Citola Blog
Citola Carbon Farming Initiative Stakeholder Consultation
Following an invitation from the Australian Department of Climate Change and Energy Efficiency, Citola has submitted comments in-relation to the design of the Carbon Farming Initiative (CFI) through the stakeholder consultation process. The transcript can be seen below and the corporate release can be seen HERE.
Citola Carbon Farming Initiative Products
Citola provides client access to a long-term, fixed price provision of carbon offsets (Australian Carbon Credit Units - ACCUs) eligible in the Australian Carbon Farming Initiative (CFI) and subsequent carbon price legislation.
RE: Design of the Carbon Farming Initiative (CFI) Consultation Paper
Following the invitation from the Department of Climate Change and Energy Efficiency, Citola welcomes the opportunity to respond to the design of the Carbon Farming Initiative (CFI) through the stakeholder consultation process.
Citola Group plc (“Citola”) is a UK-based public limited company with operating subsidiary Citola Resources Pty Ltd in Australia. Citola originates and manages forestry assets to produce sustainable forestry products and environmental-based commodities.
We have the following comments arising from the Design of the Carbon Farming Initiative Consultation Paper:
Re: Scheme Design Principles
Citola fundamentally agrees with the design principles.
Environmental Integrity: Environmental integrity is important to achieve positive environmental outcomes; however, it is equally important to achieve consistency with international standards and adoption by the market. The realities of the paradigm shift required as the Australian economy transforms to a 'renewable' economy is clear and broad participation needs to be driven by compliance and voluntary demand. I.E. CFI initiatives to drive adoption by farmers, Aboriginals, Torres Strait Islander’s and other land managers must be driven by large and liquid environmental markets.
Broad Participation: The CFI should consider measures included in the Carbon Pollution Reduction Scheme (CPRS) to drive adoption in the forestry/environmental sectors. The CPRS provided a mechanism for sustainable forestry models with selective harvesting and replanting to originate Australian Emission Units (AEUs). This mechanism creates a positive incentive for plantation managers and influences future management programs to incorporate sustainable practices (and meet permanence requirements). Analysis has shown that a managed plantation or forest increases the total amount of carbon sequestered by the ecosystem. Internationally, carbon forestry projects are increasingly looking to diversify risk and revenue generation through multiple project outcomes including timber, carbon and biomass. Sustainable forestry projects focused on native species occurring in the target region and consisting of ‘no clear fell’ management procedures should be included in the design principles of the CFI and able to create CFI offsets.
Re: CFI Coverage and proposal to administer NCOS eligible domestic offsets under CFI
For the development of an internationally credible program, the CFI should focus on Kyoto compliant CFI offsets developed through internationally recognised initiatives. Internationally, carbon forestry abatement is driven by Kyoto compliant reforestation/afforestation and avoided deforestation carbon offsets. These initiatives have market credibility and robustness, through internationally accepted standards and methodologies such as the Voluntary Carbon Standard, and will thrive in commodity carbon markets that are driven by economics (i.e. price volume).
Non-Kyoto compliant offsets have limited market demand because international, compliance and commodity carbon markets do not recognise the additional environmental benefits that are created (e.g. such as biodiversity conservation). Maintaining and enhancing biodiversity is crucial to our way of life and the broader ecosystem, however, demand and funding for non-Kyoto offsets should eventually become part of national environmental programs like BushBroker or BioBanking by the Victorian Department of Sustainability and Environment and the NSW Department of Environment, Climate Change and Water respectively. These initiatives are creating a framework and market for environmental products that represent positive environmental and conservation events independently of commodity carbon markets.
It is potentially misleading to propose that it is a “significant advantage” for farmers to “bring forward projects without having to first determine whether the abatement is recognised” because the advantage to farmers is only realised if there is strong demand for CFI offsets otherwise the farmer will be taking capital risk to originate the projects. Alternatively, if the farmer is originating CFI offsets on-behalf of buyers or registered agents this mitigates any advantage tied to “bringing forward projects”.
Re: Sale of Units
The incentive to originate CFI Kyoto-compliant Assigned Amount Units (AAUs) or Emissions Reduction Units (ERUs) should be encouraged by establishing a ‘carbon’ price and subsequent CPRS or emissions trading scheme. The ability to monetise CFI offsets internationally should be encouraged and the process for registering and exporting offsets to Kyoto Protocol registries streamlined for Registered Entities.
Re: Agricultural Land, Regional Communities, Biodiversity & Water
Maintaining and enhancing biodiversity is crucial to the broader ecosystem, however, demand and funding for non-Kyoto compliant offsets over the longer-term will move away from commodity markets towards other environmental markets/programs such as BushBroker or BioBanking. The government needs to encourage and incentivise compliance and voluntary demand for CFI offsets that will drive positive land-sector change and participation by farmers and buyers.
Requiring projects to obtain all regulatory approvals from all levels of government as a way of addressing community concerns about the impacts of carbon projects will be a hindrance to investment and market participation. Community concerns should be addressed through consultation, communication and transparency. To provide assurance to the market and “give buyers confidence”, the project approval process should encourage investment in the origination of CFI offsets as a saleable product. This will be driven by an established ‘carbon’ price and subsequent voluntary/compliance demand.
Re: Integrity Standards
The carbon offset market has historically comprised very ‘green’ voluntary buyers and occasional suspect (i.e. ‘cowboy’) offsets effecting market conditions. Into the future, the goal to provide buyer’s confidence through “Environmental Integrity” as a way to stimulate demand will not achieve large-scale participation so it is important that the government drive commercial and compliance adoption through an established ‘carbon’ price.
Re: Additionality Assessment
The assessment of a project for additionality can be shown at the project approval stage by meeting basic criteria namely regulatory, investment and common practise analysis (i.e. change of business-as-usual).
Re: Permanence
A risk reversal buffer provides environmental and market integrity and an additional security enhancement for investment. However, it is also important that project proponents and landowners are legally bound by Carbon Sequestration Right agreements to ensure permanent land-use change. I.E. Project proponents should not be permitted to relinquish CFI offsets if they wish to sell or use the land for alternative uses if it violates existing legal obligations established by carbon sequestration rights (or forestry right) agreements registered on-title.
A carbon maintenance provision where the onus is on the future landowner to not destroy existing carbon stores when project proponent is not transferred or “dies” creates an opportunity to ‘game’ the scheme. The carbon maintenance provision should be tied to the carbon sequestration rights agreement or equivalent (rather than the project proponent) providing the future landowner with transparency when entering into a land acquisition transaction. With the opportunity to transfer projects between entities, entities could monetise land/offsets, repatriate funds and then terminate the entity leaving the obligation to maintain carbon stores with future landowners. Associating carbon stores with an on-title agreement, carbon rights agreement or equivalent removes this occurrence.
Re: Leakage
Leakage for Kyoto-compliant afforestation/reforestation forestry initiatives should be minimal. Activities like soil carbon and avoided deforestation will have leakage concerns that should be addressed during the project design (as per VCS methodologies for land-sector projects) to mitigate leakage risk. Monitoring programs (such as those used internationally in VCS methodologies) and reporting will provide on-ground feedback and assurance of outcomes.
Re: Scheme Processes
Co-benefits: Co-benefits should be an important component of voluntary and non-Kyoto based CFI offsets to stimulate demand. However, it is important that the government drive commercial and compliance adoption through an established ‘carbon’ price and CPRS or equivalent emissions trading scheme.
Crediting Period: The crediting period should be tied to the project design, project registration and the on-going project monitoring/reporting. Projects proponents should have the option NOT obligation to review the methodology (i.e. to incorporate improvements) of the project and adapt the design accordingly. This should be independent of the crediting period as the crediting period needs to provide long-term assurance to the landowner (i.e. to implement management plan) and buyer (i.e. to develop longer-term carbon/offset strategy). A maximum crediting period of 3 years will not provide security for potential investors, project developers, buyers or landholders and will create additional overhead. This can be seen by a reforestation project example where a new planting will yield less than 10 tCO2e per Ha in the first 3 years which would not provide the required capital to meet the costs of establishment and management or provide a substantial volume to the market/buyers.
Reporting Period: With the current absence of regulation/standards for carbon-based reforestation initiatives, the CFI MUST have transitional arrangements that recognise project activities that have been developed for the predominant purpose of carbon sequestration during the interim period before the CFI commencement with a reporting period back dated to at least 1/07/2010. Otherwise, businesses that are operating in this sector will be disadvantaged for carbon projects that were developed in-good-faith during the interim period (i.e. before the CFI commencement).
The CPRS Reforestation Carbon Offset AEU Eligibility proposed that:
The number of AEUs to be specified is the number that, under the regulations, is taken to be the projected net greenhouse gases removal number for the project, reduced (but not below zero) by the sum of the following numbers:
- the number that, under the regulations, is taken to be the non-CPRS greenhouse gases removal sales number for the project;
- the number that, under the regulations, is taken to be the 2008 carbon stock number for the project.
The CPRS Reforestation Carbon Offset AEU Eligibility should be adapted to account for projects developed during the interim period (i.e. before the CFI commencement) that meet an additionality criterion. Furthermore, there are the vast resources of existing and available Kyoto compliant plantings that have been developed within Australia that have not been funded through non-CPRS greenhouse gas removal sales. The CPRS/CFI framework would provide the capital to manage and maintain these existing plantings and create more positive environmental outcomes.
Re: Methodology Approval
The methodology approval process needs to be efficient to encourage the development of projects. The process outlined by the CFI consultation paper is similar to the process used by the VCS. From experience working with VCS methodologies, it is extremely important that the methodology review process by the Domestic Offsets Integrity Committee is streamlined to encourage project development. With the VCS double-approval process, we have seen examples of projects that have been designed, costed and documented from early methodology drafts (as the approval process was longwinded) having to be completely revised based on the 2nd or final methodology version. This creates an uncertain investment environment, increases overhead and slows project development.
A database should be made available for approved methodologies which are used as the basis for project design and registration. For domestic reforestation, Australia has strong precedent for project processes with the CPRS Bill 2010 and programs such as Greenhouse Friendly. To encourage participation and uptake, registered Reforestation Entities should be able to apply approved methodologies to project design and submit projects for streamlined approval.
Conclusion
Citola welcomes the opportunity to respond to the design of the Carbon Farming Initiative through the stakeholder consultation process. Citola fundamentally agrees with the design principles, however, strongly feels that broad participation needs to be driven by compliance and voluntary demand and ultimately large and liquid environmental markets.
Signed,
Angus MacNee
CEO - Citola Group plc
Ultimately, the CFI is good
Ultimately, the CFI is good for the carbon market in Australia and Citola.
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