What you need to know before starting a soil carbon project – and the impact of recent reforms
Soil carbon projects hold great promise for graziers – an additional income stream whilst also improving core grazing productivity. The recently announced issuance of 151 000 ACCUs for two soil carbon projects on grazing land underlines these potential benefits.
There are however investments, risks and requirements that should be understood before entering into a soil carbon project agreement. When you are making a commitment for 25 years it is important to understand the key requirements you are signing up for.
Firstly, you need to know the fundamentals– what will it cost and when you might see returns from both carbon income and improved grazing profitability. It is also critical to understand the infrastructure and changed practices that will be needed, and if these are right your property.
Atlas Carbon’s free Cost Benefit Report and our 6 month Blueprint Program give you the information, advice and time to understand these issues.
This update focuses on the Clean Energy Regulatory (CER) requirements you need to meet under the Australian Soil Carbon Method, as well as discussing the impact of recent reforms.
Soil Carbon Projects
Below is a summary of key issues that need to be considered for grazing businesses undertaking a soil carbon project in Australia.
Agreement of all Eligible Interest Holders
A soil carbon project needs the consent of all Eligible Interest Holders including: all owners of freehold land; the lessees of land, and the State Government for public land; the financial institution which holds any mortgage on the land; and the relevant Native Title body if there is a Native Title determination.
All consents need to be provided prior to the first reporting period (generally around 5 years after Registration of a soil project) but it is prudent to secure consent earlier. Further information: Eligible interest holder consent (cleanenergyregulator.gov.au).
Who is the Project Proponent?
To Register a carbon project there needs to be a Project Proponent who can be the landholder, a carbon service provider, or both. The Proponent has the legal right to undertake a carbon project as well as the responsibility to meet the legislative requirements.
The Proponent receives carbon credits (which can be distributed as agreed) and is also responsible for returning these ACCUs if needed. The Project Proponent takes on the risk of the carbon project not being successful. A joint Proponent arrangement with the landholder and carbon service provider allows for a sharing of the rights to undertake a project and the associated risks. Further information: Choosing a project proponent for landholders (cleanenergyregulator.gov.au).
Land, costs, risk and ACCU share
Carbon sequestration projects require land – and whoever provides this, and brings the legal carbon right, should receive the majority of the ACCUs developed. A landholder can take on project risk as the Proponent, whilst paying for services and infrastructure needed to deliver the project, and receive all the ACCUs generated.
When another party takes on project risk and/or provides investment and key services to help deliver the project, a share of the ACCUs generated is often negotiated. These issues are agreed through contracts between the landholder and the carbon service provider.
Commitment to additional on-farm activities
Key to all carbon projects is additionality – that a new activity is being undertaken which will result in additional carbon storage as compared to business as usual. Under the Soil Carbon Method there are a range of Eligible Activities – with only one new activity needing to be undertaken.
Atlas Carbon projects will generally focus on grazing management but may also include other activities such as: applying nutrients; pasture improvements; and land remediation. For an activity to be counted as additional under the method, it cannot start prior to project registration, otherwise it will be considered business as usual.
For the full list of Eligible Activities see: Estimating soil organic carbon sequestration using measurement and models method(cleanenergyregulator.gov.au).
Restricted activities
There are also activities that are restricted – normally so that there is not a reduction in carbon storage or an increase in emissions. Some historical activities, such as clearing of forest in the past seven years, mean that certain areas of land cannot be included in a soil carbon project.
Other activities can only occur in specific circumstances during the life of the project such as destocking of land or disturbance of soil. Find out more: Understanding your soil carbon project - simple method guide (cleanenergyregulator.gov.au) pp30-32.
Carbon storage and reversal events
The assessments that Atlas Carbon undertakes with producers prior to commencing a soil carbon project are estimates, based on the best available information. Actual carbon storage maybe higher or lower, and can also reverse – whether it be through on-farm actions or natural events such as drought.
If ACCUs have been issued and subsequently carbon storage goes down there is a requirement to either take actions to rebuild carbon stores or return ACCUs to the Regulator. If ACCUs are not returned, the Regulator can put in place a declaration to specify what actions need to occur on a property. Find out more: Carbon maintenance obligations (cleanenergyregulator.gov.au)
Exiting a carbon project early and change in ownership
A carbon project can be exited early for a variety of reasons, but if ACCUs have been issued these will need to be returned to the Clean Energy Regulator. Change in ownership is one reason for exit, that is if the new owner does not wish to continue with the carbon project. The costs associated with ACCU return should be considered when determining the sale price. The Proponent will be responsible for the return of ACCUs but there may be agreements in place for the return of ACCUs and associated costs to be shared between parties.
Legal and financial advice
This update is a summary of key issues. Further information is provided to producers as part of Atlas Carbon’s Blueprint Program. Before starting a soil carbon project, you should seek independent legal and financial advice to inform your decision to proceed with a carbon project.
The Five Headlines You Need to Know
Now let’s look at the recent reforms and events impacting soil carbon projects, and what this may mean for you.
Major ACCU issuance for grazing soil carbon projects
- In June, the CER issued 151 312 ACCUs for two soil carbon projects on grazing land – at current prices this is over $5 million in value.
- There are hundreds of soil carbon projects registered with the CER, but these are some of the first projects to be in place long enough to allow a second soil sampling to show increased soil carbon storage.
- These projects demonstrate that soil carbon on grazing land can work and pass through the stringent requirements of the Regulator.
- Read about it: Carbon gamechanger with govt to make first large-scale issuance of soil credits - Beef Central | Listen to an interview with one of the Project Proponents, Tom Archer of Archer Pastoral, that our sister offering MaiaGrazing conducted following the announcement: How MaiaGrazing Helped Graziers The Archer Family Achieve Carbon Credits
The Safeguard Mechanism: future demand for ACCUs
- The Safeguard Mechanism is now in force and major emitters are required to either reduce their emissions or source carbon credits.
- The Clean Energy Regular stated in its quarterly report it expects demand for carbon credits to “rise materially” as facilities met the requirement to reduce net emission by 4.9% every year. Quarterly Carbon Market Report March Quarter 2023 (cleanenergyregulator.gov.au)
The Chubb Review
- The Australian Government recently published the Independent Review of Australian Carbon Credit Units - Implementation Plan June 2023 (dcceew.gov.au)
- Soil carbon is not a focus on the reforms, but the Government will prioritise the development of the Integrated Farm and Land Management method which will likely allow for soil carbon projects to be combined with vegetation management activities to store carbon.
- The Avoided Deforestation method has been revoked and projects under Human Induced Regeneration will undergo greater scrutiny.
- A range of other institutional reforms are aimed to ensure the integrity of carbon credits issued.
Government funding for carbon advice
- The Australian Government is providing $20.3million over 4 years to establish a Carbon Farming Outreach Program.
- The program will support Australian land managers to participate in carbon markets and integrate low emission technologies and practices into their operations.
- Grants are to be provided to train independent advisers and build the capacity and capability of rural and remote communities to reduce emissions and store carbon.
ACCUs as farm income
- New provisions have been enacted on Taxation of Australian carbon credit units for primary producers | Australian Taxation Office (ato.gov.au).
- Under the reforms, primary producers will be able to treat the net proceeds from the sale of ACCUs as primary production income for the purposes of the Farm Management Deposit scheme and accessing income tax averaging.
- The taxing point for ACCUs held by primary producers will also be set to the point of sale, instead of being taxed based on changes in the value of their ACCUs each income year.
Soil carbon projects hold great promise for producers, showcased by the recent issuance of over $5million worth of ACCUs for grazing projects. It's an exciting time for the industry as the Safeguard Mechanism takes effect and the demand for carbon credits continues to rise. The government's commitment to supporting land managers through funding programs and reforms to strengthen ACCU integrity demonstrates this further.