The Carbon Farming Initiative (CFI) allows farmers and other land managers to earn carbon credits by storing carbon or reducing greenhouse gas emissions on the land. These credits, known as Australian Carbon Credit Units (ACCUs), can be sold to people and businesses wishing to offset their emissions.
The CFI also helps rural communities and the environment supporting sustainable farming by creating incentives for landscape rehabilitation.
Participation in the CFI is voluntary; farmers and landholders can choose whether or not to be involved.
The carbon market and carbon credits
In much the same way as financial markets trade in different currencies, carbon markets trade different types of carbon credits. For example, carbon permits are generally issued by governments as part of a carbon pricing mechanism and carbon offsets are issued for abatement projects through schemes like the CFI.
Each carbon credit represents one tonne of carbon dioxide equivalents (CO2-e). Abatement from all sorts of activities, including those that reduce methane or nitrous oxide emissions, can be measured in tonnes of CO2-e. This standardisation allows the credits from different activities to be traded more easily.
Carbon credits can be traded and used to meet mandatory obligations and voluntary commitments.
Under Australia's carbon price mechanism, around 500 companies have a mandatory obligation to pay for or offset their direct emissions using certain types of carbon credits. There are other carbon price mechanisms overseas, including the European Union Emissions Trading Scheme and the New Zealand Emissions Trading Scheme.
Carbon credits are also bought by individuals and organisations wishing to voluntarily offset their emissions. This is referred to as the voluntary carbon market. Some companies choose to participate in Australia's carbon neutral program, which is administered by Low Carbon Australia. These companies estimate their carbon footprint, reduce their emissions and offset the remainder using carbon credits that comply with the Australian Government's National Carbon Offset Standard.
Carbon brokers help to market and trade carbon credits by linking suppliers and buyers. CFI credits will be financial products for the purposes of theCorporations Act 2001 and the Australian Securities and Investments Commission Act 2001. This means that carbon brokers will be regulated by these Acts, and will need to hold an Australian financial services licence to be able to provide financial advice about, or deal in, carbon credits.
Individuals selling their own carbon credits or buying credits on their own behalf do not need to hold a financial services license.
Kyoto and non-Kyoto activities
Australia has ratified the Kyoto Protocol and agreed to constrain our overall emissions. The Kyoto Protocol and other international agreements set out the rules for what emissions must be included in our greenhouse accounts, and how we should go about measuring them.
Media Release: On the 14 May 2013, the Australian Government announced that it would elect to report additional activities during the second commitment period of the Kyoto Protocol. Cropland management, grazing land management and revegetation will now be counted towards Australia’s national emissions target.
This means that Carbon Farming Initiative (CFI) credits generated from these activities will become eligible for surrender under the carbon pricing mechanism and can be sold to businesses with carbon price obligations.
Some Carbon Farming Initiative (CFI) activities are not included in our greenhouse accounts under the Kyoto Protocol and do not count towards our national target. Through the CFI, these activities can earn non-Kyoto Australian Carbon Credit Units (ACCUs).
Activities that count towards our national target include reforestation, avoided deforestation, and reducing emissions from livestock, manure, fertiliser and waste deposited in landfills before 1 July 2012. These activities can earn Kyoto ACCUs.
Kyoto ACCUs can be traded into the international compliance market established under the Kyoto Protocol. To facilitate export into these compliance markets, Kyoto ACCUs can be exchanged for an equivalent number of Kyoto units. More information about trading Kyoto ACCUs is available on the Australian National Registry of Emissions Units webpages.
ACCUs do not have an expiry date.
Australia's carbon price mechanism
Australia's carbon price mechanism commenced in July 2012 with a fixed carbon price of $23/tCO2-e, rising at 2.5 per cent per year until 2014–15. This is known as the fixed price period.
In the fixed price period, businesses can use Kyoto or compliance ACCUs to offset up to five per cent of their carbon price liabilities. Landfill operators can use Kyoto or compliance ACCUs to offset 100 per cent of their carbon price liability.
In the flexible price period, which commences in 2015, the Australian Government will allocate and auction a fixed number of carbon permits and the carbon price will be set by the market. A one-way link with the European Union’s Emissions Trading System will begin to operate on 1 July 2015.
From the start of the flexible price period, liable companies can meet up to half of their obligations using international units such as European Union Allowances (EUAs). Within this 50 per cent, they can meet 12.5 per cent of their overall obligation with Kyoto units. There is no limit on the use of ACCUs.
What carbon credits are worth
Kyoto Australian Carbon Credit Units
Companies with liabilities under the carbon price mechanism can buy CFI credits if doing so is more cost-effective than undertaking abatement within their own operations or meeting their obligations by paying the carbon price (in the fixed price period) or buying carbon credits (in the flexible price period).
This suggests that the value of ACCUs eligible to be used under the carbon price mechanism (see Australia's carbon price mechanism, above) could be around $23 during the fixed price period.