdictions. But we see them as the vehicles for local communities to use to have their say in terms of what land use activities happen in their regions. We see the main vehicle for dealing with the perverse outcomes problem—and these perverse outcomes can range from problems to do with local biodiversity or with water or whatever—as being the negative list that I was talking about earlier. We are really looking at a multipronged approach, if you like, in dealing with these sorts of problems. The main role of the catchment management plans is engaging local communities and allowing them to have a say in what is going on in their areas.

Ms HALL: This question flows on from something that I mentioned earlier this morning when Mrs Stuart-Fox came and spoke to us. I asked whether there are any similar schemes operating anywhere internationally, and we talked about the Chicago one.

Mr Gibbs : Alberta.

Ms HALL: That is where I am coming to. The scheme in Chicago is folding up. We found out later that there is a similar scheme in operation in Alberta, Canada. We want to check whether or not that is operating and to what degree the department has looked at it.

Mrs Stuart-Fox : My understanding is that it is operating. There are methodologies that are developing over time. We have looked at it in the design of this scheme. But, having said that, we are very aware of the particulars of Australia's natural environment and the variability in our landscape. While we have looked at overseas schemes and learnt a lot of lessons from them, in terms of the way that this scheme has been designed it has been very driven by the interests and needs of our particular stakeholders and landscape.

Ms HALL: If you have looked at that Alberta scheme, how successful has that been?

Mrs Stuart-Fox : One of the issues with these schemes is the demand side. One of the issues there is that you do not have a huge amount of demand in those schemes. It is similar to things like the CDM or the voluntary carbon standard, which also credits land sector abatement. The amount of abatement that those schemes generate is partly a product of the way in which those schemes are designed—what sorts of integrity standards and administrative processes and order processes that they have—but large a product of how much demand you have coming in. If you have voluntary demand, it is going to be reasonably small. The fact that you have low levels of demand does not necessary mean that the scheme has been poorly designed. It is just the fact that there is no mandatory obligation and voluntary demand can be quite low. So it can be difficult to draw conclusions about the success or otherwise of a scheme from the amount of abatement that is being pulled through.

Ms BURKE: To clarify, we are living in a new paradigm. We have had these bills referred to us by the select committee. We have not chosen to drag you out today. In our new world, House committees can have bills referred to them in very much the same way as Senate committees. This is not something that we have dreamed up. Someone from one of the parties, and they do not have to give us a reason, has asked us to investigate the bills. We are trying to do it as quickly as we can. As I said to Mrs Stuart-Fox today, we recognise the difficulty in that there is a Senate inquiry happening with a report coming out and we are about to do one as well. So we do not want to make your life any more difficult than it already is but, at the same time, it is complex legislation and we would rather get it right now. We have already lived through one set of this legislation not getting up. Hopefully the second time round we may be more successful. One of the issues that keeps coming back is methodology. Some people are worried about a list. One of the groups said: 'It should be project by project.' It should be an overall assessment so that the perverse effects and the leakage, all those concerns, can be dealt with. It is not a list where you just tick a box; it must be whether it works. If you move the cows from here, has someone replaced them with cows somewhere else? So we need to look at the whole picture. Do you envisage that legislation will actually work like that in the end or is it going to be literally project by project?

Mrs Thompson : My own view is that, in toto, the culmination of the regulatory framework for the carbon farming bill is actually an extremely effective way of dealing with all of those concerns. The bill has in legislation the requirement for permanence—and I gather Mrs Stuart-Fox talked to you about those had this morning. With respect to the methodologies and issues like leakage, we are saying that projects will need to have an appropriate and relevant methodology to govern how they are going to deal with the estimation, reporting and verification that applies to all the projects that would fit under this particular methodology. That means that you can have quite a granulated approach to dealing with those issues. With respect to leakage, I think it is quite important to be clear about what the concern actually is. Sometimes when people talk about leakage, they are actually talking about emissions that result from the project activity and are within the control of the proponents themselves. It might be something like getting more fossil fuel emissions from transport than you otherwise would as a result of doing the project. The methodological guidance that the department has issued makes it very clear that those sorts of emissions need to be captured within what we are calling the 'greenhouse gas assessment boundary' that is part of the methodology that applies to this particular types of projects.

With respect to other sorts of leakage, you can have what is known as a leakage effect whereby there is an increase in emissions that is not actually within the control of the project proponents themselves. An example might be that a farmer decides to take action to reduce methane from his herd. This would lead to increased costs for him. The farmer down the road then meets the gap in demand by increasing his cows, say. The department have said that we are aware of that as a particular problem. The methodological guidance indicated that what we would be doing on that is holding a workshop in June to discuss with stakeholders some approaches to deal with that production affect leakage and then they will become part of the regulatory package that sits alongside carbon farming. We have indicated to stakeholders that that might involve some discounting of the permits that they might actually get.

If you look at the whole of carbon farming and all things it puts in place—the positive list for additionality, the negative list to address perverse incentives and the rules for methodologies, which will themselves be legislative instruments that go before the parliament for approval—you have an approach that is actually very well designed in terms of dealing with all these problems from the land sector.

I made a presentation on carbon farming to a number of international visitors this week and their view was that we had in fact solved four problems that had been befitting the international climate negotiations and project level approaches for offsets for many years, and they thought it was one of the best designs they have seen. That is a view that is also shared by Professor Garnaut and Will Steffen, who is one of the leading climate change scientists.

Ms BURKE: I know Will; we all know Will.

Mrs Thompson : You know Will very well, yes.

Ms BURKE: I will declare that I am on the board of ClimateWorks Australia, so I have met Will Steffen. I suppose I should have declared that at the beginning, shouldn't I? I have just been appointed to the board of ClimateWorks Australia. One of the other things, leading on from that, is the notion of buy-in and the list not being ready when the legislation goes. The list is not going to come when these bills are being put up. So there is a concern that we are buying into something but we actually do not know what we are buying into. The negative-positive list is not there yet. Are we putting the cart before the horse? Should we wait for that to be done? I know that is a policy question and it is a little unfair to ask that, but is there a need to do this now so that you can actually get that list in train, or should it wait for the list to be there?

Mrs Thompson : I think of one of the challenges with taking these approaches and having the negative and the positive list is that, as I said, we are looking to design them quite explicitly to be very tailored to particular local conditions and needs. That means, in my view, that it is something that is very difficult to do in legislation. You actually do need to do it in regulations so that you can have the consultation process on it and you need the capacity to change it as new information and scientific evidence come to light. I think there are some very sound reasons for doing it in regulation. We are intending to begin the consultations on both the negative and the positive list very soon. We also have put in the explanatory memorandum of the bill a number of examples for both the negative and the positive list to give people a bit of a feel for what we have in mind. If it would help, I can ask Mrs Stuart-Fox to take us through some of those.

Mrs Stuart-Fox : I can do that. We talked briefly about it this morning. On the positive list are things that are not commercial activities and are now unlikely to happen without a carbon incentive. They are things like savannah fire management, establishing environmental plantings, capturing and flaring methane from piggeries and other intensive farm operations, and capturing and flaring methane from landfill. They are some of the things that you would imagine would be on a positive list.

On a negative list you are really looking at perverse outcomes. We talked about overallocated catchments, but you also want to prevent perverse outcomes such as clearing existing trees to plant new trees. So we would say that if you have just cleared the trees then we are not going to give you credits for then replanting them. That is something else. There is also the conversion of existing plantations established for harvest, for example, under those MIS schemes. All of a sudden it might not be viable to harvest those, so people are saying, 'Could I convert it into a carbon sink?' There are problems with trying to keep commercial plantations established for harvest and then keeping them for very long periods of time. We are saying that that is something that you might include on the negative list.

Ms BURKE: Would that also include the fear of using good arable land? In the long run, planting a forest might be more commercially viable, a bit like the wonderful tax schemes you have just referred to.

Mrs Stuart-Fox : When we have looked at it, the economics of doing that make that highly unlikely. When you have an agricultural activity you are of course getting a revenue each year that is ongoing, whereas if you plant a carbon sink it generates revenue for a period of time and then that stops and you have to hold it. So the economics make it very unlikely that you would convert it. But if there were concerns about it then the negative list would be exactly the way that you would address that.

Mrs Thompson : In fact, what we are saying is that commercial forestry, which was so strong incentivised by MIS, generally will fail a common practice additionality test, so that is not going to be raising that sort of concern.

Ms BURKE: As you have seen, the notion that good arable land is going to go to trees has been raised in most of the submissions. The other issue, which nobody has really brought up, is planting crops for ethanol. I am surprised nobody has mentioned that and food scarcity. People usually do. That is the other use of the land.

You were saying that with the Alberta model you cannot measure the abatement, but we are proposing a voluntary model at the outset. Have you done any analysis about what you think will be the take-up rates and how successful this scheme is going to be?

Mrs Thompson : The department has done some initial analysis of what we think the abatement will be from carbon farming. I will ask my colleague Mr Sturgiss to take us through that.

Mr Sturgiss : I manage the land accounts analysis branch in the land division. Just before Easter we issued a discussion paper as we were trying to plug an information gap. The technical potential of abatement in the land sector has been well discussed. Professor Garnaut has discussed it in detail. It is a story that has been around for a while, and we have known for a long time that the land is a significant contributor to abatement. This document is trying to bring together some realistic and achievable estimates of abatement that are linked to a carbon price, which is consistent with prevailing prices in international markets currently. We are bringing it all together across all the different sources. We put an estimate in the range of five to 15 million tonnes of abatement by 2020.

Mrs Thompson : In 2020.

Mr Sturgiss : An annual abatement of that range. Compared to the technical potential, that is a small number but compared to the abatement achieved by many other government programs, it is going to be a contributor in future.

Mrs Thompson : I think the takeaway point is that we are expecting a fairly modest uptake of carbon farming in the initial years of the scheme. Part of that is because we believe there are a number of barriers to landholders taking on some of these practices. In some cases, the methodologies do not yet exist and will need to be prepared. In addition, because of the additionality test, you will of course need projects to get their method approved, be implemented on the ground and then start sequestering carbon.

Even though the abatement is fairly modest in 2020—and I should emphasise that is a point estimate of what you would get in 2020; we have not quantified what you would get in the lead-up to 2020 and beyond that—we think that once landholders and farmers start becoming familiar with the opportunities for carbon farming once the methodologies are there, you would be looking at a much stronger abatement uptake going forward. Of course if the international rules change so that some of the abatement that is sitting outside Australia's Kyoto accounts is brought in, you would expect to see a bit more uptake from the non-Kyoto abatement like soil perhaps going forward.

As Rob is saying, between five and 15 sounds fairly small but that is still second only to the renewable energy target in terms of current measures and what they are delivering in terms of emissions reduction. It is a not insignificant contribution to the abatement effort.

Dr WASHER: I am fine. All the questions I was going to ask have been asked, so I am pretty content. I will make a quick comment: in one of the presentations the presenter felt that the 100-year permits rule was a bit of a disincentive to people when perhaps it was not necessary, because if you did not continue the credits would be taken back from you and there would be a penalty to pay. That would be a disincentive not to continue. I thought you might comment on that.

Mrs Thompson : We understand the concerns around permanence and that it will act as a barrier to uptake. I think the bottom line is that carbon farming has been designed for the voluntary market and permanence is one of those things that is an absolute requirement. Of course the problem with biosequestration, unlike emissions reductions from fossil fuels and other sources, that particular quantum of abatement that is stored in the trees or the soil, can be returned to the atmosphere. If that happens, you do not get an environmental benefit at all. The 100 years is really a proxy for in perpetuity, if you like. It just gives it a finite end point. We understand people's concerns about the permanence requirement but we believe it is absolutely essential to the environmental integrity of the scheme.

Mrs Stuart-Fox : And the value of the credits.

Dr WASHER: Thank you—I did not necessarily agree with the comment but I wanted you to elucidate.

CHAIR: There are a couple of things that have risen over the course of the day. Firstly, in respect to the Indigenous consultation, there was a presentation made to us—can you just outline for me how you intend to continue that consultation with Indigenous people?

Mrs Stuart-Fox : We envisage a two-pronged approach. There are a lot of complicated legal issues and a number of these organisations, particularly the land councils, have very significant technical capacity. So we would look at targeted consultation with representatives of those organisations to talk through some of the very complicated native title issues and related matters. But there is also, within Indigenous communities and regional areas, great interest in and demand for information about carbon opportunities. So we are looking at doing a roadshow of regional areas in conjunction with the Department of Education, Employment and Workplace Relations and FaHCSIA to provide a range of information in a whole-of-government way—not just what the carbon market opportunities are, but also what capacity-building or other assistance DEEWR and other agencies might be able to provide.

CHAIR: Mrs Thompson ,you referred in your opening comments to the amount of money that had been invested in research and development—I think it was $46 million last year—and also to the level of support for this initiative. Is there any significant opposition to this legislation from any sector?

Mrs Thompson : That is a very good question. Our understanding is that, as I tried to say in my opening statement, people—stakeholders—are generally very supportive of the bill and the approach. Having said that, I think people are using possibly this committee and also the Senate committee as an opportunity to raise the issues that they feel still merit some attention. I guess it is fair to say that the forestry industry would prefer that we did not have the additionality test that we are applying to commercial forestry. They would obviously have preferred it if the government had adopted the same approach as it had for the Carbon Pollution Reduction Scheme, although I should say that that is an issue that is still under consideration. As far as I am aware, that is the only sector or industry that has raised a very serious concern.

The discussion this afternoon has, I think, highlighted the issues that people have raised. I think, though, that it is a matter of putting together an approach that balances environmental integrity with creating an incentive for farmers and landholders to take action on their land. One of the unknowns about carbon farming is how the market will indeed respond to there being, for the first time, this very clear legislative framework to underpin people taking these sorts of actions. I think that is the great strength of carbon farming—that it offers the opportunity to road-test the research that our colleagues in DAFF have been funding for some time and actually see how it can work on the ground.

One of the issues that people talk about a lot in that context is the differing views about the potential for soil carbon. I think the fantastic thing about carbon farming is that for the first time people will be able to do these projects and see how much they can actually deliver on the back of a methodology that will be assessed through the Domestic Offsets Integrity Committee. I think the potential for learning by doing and for road-testing approaches to deal with climate change for sectors that have not really had that opportunity before is going to be really significant.

CHAIR: I mentioned the $46 million in research funding because I believe that that may be coming to an end—if it has not already ended—and two other submissions clearly ask for more research dollars in order to support this legislation. The soil carbon example is a good one—we need far more scientific research in order to determine just how effective it is and how you can put the methodologies in place to grant the necessary credits. Are you aware of any proposal to do that—to invest in additional research to enable us to effectively put into place this very proposal?

Mrs Thompson : There are a couple of things. A number of the stakeholders, as you say, have raised this desire for more research and development and outreach funding to support carbon farming, so that is something that government is thinking about. The other thing I should say, though, is that the government is providing quite a lot of support to the development of the methodologies, and that is looking to pick up the outcomes of the research work that Mark's department has been doing over the last few years and putting it into this methodology that will give people the wherewithal to start doing these projects and estimate the emissions reductions on the ground. The department have work streams in place, and we have set up technical working groups with stakeholders, scientific experts and so forth who are working together on putting these methodologies in place, supported by the department. Soil is one of the ones that are in that work stream. We also have work going ahead on avoided deforestation and a few of the others.

So I would not want the committee to not understand that the government is actually doing quite a bit at the moment to support that effort; it is just that it is being done through a collaborative partnership-type approach rather than through giving people grants to go off and develop up some more of these methodologies.

CHAIR: Finally from me: the question of the 100-year life span of a project was also raised, and I have two questions on it. Firstly, it was suggested that it complies, or fits in, with international standards, and I just want confirmation, if you can confirm that, that that is the case. Secondly, I believe it was the Wentworth Group of Concerned Scientists who suggested that people can in fact withdraw from the scheme by in turn purchasing the credits that they were paid for in the first place. Is there any justification for having any timeframe on the scheme at all?

Mrs Stuart-Fox : There is some history to this. When we first did the CPRS, which had a very similar permanence model, we had no time limit on it; it just had that if at any point you chop the trees down you hand back the permits. Industry came back and were sort of perturbed by this, and they asked for a time limit on it. We then did various bits of consultation around time limits, and there was not an awful lot of difference between 70 years and 100 years, because it is beyond anybody's lifetime and beyond normal contractual or payback periods. So, because 100 years was consistent with international thinking, it has become a bit of a proxy for permanence. It was felt that there was not a lot of impact on the project proponent—none of us are going to be around—but in terms of 100 years it gave that integrity to the credits and enhanced their value quite considerably.

That is a little bit of a background to the way that that thinking about that number has evolved.

Dr WASHER: Thank you very much for coming back and for answering those questions for us. I am sure that you have probably had to go through this again with the Senate committee. As I think I explained to you earlier, that is not our doing, but we will provide our report ASAP. Obviously that is what we are trying to do, and that is why we are trying to complete the hearings today.

Mrs Thompson : I just want to apologise again for being late and for us not getting the message that you wanted us early. Given that our time got a bit truncated as a result, if there are any other questions or anything else we can assist the committee with, we would be very happy to supply those by e-mail or indeed to come back up and talk to one or all of you, if that would assist.

CHAIR: Thank you very much for that.

Committee adjourned at 16 : 19