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Australian National Registry of Emissions Units Bill 2011; Carbon Credits (Carbon Farming Initiative) Bill 2011; Carbon Credits (Consequential Amendments) Bill 2011

CHAIR —Thank you for your appearance here today. As departmental officers you will not be asked to give opinion on matters of policy, although this does not preclude questions asking for explanations of policy or factual questions about when and how policies were adopted. Do you wish to make a brief opening statement before we go to questions?

Ms Thompson —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.

Agriculture is also likely to be among the sectors most strongly affected by climate change in Australia. Decreased rainfall in south-west and south-east Australia may reduce water availability and put pressure on water allocation systems. Altered growing seasons may lead to shifts in areas where some crops can be produced, and increased frequency and intensity of floods and droughts may lead to more frequent and extensive production losses and damage to property.

Action taken to reduce emissions or increase carbon storage under the Carbon Farming Initiative is also likely to help increase the land sectors’ resilience to the impacts of climate change, protect our natural environment and improve long-term farm productivity. For example, increasing carbon storage in agricultural soils improves soil health and productivity. Revegetation will help restore degraded landscapes, provide biodiversity habitats and corridors, help to address salinity, protect livestock and reduce erosion. We have already made substantial progress in these areas, with more than $46.2 million invested in research and development of abatement and climate change adaptation options for the Australian land sectors.

The 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, savanna fire management and reforestation. The government is working with stakeholders to develop methodologies for soil carbon, reduction in livestock emissions and applications in the rangelands. 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 to decide for themselves whether there is sufficient incentive to invest.

The Carbon Farming Initiative is a voluntary scheme. There is no requirement on anyone to participate, but those who do will be eligible to receive carbon credits for every tonne of greenhouse gas emission 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.

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.

A key change has been 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 be 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. Project proponents will be able to choose a reporting period of 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 take account of regional natural resource management plans.

The government will monitor the implications of the scheme for regional communities and will consider further protections if there is evidence of material adverse impacts. At the same time, the government is making it easier to market the social and environmental benefits of Carbon Farming Initiative projects beyond the carbon abatement outcome by establishing a co-benefits index. This will provide a low cost method for evaluating and reporting on biodiversity and community benefits of projects and enable voluntary buyers to identify premium credits with a positive story.

Because carbon credits are used by individuals or companies to counteract the emissions they create during their day-to-day life or normal course of business, it is important that they represent real emissions reductions. Experience in carbon markets has shown that when consumer confidence in the environmental integrity of credits is lost, prices fall rapidly in response. The Carbon Farming Initiative legislation includes strong provisions to ensure the environmental integrity of Australian carbon credits.

An independent expert committee, the Domestic Offsets Integrity Committee, will assess methodologies and give advice to the government on their approval, ensuring they lead to verifiable emissions reductions. Credits will only be issued after emissions reductions have been achieved, and permanence provisions will ensure that stored carbon is not subsequently released, cancelling out any benefits for the atmosphere.

The permanence arrangements are rigorous yet flexible and well suited to Australian conditions. Landholders will not be locked into the scheme and will be able to cancel their projects and hand back credits at any time should their circumstances change. If carbon is lost through no fault of their own—for example, as a result of bushfire or drought—they will not have to return credits; rather, they will be required to take steps to re-establish the carbon stores.

Further provisions will work to minimize the potential for fraud and dishonest conduct. All project proponents will need to meet a ‘fit and proper’ person test, all credits will be tracked in a central national registry, and buyers and other interested stakeholders will be able to examine information about abatement projects in a publicly available database. Appropriate enforcement provisions are in place to address noncompliance.

Together, these provisions ensure the Carbon Farming Initiative provides a robust long-term framework for rewarding land sector abatement and ensuring the sector is part of Australia’s solution to climate change. The Carbon Farming Initiative will create new, real and lasting economic opportunities and increase the sustainability and resilience of rural communities.

CHAIR —Thanks, Ms Thompson. We will now go to questions. I might kick off. There has been much debate about abatement and how much abatement you can achieve. What is the department’s best advice at the moment in terms of soil carbon abatement?

Ms Thompson —We believe that soil carbon—which is, of course, currently sitting outside the Kyoto accounts for Australia—will be, as a result of the Carbon Farming Initiative, delivering abatement in the order of between 0.5 and one megatonne in 2020. So it is, in fact, according to our estimates, a fairly modest quantum of abatement from soil carbon. I should note that there is considerable work going on at the moment, and I will invite my colleague from DAFF to talk a little bit about the support the government has given for investment and research on soil carbon.

I think we would acknowledge that estimates of potential abatement from soil carbon vary quite markedly. At this stage, however, there is not a methodology available for use for soil carbon, although I know a number of people are working quite hard to that end. So the department has estimated a fairly modest quantum of abatement from soil carbon at this stage—noting, too, that that assumption rests on a fairly low carbon price because the resulting permits would be non-Kyoto abatement.

Mr Gibbs —The soil carbon program has been going for a couple of years now under the Climate Change Research Program, a part of Australia’s Farming Future. It is a program that is sampling soil across the country, across different types of farm practices, to get a level of consistency in the way we measure soil carbon and to start to prepare for how we measure soil carbon in terms of what could be the opportunity for a carbon market but also to improve the standards we might use for measuring and communicating to farmers about the potential opportunities out there. That program is coordinated by CSIRO but I point out that, in each state, there are state based agencies, either from universities or from departments of primary industries, although some of the names have changed recently. There are people sampling these different practices. They are trying not only to match practices that have been going for some time but also to come up with a consistent way of sampling. The amount of sampling has increased significantly under that program.

CHAIR —There has been also some debate about how much land you would need to get a megatonne of abatement. Do you have any idea about what that would be?

Mr Gibbs —No, not off the top of my head. I have heard some of the debate going on, but what Ms Thompson just said about the level of abatement that could actually come from soil carbon gives you an idea that, despite what has been happening in the media over the last couple of years, our assessment of what could happen with soil carbon is less than some of the other numbers you would have heard around the place. At the end of the day, a market mechanism or a piece of legislation like the Carbon Farming Initiative will allow farmers to make judgments about whether to go through the process of trying to sequester carbon when they are also trying to grow crops or pasture for cattle, so they do face other economic signals and other business decisions in addition to soil carbon.

Ms Thompson —I would like to add to that. The department’s estimate of abatement that I mentioned earlier was underpinned by an assumption of a mitigation action on around one million hectares of land. To pick up Mr Gibbs’s point, I think that one of the key values of the Carbon Farming Initiative is that it will give farmers the opportunity to road test approaches to build up carbon in their soil and it will provide, I think for the first time, a really strong incentive for people to take the research and methodologies that Mr Gibbs was talking about and apply them on their land. I think we would all concede that views differ quite markedly on what sort of abatement you would get from soil carbon, but the strength of carbon farming is that it actually gives us the opportunity to test it on the ground.

CHAIR —And your figures run through until 2020?

Ms Thompson —They are a point estimate in 2020, so that is the quantum of abatement that we think will be delivered in 2020.

CHAIR —And that is with a market price, is it?

Ms Thompson —It is with an assumption about a fairly low price because it is non-Kyoto abatement, which means that it is sitting outside Australia’s Kyoto accounts at the moment. So the assumption rests on a price of $5 per tonne in 2020.

CHAIR —Have you done any figures on what you could achieve if there were no market price?

Ms Thompson —No.

CHAIR —We have had evidence here today that the additionality test is a problem. Can you take us to the additionality test and what the definition of ‘common industry practice’ is? I think it would be in the context of the forestry industry.

Ms Thompson —The first point I would like to make in this regard is that the Carbon Farming Initiative was designed for the voluntary market. Voluntary markets are essentially predicated on environmental integrity standards, and one of those turns around additionality. What that in fact means is that voluntary market buyers will not purchase abatement if they believe it is going to happen anyway. I think most people would concede that the additionality test is one of the more challenging elements of any offset scheme. So in response to quite a lot of feedback from stakeholders the government has worked very hard to streamline the additionality test to make it simpler and easier for people to use. What we have done is say that project proponents will not need to come to the administrator and have the additionality of their project assessed on a case-by-case basis. We are saying that, instead, the government will work with stakeholders through a consultation process to devise what we are calling a positive list of regulation. This will mean that activities that go beyond current common practice, that are not already in widespread use for a given sector, local area or set of environmental conditions, will be put on this positive list of regulations. We believe that it will be a very good method for ensuring that everyone is very clear about what will and what will not be deemed as additional for the purposes of the Carbon Farming Initiative.

With respect to commercial forestry, I think the obvious point is that commercial forestry is something that already happens a lot in a number of regions. In most cases we do not expect that commercial forestry will be able to meet the common practice test. That said, it is possible to envisage certain sorts of forestry practices that are geared around harvesting and could meet the common practice test in some circumstances. An example we have used in the past is hardwood plantations and low rainfall areas with a long rotation length could in fact meet the additionality test under some circumstances.

CHAIR —We have had evidence from the New South Wales Farmers Association and the National Farmers Federation. The National Farmers Federation indicated that there was great uncertainty on pricing and science and that they felt there would be adverse impacts and significant risks by adopting the approach of this legislation. Do you have any idea what these significant risks would be?

Ms Thompson —No. I think you might need to ask them that question. As I say, it is our belief that the additionality test we are proposing will provide a considerable degree of certainty for industry about whether their activities will be eligible for crediting under carbon farming.

CHAIR —Mr David Eyre, from the Farmers Federation, argued that he did not believe that the market works in this area. Is that a view that the department shares?

Ms Thompson —No. Our view with respect to these issues is that, because carbon farming is a market mechanism, it will allow the market to decide on which activities should be invested in and supported. I think it is fair to say that governments by and large do not have a very good track record of picking winners under these sorts of approaches, and efforts to do so through various grant programs often fall somewhat short of expectations. So it is our view that it is best to leverage the power of the market to try to drive abatement and create incentives for farmers to take positive action to benefit the environment and increase carbon stocks on their land.

CHAIR —I want to ask about Aboriginal rights and the application of native title in association with this. I am sure you have seen the submission from the group that came here today. Do you have any comment on how that would operate?

Ms Thompson —Yes, we do. I will ask my colleague Ms Stuart-Fox to respond on that question.

Ms Stuart-Fox —There are provisions in the legislation for holders of exclusive possession native title, as you might be aware. The government has indicated that it will undertake further consultation in relation to consent, so what sort of consent rights to abatement projects holders of other forms of native title less than exclusive possession native title would have. There will be a consultation process over the next three months. Many of the issues that were raised by groups this morning we hope to address through this consultation process.

CHAIR —Thank you.

Senator NASH —On the issue of soil carbon abatement, could you give me those figures again by 2020 for the soil carbon?

Ms Thompson —Certainly. In fact, we do have a paper that the department has prepared on abatement estimates from carbon farming, and I am happy to table that today.

Senator NASH —That would be great.

CHAIR —Could someone please move that the document be tabled? It has been moved. Thank you.

Senator NASH —Just to recap the figure you gave us earlier, I think it was point—

Ms Thompson —In this paper we have done some work in terms of providing some preliminary estimates of abatement from carbon farming. We have done that according to some high and low scenarios and the paper gives you some explanations of the assumptions that we have used for that. Under the low scenario we are estimating 0.3 of a megatonne from soil carbon in 2020. Under the higher scenario we are estimating 0.5 of a megatonne in 2020. As I said earlier, this estimate is underpinned by an assumption of—

Senator NASH —On that basis then there would be an expectation that the predominance of the abatement is going to come from forestry, from trees.

Ms Thompson —I do not know if you have got the paper in front of you, but we actually go through a number of the activities and provide abatement estimates. In fact, reforestation—and I should be clear that this is non-commercial forestry, so it is what we call environmental plantings. It would include the sort of plantings that Mr Grant was referring to earlier. We look at the abatement from reforestation, avoided deforestation and regrowth on managed lands, reduced enteric fermentation, nitrous oxide from agricultural soils, manure management and savanna, fire management and legacy waste management. We also look at rice cultivation and reduced emissions from field burning residue. Those are the abatement estimates categories that we have looked at from the Kyoto side of the coin. The emissions that are captured via Kyoto are counting.

We have started having a look at the abatement from forest management, which is the pre-1990 forest estate, and concluded that we need to do a fair bit more work on that. We have looked at reforestation on non-Kyoto land, revegetation, soil, biochar and feral camels. So we have got quite a suite of other emissions reductions. We are estimating from reforestation that under the low scenario it would deliver one megatonne in 2020 and under the high scenario it would deliver two megatonnes in 2020.

Overall, for the Kyoto compliant activities, we are estimating just under five for the low scenario and around 15 megatonnes in 2020 for the high scenario. I think the key message here is that the abatement estimates for carbon farming are fairly modest initially. It is perhaps worth pointing out though that if you take the high scenario they are second only to the emissions reductions we are currently getting from the renewable energy target. So even though it is a very small number compared with some of the estimates that have been published over the years, it actually is making a fairly significant contribution to Australia’s greenhouse gas mitigation effort.

Senator NASH —I was asking more in the context of which are going to have the greatest efficacy in terms of land use. I will read through that and then perhaps put some questions on notice one we have had a chance to have a look at it.

Back to the issue of the common practice and additionality—I know you answered it in terms of forestry for Senator Cameron—in terms of the soil carbon, and I note that you said at the outset that there are no methodologies yet for the soil carbon sequestration. What are you currently defining as common practice within the soil carbon sequestration field that will be excluded?

Ms Thompson —That is a very good question. I think that is one of the things we will need to look quite hard at when we are preparing the positive list for soil. The question really will be: in a given area is everyone already doing it? If they are then I think the view would be that it would be difficult for it to meet the additionality test under those circumstances.

Senator NASH —Just on that, how can you come up with the abatement figure of 0.3 to 0.5 of a megatonne for soil carbon when you do not know what practices will and will not be allowed?

Ms Thompson —That, again, is a very good question. Of course, in order to do this work we had to make some assumptions. I will turn to the relevant part of the paper so that I can take you through those. I should also point out that this does not include the separate category, which is the emissions from reducing fertiliser on the soil. That is another category. We did draw quite heavily on the CSIRO work on soil carbon that was published in 2009. The CSIRO work assumed a technical potential of 10 per cent of a national potential. We used some extrapolations from that, which were focused on Queensland, and back cast that to come up with a national approach.

With regard to the potential of the soil carbon sequestration rate, we assumed that the sequestered carbon would remain permanently in the soil. This is one of the issues that means that you need to think quite carefully about what you can and cannot include, because some of the practices that people look at doing do not necessarily lead to the permanent storage of soil. That was one of the other things that we looked at.

Senator NASH —Thank you for that. I am still a little intrigued as to how, when you do not know how the carbon is going to be stored in the soil because you do not know what practices are going to be used, you can come up with a measurement.

Ms Thompson —Sorry, Senator. If I conveyed that impression then I was being very unclear and I apologise for that. We are aware of a number of practices that farmers can adopt that will improve the carbon in their soil. We assumed that they were doing some of those for the purposes of this analysis.

Senator NASH —Great. What are they?

Ms Thompson —Can I just—

Senator NASH —Can you just answer that bit for me before we go any further?

Ms Thompson —Sorry, what was the question?

Senator NASH —You just said that you are aware of some of the practices that can be used to store the carbon. I am assuming they will get the tick because they have been used for this measurement. I am just interested to know what they are.

Ms Thompson —One of the ones that people talk about a lot is this idea of flipping between pasture and cropping. That means that you get a permanent vegetation cover on your soil and, under certain circumstances, you can increase the carbon levels in your soil. If I could just go on to pick up on your earlier comment—

Senator NASH —You do realise that you can only do that with native grasses, so it rules out a significant agricultural area.

CHAIR —Senator Nash, could you let Ms Thompson finish.

Senator NASH —They are very long answers and it is important that I get this in sequence.

CHAIR —I am happy for you to do that, but you should be fair with the witness and let her answer. Then you can ask any other question.

Senator NASH —I am very happy for her to answer my specific questions and to add anything else that she would like to.

Ms Thompson —I have heard some people say that it will only work if you use native grasses. I understand that others have a different view. I guess this goes to the point that we were making earlier that views about the potential for soil carbon and the sorts of activities that you can do to increase it do vary quite markedly amongst experts. It is one of those issues that I think will be really good to test through the carbon farming initiative.

Could I just go on and pick up your point about the methodologies. What I am trying to convey here is not so much whether or not people have a reasonable handle on the sorts of activities that you can use to increase carbon in your soil—although there are, as we are saying, some differences of view on that also. What we are really talking about is the need for people to come forward and provide an actual methodology or a mechanism to measure the carbon that is being built up in the soil. Again, views differ about the level of scientific research that is needed to underpin that. But what the department are doing to assist with that effort is that we have set up the group of technical experts and other stakeholders that we are working with, and we are very optimistic that over the next few months we will be able to come forward with a methodology that people will be able to use for soil carbon.

Senator NASH —When you say methodology to measure, I thought the methodology related to the practices that were going to be used to increase the carbon storage. The measurement is fairly straightforward, isn’t it? It has either increased or it hasn’t.

Ms Thompson —There is probably a bit more uncertainty around it than that suggests. In fact, what the methodologies will need to do is to set the baseline against which you will measure the increases in soil carbon. You are exactly right: you will need to say what management actions you are intending to take to increase your levels of soil carbon. You will also need to show how you are going to measure the soil carbon building in your soil. You will also need to give some thought to an averaging approach to ensure that soil carbon is in fact being sequestered permanently. What that means is that you will have to give some thought to the likelihood of carbon being lost from the soil over time and how you plan to deal with that. The idea with our approach to soil and carbon farming means that you will be able to apply an averaging approach across the whole project that will allow you to have some flexibility, both spatially and temporally, in terms of some possible losses from your soil. All of those things will need to be captured by the methodologies.

Senator NASH —No wonder you do not have a methodology yet! Can I take you to something I am a little curious about. In the explanatory memorandum in relation to the common practice issue, at 5.57 it says:

Increases in emissions can be the direct result of carrying out the project and within the control of the project proponent. For example, soil carbon can be enhanced by increasing use of nitrogen fertiliser, but there could be increased emissions of nitrous oxide associated with this activity.

Obviously that is talking about the leakage. But use of nitrogen fertiliser I would assume would be a glaringly obvious common practice. Reading that it is considering that as a way to increase the carbon.

Ms Stuart-Fox —It was really just an example of how leakage works. There is no implication here that that would be something that would be an eligible activity. It was just trying to explain the concept of leakage rather than suggesting that that is an abatement practice that might be credited under the CFI.

Senator NASH —But it says:

For example, soil carbon can be enhanced by increasing use of nitrogen fertiliser, but there could be increased emissions of nitrous oxide associated with this activity. The methodology guidelines indicate that such increases should be accounted for as part of the project.

That indicates to me that—

Ms Thompson —What I think we are wrestling with here is not as Ms Stuart-Fox was saying an issue related to common practice. What we are looking at is the unintended consequence of taking action to increase the carbon in your soil and that resulting in, if you like, a further emission of another greenhouse gas that needs to be accounted for in your project design. If you did not account for that then you would get an unintended increase in emissions that would not be desirable.

Senator NASH —I understand the principle of what you are trying to say and that is not what I am aiming at at all. It is probably less clumsy to use something that is actually going to be excluded for a project.

Ms Thompson —We are very happy to take feedback on our drafting on that and we will certainly bear that in mind.

Senator NASH —I think that would be quite useful because that relates to things like anhydrous ammonia, MAP and DAP, which are all in common use. In terms of the land use, there has been a lot of comment around potential change of land use from food production to trees and forestry. When I say food production I mean that separate from prime agricultural land, which is a different issue. I am talking about food production on land. I know that has been noted as part of the legislation and is explained in the EM, and that the government is going to monitor the implications of the scheme for regional communities—whether there is evidence that projects are likely to have a material and adverse impact on the allocation of prime agricultural land, water availability or biodiversity. But what will be the definition of a ‘material or adverse impact’?

Ms Thompson —I think you have landed on the sort of future looking review approach to dealing with these adverse impacts. What the government has also said is that in regulation we will establish a negative list of activities that have a very high risk of leading to perverse or unintended environmental consequences and that we will be working to consult with stakeholders to establish, in regulation, a list of activities that are effectively banned for carbon farming. We see that as the key vehicle by which we will prevent the sorts of unintended consequences that you are alluding to. The provision for a review to look at material impacts down the track is, if you like, a second order safeguard. In fact, it is the negative list approach that we do see as the key vehicle for ensuring that these sorts of adverse impacts that you are alluding to do not occur.

Senator NASH —If the minister must, as it says in the legislation, have regard to whether there is a significant risk, what confidence can stakeholders have that the minister’s view of adverse impact is going to be the same as stakeholders? My point is that if there are stakeholders in the community who believe the advent of this is creating some serious consequences, foreseen or unforeseen, but the minister does not share that view, then we are already stuck with the process, aren’t we?

Ms Thompson —I think my answer to that is that stakeholders who have a strong concern about potential adverse impacts will have had the opportunity to participate in the process for compiling this negative list. They will have a very direct opportunity to consult with the government on preparing this quite certain vehicle for ensuring that certain things do not happen.

I would like to take the opportunity to pick up on some of the points that were made by earlier witnesses about the regional plans. The intent of including the reference to them in the carbon farming legislative package and the reference that proponents will need to take account of the regional plans is not so much a regulatory barrier as a mechanism by which local communities can engage with their catchment authorities or relevant body and have their say in terms of talking about that sort of decision making for their local communities. We absolutely take the point that at this time the plans do vary quite a bit in terms of how they deal with climate change mitigation options and with adaptation. For that reason, the government has said that it is keen to work with key stakeholders on ways in which the plans could be improved. We are looking to have a workshop in early June with a number of the key stakeholders, including representatives from the catchment boards, to really look at how the plans can be improved to deal more explicitly with carbon farming, and for the first time looking to explicitly weave in actions to deal with the impacts of climate change as well.

Senator NASH —When are we going to see the regulations that the minister will use to develop this list of things with a significant adverse impact?

Ms Thompson —The department has started work preparing those regulations and we will look to be consulting with people on them very soon.

Senator NASH —Time line?

Ms Thompson —Very soon.

Senator NASH —Before the legislation comes to the Senate?

Ms Thompson —I can only say at this point that we are working very hard on it and that we are looking to get it moving very soon.

Senator NASH —The reason I ask is that if we do not see the regulations before the legislation comes to the Senate then we have absolutely no idea what is going to be on that list of things of which the minister says, ‘These are things I am not going to accept.’ And that is a fairly untenable position to put the Senate in—having to make a judgment call on a piece of legislation when we do not actually know what the regulations accompanying that say.

Ms Thompson —I take that point. And for that reason the explanatory memorandum does include a number of examples that we consider would be on the negative list. I will just ask Ms Stuart-Fox if she could perhaps take us through some of those.

Senator NASH —Could you point me to those?

Ms Stuart-Fox —It is in the chapter on coverage, and it is ‘excluded projects’ which commences 1.25. It talks about a couple of examples there. One is the conversion of plantations that are established for harvest—so short rotation harvest plantations. The conversion of those into permanent carbon sinks is something that the explanatory memorandum indicates might be on the excluded project list.

Senator COLBECK —Just on that—and we did have a bit of a debate about this earlier—are we talking about ‘that have been’ or ‘that might be’?

Ms Stuart-Fox —That could be. So one of the project types that people have suggested to us is where you have a plantation that has been established for the purposes of harvesting and, rather than harvesting, the person says, ‘No, we’ll keep it as a permanent sink in the landscape.’

Senator COLBECK —No—we had a debate earlier about where it was previously established or to be established. So that clarifies that.

Ms Stuart-Fox —It is a type of avoided deforestation project. The other one is the establishing of a reafforestation project on land that has been cleared since 2009, and that is to remove the perverse incentive that might otherwise exist for people to clear land in order to re-establish a carbon sink. It is clearly a perverse outcome for biodiversity, potentially. And there is also the potential to exclude, in some particularly overallocated catchments, establishing environmental plantings where there are particular concerns about water interception. So I think the expectation is that the negative list, or the list of excluded projects, will be specific to regions, noting the constitutional issues there. You would have to describe it in terms of environmental circumstances or conditions. So rather than project types that are excluded across the country, you might say, ‘in these circumstances’. So, for example, where you have a particularly overallocated catchment, establishing plantings that might intercept additional water might be excluded. So we expect it to be quite refined.

Ms Thompson —And actually this is picking up on a point I think Senator Milne was making with the previous witness—that we do see that the negative list could in fact be quite ramified in terms of what can and cannot be allowed in certain particular areas with certain environmental conditions. So I actually think it has the potential to be a very effective and quite granular tool for addressing the potential for adverse impacts.

Senator NASH —The water interception issue is quite a significant one that has not been raised much. But just before I get onto that: I understand what you are saying about the project and that is fine, but that sounds very specific to certain things. What about the impact on a region of the change in land use practices? So within all of that, how would you see land use change from food production to trees, to forestry, which may well have untoward consequences? How would that be addressed in the context of what you are saying those other very direct projects have not?

Ms Stuart-Fox —The excluded project list makes explicit reference to impacts on regional communities, and that was done precisely to be able to pick up the sorts of impacts that you are talking about. So where it became apparent that, in a particular region or area, there were impacts on regional communities—employment, perhaps, or food production—then you might be able to exclude the types of projects that were having that impact.

Senator NASH —But, at the end of the day, it is going to be up to the minister’s discretion, really, isn’t it?

Ms Thompson —Well, sorry, Senator, I think that what—

Senator NASH —I just want to clarify that, Ms Thompson. In the legislation it says that the minister must have regard to whether there is a significant risk that that kind of project will have a significant adverse impact. So I am only going from what the legislation says: it will come back to the minister.

Ms Thompson —Obviously, actually making a regulation and bringing it into the parliament is something for the government of the day. But, as we have been saying, the proposal is that we consult very widely on it. We have consulted very widely and, I think, very effectively on carbon farming. We have had more than 280 submissions, we have met with more than 100 organisations and groups and we have had a lot of feedback from stakeholders that the consultation process has been very effective. In fact, as I mention in my statement, we have made a number of improvements to the bill as a result of consultation with stakeholders. I think when we say there is a genuine commitment to consult on this list, then that is what will happen.

Senator NASH —I do not have any disagreement at all about the level of consultation or about whether you are planning to have it; it is the decisions that are made post that consultation that are important. I would say that a number of submissions we have got still raise a significant concerns about the construct of the legislation. The consultation may well have been very effective, but there are still a number of concerns here that suggest that perhaps the consultation process has not addressed as well as it might. That is just from the submissions and the evidence that has come forward.

CHAIR —Senator, perhaps you could wind up.

Senator NASH —I have a lot of other questions, which I will put on notice. But in terms of the $45.6 million funding over four years, how are those figures for the cost of the program arrived at?

Ms Thompson —My understanding is that that was part of the government’s election commitment process.

Senator NASH —I love that answer. I understand that entirely. There is $4.4 million in 2010-11, $16.1 million in 2011-12, $13.1 million in 2012-13 and $11.9 million in 2013-14. How was that breakdown arrived at?

Ms Thompson —What that reflects is the funding that will be needed to set up the carbon farming administrator and also to do some of the work that is being done on the methodologies and so forth. In addition, there is funding for the communications effort that DAFF is leading, with Landcare facilitators and others. Mr Gibbs may want to say a few words on that.

Senator NASH —Could you on notice just give us a detailed breakdown, for each of those forward years, of what those amounts will be spent on. Mr Gibbs, I think $4 million is to be spent on providing information about the scheme via Landcare. I am happy for you to take on notice as well exactly how that $4 million will be spent through Landcare to put that information out there.

Mr Gibbs —I will take that on notice.

Senator NASH —Thank you, Chair. I will come back if there is time.

Senator MILNE —There is so much here and it is a long day. I will start with this document, which I have not had a chance to look at adequately, but I note here that you mentioned in your introductory remarks—and I am looking at ‘forest management and revegetation’ under article 3.4—you have left that blank, saying that you need to do more work on that.

Ms Thompson —Yes.

Senator MILNE —From that, I am assuming that you are not giving any indicative assessment of abatement at this stage under that section. When can we expect some sort of indicative estimate of abatement in 2020? Under article 3.4, can we have an assumption based on opting in?

Ms Thompson —Could I just ask you to clarify what you mean by ‘opting in’?

Senator MILNE —At the moment, because we have not opted in to forest management under article 3.4, there is no Kyoto-compliant credit access for protecting native forests. In the event that we did opt in to article 3.4, there would be. Therefore the levels would be Kyoto compliant and the levels of abatement are vastly different. I am just asking: when are we likely to get some sort of figures around the levels of abatement we are talking about?

Ms Thompson —As you say, Senator, that is something that we are working on and we will look to do something on that soon.

Senator MILNE —What does ‘soon’ mean?

Ms Thompson —I would hesitate to be much more precise, but ‘soon’ reflects the fact that we are working on it and we would look to get something out soon.

Senator MILNE —‘Soon’ is an interesting notion. The next one is in regard to creating credits from regeneration, in other words a decision to end the re-clearance of land. I am thinking particularly of Queensland and New South Wales—a rangeland type scenario. I am assuming from your list here that you are seeing that as a relatively small volume of credits. Can you tell me: what is the theoretical maximum and what are the assumptions about why it is this relatively small number?

Ms Thompson —I might ask my colleague Mr Searson to take us through some of that material.

Mr Searson —Senator, are you talking about regrowth on deforested land?

Senator MILNE —Yes. I am talking about farmers who periodically re-clear in those areas, every 20 years or so, and they make a decision that they will not re-clear and therefore aim to be credited with that. I am asking what is the potential volume in the best-case scenario. In your list here, can you take me to the figure you estimate?

Mr Searson —We have combined regrowth on deforested land with avoided deforestation into one estimate—

Senator MILNE —Can we separate those, because they are two different things? Can you give me a number for both of those things? One is the re-clearance and the other is deforestation where you are converting an existing forest for the first time.

Mr Searson —It could be done, but that is not the way we have done it.

Ms Thompson —One of the challenges with that analysis is that in some cases the management actions are very similar. The management action might be something like fencing off, removing stock or whatever. We felt that it made the analysis easier to combine the two. Then we could give a figure for that. If, however, there is a policy interest in looking at re-clearing versus clearing of never-before cleared vegetation, then that is not the analytic task we set ourselves; but we could go away and have another look at that.

Senator MILNE —If you would, because I am interested in the basis on which you might get a reference level in relation to the creation of avoided deforestation credits. Is it the historical rate of logging? And wouldn’t that be influenced by the level of panic clearing? Because of things in the past it might actually be an inflated level of clearance than otherwise might have been the case.

Ms Thompson —We can take that away and have another look at that.

Senator COLBECK —On the question about the separation, when you do that could you give a definition of what you mean by ‘never-before cleared forest’? That actually does have some significant implications on the calculation. Never-before cleared forest is effectively old-growth forest, and there are a whole series of classifications down the line from that. I am not trying to complicate the argument, but there may be other implications that flow from it.

Ms Thompson —We are happy to take that on notice and have a look at it.

Senator MILNE —You mentioned in relation to plantations—and this is the vexed issue—in answer to a question from Senator Colbeck, Ms Stuart-Fox, you said that it is not just a plantation which has previously been planted for wood production—an MIS plantation, for example. It is any plantation that is planted for wood production then or now or in the future. Is that correct, on the negative list?

Ms Stuart-Fox —What we have said in the Explanatory Memorandum about the conversion of harvest plantations established for harvest, whether under MIS or under some other type of structure, is that keeping those as carbon stores has a lot of problems associated with it.

Senator MILNE —We accept that. That is what is already done yesterday or before; so I am talking about tomorrow.

Senator COLBECK —That is the question I asked.

Senator MILNE —Yes, I am just getting clarity because the answer was ‘could’.

Senator COLBECK —No, the answer was that it was out.

Ms Stuart-Fox —Yes. There are no time limits proposed here that it would be only past plantations, not future plantations.

Senator MILNE —I wanted to absolutely clarify that. Ms Thompson, you said that there might be some circumstances in which hardwood plantations may qualify. I am assuming from that that you are talking about changing the rotation lengths. What did you mean by that? Does that mean that forest agencies who have currently got hardwood plantations in for harvest, that would have harvested them, that would have come under the definition of a plantation forest, would now be able to get into this if they changed the length of rotation?

Ms Thompson —That is a good question. What I was alluding to was a hypothetical whereby you could envisage some circumstances where a commercial forestry might meet the common practice test. In terms of that applying on a retrospective basis, my colleague can comment.

Ms Stuart-Fox —It would seem very difficult to argue that something that has occurred in the past without any CFI incentive is not business as usual, since it has actually occurred. One example of a long rotation plantation—the sort of activity that is not occurring at the moment and for which CFI incentives could be provided—is establishing sandalwood plantations in parts of WA. It is not happening at the moment but it is an activity that people have identified as something that could happen if there were carbon incentives for it. So there you are selling multiple benefits. The sandalwood is something that could have a commercial application. It is not commercially viable at the moment. CFI credits could make it something that happens.

Senator MILNE —To go back to the question on the reference levels to underpin crediting avoided deforestation, can you give me something specific about what you are thinking about setting that reference level to underpin crediting avoided deforestation?

Ms Thompson —I am not quite clear what you mean by a reference level?

Senator MILNE —On what basis will you set that to calculate the creation of avoided deforestation credits?

Ms Thompson —It will be a matter of settling a methodology and then applying it. Part of the methodology will be looking at the baseline and the carbon stocks that are already there. It would then be looking at the management action in terms of what the proponent is planning to do to increase the carbon stocks on the land. There would also need to be something that is on the positive list for additionality. Are they the sorts of things?

Senator MILNE —So when will we get a set of what might constitute that calculation for the reference level?

Ms Thompson —Are you asking, in terms of avoided deforestation, about the actual abatement estimate that we are looking at?

Senator MILNE —I cannot work out what it could be until I know what the reference level is as to how you would calculate the creation of the avoided deforestation credit. On what basis would you start?

Ms Thompson —As with all sorts of offsets projects, you would need to look at what the business as usual baseline for the land and the carbon stocks would be in the absence of the project. That is the first step.

Senator MILNE —That is why I made the point that those historical levels might well be inflated as a result of panic clearing depending on the period of time. So what I am getting at here is that there are some areas where we know the increase was substantial and not driven by anything other than panic about changes.

Ms Thompson —And the legislation has something on that.

Ms Stuart-Fox —You are absolutely right. We have had some initial conversations with some groups of stakeholders about the way that we might think about baselines for avoided deforestation. We would agree that there are a number of problems with using historic data as a basis for those baselines. So what you think will or will not be cleared into the future is probably a better indication or a better basis for a baseline than historic data.

Senator MILNE —Okay. I will come back to you on that.

Senator COLBECK —But would that sort of detail be something that would be built into the project plan and design, for example?

Ms Stuart-Fox —It is part of the methodology for avoided deforestation.

Ms Thompson —Which would have to be assessed by the Domestic Offsets Integrity Committee.

Senator MILNE —One of the issues that has been raised consistently during the day by various groups is the concern about the unfairness to people who have already done the right thing—whether it is Indigenous protected areas or private landholders who might have put a covenant on their land et cetera—and who will not benefit. In the case of some Indigenous communities, they may have entered into some agreement with a government grant or agency about savanna burning et cetera and, having done that, they have effectively given up their carbon rights into the future because there is not additionality. What are we going to do about the chilling impact of that? Why would anybody in the future want to protect anything and, if they are effectively giving up their carbon rights by doing so, why would we actually get a reverse where people take things out of covenants and so on? In relation to that same thing, why will we not see local governments and state governments repealing land clearance provisions and maybe some local government planning—zonings or whatever else—because people will be saying, ‘As long as that stands there I cannot benefit, but if you repeal that I can get a financial benefit from now engaging.’ So it actually reverses the trend towards being better.

Ms Thompson —There is a lot in there. With respect to the Indigenous communities and support that they are already receiving from various levels of government, what we have been saying to them is, ‘If you are getting support through an existing initiative what we would be looking at is whether in fact you are already being paid for 100 per cent of the activity.’ In most cases the support they are receiving is for a human resource or an officer to do certain things. So in that example if that person were to take on as new duties, as a result of carbon farming, working on action to reduce emissions from savanna burning then we do not see that there would be any barrier to them being able to do that.

With respect to the land covenanting issue, we have been working with a number of the NGO groups to look at ways that they can take action to further enhance the carbon that is on the land even if it has already been covenanted for a biodiversity reason. So we are talking to a number of groups on that front and I think there is a number of ways forward on that.

In terms of the issue you raised with respect to creating an incentive for people to stop regulating or wind back regulation, I guess that would be one of the things that the government would need to keep under review in terms of the review for carbon farming legislation that is scheduled for 2014. I would note, though, that a lot of the legislation that is in place has been put there to try and address a range of environmental or natural resource management outcomes, and you would be then wanting to look at the extent to which carbon farming—which is a voluntary activity—would deliver you the certainty that regulation that is geared to addressing a range of different environmental or NRM outcomes is actually doing so. So I suppose I am wondering about the likelihood of that actually happening.

Senator MILNE —Well, I think it is happening in Victoria as we speak, so I think it is going to happen. The question I would ask is: what recourse is the Commonwealth going to have, because it seems to me that the actions have to be consistent with state and local regulations—and that is right; it does. But if those regulations are repealed in order to confer a financial benefit or whatever, the Commonwealth, it seems, has no recourse here. That is what I am trying to ask: where is it built into the legislation that the Commonwealth has some recourse in relation to this?

I guess the wider governance issue is the one we raised earlier, collectively around the room, and that is: with NRM plans, I heard you say that there is going to be a conference or something in June or July, to look at some standardising of those, presumably. But they are so different in quality around the country that it seems to me there needs to be a lot of money spent. And the legislation only says ‘has to take account of’; what does that mean? So I am very concerned that there is such unevenness around the country in the quality of the NRM plans and the differences in local and state regulatory environments, and there is really no Commonwealth power here to do anything for local and state government in relation to that or indeed taking account of the NRM plans. So can you just run me through the governance, because I know that in Tasmania it is vastly different, at a local government or a state level, in terms of what you are permitted to clear and so on, from other places.

Senator COLBECK —Can I just add to that by asking where land cleared since 2009 comes in the context of this? I thought you made a comment about that earlier—that that was one of the restrictions around the process. I just thought that would have been a factor in what Senator Milne was talking about.

Ms Stuart-Fox —The 2009 was just because you have to set a date at some time in the past. So, in terms of what that exact date should be, the important thing is that it is in the past so that it does not generate a perverse incentive. That is perhaps a mechanism that you could use to address the issue that Senator Milne raises, where you could actually exclude a project or could remove the perverse incentive to undertake projects if you have had a removal of regulation by including those types of projects on the negative list in the way that we are proposing to do for reafforestation. So I think there is a mechanism there within the legislation.

Ms Thompson —Just to come back to the NRM plan: I think one of the things that is important to acknowledge is that the Commonwealth is in the midst of a review of Caring for our Country, and Caring for our Country is the program that supports the catchments and the preparation of the regional plans. So this work that is kicking off with this workshop or forum is to look at ways to assist the catchment management groups in terms of the work they will be doing on their plans to enhance the plans to address these issues. I would say, though, that we see the NRM plans as vehicles for communities to have their say about what is going on in the catchments. We see the negative list as the vehicle by which we look to address the potential for the perverse outcomes as a result of some of these activities and, as I was trying to explain earlier, we think it can be quite an effective and granulated approach to dealing with those sorts of concerns because we would acknowledge that state and local government regulation around land use planning and so forth does vary around the country—as indeed the plans do, although we do see them as an important vehicle for community engagement going forward. But we do see the negative list as really the vehicle for addressing these things.

Senator MILNE —Going to the question of why anybody would covenant something in the future, because there is no reward for it. Some of the areas I am talking about are pristine native forests. So let us assume I am a generous and rich soul and I can go and buy a couple of hundred thousand hectares of native forest somewhere. There is really not much potential if it is relatively pristine. It is probably reaching its carbon-carrying capacity. Is there going to be potential to access funds to manage that area to maintain the level of stored carbon and to report on that, et cetera, and actually get some management dollars into that, so you would be looking at weeds, feral animals, fencing, fire and whatever else you might be doing. Is there going to be any capacity to assist people in that way?

Ms Stuart-Fox —There are two separate issues. I think the short answer to your question is that we envisage that there would be. There is a difference between covenants that might have been put on land, say 10 years ago, arguing that that activity would struggle to meet an additionality test. It is clearly business as usual. It happened a long time ago. For people who have those covenants placed in the past, we see the main opportunity there being enhancing carbon in those areas that are already protected.

In terms of protecting areas into the future, that seems to be an activity that is not common, that is delivering an additional environmental benefit, that is protecting an area that might otherwise be cleared, and that is precisely the sort of activity that you might have on the additionality list and that might be eligible under the CFI.

Senator MILNE —I think you are going to struggle to persuade people that it is a fair system in that context. There has got to be some stopping at it somewhere. I cannot think of what it needs to be, but there has to be something.

Senator COLBECK —If I were a generous person who had just bought a couple of hundred thousand hectares of stuff, I would find that a lot of it had been logged and there was an enormous capacity for additionality on it.

Senator MILNE —I am talking about pristine stuff.

Senator COLBECK —That is fair enough, but I know that there has been a lot of stuff that was recently purchased that is being described as pristine and it has been pretty well worked over. This process is effectively designed and focused at a voluntary market. In that context, things that are effectively commercially focused and driven by other commercial drivers and processors are, by virtue of that, ruled out through the negative list.

Ms Thompson —No. What we have tried to do with the positive list—I actually am answering your question—

Senator COLBECK —I do not want to give you the wrong impression. A lot of these things are going to have opportunities in the circumstance that there is a Kyoto compliant carbon market. I am trying to make a distinction between the voluntary stuff that you have said that this is targeted at and what might be a commercial opportunity down the track. Obviously there would be a set of rules set up around that.

Ms Thompson —The additionality test will not rule out anything that is, in and of itself, commercially profitable. That was one of the things we tried to do.

Senator COLBECK —You need to include the negativity list in that as well.

Ms Thompson —The negative list, you are right, might in some circumstances include things that are profitable, if there is a view that the risk of a perverse outcome is such that it is not something that people want to be happening under carbon farming.

Senator COLBECK —The reason I am going down this track is that today we received evidence that this whole process has been fairly friendless. Except for a couple of witnesses, everyone has said, ‘We can’t get it and we want it; and it won’t work because of this and it won’t work because of that.’ I am trying to get a sense of what the intent behind it is. There are obvious benefits in having an opportunity to trade and to inject some funding into the rural sector, into farming, through a carbon farming process. I am supportive of that. I am just trying to get a sense of what has happened before us today—and Senator Cameron has asked some questions about it today—and how those sorts of things will fit together, where the delineation line might be and what the rationale behind that is, if you like.

Ms Thompson —Are you asking what the criteria would be for deciding whether or not something should go on the negative list?

Senator COLBECK —I suppose in a roundabout way you might be right about that.

Ms Thompson —Again, I think that is a very good question and it is something that we are working on internally. We will be looking to talk to people a bit further down the track. Could I pick up a little bit on the point that the proposal is friendless, without wanting to sound too sort of parochial about it? I did hear Greenfleet say, for example, that they were very supportive of a number of things.

Senator COLBECK —Those two witnesses were about the only ones. So you happened to be here at the right time. As I said, I support a process, but based on what I have heard today it is really tough. And then we are still deciding what the negative list is going to be and we are also still deciding on the various listing processes. We heard this morning that potential modelling on take-up is not going to be ready for a while from either CSIRO or ABARE, yet my understanding is that the government’s intention is to get this legislation passed by 30 June. You are not meeting with the NRM groups until some time in June or July. None of those things will have occurred, yet the government is saying to us, ‘Please pass this legislation by 31 June.’ I am trying to find reasons to say, ‘Yes, let’s go down that track and deal with it.’ I am just finding it hard, that is all.

Ms Thompson —I think a careful analysis of the submissions not just into this inquiry but also into the CFI bill and, indeed, the paper consultation process that proceeded it, shows that a very high number of stakeholders are very supportive of the bill. That is certainly the message that has been conveyed to us.

Senator COLBECK —It was chosen badly.

Senator NASH —Yes. You and everybody else.

CHAIR —Did you pick this, Senator Colbeck?

Senator COLBECK —I had nothing to do with it until I moved to approve the agenda this morning, chair.

Ms Thompson —Obviously, in response to an inquiry like this, people will take the opportunity to raise issues that they feel merit some further consideration. So I wonder whether some of the comments are in that spirit.

Senator COLBECK —You talked about identifying activities that are not in common use and that you are still working your way through that process. In that context, how do you deal with regional variation? Something might be a common practice in a region. It may be adapted for use in another region based on a range of interactions. How do you deal with that regional variation? If it is listed as something that is in common use in one region, is it a regional basis and how does that impact on another region that might want to pick it up and it runs up against the brick wall: ‘Oh, sorry. It’s listed as a common practice’?

Ms Thompson —Similar to what we are envisaging for the negative list or the ineligible activities, we envisage a situation whereby activities on the positive list that meet the common practice test are also quite regional or specific to particular industries or sectors and how they operate under certain local conditions. What we are saying is that the design of the list itself and the activities on it could be formulated with that in mind.

Senator COLBECK —When we were talking with your friends as part of this process, one of the concerns they had was a potential conflict of interest with NRM groups—we have talked about the variation in NRM plans; we do not need to go back there—with them as potential participants in this process but then their regional plans and that local process being, as you said, the place in which communities can have their input into this. The potential conflict of interest is their having oversight or influence over who is in the regional area as far as investment is concerned.

Ms Thompson —I must say I was a little surprise to hear that view. I would take the view that catchment management bodies and the people that serve on them are engaged in a lot of different activities in the land sector. I would presume that this issue of conflict comes up for them from time to time and that individual catchments would have mechanisms to deal with that, just as every one else who is dealing with matters that have commercial implications have conflict of interest approaches. That is not something I am expert on. I do not know whether Mr Gibbs wants to say anything further on that. I prefer to take the question on notice and we will see whether we can give you an answer.

Senator COLBECK —I think it is potentially a real issue and if you are going take it on notice, that is fine. Does there need to be something that actually deals with that as part of the process? I do not know the answer to the question; that is why I am asking it. I certainly thought it was an issue that did have some potential to manifest itself.

Ms Thompson —As I say, my presumption would be that catchment bodies have a range of arrangements to deal with conflict of interest, just as any other agency that is involved in planning and other exercises that have implications for people conducting commercial activities in the region would. As I say, this is the first time that I have heard that suggestion. So we would like to go away and do a bit of research and thinking about it.

Senator COLBECK —It did come from someone who had chaired a regional catchment group.

Ms Thompson —I certainly heard Mr Grant say it. It was an interesting point.

Senator COLBECK —You talked about the requirement in circumstances of flood or drought for repair of damage. What is the process that would be used to assess the extent of that? And how is that repair measured, oversighted or dealt with as part of the process? Or does that have to be built into your original design plans?

Ms Stuart-Fox —Do you mean the loss of carbon?

Senator COLBECK —Yes.

Ms Thompson —That is one of the provisions of the bill that would be subject to the administrator’s oversight and potentially subject to the compliance arrangements. Maya, did you want to say anything more about this?

Ms Stuart-Fox —The estimation methodology tells you how you measure the carbon or model the carbon in the landscape. What would happen after a bushfire, for example, is that you would get no further credits until your carbon stores had recovered. In most cases that regeneration will happen fairly naturally and your carbon estimation method and modelling tool should be able to tell you what the reduction in your carbon stocks have been. In that case, the project proponent would probably choose not to submit a report until after the carbon stocks had recovered and they were able to get additional credits. They would have to notify the administrator of the event, though.

Senator NASH —On soil carbon, if there is a reduction in the stocks, what is the process then? How long would a proponent have to increase that stock? How does that process work?

Ms Stuart-Fox —The re-establishment is only if there is a reduction in credited carbon stocks. But for something like soil carbon where we know that it varies on natural cycles—

Senator NASH —You have received your carbon credit unit for the increase and then your stocks decrease. How does that process work and what is the liability for the proponent?

Ms Stuart-Fox —When you do your actual crediting, you would take account of that natural variability. If you know that carbon stocks are doing this, you do not credit right up to the peak. You would credit based on the change in the long-term average carbon stocks based on the management practice. In other words, when you have a drought, you should have factored in that your carbon stocks were going to go up and down—

Senator NASH —It’s unlikely predicting one of those!

Ms Stuart-Fox —There is a reasonable predictability to those—

Senator NASH —In the hypothetical, though, that you do not get it right and that you do come in with reduced stock over one period, what is the process? What is the liability for the proponent?

Ms Stuart-Fox —The point is that because you have not credited to the peak, you have actually had more soil carbon generally than you have been credited for. If you are credited to the average, you have actually had an increase in carbon stock that in a way has offset the reduction in carbon stocks for a period of time. So in most cases there would not be a liability—there is not provision for a liability in the legislation if you have had a reduction because of a drought or a bushfire.

Senator NASH —So what happens?

Ms Stuart-Fox —You do not get any further credit until those carbon stores recover. If you changed your management practice or did something to destroy or prevent those carbon stores from being re-established then you would have an obligation to hand back credits.

Senator COLBECK —So it depends on circumstances—natural versus intended.

Ms Stuart-Fox —Yes, that is right. So if, for example, following a severe bushfire you just cleared what was left over and did not take steps to re-establish, then you would have to hand back credits. But if you allowed natural processes to regenerate and those carbon stores to recover you would not have to hand back credits. You would not get any more credits until those carbon stocks had recovered if it was still in a growth phase.

Senator COLBECK —Let us go to the circumstance that you have just described. A bushfire goes through and you do effectively go through and clear it but then replant. Is that something you should sign up to at the outset in your plan or is it something that could be decided based on the individual circumstance?

Ms Stuart-Fox —It is based on individual circumstances. So you do not have to sign up to a management plan ahead of time because no-one is quite sure what is going to happen over time. There are notifiable events: you would have to tell the administrator what reasonable steps you are taking and the administrator would say that that is fine. In some cases you might re-establish just by leaving it alone; in other cases you might have to seed.

Senator COLBECK —We have talked about the opportunity through this process to test some of the methodologies of storing carbon in soil. What are the implications where those things do not work? If you go down a track and the system you are looking to apply does not work and you make a conscious decision to go the other way or another way. In a testing circumstance how does that align with the permanence and potential liabilities?

Ms Thompson —Are you asking about a scenario whereby a proponent comes forward with a methodology that has either been developed by some private individuals or in association with the government process?

Senator COLBECK —You did talk before about the opportunity to test some of the methodologies that are being considered now for their efficacy. If not all of them work what are the implications for those that do not? Some will, and that is good.

Ms Thompson —I do think one of the strengths of the initiative is that it does give opportunities to really look very hard at the approaches being proposed and for people to respond and see whether they think they actually are going to work. The department has issued some guidance on what methodologies need to cover. In fact, we put out a draft set of guidance for consultation and we have since put out a more refined set. Proponents are already beginning to bring forward methodologies to the Domestic Offsets Integrity Committee for assessment. The committee has a process for assessing the methodologies. That process includes a six-week period for public consultation when the draft methodology will go out into the public domain and everyone will get the opportunity to have a look at it. It then comes back to the Domestic Offsets Integrity Committee for further assessment and then the committee will recommend to the minister whether the methodology should be accepted or not. In addition, with respect to soil, the department has set up this expert group that includes technical experts and stakeholders—we have people from the CSIRO involved in that effort. So I think we are doing a lot to guard against the risk that you are mentioning by going through a quite elaborate process for developing these methodologies.

Senator COLBECK —That brings me back to the question from Senator Nash that I interjected on, and the chair instructed you to ignore, which was on entry costs. You were willing to respond.

Ms Thompson —I think it is quite difficult to work out the sorts of costs associated with carbon farming. We do not know of any other scheme whereby the government is doing such a lot to support the process in terms of developing the methodologies. The other point to note is that because it is a legislative scheme and because we have scheme-wide arrangements, like for permanence, the costs that need to be borne by the individual project proponents are much lower. One comparator possibly is the voluntary carbon standard, which I understand actually requires proponents to have a two-step verification process before they submit their methodology. With carbon farming the government has set up a lot of infrastructure and arrangements to assist people with all of that. Until we start getting some projects on the ground and see how the market responds to the incentive that we are putting in place, it is quite difficult to work out the sorts of transaction costs.

Senator COLBECK —Again, I am responding to some evidence that we had earlier in the day that indicated to us that that could be an inhibitor to that. We had several who said that the bill is not going to achieve what it set out to achieve. That is one of the reasons it was put on the table. Thanks for your response; that is fair enough. Finally, going to the discount factor at five per cent, we heard evidence from others—Greenpeace was one—indicating that that should be 50 per cent. I am getting to the rationale of setting it at that level. I think the discussion we had with Greenpeace and the Green Institute was that there is a range of settings that exist in other jurisdictions. I am trying to get a sense around where that lies and the safety of the margin.

Ms Stuart-Fox —The very high discount rates, for example under the voluntary carbon standard, exist because under that scheme there is no legislation underpinning it. So if you lose carbon for whatever reason you have absolutely no mechanism for getting it back. So you withhold a lot of the credits upfront. In this scheme, because there is actually a legislative requirement to re-establish carbon stores if they are lost following a drought or bushfire or some other natural disturbance, and there are provisions for averaging and other legislative provisions in the scheme for compliance and auditing and things like that, you have a much higher level of certainty around keeping the carbon permanently and re-establishing it if it is lost. So you are able to have a much smaller buffer, which is of course a benefit to people doing projects.

Senator COLBECK —The Carbon Farmers of Australia said this morning that the permanence requirement at 100 years was a deal breaker for it and would inhibit investment into the system. What is your response to that?

Ms Thompson —The challenge with permanence is, of course, that if carbon is reversed back into the atmosphere then you are not getting an emissions reduction or an abatement benefit. As I said earlier, carbon farming was designed for the voluntary market, and clearly this issue of permanence is a deal breaker for people who want to purchase carbon credits for carbon neutrality and other purposes. We are aware that some people believe that the permanence obligation is going to act as a significant barrier.

Our sense, though, is that it is an absolutely essential part of the environmental integrity of the scheme. And, again, I would note that other stakeholders have come forward—as did Greenfleet in front of you this afternoon—and said that they thought that it was perfectly fine and quite sensible. So again this is an area where there are differences of views among stakeholders.

Senator COLBECK —We had a discussion about the basis of 100 years being the life cycle of CO2. I did read somewhere—and I cannot think whose submission it was in—that it was not 100 but 55 years. Do you have any information on that?

Ms Thompson —Sorry?

Senator COLBECK —It was not 100 years but 55 years that was the life cycle of CO2; that was listed in one of the submissions. I am sorry that I cannot reference it for you.

Ms Thompson —I am sorry but I am not aware of that particular submission. Generally, though, as to the global warming potential of CO2 in the atmosphere, most people would accept that it lasts for 100 years. But, just to pick up on this issue of the time frame for permanence: really, what we are saying is that, in effect, it needs to be permanent. When we first began the business of consulting with stakeholders on permanence, people were of the view that 100 years was preferable to a requirement that the obligation lasts in perpetuity, and most offset schemes take the view that 100 years is an entirely reasonable proxy for permanence. So that is why we have adopted it in this case.

Senator COLBECK —It was the submission from Carbon Farmers of Australia which said:

The EcoSecurities analysts calculate that removing a tonne of C O2 and holding it for 55 years is sufficient to counteract its effect on Global Warming.

It went on to say:

The IPCC uses 20, 100 and 500 year periods in much of its analysis.

I was just interested in the basis for the 100 years. I have seen some other stuff that talks about that, but this was a specific thing that talked about a very different time frame.

CHAIR —Senator Fisher?

Senator FISHER —Thank you all. The objects of the act are listed in terms of ‘first’, ‘second’ and ‘third’. What is the policy reason behind that drafting? Are they listed in order of priority? Is any one more important than another?

Ms Stuart-Fox —They all apply equally. There is no priority. So, in terms of the way they operate within the legislation, there is no lower priority given to it just because it is listed third.

Senator FISHER —Then why does it say ‘the first object’, ‘the second object’, ‘the third object’? I am not familiar with many bits of legislation that do that.

Ms Thompson —I think it was really just reflecting the way they appear on the page.

Senator FISHER —Well, with respect, it would be unusual to state the bleeding obvious, if that be the case, in a bit of legislation. Can you get back to the committee on that issue? What is the purpose of the words ‘first’, ‘second’ and ‘third’ if not to prioritise the objects in some form of ranking?

Ms Thompson —I think it is just to give a numerical list.

Senator FISHER —But they are in a list according to the numbering of the section. You have got words as well as numbers, in other words. Why do you need the words when the numbers are there?

Ms Thompson —I think it was just a function of the drafting of the bill and the explanatory memorandum. I am able to advise you quite definitively that there was no more to it than that.

Senator FISHER —All right then; thank you. In respect of the so-called third object—and I hear you saying that the word ‘third’ actually does not mean anything—if the third object is to increase carbon abatement in a manner that is consistent with the protection of the environment and improves resilience to the effects of climate change, will the bill achieve that? And on what basis do you say so, or not?

Ms Thompson —I am sorry, Senator, I am not quite sure I understand the question.

Senator FISHER —It is an object of the act, supposedly, to abate carbon. In the detail that I have just read out, according to the third object, that is one of the objects of the bill. Will the bill achieve that? And, if so, on what basis do say so, or not?

Ms Thompson —I think what I tried to do in my opening statement was to outline the co-benefits that we see that could accompany action to increase carbon on the land or reduce emissions from the sectors that are also working on the land.

Senator FISHER —You said ‘could’. Will they? If so, on what are you basing that claim?

Ms Thompson —There is probably not a huge debate on some of these things. It is generally accepted that various forms of abatement action in terms of avoiding deforestation will give you a range of environmental benefits that could include enhancing biodiversity, improving water quality and addressing salinity. So I think there is quite a lot of literature and other commentary that does support those sorts of findings.

Senator FISHER —Did the government ask you, in drafting this, whether this legislation would achieve its stated aims? If so, I would have thought you might have a concise statement of why and on what basis.

Ms Thompson —It is certainly our view that the carbon farming bill will achieve those objectives. Again, I am a little bit unsure as to what the intent of your questioning is.

Senator FISHER —Okay, thank you. Do you need a carbon price to achieve the so-called third object?

Ms Thompson —What we are saying is that one of the things that make the land sector unusual if not unique is that action to reduce emissions or improve carbon sequestration outcomes also has the ability to deliver a range of other environmental benefits. So, as I said earlier, there is the potential for them to improve biodiversity outcomes, address water quality and so forth.

Senator FISHER —Do you need a carbon price to achieve the third object?

Ms Thompson —What we are saying is that creating the incentive that carbon farming would deliver also would be able to deliver these other benefits. So if you are asking if there are other policy actions that the government could take to improve biodiversity, address water quality and so forth, I think the answer to that is that there is a range of programs and initiatives by the Commonwealth and the states.

Senator FISHER —That was not my question, Ms Thompson.

Ms Thompson —I am sorry but I thought you were asking whether you need a carbon price to deliver environmental outcomes and I am endeavouring to answer your question by saying that clearly there are a range of other programs and initiatives across all levels of government that seek to address these outcomes and, in fact, deliver some benefits.

Senator FISHER —That was not my question. My question was whether you need a carbon price to achieve the third object, which is to increase carbon abatement in a manner consistent with protecting the environment and improving resilience to the effects of climate change.

Ms Thompson —What we are trying to say there is that the idea with the Carbon Farming Initiative is that it will not only reduce emissions in response to the incentive created by the market mechanism but it will also deliver these other environmental benefits.

Senator FISHER —Okay, I will leave that. I am sorry, Ms Thompson, I did not hear an answer but let us leave that. The third object refers to increasing carbon abatement in a manner that ‘improves resilience to the effects of climate change’. Does the bill define climate change?

Ms Stuart-Fox —No, climate change is not defined in the bill.

Senator FISHER —Why not? Isn’t it normal to define terms in a bill? You have got a definitions section.

Ms Thompson —I think the view was that people understand what is meant by the term, climate change.

Senator FISHER —So what does it mean then as it is used in this bill, Ms Thompson? Would you find it in a dictionary if you looked it up?

Ms Thompson —I actually have not looked up the term, climate change, in the dictionary so I cannot answer that particular question. But I think most people understand that when you use the term, climate change, what you are referring to is the change in the climate that is the result of human activity, in particular burning fossil fuels for electricity and also with respect to the land sector with things like clearing native vegetation and also emissions from livestock.

Senator FISHER —If you are saying that the term, climate change, is not defined in the bill because people know what it means, why does the bill define Aboriginal peoples? I would have thought they would know what that means as much as they would know what the term, climate change, means. Why does the bill define the term, Australia? I would have thought people would know the meaning of that as much as they would know the meaning of the words, climate change. Why does the bill define Australian Police Force? I could go on but I shall not.

Ms Stuart-Fox —Because they have a particular operation or a particular definition within this piece of legislation.

Senator FISHER —Does not climate change when it is one of the three aims of this bill?

Ms Thompson —I am not sure that we can give you more of an answer than Ms Stuart-Fox has already provided on these points.

Senator FISHER —All right, it might be a bit hard to define. I refer to the proposed sections of the bill dealing with rights of inspection. In particular, I am referring to proposed section 199, on the monitoring powers of inspectors, which is preceded by proposed section 198, which says you inspect to determine whether or not the act is being complied with—which is fair enough. Why are the monitoring powers so broadly defined in proposed section 199? For example, it is giving inspectors the power to search anything on premises, any activity conducted on the premises or any document on the premises. Why are those powers not confined expressly to the aforestated purpose of determining compliance with what would be the act?

Ms Stuart-Fox —In terms of the provisions or the way that you ensure that those powers are correctly enforced, they are subject to the order of a magistrate. So in terms of the right of inspection or of the inspection powers, the project proponent would have to approve that or would have to agree to that.

Senator FISHER —Beforehand or after the event?

Ms Stuart-Fox —Before the event unless there was an order of a magistrate. So these things are subject to a warrant by a magistrate. These are standard.

Senator FISHER —I thought only in some cases.

CHAIR —We will go to Senator Milne in a second.

Senator FISHER —Yes.

Ms Stuart-Fox —No. I will take you to the enforcement chapter and to the enforcement provisions, so to 97 of the explanatory memorandum—

Senator FISHER —Proposed section 198 talks about it being in terms of a warrant.

CHAIR —Senator Fisher—

Senator FISHER —Please take it on notice, Ms Stuart-Fox.

CHAIR —Yes, take it on notice. I think that has been enough. We will go to Senator Milne.

Senator MILNE —I want to follow up the evidence given by the representatives of the Indigenous community. Quite rightly, I think, they were identifying that abatement in the landscape is a big opportunity for Indigenous Australians to see their aspirations fulfilled for engagement with a real market that provides employment opportunities and so on. The point that they made is that there is a legal minefield in relation to exclusive and non-exclusive access to land and to a whole range of things, with carbon sequestration rights being different in the various states. What they were saying is that realistically the Indigenous community is not going to be able to access benefits under this legislation until they sort out the entire legal issues, all that huge amount of issues, and that they do not have the money or the capacity to actually address this. They put to us that they needed an authority or an agency or some money or something to do that. They said that they had been engaged with the department in talking about these issues. Can you tell me how the department intends to address what is very clearly a capacity gap by a significant group of people to access the benefits?

Ms Thompson —I will get Ms Stuart-Fox in a minute to take us through the provisions in the bill and through the forward process for those issues.

CHAIR —I really do not think we have time for all that, to be honest.

Senator MILNE —I just need to know how you are going to address it.

Ms Stuart-Fox —The capacity issue is, I guess, quite a complicated challenge and it is also a challenge that a number of different government departments are involved in addressing. Certainly we are talking to both FaHCSIA and DEEWR about how we might work together to address some of those capacity issues and enable participation. So it is something that needs to be addressed in a whole-of-government way.

Senator MILNE —Is there the potential for some of the $45 million that is allocated for the Carbon Farming Initiative to assist in that manner?

Ms Thompson —The government has engaged in the Closing the Gap work so there I think what we are wanting to explore with our colleagues in other departments is the best mechanisms we can use to assist with that capacity building effort.

Senator MILNE —Okay. We might ask for a progress report at some point because I think it was a very important matter they raised with us today.

CHAIR —Ms Thompson, I want to come back to the document you tabled. I am just trying to get some clarity on this soil carbon potential. You said in your evidence between 0.5 and one megatonne by 2020.

Ms Thompson —In 2020.

CHAIR —This document says that assuming gradual uptake, it could deliver abatement of between 0.3 and 0.5 megatonnes per year by 2020.

Ms Thompson —That is correct.

CHAIR —What is the difference between them?

Ms Thompson —I believe those were the numbers I mentioned earlier. Sorry, in fact, what we have said is that we think the number will be less than 0.5 and 1. What is actually in the main body of the paper gives a bit more precision around all of that.

CHAIR —Mick Keogh from the Australian Farm Institute said that to reach 150 million tonnes per annum of carbon dioxide equivalence would be 75 million hectares. At the upside that is two tonnes of carbon dioxide equivalent per hectare per annum, or about 500 million hectares at 0.3. Have you done any analysis of this? How many hectares would be required to reach this figure?

Ms Thompson —We have not done any analysis on the work you mention. As I said earlier, our assumption was based on a million hectares being subject to the activity.

CHAIR —There have been figures of 150 million tonnes of carbon dioxide being abated over a million hectares. Is that a reasonable proposition?

Ms Thompson —As I say, the analysis we have done is on the basis that I have indicated earlier.

CHAIR —The Garnaut update has figures saying that soil carbon storage from cropped land and nitrous oxide emissions being reduced is 68 million megatonnes per year. CSIRO are saying 25. It is really quite confusing.

Ms Thompson —It is quite difficult. The abatement estimates included in Professor Garnaut’s update paper on the land sector, and that were also included in the CSIRO 2009 report that focused on Queensland, were estimates of technical potential. What that actually refers to is the biophysical capacity of the land to carry carbon; it does not relate to any particular assumptions about the incentives that you might need to drive that level of abatement. What Professor Garnaut indicated in the update paper is an estimate of potential; it is not a forecast of what could be delivered on the ground. This is one of the areas of this particular debate that does cause some confusion because people look at these very big numbers in the CSIRO report or the Garnaut update and think that is what you could get on the ground. In fact, the next step is to try to work out what abatement you can drive through an incentive like the Carbon Farming Initiative. There is obviously going to be quite a significant difference between the two.

CHAIR —We are just about out of time. Could you take on notice some further analysis of all these different figures that are out there?

Ms Thompson —Sure.

CHAIR —Thank you, you have had a long session this afternoon. That concludes today’s proceedings. I thank all the witnesses for their informative presentations. Questions on notice should be in by Friday 29 April. I declare the meeting closed.

Committee adjourned at 5.31 pm